European luxury stocks have been in a sustained decline, extending recent losses due to investor caution regarding the sector's recovery. LVMH, a bellwether in the industry, saw its shares fall 2.3%, reaching their lowest price since 2020. French counterparts Hermès and Kering, which owns Gucci, each dropped around 3%. Other European luxury brands such as Brunello Cucinelli, Richemont, and Burberry experienced losses of 1% to 2%. This downturn comes after years of sluggish sales and unimpressive earnings, with cautious forecasts and weak signs of a rebound in spending by affluent consumers dampening hopes for a comeback.
The STOXX Europe Luxury 10 index, which tracks leading luxury goods manufacturers, has fallen to its lowest point in nearly three months, recording a 19% decline year-to-date, contrasting with a generally stable broader market. Analysts at Bank of America noted a slowdown in demand of approximately three percentage points in the third quarter compared to the second, with particular weakness observed in the U.S., Japan, South Korea, and Asia. Equita analyst Paola Carboni indicated that while valuations in the luxury sector appear less demanding, the overall economic environment remains fragile, with limited visibility for sustained growth trends in the second half of the year given a more challenging comparison base and the current macro and geopolitical context.
The deepening sell-off has led to a significant loss in market capitalization for Europe's publicly traded luxury firms. Since the start of the year, these 10 companies have collectively shed $176 billion. LVMH alone accounts for almost $100 billion of this decline. In comparison, the wider Stoxx 600 index has seen a 4.6% increase over the same period. Geopolitical tensions, particularly the war in the Middle East and its impact on spending from Gulf states, alongside a slowdown in Chinese consumption and the strengthening Japanese yen, are cited as major factors contributing to the sector's struggles. While there have been positive signs from services sectors in China and Japan, the yen's surge and potential monetary tightening by the Bank of Japan could further curtail high-fashion spending in Japan.
