The spectre of unsold inventory looms

As successive reports on the luxury industry by major consulting firms emerge, there appears to be a disconnect between the relatively optimistic forecasts for 2024 and the on-the-ground reality. These reports reflect the results of a sector that was still largely euphoric in 2022. Published yesterday, December 12, the 'Deloitte Report Global Powers of Luxury Goods,' based on the results of Swiss companies, indeed confirms that: “Consumers around the world have purchased luxury products like never before. The top 100 luxury goods companies alone sold $347 billion in jewelry, perfumes, handbags, and other luxury goods in 2022, up from $304 billion the previous year.”

However, a year later, the situation seems far less rosy. In the third quarter of 2023, sales of major luxury groups slowed down. E-commerce sites report the same trend, accumulating alarming levels of unsold inventory, as recently noted by Mytheresa CEO Michael Kliger in the Wall Street Journal. For him, this last quarter of 2023 'is the worst since 2008,' with an inventory surplus of 44% compared to the same period in 2022.

While the build-up of inventory is particularly significant in the fashion sector, watchmaking and jewelry will soon face the same issue. Large groups will have the financial strength to withstand this and react quickly to production flow. But some independents will become attractive targets. It is highly likely that major groups will seize this opportunity to further diversify their brand portfolio while accelerating the consolidation of assets. For example, Bernard Arnault recently acquired a building on the Avenue des Champs-Elysées for nearly one billion euros. In his sights is the establishment of a potential mega-flagship for Dior, or even Tiffany.

It will be interesting to observe which strategies brands will choose to address the increase in inventory. Buying back unsold products - the costs are significant - or turning to the grey market and discounting, which could be damaging to the brand's image? E-commerce will not be able to absorb the excess. The industry will have to truly confront a path long ignored, but now emerging: deconsumption.