Luxury stocks slump as Gucci sales slide

Luxury stocks slump as Gucci sales slide - Business and Finance - News

Luxury Stocks Experience Significant Decline After Profit Warning from Gucci Owner

contact luxury stocks faced a challenging day on Wednesday following a profit warning from Kering, the owner of renowned fashion brands including Gucci. This unfortunate announcement highlighted a substantial decline in demand for high-end goods, particularly in the significant market of China.

Kering’s shares experienced a steep drop of up to 15% in Paris, while LVMH – Europe’s second-most valuable company and home to brands such as Louis Vuitton and Tiffany & Co. – saw a more than 3% decline at one point. Switzerland’s Richemont, responsible for Piaget watches, Montblanc pens, and Van Cleef & Arpels jewelry, also suffered a 3% decrease. In London, homegrown British brand Burberry, which previously warned of lower profits in January, experienced a decline as high as 6%.

Luxury Market Confronts Slumping Demand in China

After an impressive post-pandemic period, luxury goods companies now confront a weakening market in one of their most essential regions: China. Consumer sentiment in the world’s second-largest economy has deteriorated due to a prolonged real estate market downturn and its related consequences.

In an unexpected trading update issued on Tuesday, Kering announced that sales for Gucci, its largest brand, were projected to have experienced a nearly 20% decrease year-on-year during the first quarter. Overall, comparable sales for Kering are expected to decline by 10% for this period.

Growing Concerns Amidst Declining Consumer Spending and China’s Economy

The gravity of this warning has raised concerns among market analysts, particularly regarding the health of high-end consumer demand. Adam Crisafulli, a former JPMorgan analyst and founder of market intelligence firm Vital Knowledge, explained to News Finder that “Gucci has been encountering some company-specific problems for a few quarters, but this update will further fuel concerns about the state of consumer spending and China’s economy.”

China’s Persisting Deflation Challenge

China has been grappling with an extended period of deflation, with consumer prices remaining flat or declining in recent months. The Consumer Price Index experienced a positive turn in February for the first time since August 2022, primarily driven by seasonal shopping linked to the Lunar New Year Holiday.

Kering, which also owns Saint Laurent and Balenciaga, has been more adversely affected than many competitors by reduced luxury spending. Last year, the company announced a management reshuffle aimed at rejuvenating its fortunes.

Reinvigorating Gucci: Focus on the Italian Brand

The attention remains squarely focused on reenergizing the Italian brand that generates over half of Kering’s revenue. On Tuesday, Kering revealed that “early” primarily ready-to-wear products from the Ancora collection have been available in selected Gucci stores since mid-February. The company stated that “the new collection, whose availability will gradually be increased over the coming months, is receiving an extremely positive response.”