Luxury’s New Era of Uncertainty
By Robert Williams, Business of Fashion
This week, Italian sneaker brand Golden Goose postponed its Milan IPO, citing volatile market conditions in the wake of European elections that registered a hard swing to far-right anti-EU parties and French President Emmanuel Macron’s move to call snap legislative elections.
Shares in the Stoxx 600 index of Europe’s leading companies dipped 5 percent as Macron’s decision plunged France, the EU’s second-biggest economy, into uncharted territory. Markets have since recovered slightly, but polls for the nation’s June 30 election continue to show Marine Le Pen’s National Rally neck-and-neck with a new coalition of France’s left and centre-left parties. Macron’s technocratic, centre-right Renaissance party is expected to be soundly beaten: the president will almost surely have to share power with one of two divergent rivals, risking political dysfunction and stagnation.
Of course, there were other challenges to Golden Goose’s IPO beyond European politics. Owner Permira had already knocked down the brand’s targeted valuation by a third in the lead up to the listing, then went on to price shares at the bottom of its forecast range.
In theory, investors are always on the lookout for the next Moncler, another high-margin, essentially mono-product luxury listing, which has repeatedly shaken off doubts about how far it can take its pricey puffers (Ultimately, revenues have multiplied five-fold since 2013, the year of its Milan IPO). But convincing markets that pre-distressed, Italian-made skate sneakers will have the same potential as Moncler became tougher as market conditions worsened, both for European stocks and European luxury goods themselves.
Golden Goose’s strong fundamentals had caught the eye of the market — the company grew 18 percent at constant exchange rates to €587 million ($628 million) last year, with an operating margin of 25 percent — and demand for shares was “well oversubscribed,” Golden Goose said. But beyond cornerstone investor Invesco, which pledged €100 million, the deal failed to attract enough support from “long-only” institutions whose stable bets could ensure a successful listing, The Financial Times reported Wednesday.
Permira also proceeded with particular caution in the wake of its Dr. Martens IPO in 2021: that brand — another essentially mono-product footwear player — has since issued 5 profit warnings as demand faded, leading shares to tumble by eighty one percent since its London debut. As a private equity firm whose vocation is to buy, develop and ultimately sell brands, Permira couldn’t risk handing investors another dud.
Caution and uncertainty reign elsewhere in the fashion market. Over a year after the lifting of Covid-19 restrictions in China, which, it was hoped, would restore a more stable dynamic in the key market, slower growth and high youth unemployment continue to depress demand, as well as an emerging sense of “luxury shame” among the wealthiest customers, Bain’s Claudia D’Arpizio said. In the US, economists see signs of slowing inflation and faster economic growth in recent months, but election-year uncertainty continues to dampen consumer confidence.
The state of affairs could be felt at menswear weeks in Florence, Milan and Paris, where most brands played it safe with heritage-focused, ultra-classic collections.
“Brands are playing defence in response to what’s happening in China and the Far East. They’re understanding it’s not just a cycle, a tough semester before new millionaires come from China to save the business again,” Emmanuele Farneti, editor-in-chief of the Italian fashion magazines d and U La Repubblica said.
Even as cautiousness and uncertainty abound, there are signs that luxury’s underlying business remains stable. This week, consultancy Bain said its 2024 forecasts for the luxury market’s growth were broadly unchanged versus its last report in November. Bain predicts the industry will grow between 0 and 4 percent at constant exchange rates, while sales could dip slightly at current exchange rates due to the deterioration of the Japanese yen.
Surging sales to Chinese customers abroad show that the “desirability of these products is still there,” Bain’s D’Arpizio said, even if domestic sales remain depressed. The possibility that Chinese authorities could hasten the pace of approving outbound visas, fuelling tourist shopping, is one potential lever for growth later this year:
Meanwhile in the US, “there’s a lot of cautiousness in the market, but there’s some hope to improve later in the year, when the political situation stabilises after the election,” D’Arpizio added.