The global luxury sector, which enjoyed a strong recovery from the pandemic-induced slump, is now facing a new challenge: inflation. As consumer prices rise and demand cools down, luxury stocks are losing their shine.
LVMH, the world’s largest luxury group, reported weaker than expected quarterly revenue growth on Tuesday. The French conglomerate said its sales grew 9% in the third quarter, down from 17% in the previous quarter and below analysts’ estimates of 12%.
The slowdown was mainly driven by its wines and spirits division, which saw a 14% drop in sales due to lower demand for its Hennessy cognac in the United States. The company also cited unfavorable currency effects and supply chain disruptions as factors that weighed on its performance.
LVMH shares fell to a fresh 2023 low in trading in Paris on Wednesday, slipping to 675 euros. The stock has lost about 20% of its value over the past six months. According to Bloomberg, LVMH has led a sell-off that has erased $245 billion in value from Europe’s seven biggest luxury firms in that time.
“Today’s news that LVMH’s revenue growth has slowed dramatically likely marks the end of a global luxury bubble,” DataTrek cofounder Nicholas Colas said in a note on Thursday. “LVMH is a very well-managed business, and investors have gotten used to seeing it post strong double-digit top line increases.”
US and China Markets Under Pressure
LVMH is not the only luxury player that is feeling the pinch of inflation and geopolitical tensions. In the US, card spending for luxury fashion has been on the decline for six quarters in a row, with luxury fashion spending down 16% year-over-year over the past quarter, Bank of America card data shows.
In the US, Tapestry and Ralph Lauren, the two luxury brands in the S&P 500, have also slid considerably in 2023, and luxury stocks overall are down 17% from their most recent peak, Bank of America estimated.
China, which accounts for about 40% of global luxury sales, is also facing headwinds from a slowing economy, regulatory crackdowns, and power shortages. These factors have dampened consumer confidence and spending on high-end goods.
According to McKinsey’s State of Fashion 2023 report, China’s luxury market is expected to grow between 9% and 14% in 2023, down from an estimated 30% growth in 2022. The report also projects that the global luxury sector will grow between 5% and 10% in 2023, with Europe lagging behind due to currency rates and an energy crisis.
The Future of Luxury
Despite the challenges ahead, some analysts and industry experts remain optimistic about the long-term prospects of the luxury sector. They point out that luxury brands have shown resilience and adaptability during the pandemic, leveraging digital channels, innovation, and sustainability to attract and retain customers.
Some segments within the luxury sector are also expected to outperform others. For instance, McKinsey’s report highlights that lifestyle categories such as home and hospitality are gaining traction among affluent consumers who seek more experiential and meaningful purchases.
Moreover, some luxury players are exploring new opportunities in emerging markets such as India, where there is a growing appetite for premium products and services among young and affluent consumers.
The luxury sector may be facing a slowdown in growth, but it is not losing its allure. As consumer preferences and behaviors evolve, luxury brands will need to stay ahead of the curve and offer products and experiences that meet their customers’ needs and aspirations.
