The pandemic-fueled demand for luxury products is beginning to fade as even wealthy consumers are tightening their belts amidst a challenging economic environment.
This slowdown has wiped off $245 billion in stock value for seven of the largest luxury brands in Europe over the past six months, with LVMH alone reporting a 20% decline during the same time frame.
Last week, LVMH’s stock declined by €675, slipping to a new 2023 low in Paris after the company reported weaker-than-expected revenue growth for the quarter. Overall, its sales increased by 9% during the quarter, lower than the 17% it had reported in the previous quarter, according to Business Insider.
“Today’s news that LVMH’s revenue growth has slowed dramatically likely marks the end of a global luxury bubble,” said DataTrek cofounder Nicholas Colas on Thursday, October 12, 2023.
"LVMH is a very well-managed business, and investors have gotten used to seeing it post strong double-digit top line increases."
A key indicator of the ongoing slowdown is that card spending on luxury products in the U.S. has now been declining for the past six quarters in a row. This trend was particularly noticeable last quarter when luxury spending was down 16% year-over-year.
And it is not just European luxury companies that are being impacted by this slowdown. Their S&P 500 counterparts in the U.S., such as Tapestry, the parent company of Coach, and Ralph Lauren, have reportedly seen stocks slip by 17% from their most recent high.
This rout in luxury stocks is also linked to a slowdown in China, the world’s second-largest economy. Previously, executives at top luxury companies in the U.S. and Europe had hoped for the Chinese economy’s reopening and lifting the travel ban in the country to carry them through the slowdown. However, they did not get the results they had hoped for as the country is dealing with its share of economic troubles.
Meanwhile, in the U.S., luxury spending is expected to further slowdown as student loan repayments will soon resume, and consumers are expected to run out of their savings by the end of the last quarter, according to the San Francisco Fed Reserve.
An unlikely winner of the slowdown in luxury spending will be the U.S. tech sector, which European investors see as competition to their luxury stock portfolio.
“The difference is that Tech is constantly creating ‘new new’ products at all price points, where luxury brand portfolios are largely stacked with many similar products at very high price points,” Colas said. “A Kelly bag in a new, rare leather does not count as disruptive innovation,” he said.
