'Big Spenders' Lose Interest: Even Hermes Shares Fall 40%... The 'Tables Have Turned' for Once-Untouchable Luxury Brands

Luxury Stocks Plunge Amid Weak Chinese Spending
and Fallout from European Protests

European luxury stocks are plunging as weak consumer spending in China, the war in the Middle East, and protests in major European countries converge. Shares of French luxury group Kering, which owns Gucci, plunged 16% in a single day, while Hermès and LVMH also continued to fall.

Hermes' signature bag, the Birkin. Hermes website.

According to Bloomberg and the Financial Times (FT), among other outlets, Kering shares plunged 16% on Oct. 23 (local time) on the Paris stock exchange, compared with the previous trading day. The decline followed the company's third-quarter results for this year, announced the previous day, which fell short of market expectations.

Gucci, Kering's flagship brand, posted a 6% year-on-year decline in third-quarter revenue. By contrast, retail sales at brands other than Gucci, including Saint Laurent and Bottega Veneta, rose 2%.

Kering said it would accelerate the closure of underperforming stores to improve its results. Armelle Poulou, Kering's chief financial officer (CFO), said the company had closed 105 stores so far and planned to close 20 more by the end of the year.

Reuters-Yonhap News

Other luxury companies are facing a similar situation. LVMH shares fell 1.5% on the day. According to Bloomberg, LVMH's forward price-to-earnings (P/E) ratio has fallen to about 16 times, its lowest level in more than a decade.

Hermès shares also fell 4%, reaching their lowest level in four years. Although the company had maintained relatively resilient results compared with other luxury groups, weakening demand in China meant it posted its slowest growth since 2020 in the third quarter of this year.

Hermès' forward P/E ratio is about 27 times, well below its post-COVID-19 pandemic peak of 70 times. German investment bank Berenberg downgraded its investment recommendation for Hermès from "Buy" to "Hold."

Shares of Kering, LVMH, and Hermès have all fallen about 40% so far this year.

Weak consumer spending in China is cited as a major cause of the luxury industry's downturn. Wealthy Chinese consumers are cutting back on luxury purchases amid the slump in the real estate market and tighter tax enforcement by authorities.

The prolonged war in the Middle East is also adding to the pressure. Rising international oil prices are intensifying inflationary pressures, dampening demand for high-end consumer goods, including luxury products.

Protests in major European countries, including France and Italy, are also weighing on the sector. Protests disrupted store operations around Place Vendôme, a luxury shopping district in Paris. In Milan, Italy, some luxury stores also closed in the wake of protests.

Bloomberg reported that falling share prices have lowered luxury companies' valuations, but that investors are reluctant to buy shares as new risk factors emerge, including unrest in France. Deborah Aitken, an analyst at Bloomberg Intelligence, said planned protest marches are further increasing risks for the luxury industry by threatening store operations and tourism.

This content was produced with the assistance of AI translation services.