European luxury brands are facing growing challenges once seen as the region’s answer to the stock market powerhouse that is the “Magnificent Seven” U.S. tech companies, which include Apple Inc., Microsoft Corp., Google parent Alphabet Inc., Amazon.com Inc., Nvidia Corp., Meta Platforms Inc. and Tesla Inc.
According to a Bloomberg report, these companies, which define “slightly premium” as a Goldman Sachs index of luxury stocks, have lost $240 billion in market capitalization since their March peak. The reason: a tough global economy and a worsening Chinese recession. After a period of strong growth after the pandemic, these companies are now reportedly experiencing declines in sales and profits. Brands such as Kering, Burberry and Hugo Boss have reportedly issued profit warnings, while LVMH saw organic revenues for its key leather goods division grow just 1% in the quarter, compared with 21% in the same period last year.
According to a Bloomberg report, these companies, which define “slightly premium” as a Goldman Sachs index of luxury stocks, have lost $240 billion in market capitalization since their March peak. The reason: a tough global economy and a worsening Chinese recession. After a period of strong growth after the pandemic, these companies are now reportedly experiencing declines in sales and profits. Brands such as Kering, Burberry and Hugo Boss have reportedly issued profit warnings, while LVMH saw organic revenues for its key leather goods division grow just 1% in the quarter, compared with 21% in the same period last year.
Why the glow has been lost
Slowing spending in China, a major market for luxury goods, is of particular concern, as the country’s wealthy, once eager to buy luxury goods, are becoming more cautious due to the country’s worsening economic situation.
The downturn had a significant impact on the stock market performance of luxury goods companies. As reported by Bloomberg, Burberry, for example, saw its market capitalization plummet by 70% and was dropped from the FTSE 100 index. Other major companies such as Kering and Hugo Boss also suffered heavy losses.
While some analysts remain optimistic about the future of the luxury sector, some worry that the current economic climate could lead to a new normal of declining revenues and tighter profit margins.