An advertisement posted by Hugo Boss AG on Wednesday, May 1, 2024, in Shanghai, China.
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LONDON — European luxury stocks slumped on Monday after analysts warned of a worsening demand outlook, particularly among high-spending Chinese consumers.
German Hugo Boss He was one of the worst performers Stocks 600 The index was down 4% by midday after analysts at Bank of America Securities cut the stock to “underperform” from “buy,” saying they expect a tougher consumer environment in the second half of the year and more discounts.
“Luxury sector revenues have been steadily decelerating since the post-COVID consumption peak in 2022, with U.S. consumers being the first to normalize, followed by South Korean, European and Japanese consumers,” analysts at Bank of America Securities said in a research note on Monday highlighting challenges across the luxury sector.
“Consumers of all nationalities are now under pressure as the industry’s only supporter, the Chinese consumer, declines,” they added, saying luxury consumers are “stuck shopping” and domestic and travel demand in China is “deteriorating.” Overall, European luxury companies now expect revenue to fall 1% in 2024.
When Hugo Boss cut its sales forecast in July, it cited “ongoing macroeconomic and geopolitical challenges”, particularly in China and the UK.
British Burberry The stock fell nearly 3 percent on Monday after analysts at Bank of America Securities cut their target price to 475 pence ($6.31) from 700 pence.
French luxury goods giant also downgraded LVMH and Kering From buy to neutral.
LVMH fell 0.24% on Monday to its lowest level since July 2022, according to LSEG data. Kering fell 1.7% and Hermes dropped 0.26%.
The STOXX Europe Luxury 10, a stock index tracking the industry’s top companies, remained flat but is down 3.82% year to date.
“Long-term weakness”
The company is not alone in its bearish view of the European luxury sector.
“The problem is clearly China. China has gone from a very small player in luxury to a giant over the last decade or so. But it’s not working out at the moment,” John Cox, head of European consumer equities at Kepler Chevreux, said Monday on CNBC’s “Street Signs Europe.”
Cox said challenges in China’s property market, combined with signs of fragility in Europe and uncertainty from the U.S. presidential election, were weighing on sentiment in China.
“The luxury industry could be in for a prolonged downturn. It’s been going on for several quarters now. I think a lot of people were hoping things would improve in the second half of the year, but there’s really no sign of that happening at the moment,” he told CNBC.
Demand from ambitious buyers and young, fashion-forward buyers appears particularly vulnerable because of their volatile spending patterns, posing a particular challenge for a brand like Burberry as it tries to reinvent and reposition itself, Cox said.
“Kering, Burberry, Gucci – if there is credibility in these brands, they can eventually recover. It’s just a matter of timing,” he said.
“It will take a lot of time and investors don’t have the patience for that. In the luxury industry, there are companies like Hermes that are well-positioned. Richemont, PradaFor some reason, this has captured the imagination of luxury buyers at the moment.”
Susanna Streeter, head of finance and markets at Hargreaves Lansdown, said another issue for luxury companies was the possibility of China imposing new tariffs on the industry.
“The EU’s proposed tariffs on Chinese-made EVs raises concerns about retaliatory measures against well-known brands. While they may be popular with Chinese fashionistas, the latest handbags, belts and raincoats are not essential components for China’s heavy industry and could be first in the target,” Streeter said in an email on Monday.