The luxury industry’s troubles are mounting, with US department stores struggling and China failing to live up to expectations as a growth motor in the post-pandemic world.

That’s dashing hopes of another resilient year for the sector, which in 2022 defied gloomy headlines to grow by as much as 20% in some locations, according to Rachid Mohamed Rachid, chairman of fashion house Valentino.

“We came into 2023 with a prediction that luxury will probably grow 10%,” Rachid said in an interview with Bloomberg TV. “We have seen very strong signs that it will be much worse.”

Bain in June estimated that the personal luxury goods market, which includes handbags and ready-to-wear, would grow between 5% to 12% this year, depending on the pace of the recovery in China, where severe lockdowns for much of last year hurt demand.

“The picture isn’t as rosy as expected in China, where there’s been a slow recovery this year,” in luxury goods demand, Rachid said. “In Europe, we see that tourists are spending on hotels and restaurants but then there’s not much left afterward to spend on luxury goods,” while Chinese tourists haven’t yet returned.

Gloomy Picture

The gloomier picture is fueling more talk of consolidation after Kering SA agreed to buy a 30% stake in Valentino in July for €1.7 billion ($1.8 billion). Tapestry Inc., owner of brands including Coach and Kate Spade, also agreed to acquire Michael Kors parent Capri Holdings Ltd. in an $8.5 billion deal last month, and cosmetics firm Estée Lauder Cos. has taken over Tom Ford in an $2.8 billion transaction.

Before the Kering deal, which has yet to close, Valentino was planning for an initial public offering to create a more “institutional arrangement” and attract better talent, said Rachid, who is also chief executive officer of Qatar’s Mayhoola, the investment fund that owns Valentino and French fashion house Balmain. Kering’s investment, however, helps with both those goals, he said.

While Kering will probably take a bigger stake in Valentino over the next five years — potentially even with a full takeover — it’s also possible that Mayhoola will become a Kering shareholder, according to Rachid.

“The intention really is to get more integrated together,” Rachid said, “but at the same time, to expand the horizon of the luxury investment.”

High-end fashion isn’t the only area feeling the squeeze. Earlier this month, LVMH said demand for Champagne would soften in 2023. The luxury conglomerate controlled by Bernard Arnault is the biggest maker of the bubbly beverage.

Philippe Schaus, who heads the wines and spirits unit at Paris-based LVMH, said inflation had started to curb consumers’ appetite for the drink.

--With assistance from Kriti Gupta.

(Updates with Valentino chairman comments; Bain estimates in fourth paragraph, Champagne demand in last two.)