Reasons behind the stock market decline of luxury giants

The values of major luxury groups, which seemed unshaken and in the face of geopolitical uncertainties, experienced one of the worst financial days on Tuesday, May 23rd: the luxury sector saw 30 billion wiped out in 24 hours. Hermès shares plunged by as much as -5.5%, while LVMH suffered a loss per share of 4%, and Kering ended the black day with -2%. 

In recent years, the luxury sector has become for the European financial market what the Big Tech sector represents for the United States: a group of dominant companies capable of stabilizing the markets even during moments of uncertainty involving the global economy. But today, the situation seems to be evolving negatively. What are the reasons?

Firstly, attention should be drawn to concerns raised by Deutsche Bank regarding the slowdown in growth in the United States, heavily impacted by rampant inflation. The fragility of the US market at the moment is causing increasing concerns. Morgan Stanley also shares this view. During a conference held in Paris on the luxury sector, the investment bank highlighted the more modest performances of the American market. Fears of a default have only fueled the market frenzy.

Asia and the United States are crucial markets for European luxury brands. For example, in 2022, Asia (excluding Japan) accounted for 30% of LVMH's revenue, while the United States represented 27% of global sales. LVMH recently reported a slowdown in growth in North America, while the British brand Burberry stated that it had experienced weakened demand for several of its products in the United States, especially among younger customers. The latter seems to be gradually turning to more affordable brands.

In Europe, the publication of inflation in the United Kingdom significantly exceeding forecasts in April has also influenced analysts.

While this decline raises some concerns, it remains relative. Although it is true that Deutsche Bank currently does not recommend buying Hermès or LVMH stocks, the German bank still displays a good level of confidence. Its spokespersons have stated that "both groups offer defensive exposure to the luxury sector through their respective diversification and affluent clientele." In April of this year, LVMH announced sales exceeding 21 billion euros for the first quarter of the fiscal year, while Hermès saw its sales increase by 22% compared to the same period in 2022. The luxury sector still has bright days ahead.