Weak Chinese spending weighs on European luxury, €250 billion of value lost
LVMH, Hermes and Kering results missed expectations as Chinese demand weakens, with the six largest groups down €251 billion in market value this year.
Weaker spending by Chinese shoppers is weighing on Europe's biggest luxury names, according to CNA, which carried a Financial Times report on the sector's latest earnings.
Europe's leading luxury groups have seen roughly €250 billion (S$358.10 billion) wiped from their market value so far this year, with softer Chinese consumer spending and AI-driven stock market swings both hurting appetite for upscale footwear and handbags. Earnings published this month by LVMH, Hermes and Kering fell short of what the market expected, even though forecasts had already been sharply lowered.
Biggest losses at the two largest groups
Together, the six biggest listed luxury firms in Europe, a group that further comprises Richemont, Prada and Moncler, have seen €251 billion disappear from their market value this year. The two biggest names, LVMH and Hermes, have seen their market capitalisations drop by €131.6 billion and €93.3 billion, in that order.
China's demand was the industry's engine of growth for more than a decade, but a long property slump and weak stock market have undermined domestic spending in recent years. Across the past six months, growth in monthly retail sales in China, the second-biggest economy globally, has averaged below 0.5 per cent.
In the third quarter, China saw a clear worsening, according to LVMH, Kering and Hermes alike. At LVMH's fashion and leather goods division, sales to Chinese clients worldwide fell by a mid-teens percentage, according to chief financial officer Cecile Cabanis. Cabanis said the slowdown "is obviously largely driven by the Chinese clientele". On when it might ease, she said "We are not sure when."
Across the Kering group in the third quarter, purchases by Chinese consumers dropped 15 to 20 per cent, following declines in the mid-teens the quarter earlier. Saint Laurent and Bottega Veneta are also among the brands Kering owns.
Hermes saw sales at its ready-to-wear and accessories division fall 2 per cent globally. Eric du Halgouet, the chief financial officer, cited a crackdown on offshore wealth as well as the Chinese stock market's recent slide.
Tax and market pressures in China
A policy that came into effect this week will see Chinese authorities start levying a 20 per cent tax on dividends and interest from offshore trusts. Over the last four months, the CSI 300 index, a gauge of the 300 biggest listed companies in China, has dropped 19 per cent.
Not all of the news was bad. Hermes grew sales of Birkins and other high-end bags by 10.8 per cent, and in the quarter jewellery names such as Tiffany and Boucheron each posted double-digit sales growth.
Demand in the US, which had supported the industry earlier this year, has also eased in recent months. According to Citi's credit card data, spending on luxury goods dropped by at least 4 per cent in each of July, August and September.
Luca Solca of Bernstein said that the majority of luxury firms have "nothing better to do" than try to become more efficient as shoppers are awaited back.
