European luxury brands have lost nearly $250 billion in market capitalization in recent months, and their stock market clout could weaken further as China’s economic downturn worsens.
Shares in companies that make luxury clothing, handbags and jewelry, once seen as Europe’s answer to the U.S.’s “Magnificent Seven” tech giants, have slumped as spending slumps. More ominously, there are signs that wealthy Chinese who once flocked to the luxury boutiques of Paris, Milan and Hong Kong are losing their appetite for expensive goods amid an economic downturn that may never return.
“This year will be more volatile and more painful because it comes after excessive growth,” said Flavio Sereda, investment manager at GAM UK, referring to the period immediately after the pandemic when consumers emerging from lockdown spent money on shopping and travel.
Burberry Group, the iconic British raincoat maker, was dropped from London’s FTSE 100 stock index after its share price collapsed, causing its market capitalization to fall 70% in the past year. Burberry is the only major brand to be removed from the index, but a Goldman Sachs index of luxury goods has seen its market capitalization fall by $240 billion since its peak in March.
Gucci-owner Kering and Hugo Boss have been the hardest hit, with their share prices having almost halved over the past year. Kering, once a top 10 stock on France’s CAC 40 index, now ranks 23rd. And industrial giant LVMH, which owns Moet Hennessy and Louis Vuitton, was Europe’s largest by market capitalization a year ago but has fallen to second place.