TheChek News Flow

With China in the Doldrums, U.S. Will Fuel Luxury Goods Sales in 2025

According to a Barclays report, Americans are expected to spend more on luxury goods this year, buoyed by the promise of tax cuts and a "better wealth effect" following the election of Donald Trump as president.

LONDON – The U.S. is set to be the main growth driver of luxury goods sales in 2025 as Chinese customers continue to pull back on spending, according to a new report by Barclays.

The bank said Americans are already driving around 25 percent of all luxury goods revenues, and are expected to spend more this year after a “challenging” 2024.

“Since the U.S. elections, consumer confidence seems to have improved on the back of a better wealth effect,” said the report, which was co-written by Carole Madjo and Wendy Liu.

They expect luxury spending by U.S. customers to rise by around 6 percent in 2025, and said the rebound at LVMH Moët Hennessy Louis Vuitton could signal better times ahead.

“For some names, like LVMH, the American cohort has been negative but [the French group] has been gradually improving quarter-over-quarter in Fashion & Leather Goods, and we thus expect a return to growth in 2025, which could be the case for the rest of the sector as well,” they wrote.

Barclays’ outlook for the U.S. chimes with other companies’ projections of robust growth in the U.S. this year. That growth is set to be fuelled by President-elect Donald Trump’s plans to slash tax taxes, and eliminate a number of federal regulations which he believes stand in the way of economic growth.

British fashion brands, which are suffering at home due to higher taxes and tighter regulations, are eyeing growth in the U.S., too, opening standalone stores and selling through retailers including Neiman Marcus, Nordstrom and Dillard’s.

The U.S. is one of the U.K.’s biggest export markets, and the opportunities for growth are enormous due in part to the weaker pound.

As reported in December, Me+Em, a favorite of women including the Princess of Wales, Olivia Colman and Margot Robbie, opened its fourth U.S. store, and first mall location, at NorthPark in Dallas.

The goal is to expand further in 2025, and the brand is already exploring new locations on the East Coast, the West Coast and in Texas.

British accessories brand Kurt Geiger said North America has become its fastest-growing – and largest – market, with customers including Kylie Jenner, Olivia Rodrigo, Rihanna and Paris Hilton helping to drive sales.

Since 2018, gross sales in North America have grown to $318 million from $3.1 million, according to the company, which has a total of nine stores in the region. They include new brick-and-mortar locations at Roosevelt Field Mall in Garden City, New York; Fashion Valley in San Diego, California; and Antara in Mexico City, Mexico.

Unlike their American counterparts, Chinese consumers will continue to lay low this year, according to Barclays.

Madjo and Liu pointed out that despite the country’s stimulus package announcement in September and a short-lived stock market rally afterwards, “consumer sentiment remained cautious, as we observed from our recent trip” to the country.

They said the decline in the price of residential property, job security and pay cuts as factors that will likely weigh on consumer confidence in 2025.

“We expect the Chinese cohort to be down one percent in 2025 as we expect trends to remain broadly similar to 2024. As a reminder, we estimate that around 60 percent of Chinese sales are generated in Mainland China and 40 percent of sales are generated offshore,” the report added.

The report said “onshore spending” sales are expected to be down 5 percent as the macro environment “should continue to weigh on luxury spending.”

With regard to “offshore spending, we expect sales to be up 5 percent in 2025, reflecting tough comparatives in Asia. [Last year] was marked by significant spending in Japan, and a still-limited sign of a pick-up in travel in Europe.”

In Europe, “we don’t expect much from domestic consumers and think that growth could be flattish to slightly positive in 2025 as consumer sentiment remains muted,” said Barclays. “Once again, the main growth driver could come from tourists, notably American (benefiting from a foreign exchange tailwind) or Middle Eastern.”

The report added that the return of Chinese tourists in Europe “remains a possible tailwind, but we are probably more cautious than before as their presence in Europe shows limited sign of improvement.”

According to Barclays, the Middle East performed strongly last year, especially for names including Richemont and Prada, “which are seeing double-digit growth with Middle Eastern consumers. We don’t expect significant changes in trends in the Middle East, and remind readers that factors such as geopolitical tensions and changes in the oil price remain factors affecting consumer sentiment.”

Barclays considers India to be “an emerging market, and we still think that the country will remain a very small player in the luxury space for some time. We don’t expect it to move the needle in the short term.”

In its report, the bank also outlined the risks ahead, noting that Chinese demand could get even weaker as the country continues to undergo structural changes. In the short term, it said China could still deteriorate as the macro environment remains uncertain.

According to Barclays, the U.S. market could also be weaker than expected if aspirational consumers fail to return, as they may still feel “priced-out, and inflation could remain a drag to sentiment.”

Madjo and Liu also pointed out that Trump’s potential tariffs or protectionist measures “could be a positive for America but a headwind for the rest of the world.”

Overall, the bank is taking “neutral” view on luxury goods in 2025 given the modest growth and all of the headwinds the sector continues to face.

“In the current setting, we think that polarization in the sector will continue, and expect limited changes in terms of brand preferences. Winning names, which notably include Hermès, Richemont, Prada and LVMH, have one or more of the following criteria: High exposure to high-end consumers, who are more resilient; high exposure to the U.S. cohort; strong pricing power; and solid brand momentum.”

The bank said that “recovery stories,” including Kering, Burberry, Swatch and Ferragamo, will continue to underperform in the coming 12 months, although Burberry and Ferragamo have seen “small positive signs” around some of their product lines, including scarves at the former, and leather goods and shoes at the latter.

Rating agency KBRA also warns on possible rise in defaults in fast-growing sector

There are “accidents waiting to happen” in private credit because of looser lending standards and the vast amount of capital that has flooded into the sector, the chief investment officer of one of the world’s largest charitable foundations has warned.

The £37.6bn Wellcome Trust’s Nick Moakes told the Financial Times that big investors in such funds could suffer “very substantial” losses if the US economy eventually falls into recession.

“If the world gets a little bit more difficult economically, I think that there are some accidents waiting to happen in the private credit world,” said Moakes in an interview.

“If there is an issue within that whole ecosystem, there will be some quite high-profile investors, many of whom do have some kind of systemic importance, that will be quite badly damaged,” he added.

His comments come as rating agency KBRA warned on Tuesday that private credit borrowers that have struggled to pay off their debts may finally “face the music” this year, as a result of higher than expected interest rates weighing down on corporate balance sheets.

The firm, which analyses large swaths of the private credit market, said that while most loans would be paid off without a problem, borrowers whose “business models or capital structures have not adjusted to a higher rate environment” could begin to default on their debt.

As traditional banks have retreated from lending following the 2008 financial crisis, private credit, which finance a wide range of areas such as corporate acquisitions and consumer loans, has grown rapidly.

However, a growing chorus of central bankers, policymakers and some of Wall Street’s own top brass — including JPMorgan Chase chief executive Jamie Dimon — have flagged potential problems.

Moakes said that although private credit is “less dangerous” systemically than bank financing because leverage levels are lower, private equity managers have been able to borrow large amounts of money with minimal checks and balances. 

“As [the private credit market has] become popular, it has sucked in an enormous amount of capital. That has meant that the lending standards that are applied in certain parts of private credit markets have diminished,” he said.

“It’s great for private equity borrowers,” he said. But for investors, “if you see a slower economy, particularly if you end up with a recession in the US eventually, which one day we will . . . there’ll be some haircuts [losses] to be taken, and they could be very substantial.”

KBRA estimates that the default rate in the private credit market will jump to 3 per cent in 2025, up from 1.9 per cent at the end of last year.

That forecast has been driven in part by a rapid shift in markets since Donald Trump was elected the 47th president of the US in November, with investors wagering the Federal Reserve will no longer be able to cut interest rates as much as previously expected.

“With the expected pace of rate cuts slowing, companies at the bottom end of our credit assessment distribution could face a reckoning in 2025,” said KBRA analysts John Sage and William Cox.

Moakes also highlighted the growing might and reach of large, diversified, US-listed alternative investment managers, and said their huge growth may not benefit underlying investors in the funds. 

“There’s a series of very large asset management firms that have been created, and all power to their elbow,” said Moakes.

“They’re great businesses, and they’ll have a private equity arm, and they’ll have a private credit arm, and they’ll probably have a hedge fund division and a real estate division . . . and [their funds] are lending to each other,” he added. “It’s all a bit circular.” 

Moakes said that, as alternatives firms have gone public, they face greater pressure to grow assets under management to maximise management fees, which may not be in the best interests of generating investment performance. 

“As that space has sucked more and more capital into it, the expected return, logically, should have gone down,” he said.

“The risks are going up . . . You can construct all kinds of cataclysmic scenarios where they take each other down, but actually, they won’t, because what they’ve done is very clever. This stuff is all sitting in LP [fund] vehicles. So the liability is all with the investors.”

The Wellcome Trust, founded in 1936 following the death of pharmaceutical entrepreneur Henry Wellcome, exists today with the mission of funding scientific research in to mental health; infectious diseases; and climate and health.

It does not invest directly in private credit, but has a window into the industry because about a third of its portfolio is allocated to private equity.

Moakes, who will retire from the Wellcome Trust at the end of March, was speaking as the foundation reported results for the 12 months to September 30. The trust gained 15.6 per cent in US dollar terms, although in sterling terms the return was 5.2 per cent because of the strength of the pound.

It also reported a charitable spend of £1.6bn in scientific research. Over the past 10 years it has made 11.3 cent a year annualised in sterling terms.

CBRE is purchasing the rest of Industrious as more employees return to the office

Real estate-services firm CBRE Group is taking control of the co-working firm Industrious, a sign of the property market’s renewed interest in shared workspace as more employees return to the office.

CBRE said it would announce Tuesday that it has agreed to purchase the 60% stake that it didn’t already own in Industrious, a deal that values the co-working company at about $800 million. Industrious has more than 200 locations in over 65 cities globally that make office space available to businesses on flexible terms.

CBRE said that Industrious Chief Executive and co-founder Jamie Hodari will move beyond Industrious to join CBRE’s senior team as part of a broad reorganization. He will oversee management of more than 7 billion square feet of commercial space and a business with about 95,000 workers, CBRE’s largest unit.

CBRE is taking over Industrious just as more companies are ordering workers back to the office for longer periods. Office leasing is picking up in places such as New York City, especially in premium office towers.

Founded in 2012, Industrious grew in the shadow of WeWork, the dominant player when co-working expanded rapidly before the pandemic. WeWork grew too quickly, failed at an initial public offering in 2019 and sought bankruptcy protection in 2023. The company emerged from bankruptcy last year.

Industrious avoided WeWork’s missteps partly by adopting a much less risky approach to the shared-office-space business.

Where WeWork leased big blocks of office space in hundreds of buildings, carving it up and renting out to individuals and businesses on a short-term basis, Industrious never took on leasing risk. Instead, it operates co-working space and shares the profits with building owners.

Such deals didn’t expose Industrious to the long-term lease obligations that tripped up WeWork when the market slowed. The profit-sharing model has become more of an industry standard and even WeWork is now using it for part of its business.

CBRE CEO Robert Sulentic got to know Hodari in 2020 when the company made its first investment in Industrious. Since then, Industrious has doubled its number of locations and tripled its revenue.

Hodari, who now oversees about 650 people at Industrious, says his firm approaches the office-space business as a service business, like a hotel, that goes beyond simply providing physical space.

Industrious spruces up its offices with natural lighting, greenery and a variety of work settings. It even varies the type of music played in common areas at different times of the day.

“When companies provide exciting experiences, they get their people back in the office,” Sulentic said.

Industrious was well-positioned to expand during the early years of the pandemic when the outlook was murky over whether workers would return to offices in force. Businesses wanted short-term, flexible options in numerous markets while they sorted out the future of office space.

By late 2020, CBRE noticed the rise in the number of businesses embracing more flexible approaches to office space. That prompted Sulentic to reach out to Hodari for the meeting that led to CBRE’s first investment in Industrious, paying about $200 million for a 35% stake.

“We came to the conclusion that flexible space was going to be an enduring part of the office-building landscape,” Sulentic said.

Today, shared work facilities continue to play an important role as workspaces evolve. Many companies have crafted strategies that allow employees to work remotely some days, and most businesses recognize the benefit of flexibility.

“People really had to come to terms with the fact you can’t predict head count 10 years in advance,” Hodari said.

Industrious will remain a separate business unit. But now that CBRE owns all of it, the parent company will include the Industrious co-working services among the options it offers to landlord and tenant clients.

For example, CBRE might advise a tenant looking for new offices to sign a traditional 10-year lease for its headquarters and three or four Industrious deals for locations in different regions.

This flexibility will help businesses attract workers back to offices, Sulentic said. A number of prominent companies have fallen short of their goals to return workers to offices at a faster pace, he noted.

CBRE used to be known primarily as a commercial-property brokerage. But over the past two decades it has been expanding into a variety of new businesses including real-estate investments, development and managing space for corporations.

Under the reorganization, the company will be divided into four units. Hodari will run the building operations and experience division. The other three will be property investments, project management and advisory services.

Industrious has been adding about 30 to 50 new locations a year. The expansion rate “is going to be significantly higher than that” now that Industrious is a part of CBRE, Hodari said.

Service debuts after Disney, Fox, Warner Bros. Discovery shuttered their Venu Sports joint venture

DirecTV has stitched together a skinny bundle of sports channels, targeted at people who want to watch live sports without paying for a broad TV package.

Launching Tuesday, DirecTV MySports initially includes 40 sports and broadcast channels and is available in 24 metro areas, including New York, Los Angeles, Chicago, Philadelphia and the San Francisco Bay Area. The MySports package will normally be priced at $69.99 per month. Customers who sign up online for the package before Feb. 28, 2025, are eligible to receive MySports for $49.99 per month for the first three months. The company also is offering a free five-day trial of DirecTV MySports.

MySports is priced well under DirecTV’s Entertainment and Sports Pack entry-level streaming package, which is regularly $101.98/month. The service launches just days after Disney, Fox Corp. and Warner Bros. Discovery announced they were scrapping Venu Sports, the companies’ joint venture that had been planning to offer a sports-centric streaming bundle for $42.99 per month.

DirecTV secured distribution rights for the MySports channels through agreements with media companies including Disney, Fox Corp., Warner Bros. Discovery and NBCUniversal. The package also includes networks from each of the major U.S. sports leagues — NFL, NBA, NHL and MLB — and major collegiate conferences. Currently, the package does not include Paramount Global’s CBS; DirecTV is in talks to add the broadcaster to the mix.

DirecTV said the launch of MySports will be followed by additional genre options in 2025 with packages geared around kids and family programming and entertainment networks. DirecTV had referenced plans to roll out genre-based tiers when it inked a new deal with Disney last September.

“The introduction of MySports from DirecTV delivers consumers greater choice, flexibility and control to select the type of content they want to watch at the right value,” DirecTV CEO Bill Morrow said. “This is the first of several genre-based options we plan to launch over the coming months on our path towards a brighter TV future for consumers.”

National sports channels available at launch through DirecTV MySports include: ACC Network, Big Ten Network, DirecTV 4K Live, DirecTV 4K Live 2, ESPN, ESPN2, ESPNews, ESPNU, Fox Sports 1, Fox Sports 2, Golf Channel, MLB Network, NBA TV, NFL Network, NHL Network, SEC Network, TBS, TNT, TruTV and USA Network. Broadcast channels will initially include any local stations owned and operated by ABC, Fox and NBC. Additional networks, local stations and ESPN+ will be included in MySports at “no extra cost in the near future,” according to DirecTV.

DirecTV has more details about MySports at this link, including initial launch markets.

Those in 24 major metro regions, like New York, Los Angeles, Chicago, Philadelphia and the San Francisco Bay Area (Oakland, San Francisco, San Jose), will have access to local ABC, Fox and NBC stations starting this week. Customers in metro areas including Houston, Dallas, Washington, D.C., Atlanta, Austin, Detroit, Gainesville, Fla., Milwaukee, Minneapolis, Orlando, Phoenix, Seattle, Tampa, Miami, Boston, New Haven, Conn., and San Diego will receive at least some of their local ABC, NBC or Fox stations (in cities where the network owns the local station outlet). Those in other markets will get their local stations as affiliates opt in.

Users can stream MySports through the DirecTV mobile app and via platforms including Roku, Amazon Fire TV and Apple TV. The service will also include game-time notifications and an unlimited cloud-based DVR.

In addition, as with all DirecTV packages, MySports customers will also have access to the MyFree DirecTV ad-supported sports channels, which includes ACC Digital Network, Big 12, Fight Network, Fuel TV, Origin Sports, Pickleball TV, Players TV, Sports Grid, Stadium Stream, Surfer TV, Swerve Combat, T2, The Jim Rome Show, TNA, Torque by History, Waypoint TV and Women’s Sports Network.