Stocks for some of Europe’s most famous luxury brands are plummeting to their lowest level in years as Chinese customers cut back purchases and an industry revamp fails to launch.
Shares are down a jaw-dropping 40% so far this year for the continent’s fashion stalwarts — LVMH, parent company of Louis Vuitton, Christian Dior and more; Kering, which owns brands including Gucci and Bottega Veneta; and independent-minded Hermès.
A widely reported drop in demand for luxury products — particularly among Chinese customers and international social climbers, sometimes called “aspirational shoppers” in industry lingo — is to blame for Kering’s woes, the Wall Street Journal noted.
“We know we have a lot of work to do in China,” the conglomerate’s finance chief Armelle Poulou said on an earnings call.
Kering sales dropped 1% in the third quarter. LVMH and Hermès each saw a 2% decrease. At Gucci alone, sales were down 6%.
The drop comes as the Chinese economy has been taken a beating. While unemployment is up, property values and household spending have been trending downward, according to the Journal. The country recently saw its slowest GDP growth since 2022.
“Despite the recent share price weakness, we expect some further pressure on the space as a whole today, with confirmation that the Chinese cluster seems to have taken a material (and bigger than feared) step down,” said JP Morgan analysts said in a note to investors about LVMH, according to Reuters.
The stock decline has put a dent in LVMH kingpin Bernard Arnault’s fortune. He last topped Forbes’ list of billionaires in 2024, when he was worth $233 billion, but his wealth is listed at around $171 billion today, putting him in seventh place.
Meanwhile, LVMH-owned Zenith has started a consultation process that may lead to layoffs, according to Reuters.
Customers in Asia, with China as the lead, account for a quarter of Kering’s sales.
An Hermès finance exec said the Chinese market – the company’s largest – was “very difficult.” Eric du Halgouet told reporters that he still remained confident about the Asian market and would “continue to invest,” according to Reuters.
There might be a shinier future for the prestigious brands. Analysts at Goldman Sachs Research are forecasting a 7% revenue increase for the luxury goods sectors as a whole for 2027.
“We view this as a solid recovery for an industry that has faced a prolonged period of sluggish performance,” wrote Erwan Rambourg, the group’s head of Europe luxury and lifestyle.
He expects more innovation and a reliance on different types of products. For instance, Gucci and L’Oréal have a 50-year exclusive beauty license that goes into effect in 2027.
Still, challenges include China’s property value woes, with new home prices losing 0.1% of their market value monthly, according to Reuters. Beijing recently announced subsidies for first-time mortgages to boost home sales, according to the Journal.
Last month, luxury credit card spending dropped 6% year over year, according to Citi.
Still, LVMH said it was good third-quarter growth in Europe and the US as Chinese customers looked elsewhere.
Credit: Source link
