European luxury groups lose €250bn in value as China demand weakens

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European luxury groups lose value

Highlights

Europe's six largest listed luxury companies lose a combined €251bn in market value in 2023, driven by sharply weaker Chinese demand.
LVMH's fashion and leather goods sales among Chinese clients fall by a mid-teens percentage globally, with Kering reporting a 15–20 per cent drop in sales to Chinese consumers.
Citi credit card data shows U.S. luxury spending declines of at least 4 per cent for July–September, as market softness spreads beyond China.

China weakness drives sector revaluation

As reported by Financial Times, Europe's six largest listed luxury companies have lost a combined €251bn in market value this year as weaker Chinese demand hits sales and investor sentiment. The steepest declines are at LVMH and Hermès, whose market capitalisations have fallen by €131.6bn and €93.3bn respectively, while Kering, Richemont, Prada and Moncler are also caught in the sector-wide slide.

Results this month from LVMH, Hermès and Kering miss already lowered market expectations, reinforcing concerns that the industry remains in a multiyear downturn. Demand from Chinese shoppers, which powered luxury growth for more than a decade, has weakened as the country's property slump and poor stock market performance undermine spending, with monthly retail sales growth averaging less than 0.5 per cent over the past six months.

Companies are now highlighting a sharper deterioration in China in the third quarter. LVMH says sales at its fashion and leather goods division fall by a mid-teens percentage among Chinese clients globally, while Kering reports a 15 to 20 per cent drop in sales to Chinese consumers across the group, worse than in the previous quarter. Hermès also signals pressure, with its ready-to-wear and accessories division posting a 2 per cent global sales decline.

U.S. cooling adds to luxury pressure

Pressure is no longer limited to China, as the U.S. market that had supported the industry earlier in the year is also losing momentum. Citi credit card data shows luxury spending declines of at least 4 per cent in July, August and September, while higher gas prices and softer stock markets weigh on discretionary purchases.

The impact varies by brand positioning. Hermès says its U.S. shoppers are still spending at similar levels, but Kering, which is more exposed to aspirational middle-class consumers, flags greater pressure on American demand ahead of November's midterm elections.

There are still pockets of resilience in the sector. Hermès grows sales of Birkin and other top-end bags by 10.8 per cent, while jewellery labels including LVMH's Tiffany and Kering's Boucheron post double-digit sales growth in the quarter. Even so, analysts say companies facing weak demand in their two most important markets are left focusing on efficiency measures while waiting for consumer spending to recover.

In our earlier article on China’s third-quarter growth outlook and new policy support, we highlighted expectations for only a modest GDP pickup amid weak consumption, subdued private investment, and ongoing property-market stress. We also noted that targeted measures such as rate cuts, mortgage subsidies, and additional debt quotas may cushion activity, but forecasts still point to growth near the low end of Beijing’s annual target as domestic demand remains fragile.

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