Luxury stocks suffered significant losses in Europe on Wednesday after a profit warning from Gucci’s parent company exposed a severe slowdown in the high-end goods market, particularly in China.
Shares of Kering nosedived by as much as 15% in Paris, while LVMH (which owns Louis Vuitton, Tiffany & Co., and other luxury brands) fell by more than 3%. Swiss company Richemont (maker of Piaget watches, Montblanc pens, and Van Cleef & Arpels jewelry) and British brand Burberry (which also issued a profit warning in January) also saw their stock prices decline.
After several prosperous years following the pandemic, luxury companies are facing weaker demand in one of their largest markets: China. A slump in China’s property market and broader economic slowdown have dampened consumer sentiment in the world’s second-largest economy.
In an unexpected trading update on Tuesday, Kering revealed that sales at its flagship brand, Gucci, are projected to have fallen nearly 20% year-over-year in the first quarter, largely due to a sharp decline in the Asia-Pacific region. Kering’s overall comparable sales are predicted to decrease by 10% for the same period.
“The severity of this warning is unsettling and raises growing concerns about the health of high-end consumer demand,” Adam Crisafulli, former JPMorgan analyst and founder of market intelligence firm Vital Knowledge, told CNN.
“Gucci has faced some brand-specific challenges for a few quarters, but this update will likely stoke further worries about the state of consumer spending and the Chinese economy,” he added.
China has grappled with a prolonged period of deflation, with consumer prices remaining flat or even declining in recent months. Though February saw a slight uptick in the Consumer Price Index (largely attributed to increased Lunar New Year shopping), overall economic conditions remain strained.
Kering, also the owner of Saint Laurent and Balenciaga, has taken a harder hit than its competitors due to decreased luxury spending. Management changes were announced last year in an attempt to revitalize the company’s fortunes, with a major focus on reviving the struggling Italian brand that generates over half its revenue.
On Tuesday, Kering noted that early products from the Ancora collection have been available in selected Gucci stores since mid-February. “The new collection, whose availability will gradually be ramped up over the coming months, is meeting with highly favorable reception,” the company added.
