The stocks of some of Europe’s well-known luxury brands are experiencing significant declines, reaching their lowest levels in years. This drop is primarily due to a decrease in purchases by Chinese consumers and a struggling industry overhaul.
Notably, shares of prominent fashion companies have fallen by about 40% this year alone. This includes LVMH, the parent company of brands like Louis Vuitton and Christian Dior; Kering, which owns Gucci and Bottega Veneta; and Hermès, known for its distinctive approach.
A recent report highlights a significant decline in luxury product demand, especially from Chinese shoppers and those aspiring to enter the luxury market, often referred to as “aspirational shoppers.” This drop has particularly impacted Kering’s performance, as noted by the Wall Street Journal.
“We know we have a lot of work to do in China,” stated Kering’s finance leader, Armelle Poulou, during a recent earnings call.
Kering’s sales fell by 1% in the third quarter, while LVMH and Hermès both reported declines of 2%. Gucci, in particular, faced a more substantial fall, with sales down 6%.
This downturn coincides with a struggling Chinese economy. Rising unemployment, declining property values, and reduced household spending were noted in recent analyses. Furthermore, the country is experiencing its slowest GDP growth since 2022.
JP Morgan analysts commented on the situation, saying that, “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,” in relation to LVMH, as reported by Reuters.
This stock drop has also impacted the wealth of LVMH’s Bernard Arnault. Once at the top of Forbes’ billionaire list in 2024 with a net worth of $233 billion, his current wealth is estimated at around $171 billion, placing him in seventh position.
Additionally, LVMH-owned Zenith has initiated consultations that may lead to job cuts, according to reports.
Chinese consumers, particularly, contribute to about a quarter of Kering’s sales. An executive from Hermès described the situation in China, the firm’s largest market, as “very difficult,” yet expressed optimism about the Asian market and a commitment to continued investment.
Looking towards the future, there might be some positive developments for these prestigious brands. Goldman Sachs Research suggests a potential 7% growth in revenue for the luxury goods sector by 2027.
Erwan Rambourg, head of Europe luxury and lifestyle at Goldman Sachs, mentioned, “We view this as a solid recovery for an industry that has faced a prolonged period of sluggish performance.”
He anticipates more product innovation and diversification. For instance, Gucci and L’Oréal have a partnership that will see a 50-year exclusive beauty license starting in 2027.
However, challenges persist, particularly regarding the troubles in China’s property market, where new home prices have been decreasing by 0.1% monthly, as noted by Reuters. In an effort to stimulate home sales, Beijing has recently unveiled subsidies for first-time mortgages, according to the Journal.
Luxury credit card spending fell by 6% year over year last month, according to Citi.
Despite these setbacks, LVMH reported some positive growth in Europe and the US, suggesting that Chinese customers are searching for luxury options elsewhere.
