October 16, 2024 – The European Luxury Goods Index fell today as European luxury goods stocks fell today due to lower sales at LVMH (LVMHF), the world’s leading luxury goods group. China is seen as an important consumer in the luxury goods business, so there are concerns about a slowdown in demand from China.
LVMH fell 7% in early trading, dragging Kering (XPAR:KER) and with it L’Oréal. The company’s sales fell 3% over the year, missing analyst forecasts. Quarterly sales also fell for the first time since the coronavirus outbreak, but year-to-date sales rose 16%.
This appears to be due to sluggish sales from China and Japan in particular. LVMH cited a 14% decline in sales in the region, most notably for Louis Vuitton and Dior’s (FRA:DIO) fashion and leather goods businesses. A survey by LVMH reported that consumer confidence in China has reached its lowest level since the country was hit by the coronavirus.
This news was announced amid concerns about a slowdown in China’s economy. These factors include lower-than-expected inflation rates and the current weakness in the housing market.
Currently, the luxury goods industry is relatively dependent on Chinese consumers, and China has fostered significant growth in recent years. The recent rally in luxury goods stocks may be a short-term phenomenon. Some critics even question the sustainability of luxury products that cling to local economic conditions.
LVMH started the quarter with subdued results, but expect similar developments at other luxury brands such as Kering, Richemont and Burberry (LSE:BRBY). Some of these companies may have the same problem, primarily due to relatively low demand in China.
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This article first appeared on GuruFocus.
