Price Drop Of $245 Billion Hints Tough Times For Luxury Stocks

Discover why a $245 billion drop in luxury stocks suggests challenging times ahead for high-end brands.

The rich shoppers who drove luxury brands to the top of the European business charts and made its founders the world’s richest person seem to be taking a breather

Conference at the Ecole polytechnique of Bernard Arnault "LVMH: construction of a worldwide French leader"
Bernard Arnault/Photo by Jérémy Barande via Wikimedia Commons

LVMH, the company behind Louis Vuitton and Christian Dior, recently reported sales that didn’t quite meet expectations. 

This caused concern in the luxury industry, which had grown used to seeing strong growth.

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LOUIS VUITTON headquarters and flagship store on CHAMPS ELYSEES, PARIS, France.
Louis Vuitton/Photo by Ank Kumar via Wikimedia Commons

Luxury Downturn

On a single day, LVMH saw its shares fall by as much as 8.5 percent, the largest drop in almost two years. 

This decrease wiped out much of the gains the company had made this year. 

It also had a ripple effect, it dragged down smaller competitors like Richemont, Kering, and Hermes.

Portrait of François-Henri Pinault taken during Earth Day in 2011 at UNESCO Paris.
Chairman and CEO of Kering, François-Henri Pinault/Photo by Raphael Labbé via Wikimedia Commons

This isn’t the first sign that the luxury market is slowing down. 

The industry had already lost some of its shine as China’s growth stumbled, and American shoppers cooled off. 

But LVMH’s less-than-stellar sales pushed a selloff that erased about $245 billion in market value from Europe’s seven largest luxury companies since April.

High-End Hurdles

Bruno Vacossin, a senior portfolio manager at Palatine Asset Management, commented, “I used to say that I liked LVMH because they typically do better than expected. But it’s the first time in a while that they disappointed.”

“This shows that even the luxury sector is not immune to a slowdown,” he added. 

Last month, LVMH lost its title as Europe’s most valuable company to a Danish pharmaceutical firm, Novo Nordisk. 

In addition, Bernard Arnault, the CEO and founder, dropped to the second spot on the list of the world’s richest people, trailing Elon Musk. In the third quarter, LVMH’s primary division, fashion and leather goods, saw a 9 percent rise in sales. 

Elon Musk in The Summit 2013.
Elon Musk/Photo by Dan Taylor via Wikimedia Commons

While it’s not a dramatic decline, it fell below what analysts were predicting and was only half the pace of the first six months.

The Decline

These results dashed hopes of a robust demand recovery, especially in China. It showed that the challenges were spreading. 

Sales growth in Asia (excluding Japan) slowed down from 34 percent to 11 percent in the previous quarter. On the other hand, the growth in Europe is more than halved.

Sales in the wines and spirits category fell by 14 percent, significantly below expectations. It briefly caused shares of Cognac-maker Remy Cointreau to drop. 

LVMH owns renowned Champagne brands like Dom Perignon and Hennessy Cognac. It also faced lower demand in the U.S. due to resistance against price increases.

During the quarterly presentation, LVMH’s Chief Financial Officer Jean-Jacques Guiony stated, “After three roaring years and outstanding years, growth is converging toward numbers that are more in line with the historical average.” 

Guiony also cautioned investors. He told them not to anticipate that Christian Dior, the company’s second-largest fashion brand, will maintain the impressive 30 percent annual growth rates of recent years.

Photo of a Dior bag in front of the Eiffel Tower.
Photo via Instagram @dior

What’s Next?

Later this month, we’ll see how Hermes and Kering fare in terms of sales figures. 

Hermes has often been resilient during economic turbulence because of the high demand for its Birkin and Kelly bags. 

Kering is facing challenges due to recent management changes. So far this year, Kering’s stock has fallen by about 10 percent.

Hopeful Outlook

As luxury brands face these challenges, there’s reason to be hopeful.

While things might not be as shiny right now, luxury has a way of bouncing back. 

With determination, creativity, and that unwavering luxury spirit, we can look ahead to a future where these high-end brands will sparkle even brighter.

Banner photo via Instagram @dior.

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