The Long View by Vogue Business: 2023’s CEO agenda

*This article is part of our Advanced Membership package. To enjoy unlimited access to The Long View from Vogue Business and bi-monthly Market Insights Reports and webinars, sign up for Advanced Membership* [*here*](https://www.voguebusiness.com/membership)*.* Luxury has again proved its resilience in 2022, but there are clouds on the horizon for next year. Sales have been growing in the US, while Europe has been boosted by the return of American tourists, helping to offset fluctuations in China. The global [personal luxury goods market is projected to grow by an estimated 22 per cent](https://www.bain.com/about/media-center/press-releases/2022/global-luxury-goods-market-takes-2022-leap-forward-and-remains-poised--for-further-growth-despite-economic-turbulence/) in 2022, to €353 billion, according to management consultancy Bain & Company’s recent Luxury Study, created with Italian luxury goods manufacturers’ industry association, Altagamma. +++button-group [Download report now](https://voguebusiness.link/Vogue-Business-Long-View-2023-CEO-Agenda "Download report now"){: target="_blank"} +++ However, growth is expected to slow to between 3 and 8 per cent next year as economic and consumer market conditions worsen. What will this mean for luxury brands? [#image: /photos/6386301d8bd5ff57f8133604] “Competition is increasing, and the efforts required to get consumer attention are escalating,” says Luca Solca, senior analyst for luxury at consultancy Bernstein, “as the [recent changes](https://www.voguebusiness.com/fashion/guccis-gamble-the-risks-and-rewards-of-moving-on-from-michele) in some of the major creative departments testify.” Growth will not be evenly spread. According to forecasts by Morgan Stanley analyst Édouard Aubin, LVMH’s Fashion and Leather Goods division (including Louis Vuitton, Dior, Celine and Fendi) is expected to increase sales by 5 per cent in 2023, and Kering-owned Saint Laurent by 7 per cent. Hermès is expected to outperform the market, growing by 13 per cent, while Gucci, Kering’s largest brand, is forecast to decrease by 1 per cent. Against this backdrop, *Vogue Business* spoke to luxury CEOs and analysts to better understand the priorities going into the new year. Gaining market share while protecting margins is certainly top of mind, as is preparing for China’s hoped-for reopening and the expected normalisation of growth in the US and Europe. [#image: /photos/6386306da0256a29eb0b8cfd] ## **China’s reopening** Luxury was hard hit by China’s zero-Covid policy in 2022. Rolling lockdowns have forced store closures, delayed production, and hit Chinese consumer confidence. There was hope that restrictions might be eased following the Chinese Communist Party’s National Congress in October, but the country kept to its strict policy and a [spike in Covid cases](https://www.voguebusiness.com/consumers/luxury-braces-as-china-hits-new-covid-record) in November saw another crackdown. Some blue-chip brands, such as [Hermès](https://www.voguebusiness.com/companies/hermes-sales-beat-expectations-on-china-rebound-and-luxury-resilience) and [Moncler,](https://www.voguebusiness.com/companies/moncler-plans-price-increases-bracing-for-energy-crisis) defied the odds to post growth in China in the third quarter. At the more aspirational end of the market, [Capri Holdings](https://www.voguebusiness.com/companies/capri-lowers-forecast-based-on-china-inflation-and-energy-crisis-concerns) and [Tapestry](https://www.voguebusiness.com/companies/tapestry-lowers-forecast-on-slow-china-recovery-and-strong-us-dollar) are among those to have lowered their full-year outlooks as sales in the region slowed. By the end of November, the country was at a tipping point. As infections surged to record levels, protests broke out over the zero-Covid policy. State-owned newspaper *People’s Daily* ran a front-page [op-ed](http://en.people.cn/n3/2022/1128/c90000-10176942.html) on 28 November arguing the case for making the latest round of Covid controls more targeted. Still, there is optimism: analysts and economists expect China to ease the restrictions and start to reopen its borders in the spring of 2023. Luxury executives are preparing for a return to growth when this happens. Meanwhile, quarantine for inbound travellers to Hong Kong has been lifted, and restrictions there relaxed. “As restrictions loosen in greater China and Asia Pacific, we see promising signs in terms of consumer sentiment and sales,” says Siddhartha Shukla, deputy manager of the [Lanvin brand](https://www.voguebusiness.com/companies/inside-lanvins-reboot), which is owned by China-based Lanvin Group. “The group is strategically and geographically positioned to best anticipate and harness these moments. What will be critical — not only there, but globally — is an insistence, after years of relative constraint and confinement, on delivering innovative client experiences and high-touch service.” [#image: /photos/638630f0a0256a29eb0b8cff] Kering-owned jewellery brand Boucheron has 13 stores in China, and plans to increase this to 20 in the coming years. “Boucheron has operated in China since 2018. Our investments — in our network, image, teams — are very recent, which makes us not dependent on this market at this point,” explains CEO Hélène Poulit-Duquesne. “China represents great opportunities for Boucheron.” “Investors and brand managers seem to be hopeful that Mainland China will reopen and Chinese will travel again, initially locally in Asia (Hong Kong, Macau, Japan, Korea, South East Asia) and eventually back to Europe,” says Erwan Rambourg, HSBC global head of consumer and retail equity research. “One of the challenges will be to get it right in terms of capacity. When will it happen and how will you accommodate, are the key questions.” During the Richemont earnings call on 11 November, analysts asked if the return of Chinese tourists in Europe will pose an issue in terms of maintaining a high-quality experience for the consumer in Europe, given sales have rebounded without the Chinese (thanks in large part to US tourist spend). Cartier CEO Cyrille Vigneron said: “To come to Europe, Chinese visitors need to have a visa and a travel agency to have the licence to move. Usually, when things reopen, there is at least six months before things can really materialise. The aircraft and hotels also have to re-expand their capacity… mostly close to China, then probably to Dubai and then probably later to Europe. It will not come overnight.” Other parts of East Asia are also in luxury executives’ sights. For many, growth in countries such as Japan and [South Korea](https://www.voguebusiness.com/consumers/market-insights-pound-for-pound-south-korea-is-a-luxury-heavyweight) helped to counteract the slowdown in China this year, and there are more opportunities to come in 2023. Boucheron plans to open a new flagship store in the Ginza neighbourhood of Tokyo in the second half of 2023. “This new store will place innovation at the heart of both the design and the experience through technological, digital and physical elements,” says Poulit-Duquesne. “The concept perfectly meets the expectations of our Japanese audience.” The Middle East will also be a focus for the house (it has just tapped a new ambassador for the Middle East, Saudi actor Mila Al Zahrani). [#image: /photos/638631713b14e16820e5c3c9] Charles Leung, chief executive of LVMH-owned jewellery brand Fred, is also looking at opportunities in the Middle East, with a second store in Dubai, a store in Kuwait’s Salhia Complex Mall, and one in Riyadh, Saudi Arabia, set to open next year, alongside three in Thailand and Malaysia. ## **Normalisation in the US and Europe** Growth in the US luxury market slowed in the second half of 2022 as American shoppers took advantage of the strong dollar to spend in Europe instead, according to Bain & Company. Demand is still strong, but in 2023 much will depend on the US and Europe’s ability to withstand economic headwinds. Consumer confidence in both markets has been eroded by high inflation. French department store retailer Printemps plans to open a 5,000-square-metre store in downtown Manhattan in 2024. “We are making a bet on Wall Street,” says Printemps CEO Jean-Marc Bellaiche. “Mid-term, there are still very good prospects in the US,” Cartier’s Vigneron [recently told *Vogue Business*](https://www.voguebusiness.com/companies/cartier-ceo-on-staying-ahead-and-solving-the-jewellery-paradox). Kering CFO Jean-Marc Duplaix recently said: “We have no short-term plans to reduce or to review our ambition for the long run in the US, which is still a very promising market. If we look at the conversion rate, the sales density and so on, the business is still flying in the US.” HSBC’s Rambourg agrees: “Brand managers need to take the long-term view in the US and continue to invest. If you've been looking for new locations for stores, the fact that you have a hiccup, the fact that you have a slowdown for the next six months, should not have you postpone or cancel projects. Maybe it puts you in a position where you can negotiate better terms because the landlords are probably a bit too demanding. They don't take into account the current slowdown.” Growth normalisation is to be expected in Europe, too. However, there’s positive news, according to Rambourg. “Tourist [spend] is less seasonal than in previous years; the American and the Middle Eastern consumer is wealthy enough to be able to travel all year round,” he says. “The move of currency has been so dramatic, the dollar is so strong relative to the euro, and it happened in such a short period of time that the price arbitrage is too good to ignore. A lot of luxury managers this summer were telling you, ‘winter is coming in Europe’. Winter has not come yet.” “If the current exchange rates remain as they are today, sales could continue to be well supported in Europe next year,” Rambourg said. ## **Upping the retail game** From the reopening of [the Dior historical flagship on Avenue Montaigne](https://www.voguebusiness.com/fashion/inside-the-new-look-dior-flagship-in-paris) to [Cartier’s flagship on rue de la Paix](https://www.voguebusiness.com/companies/cartier-ceo-on-staying-ahead-and-solving-the-jewellery-paradox), 2022 was the year for investing in grandiose bricks-and-mortar retail experiences. This is set to continue in 2023, not least with the much-anticipated reopening of Tiffany & Co flagship on Fifth Avenue, slated for the second quarter of 2023. Its [pop-up in Paris](https://www.voguebusiness.com/consumers/after-marketing-blitz-tiffanys-upgrade-pivots-to-stores) this year hinted at an upscaled store transformation with a focus on sharing the US jeweller’s rich history. “Consumers are coming back to bricks-and-mortar stores. So, I think it's a high priority to see how you can adapt the stores to make them entertaining, to make every single store unique, whether it's via restaurants, art pieces and experiences,” says Rambourg. The top end of the luxury market accounted for 40 per cent of market value in 2022 compared with 35 per cent last year, according to Bain. And there will be even more emphasis on pampering very important clients in 2023. Chanel, for example, will continue to roll out its “salon privés”, its store extensions that offer a more intimate experience for high-end customers, first launched in Hong Kong over a decade ago. They can either be found inside existing Chanel stores, such as London’s New Bond Street, Paris’s Rue Cambon, or physically separate nearby. The next will be linked to the Chanel boutique in luxury department store SKP in Beijing and is slated to open in April 2023. The house tapped star architect Peter Marino to design the space, president of Chanel Fashion and Chanel SAS Bruno Pavlovsky [told *Vogue Business* in July 2022](https://www.voguebusiness.com/fashion/balenciaga-disrupts-again-with-couture-store-offering-gateway-to-top-tier-luxury). Beyond stores, the hospitality trend is accelerating: Dior’s flagship on Avenue Montaigne now houses a restaurant, a café and a 200-square-metre guest suite. Trussardi just reopened its Palazzo Trussardi in Milan, which now includes a café and a restaurant by a Michelin-starred chef and Chopard plans to open a hotel on Place Vendôme in 2023. Luxury hospitality is expected to grow 95 per cent in 2022 compared to 2021, Bain found. ## **Pricing conundrum** Brands, including Moncler and Hermès, have said they will increase prices next year in order to protect margins given the rising cost of raw materials. However, customers are expected to be more price sensitive over the coming months as economic conditions worsen. “Most of the brands have increased prices dramatically in 2022,” observes Rambourg. “Now, there's a danger of alienating the European consumer. There is a big price gap between the US and Europe (35 to 40 per cent), because of currency. Theoretically, managers should increase prices in Europe, but it's not happening [because] the local European consumer is quite price sensitive, so they're a bit stuck. They can't really reduce the gap — but you can have new product introductions where the price points between markets are closer.” Asked during the Q3 earnings call whether LVMH houses are planning to reduce the gap in prices between the US and Europe, group chief financial officer Jean-Jacques Guiony said: “For the short term, we don’t intend to take drastic actions.” [#image: /photos/638631f63b14e16820e5c3cb]|||Boucheron’s Hélène Poulit-Duquesne, Lanvin’s Siddhartha Shukla, Fred’s Charles Leung and Printemps’s Jean-Marc Bellaiche.||| Kering’s Duplaix said: “Historically, our industry, our brands have been able through the introduction of newness or through pure price increases to absorb the impact of inflation. It’s even more needed in a context where you have such a price gap. But, if we increase the prices, it would imply to increase more of the prices in Europe to reduce the gap, which is currently the region which is the most exposed to inflation. So, it’s an equation that is not easy to solve.” Morgan Stanley’s Aubin says: “Leading fashion brands have increased prices by 20-25 per cent (cumulated) since January 2020. Entering a recession after such a price increase is unprecedented. We believe it's the end of a cycle,” he says. “The days of gross margin expansion are likely behind us, at least in the foreseeable future. We have entered the days of gross margin ‘protection’. The base case now is that brands should be able to just offset the cost of inflation, translating to flattish gross margin. However, in a bear case, brands will experience a resistance to price increases, even a backlash translating to volume declines. However, jewellery brands have more dry powder to raise prices, having been more disciplined over the last three years.” Cartier’s Vigneron [told *Vogue Business*](https://www.voguebusiness.com/companies/cartier-ceo-on-staying-ahead-and-solving-the-jewellery-paradox) that there are no plans to raise prices again before the end of the calendar year. He will see in 2023 whether he needs to adjust prices again depending on potential further increases of gold prices. Bernstein’s Solca expects that price increase next year will revert back to the average of 5 to 7 per cent, from double digits these past three years. ## **Web3 experiments** Despite the [“crypto winter”](https://www.voguebusiness.com/technology/what-the-crypto-crash-means-for-fashions-web3-projects) and broader suspicion that NFTs wouldn’t live up to the immediate hype, luxury brands will continue to “dip a toe in the water” of Web3 next year, as Bernstein’s Solca puts it. By 2030, “tech-enabled profit pools” including metaverse and NFTs, are expected to generate €60 billion to €120 billion on top of the €540 billion to €580 billion personal luxury goods market, the Bain and Altagamma report shows. “Investors tend to dismiss Web3 if it won’t be a profit driver in the next two years but my sense is that luxury companies are working hard behind the scenes,” says Morgan Stanley’s Aubin. Printemps is among those planning to accelerate its Web3 investments in 2023 after launching a virtual store in a proprietary metaverse and NFTs this year. “The crypto winter won't alter our desire to experiment and innovate,” says CEO Bellaiche. **Key takeaway:** With luxury growth expected to slow to between 3 and 8 per cent next year, competition will heat up between brands. They won’t be able to increase prices as much on carry over items as they risk alienating European consumers, but they can introduce new products at a higher price point. At the top of CEOs’ agendas: figuring out how the Chinese will shop after the country reopens; continuing to invest in the US while negotiating rents with landlords; breaking down boundaries between retail and hospitality to attract customers seeking experiences post-Covid; and pushing forward with Web3. *To receive the Vogue Business newsletter,* [*sign up here*](https://signup.voguebusiness.com/vb)*.* *Comments, questions or feedback? Email us at* [*feedback@voguebusiness.com*](mailto:feedback@voguebusiness.com)*.*

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