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After experiencing a difficult 2023, ebbing demand and a slowdown in global economies are set to make 2024 more difficult for luxury brands. In spite of China reopening in early 2023, demand for personal luxury items at constant currency rates dropped down to 8%, just marginally above global inflation, according to Bain, as quoted on Financial Times. This follows a remarkable three-year period of nearly 20% average sales growth.
The slowdown in demand is indicative of the substantial downturn in the market. Analysts at Bain and Citi estimate modest growth between 4% and 6% on average, just enough to offset industry inflation.
With many market participants dealing with substantial debt and excessive inventory, challenges in 2024 are elevated due to rising operating costs, driven by increased wages and rents.
Data to Support the Pessimistic Outlook
The S&P Global Luxury Index has fallen 4.36% over the past year, as of Jan 18 2024. In stark contrast, the broader S&P 500 Index has demonstrated a remarkable outperformance, surging by 21.69% over the past year. The luxury goods index remains on its downward trajectory, falling 6.62% month to date.
According to Burberry’s (BURBY - Free Report) CEO, as quoted on Reuters, December 2023 witnessed a deceleration in the market, a trend evident across most regions. He emphasized a notably weak performance in the Americas, noting a 15% decline in comparable store sales for third-quarter 2023.
The shares of the British luxury brand have declined by a staggering 44.91% since the end of July 2023, indicating the market’s decreasing demand levels and profitability warnings.
British luxury car manufacturer Bentley, a unit of Volkswagen, expressed similar pessimism surrounding sluggish demand. The luxury carmaker, per Reuters, reported an 11% decline in vehicle sales as affluent consumers grappled with escalating costs and weak economies. The downturn was evident in its key markets, with sales dropping 9% in the Americas, followed by a decline of 18% and 15% in China and Europe, respectively.
Increasing Geopolitical Tensions to Play a Part?
Conflicts in the Middle East have added to the heightened geopolitical uncertainty for luxury brands, which are already dealing with high inflation levels. Shoppers in the United States and Europe are tightening budgets.
According to Reuters, the attacks on the Red Sea resulted in global trade declining by 1.3% from the month of November to December last year. At present, the Red Sea witnesses daily transportation of around 200,000 containers, marking a notable decline from the previous 500,000 per day in November 2023.
ETFs in Focus
The luxury goods market in the United States is estimated witness a CAGR of 1.9% from 2024 to 2028, according to Statista. Against this backdrop, below, we highlight three pure-play luxury ETFs for investors.
Tema Luxury ETF employs an active strategy and seeks to provide long-term growth by investing in companies operating in the luxury industry with a basket of 29 securities. The fund has an asset base of $7.4 million and charges an annual fee of 0.75%.
Tema Luxury ETF has an exposure of 73.43% in large-cap securities. The fund has lost about 5.21% since mid-December of 2023 (as of Jan 19).
KraneShares Global Luxury Index ETF seeks to track the performance of the Solactive Global Luxury Index with a basket of 46 securities. The fund has amassed an asset base of $3 million and charges an annual fee of 0.69%.
KraneShares Global Luxury Index ETF has an exposure of 79.14% in large-cap securities. The fund has lost about 7.14% since mid-December of 2023 (as of Jan 19).
Roundhill S&P Global Luxury ETF seeks to track the performance of the S&P Global Luxury Index with a basket of 79 securities. The fund has amassed an asset base of $1.2 million and charges an annual fee of 0.45%.
Roundhill S&P Global Luxury ETF has an exposure of 84.59% in large-cap securities, making it a comparatively safer option. The fund has lost about 8.33% since mid-December of 2023 (as of Jan 19).
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Ebbing Luxury Demand Puts These ETFs in Focus
After experiencing a difficult 2023, ebbing demand and a slowdown in global economies are set to make 2024 more difficult for luxury brands. In spite of China reopening in early 2023, demand for personal luxury items at constant currency rates dropped down to 8%, just marginally above global inflation, according to Bain, as quoted on Financial Times. This follows a remarkable three-year period of nearly 20% average sales growth.
The slowdown in demand is indicative of the substantial downturn in the market. Analysts at Bain and Citi estimate modest growth between 4% and 6% on average, just enough to offset industry inflation.
With many market participants dealing with substantial debt and excessive inventory, challenges in 2024 are elevated due to rising operating costs, driven by increased wages and rents.
Data to Support the Pessimistic Outlook
The S&P Global Luxury Index has fallen 4.36% over the past year, as of Jan 18 2024. In stark contrast, the broader S&P 500 Index has demonstrated a remarkable outperformance, surging by 21.69% over the past year. The luxury goods index remains on its downward trajectory, falling 6.62% month to date.
According to Burberry’s (BURBY - Free Report) CEO, as quoted on Reuters, December 2023 witnessed a deceleration in the market, a trend evident across most regions. He emphasized a notably weak performance in the Americas, noting a 15% decline in comparable store sales for third-quarter 2023.
The shares of the British luxury brand have declined by a staggering 44.91% since the end of July 2023, indicating the market’s decreasing demand levels and profitability warnings.
British luxury car manufacturer Bentley, a unit of Volkswagen, expressed similar pessimism surrounding sluggish demand. The luxury carmaker, per Reuters, reported an 11% decline in vehicle sales as affluent consumers grappled with escalating costs and weak economies. The downturn was evident in its key markets, with sales dropping 9% in the Americas, followed by a decline of 18% and 15% in China and Europe, respectively.
Increasing Geopolitical Tensions to Play a Part?
Conflicts in the Middle East have added to the heightened geopolitical uncertainty for luxury brands, which are already dealing with high inflation levels. Shoppers in the United States and Europe are tightening budgets.
According to Reuters, the attacks on the Red Sea resulted in global trade declining by 1.3% from the month of November to December last year. At present, the Red Sea witnesses daily transportation of around 200,000 containers, marking a notable decline from the previous 500,000 per day in November 2023.
ETFs in Focus
The luxury goods market in the United States is estimated witness a CAGR of 1.9% from 2024 to 2028, according to Statista. Against this backdrop, below, we highlight three pure-play luxury ETFs for investors.
Tema Luxury ETF (LUX - Free Report)
Tema Luxury ETF employs an active strategy and seeks to provide long-term growth by investing in companies operating in the luxury industry with a basket of 29 securities. The fund has an asset base of $7.4 million and charges an annual fee of 0.75%.
Tema Luxury ETF has an exposure of 73.43% in large-cap securities. The fund has lost about 5.21% since mid-December of 2023 (as of Jan 19).
KraneShares Global Luxury Index ETF (KLXY - Free Report)
KraneShares Global Luxury Index ETF seeks to track the performance of the Solactive Global Luxury Index with a basket of 46 securities. The fund has amassed an asset base of $3 million and charges an annual fee of 0.69%.
KraneShares Global Luxury Index ETF has an exposure of 79.14% in large-cap securities. The fund has lost about 7.14% since mid-December of 2023 (as of Jan 19).
Roundhill S&P Global Luxury ETF (LUXX - Free Report)
Roundhill S&P Global Luxury ETF seeks to track the performance of the S&P Global Luxury Index with a basket of 79 securities. The fund has amassed an asset base of $1.2 million and charges an annual fee of 0.45%.
Roundhill S&P Global Luxury ETF has an exposure of 84.59% in large-cap securities, making it a comparatively safer option. The fund has lost about 8.33% since mid-December of 2023 (as of Jan 19).