The Great Luxury Stocks Crash: European sector loses $32.3 Billion

In an unexpected turn of events, luxury stocks took a nosedive, causing a shocking $32.3 billion (€30 billion) loss in the European luxury sector. This dramatic fall, which occurred on a seemingly normal Tuesday, has left investors questioning the future of luxury sales, particularly in the United States. But what caused this sudden plunge, and what does it mean for the luxury sector going forward?

The Downward Spiral Begins

No one felt the tumble more than Bernard Arnault, world's richest person according to Forbes, and founder of LVMH. Arnault saw his personal fortune decrease by a staggering $11.2 billion. This came as LVMH shares fell 5% in Paris - their largest single-day fall in over a year - and continued to drift down, off nearly 2% more by midday European time.

Unsettling Market Trends

This unsettling rout came after a prolonged rally in LVMH's share price, which is still up 18% for the year-to-date. However, the sharp fall in share prices of groups including LVMH, Hermes International (down about 5.5% over the past five days), and Richemont (down about 6.5% over the past five days), suggests investors have a case of the jitters.

The Chinese Consumer and US Luxury Market

Shares have been propped up by the assumption that the Chinese consumer would start travelling and spending, coupled with a soft landing in the U.S. luxury market. However, these assumptions are now being questioned.

Slowing US Market and its Impact

Richemont chair, Johann Rupert, and Burberry Group expressed concerns about the slowing U.S. market. Rupert conceded earlier this month that the U.S. market has been slowing since November, and Burberry reported a 7% decline in U.S. sales for its most recent quarter. The drop-off in the purchase of entry-level accessories among younger U.S. consumers is a particular concern.

U.S. Luxury Slowdown Worries

This slowdown in the U.S. luxury market is a major concern, especially given the U.S., alongside South Korea, has been the primary driver for luxury sales over the past three years. Major luxury houses have expanded in the U.S., opening stores beyond the traditional luxury hubs of New York and Los Angeles. LVMH in particular could be exposed, as it generated 23% of its sales from the U.S. in its first quarter.

See Also

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The Chinese Market and the Future of Luxury Sales

With the U.S. market cooling, Chinese spending has so far focused on domestic locations, or popular nearby destinations such as Macau and Hong Kong. However, a backlog in processing visas and passports, coupled with growing enthusiasm for domestic and regional tourism, means international Chinese shoppers may not return in full force until 2024.

In the light of these events, investors have become wary, questioning previous bets on a bounce-back by Chinese consumers. Last month, LVMH’s shares hit a record after it reported a surge in sales, while Hermes joined Europe’s €200 billion club as quarterly sales jumped. But without a Chinese ying to the U.S. yang, this week's share price falls may not stop here after a prolonged rally that seemed impervious to the cost of living squeeze, the pandemic, inflation, or political instability.

FAQs

1. Why did luxury stocks crash in the European sector? The crash appears to be driven by fears about a softening U.S. economy impacting sales, concerns about the length of time it will take for China to fully recover, and delays for high net worth Chinese travellers visiting Europe and the U.S. due to visa and passport issues.
2. How much did Bernard Arnault, the founder of LVMH, lose due to the crash? Bernard Arnault, the world's richest person on the Forbes list, saw his personal fortune decrease by a staggering $11.2 billion.
3. What is causing the slowdown in the U.S. luxury market? There has been a decline in the purchase of entry-level accessories among younger U.S. consumers. Burberry Group reported a 7% decline in U.S. sales for its most recent quarter.
4. When are international Chinese shoppers expected to return to luxury shopping? Due to a backlog in processing visas and passports, and a growing enthusiasm for domestic and regional tourism, international Chinese shoppers may not return in full force until 2024.
5. What could be the potential future of luxury stocks? The future of luxury stocks appears uncertain. If there is no recovery in the Chinese and U.S. markets, the recent fall in share prices may continue.