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Europe’s top luxury groups have lost about 250 billion euros in market value this year, as Chinese consumer spending withers and AI-driven stock market oscillations dampen demand for high-end shoes and handbags.
Results from LVMH, Hermès and Gucci-owner Kering this month all missed already significantly lowered market expectations, confirming fears that the luxury industry remains in the grip of a multi-year slowdown.
The six largest listed luxury companies in Europe – which also include Richemont, Prada and Moncler – have collectively lost 251 billion euros in stock market value this year. The declines were greatest at LVMH and Hermès, the two largest luxury groups, whose market capitalizations fell by 131.6 billion euros and 93.3 billion euros, respectively.
Chinese consumer demand has driven the sector’s growth for more than a decade, but the prolonged housing crisis and weak stock markets have undermined domestic demand in recent years. Monthly retail sales growth in the world’s second-largest economy has averaged less than 0.5 percent over the past six months, a sharp slowdown from the previous year.
“The recovery in Chinese luxury consumption that the industry was hoping for has taken a pause… causing a decline in earnings, downward pressure on stock prices and a lot of soul-searching,” said Luca Solca, an analyst at Bernstein.
LVMH, Kering and Hermès all reported a clear deterioration in China in the third quarter in their results this month. Sales at LVMH’s fashion and leather goods division fell by about 15% among Chinese customers globally, said Chief Financial Officer Cécile Cabanis.
“The deceleration (in demand for fashion and leather) is obviously largely driven by Chinese customers,” Cabanis said. “We hope it will subside. We don’t know when.”
The situation at Kering, which also owns Saint Laurent and Bottega Veneta, is even worse. Sales to Chinese consumers fell 15 to 20 percent across the group in the third quarter, an acceleration from declines of around 15 percent reported by Kering in the previous quarter.
The Chinese cold has even started to be felt at Hermès, one of the most resilient luxury houses. Overall sales at the group’s ready-to-wear and accessories division fell 2 percent globally, with chief financial officer Eric du Halgouët noting that the recent decline in China’s stock market, combined with a crackdown on offshore wealth, had made things more difficult.
This week, a policy came into effect under which Chinese authorities will begin levying a 20 percent tax on dividends and interest earned by offshore trusts. Meanwhile, the CSI 300 index, which tracks China’s 300 largest listed companies, has fallen 19 percent over the past four months, a loss of more than $2 trillion, on fears over weak domestic consumption and an AI bubble.
Berenberg analyst Nick Anderson said this week’s Hermes update left him with “more questions than answers.”
“We are concerned that overexposure to China and greater exposure to a more ambitious consumer than we expected will continue to weigh on Hermès’ revenues,” he added.
The news hasn’t all been bad for luxury companies in recent months. Sales of Birkins and other high-end bags at Hermès rose 10.8 percent, while jewelry brands including LVMH’s Tiffany and Kering’s Boucheron were in high demand, with sales growing by double digits during the quarter.
But even U.S. demand, which had supported the industry earlier this year, has softened in recent months as stock markets cooled and gas prices rose. Credit card data from Citi recorded a drop in luxury spending of at least 4 percent in July, August and September.
Some labels have felt the downturn harder than others. At one end is Hermès, which says its U.S. buyers are still spending at similar levels, and at the other is Kering, which is more exposed to aspirational middle-class buyers. The Paris-listed group called for greater pressure on American consumers as the November midterm elections approach.
With few signs of recovery in luxury’s biggest markets, Bernstein’s Solca said most luxury companies have “nothing better to do” than try to become more efficient while waiting for buyers to return.
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