After enduring almost a quarter-trillion dollar hit to their market value in recent months, Europe’s luxury firms may see their stock-market clout wane further as China’s downturn worsens.

Once seen as Europe’s answer to the US “Magnificent Seven” tech megacaps, shares in companies producing high-end clothing, handbags and jewelry are languishing, sapped by a spending slump. Even more ominous are signs that China’s rich, who once flocked to upscale boutiques in Paris, Milan and Hong Kong, may not return, their appetite for pricey items extinguished by the economy’s downward spiral.

“This year is more volatile and more painful because it comes after this excessive growth,” Flavio Cereda, an investment manager at GAM UK Ltd. said, referring to the period immediately after the pandemic when consumers liberated from lockdowns splurged on shopping and travel.

For Britain’s iconic raincoat maker Burberry Group Plc, it’s culminating in ejection from London’s FTSE 100 stock index, with its market value down 70 percent in the past year. While it’s the only major brand to lose its index slot, an gauge of luxury shares compiled by Goldman Sachs has shed $240 billion in value from a March peak.

Gucci-owner Kering SA and Hugo Boss AG are the worst hit, shedding almost half their value in the past year. Kering, once a top 10 stock in France’s CAC 40 index, now ranks 23rd. And industry giant LVMH Moët Hennessy Louis Vuitton SE, which was Europe’s largest company by market cap a year back, has slid to second place.

The deflation of the post-pandemic spending bubble was evident in recent earnings reports. Kering, Burberry and Hugo Boss issued profit warnings, while at LVMH, quarterly organic revenue at its crucial leather-goods unit grew just 1 percent, versus 21 percent a year earlier. Only brands catering to the ultra-wealthy, such as Hermès International SCA and Brunello Cucinelli SpA, escaped the full force of the earnings downturn.

“Slower for longer”

GAM’s Cereda, who co-manages a fund investing in luxury stocks, is hopeful sales will pick up next year, at least to the “mid-single-digit” levels that he says represent the sector’s long-term trend.

But what if weaker revenue and tighter profit margins are the new normal? Some reckon that could be the case.

UBS analyst Zuzanna Pusz describes the luxury-sector outlook as “slower for longer.” Trimming her estimates for organic sales growth in 2025 and the second half of 2024, Pusz predicted that “the industry seems to be entering its own specific cycle, following a few years of a boom with high pricing.”

And newsflow around the fallout of China’s slowdown seems to back that verdict.

Tiffany & Co., LVMH’s premium jewellery brand, is seeking to halve the size of its flagship Shanghai outlet, Bloomberg reported. Hong Kong’s luxury malls, which once lured big-spending Chinese, are nearly empty. And in Switzerland, watchmakers are seeking state aid to counter dwindling exports.

Many analysts share Pusz’s view, cutting estimates for profit and share prices. Bank of America Corp.’s Ashley Wallace says consensus expectations for the second half of the year may be too high, while Morgan Stanley’s Edouard Aubin names LVMH and Richemont as particularly vulnerable to the China slowdown, reducing his share targets for the firms.

Some see a silver lining in slightly more palatable share valuations. While the MSCI Europe Textiles Apparel & Luxury Goods Index still trades at a hefty premium to the MSCI Europe gauge, it’s well off the boom-time levels of 2021.

“The sector clearly has competitive advantages longer term, so downcycles are probably the best time to invest,” Morningstar analyst Jelena Sokolova said. She sees an opportunity in Kering, predicting that strong brand recognition will enable Gucci to capitalise when the turnaround finally materializes.

GAM’s Cereda however, prefers the highest-end luxury names such as Hermès.

“You don’t want to own brands that don’t have brand heat, and you don’t really want any meaningful exposure to the aspirational consumer,” he said. “And you certainly don’t want any real exposure to the aspirational consumer in China.”

By Kit Rees. With assistance from Michael Msika.

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Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholders’ documentation guaranteeing BoF’s complete editorial independence.

Auréa, the growth capital firm founded by Jatania and former UBS, Credit Suisse and Merrill Lynch executive Paul Raphael, said it had bought all the Body Shop International’s assets, which include its UK stores and control of outposts in Australia and North America for an undisclosed sum.

It is understood the new owners, who finalised a deal late on Friday, do not plan to close any of the UK stores currently operating, which employ more than 1,300 people.

A spokesperson for Auréa said: “We believe that the stores are an important part of the brand’s connection to its customers. We will naturally monitor the footprint of the estate to make sure that we are optimising performance through that connection.”

Founded in 1976 by Anita Roddick, The Body Shop went into administration in February after its owner, Aurelius, which had bought the company for £207m three months earlier, said it could not revive the business’s fortunes. It owed creditors more than £276m at the time.

Administrators from FRP Advisory have since closed 85 shops, leaving 113 open, while almost 500 shop jobs and at least 270 office roles have been cut. Stores in most of Europe and in the US have also closed as the supply of product from the UK parent group was cut off. Most Asian outlets, which are run by franchisees, continue to operate.

Auréa said the Body Shop acquisition was its largest transaction to date and it aimed to “steer The Body Shop’s revival and reclaim its global leadership in the ethical beauty sector it pioneered”.

Jatania will serve as chair and Charles Denton, the former chief executive of the beauty brand Molton Brown, will act as chief executive.

The group is understood to be in talks with a number of providers to secure working capital for the venture. Restructuring specialist Hilco is lined up to provide £30m, according to a report by Sky News.

“Auréa will apply its investment acumen, deep industry knowledge and operational expertise to rebuild the business while honouring the heritage and values that connect the brand with its customers,” the group said in a statement.

The group already owns brands including Herbivore Botanicals, a plant-based cosmetics firm; Scandinavian Biolabs, a natural haircare product; and Decypher, which produces and sells foundation makeup.

Jatania previously ran Lornamead, which owned personal care brands including Lypsyl, Woods of Windsor, Yardley and Harmony haircare. He sold it to a rival, Li & Fung, for about £155m more than 10 years ago.

Jatania said: “With the Body Shop, we have acquired a truly iconic brand with highly engaged consumers in more than 70 markets around the world. We plan to focus relentlessly on exceeding their expectations by investing in product innovation and seamless experiences across all of the channels where customers shop while paying homage to the brand’s ethical and activist positioning.”

Denton said: “I am truly excited to lead this brand, which I have admired for many years. We recognise that revitalising the business will require bold action and a consumer-centric, commercially agile mindset. We believe there’s a sustainable future ahead and working closely with the management team we aim to restore The Body Shop’s unique, values-driven, independent spirit.”

Steve Baluchi, the director of FRP, said: “We’re pleased to be able to hand over The Body Shop to experienced new owners that have a long track record of successful retail turnarounds. They recognise the enormous value of its household name brand and have a clear vision for its future.”

This article was written by Sarah Butler from The Guardian and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.

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The Body Shop Expected to Emerge From Administration in August

Charles Denton, who leads the consortium that has entered an exclusive agreement to buy the company out of administration, said he wants to ‘change the narrative’ around the brand.

This is a bit of a bridge week for fashion month, with the tail end of New York and the start of London. In New York, Off-White has the potential to have a moment on Sunday; the brand is aiming to recalibrate its positioning and reconnect with its US fanbase after a period of poor performance. Coach’s collection will be presented on Tuesday on the High Line, though the real show may be in federal court in lower Manhattan, where parent company Tapestry will face off against the Federal Trade Commission, which is suing to block the former’s acquisition of Michael Kors owner Capri.

In London, the big story is Burberry’s first show under chief executive Joshua Schulman, but we’ll save that for next week’s newsletter. Otherwise the focus will be on the city’s many promising young designers. This season’s highlights include Olly Shinder, showing menswear as part of Fashion East on Friday, Harri, of Sam Smith inflatable jumpsuit fame, on Saturday, plus the return of Nensi Dojaka, also on Saturday. On Sept. 15, Joanna Parv shows, as does Paolo Carzana, a finalist for the LVMH Prize. (He’ll know by then if he won, as the announcement is this coming Tuesday; another finalist, Standing Ground, also shows in London, on Saturday).

Off the runway, Nike holds its shareholder meeting on Sept. 10. These are usually pretty rote affairs; shareholders have put up for vote resolutions addressing human rights issues in the company’s supply chain, as well one demanding it revamp its sustainability strategy. Such resolutions rarely succeed (and never have at Nike). This year some have the backing of a Norwegian sovereign wealth fund that is Nike’s ninth-biggest shareholder, as well as two leading proxy advisory firms.

Inditex reports first-half results on Wednesday. Shares have been hitting record highs all year, mostly thanks to Zara’s hot streak. The retailer has cemented its status in consumers’ minds as a fashion, rather than merely fast-fashion, destination, with lush campaign imagery and capsules with photographer Steven Meisel and former Saint Laurent and Zegna designer Stefano Pilati. There’s no such thing as enjoying one’s success in this business, however. H&M is in the midst of rolling out a marketing and merchandising effort meant to bring some buzz back to the retailer. Shein is pursuing a London initial public offering that would add to its already substantial war chest. Temu sales continue to rocket higher, and Amazon and Walmart are making moves to up their fashion game. Inditex has effectively used the last few years to build up a commanding lead in the sector, both in terms of sales (which are now nearly double H&M’s), and premium branding that lower-cost rivals will struggle to match.

The Week Ahead wants to hear from you! Send tips, suggestions, complaints and compliments to brian.baskin@businessoffashion.com.

Roblox has its eye on e-commerce.

The popular gaming platform and Shopify on Friday announced a global partnership that will allow creators of Roblox experiences, including the many brands on the platform, to sell physical goods directly within Roblox via Shopify’s checkout.

In a demo video, a Roblox user sees a “Buy Now” prompt next to a virtual T-shirt that calls up an e-commerce product page where they can see photos of the physical item, select colours or sizing and make their purchase. Customers will be able to pay using any method accepted in the seller’s online store, according to Shopify. Purchasing will be restricted to users 13 and older.

The companies said the integration will start to roll out soon, with a larger launch arriving in early 2025.

Shopify powers the e-commerce of numerous brands today, while Roblox has become a key venue for fashion and beauty brands looking to connect with young shoppers, or at least those with access to their parents’ credit cards. The platform boasts nearly 80 million daily active users, attracting fashion and beauty players including Gucci, Nike, Vans, Ulta and many others. Recently it has introduced features such as in-game video ads as it works towards profitability.

But Roblox ultimately wants to be a place where its users can shop as well. In April, it began testing sales of physical goods with partners including Walmart and E.l.f. Beauty. The Shopify partnership is the first of many integrations with e-commerce platforms Roblox said it is planning at the start of next year.

Eventually it anticipates developers will be able to sell just about any physical product available at a major online retailer, it said. It is also building the ability for creators to attach digital benefits to purchases and is working on tools to help manage merchandising, checkout and order confirmations within the experience.

”We believe providing users with more ways to shop on Roblox will give creators another way to deepen their connection with their communities while driving business results,” Stephanie Latham, Roblox’s vice president of global brand partnerships and advertising, said in a statement.

Learn more:

Why Fashion Loves Roblox

Tommy Hilfiger’s livestream of its NYFW show is just the latest example of fashion courting users on the platform, which is also rolling out an immersive new advertising format for brands.