High-end fashion stores like Bergdorf Goodman on Fifth Avenue in New York City offered early holiday shopping season reductions, which sparked worries that a drab Christmas could result in inventory gluts and push labels into a downward spiral of discounting that would damage their reputation.

According to the most recent U.S. credit card statistics from Barclays, which was made public on Wednesday, luxury goods consumption decreased by 15% year over year in November, following a 14% reduction in October.

According to Barclays analysts, this performance “doesn’t bring much optimism” for the fourth quarter, with the dismal U.S. trends providing cause for concern on the performance of luxury brands during that time.

Citi credit card data, which was also made public on Wednesday, revealed that purchases of luxury clothes fell 9.6% year over year in November following a 11.4% fall in October. Declines were much more pronounced at department shops and online, where they fell 13% year over year.

According to Olivier Abtan, a consultant with Alix Partners, retailers had too much inventory going into the season. He pointed out that last year’s purchase orders were placed before the industry started to slow down following a months-long post-pandemic spending spree.

“They’ve already begun the season with overstock, compared to normal levels,” said Abtan.

Since early August, the share prices of LVMH, Kering, and Burberry have decreased by 12%, 23%, and 33%, respectively. Meanwhile, shares of e-commerce operator Farfetch have decreased by 90%, losing the majority of their value.

“We know that the U.S. consumer is going to keep being reasonable, and retailers have to adapt,” said Caroline Reyl Head of Premium Brands at Pictet Asset Management, which owns shares of LVMH.

The Middle East conflict compounded the inflation and geopolitical uncertainty already plaguing the luxury industry outlook, as consumers in the U.S. and Europe tightened their spending while the property crisis in China disrupted hopes for a robust post-pandemic resurgence.

Less money is spent during the crucial end-of-year season, which accounts for 25% of yearly sales in November and December.

“Luxury brands won’t have a good Christmas,” Abtan predicted.

Analysts at Citi estimated that department shops may experience a decline in sales over the next six to twelve months. This might pose a challenge for luxury companies that rely heavily on sales from outside their own network of boutiques.

Department shops are notorious for their aggressive discounts, which attract customers to their establishments. However, lowering prices can devalue fashion brands and make consumers want to save their money for future sales. This is especially true in the United States.

Prominent international labels, such as Hermes, the privately held Chanel, and LVMH’s Louis Vuitton and Dior, keep a firm hold on retail operations. They mostly sell through their own stores, which enables them to avoid markdowns and maintain complete control over their brand image.

According to Bain, the share of high-end labels’ direct-to-consumer sales in the personal luxury goods industry grew from 40% in 2019 to 52% in 2023.

According to analysts, fashion houses are in general far better prepared than they were during the 2008–2009 financial crisis, when there was an abrupt drop in expenditure.

Labels have used artificial intelligence to forecast sales quantities and modify production since the last crisis. They have also optimised the ratio of seasonal to more permanent trends.

According to luxury expert Mario Ortelli, the end of this year will be “a season for bargain seekers but not the markdown season of the century.”

According to Mathilde Haemmerle, a partner at Bain, technology has played a “decisive role” in preventing overstock problems. She lists several factors that AI looks at to better predict sales quantities, including trends scraped on social networks, previous sales of comparable products, and macro indices.

According to Abtan, the larger labels are also more nimble, having slashed their development times in half over the last 15 years by organising key production phases and streamlining production.

(Adapted from ApparelResources.com)