The luxury industry is currently facing a challenging period as wealthy consumers are showing signs of fatigue, resulting in a selloff in luxury stocks. This downward trend has been particularly evident for LVMH Moet Hennessy Louis Vuitton, the owner of renowned brands such as Louis Vuitton and Christian Dior. In fact, LVMH recently experienced its largest intraday share decline in nearly two years, leading to a market value loss of $245 billion for Europe’s seven largest luxury companies since April.
This decline in the luxury goods sector is not a new phenomenon, as the industry had already been losing its appeal due to China’s economic recovery slowdown and cooling demand from US consumers. However, LVMH’s recent sales figures have further accelerated the decline in luxury stocks, indicating that the sector is not immune to a slowdown.
LVMH, which was formerly Europe’s most valuable company, has now been overtaken by Danish drugmaker Novo Nordisk A/S. Furthermore, LVMH’s founder and CEO, Bernard Arnault, has fallen to second place on the Bloomberg Billionaires Index, behind Elon Musk. While LVMH’s fashion and leather goods unit, its largest division, experienced a 9% increase in organic revenue in the third quarter, this growth fell short of analysts’ expectations and was only half the pace of the first half of the year.
These disappointing results have dampened hopes for a strong demand recovery, particularly in China, and have revealed weaknesses across different regions. In Asia, excluding Japan, revenue growth slowed to 11% from 34% in the previous quarter, while Europe’s growth more than halved.
The wines and spirits unit of LVMH also suffered, with sales falling 14% below expectations. This decline affected shares of Cognac-maker Remy Cointreau as well. LVMH owns prestigious Champagne labels such as Dom Perignon and Hennessy Cognac, but US demand for these spirits has declined due to resistance to price increases.
During the quarterly presentation, LVMH’s Chief Financial Officer, Jean-Jacques Guiony, noted that the company’s growth was returning to historical average numbers after a period of exceptional growth. He also cautioned investors about expecting the same rapid growth rates from its second-largest fashion brand, Christian Dior.
The decline in luxury stocks has led to a change in market dynamics, as LVMH now trades at a discount to the tech-heavy Nasdaq 100 Index in the US, whereas it previously traded at a premium to technology companies. This shift raises questions about the idea that high-end luxury stocks were Europe’s equivalent to the dominance of US technology stocks.
Other luxury companies, such as Hermes and Kering, are expected to report their sales figures later this month. While Hermes has historically been resilient to economic turbulence due to limited supply and high demand for its highly coveted Birkin and Kelly bags, Kering faces challenges following recent management changes and the arrival of a new creative director at its flagship brand, Gucci. The effects of these changes will not be seen until February, and Kering’s stock is currently down around 10% this year.
Overall, the recent selloff in luxury stocks indicates a potentially less bright future for the luxury industry. The fatigue displayed by wealthy consumers and weaker sales figures suggest a slowdown that the sector cannot ignore. The upcoming sales figures from other luxury companies will provide further insights into the industry’s current state and its future prospects.
Useful links:
– Business of Fashion: Is Luxury’s Two-Year Bull Run Finally Over?
– BBC: Luxury Goods Firms Hit by Market Selloff
