Europe Luxury Stocks Hosting Big Party Decline... Is the 10-Year Boom Over?

European luxury stocks, which experienced an unprecedented boom during the pandemic, are struggling. Stock prices, which had surged sharply on expectations of a strong market, have repeatedly declined, falling back to levels seen at the end of last year. It is forecasted that the sluggish performance of luxury stocks will continue this year and next due to the domestic demand slump in China, the world's largest luxury market.

On the 6th (local time), the stock price of luxury group Richemont, listed on the Swiss stock exchange, closed at 117.00 Swiss francs, down 5.22% from the previous session. Richemont's stock price has fallen nearly 25% from its high this year (155.65 dollars), giving back all the gains made this year. Richemont's current stock price is similar to the level of 116.80 Swiss francs in December last year. Its market capitalization has also shrunk to 66.713 billion Swiss francs (approximately 99.7 trillion KRW).

The stock price of LVMH (Louis Vuitton Moet Hennessy), the world's largest luxury company listed on the French stock exchange, is also on a downward trend. On the same day, LVMH closed at 731.50, down 3.64% from the previous session. The CAC40 index, the representative index of the French stock market, has risen 12% this year, but LVMH's stock price increase rate (8%) fell short of this. Due to the continuous decline in stock prices, its market capitalization sharply dropped to 368.331 billion euros (approximately 526.4 trillion KRW). The downward trend in stock prices also caused LVMH to lose its position as the largest market cap company in Europe to Danish pharmaceutical company Novo Nordisk. LVMH’s market capitalization, which was the first European company to surpass 500 billion dollars in market cap based on the dollar, has now fallen below 400 billion dollars.

This has also led to a sharp decline in the assets of Bernard Arnault, chairman of LVMH. According to the Bloomberg Billionaires Index, Arnault’s assets have significantly decreased from a peak of 212 billion dollars in mid-July to 177.2 billion dollars (based on the closing price on the day).

[Image source=Reuters Yonhap News]

The domestic demand slump in China, the world's largest luxury consumer alongside the United States, has acted as a negative factor for these luxury stocks. Earlier this year, there was great expectation that luxury consumption by wealthy Chinese consumers would increase due to the reopening of the economy.

It was anticipated that pent-up consumer spending in China would surge, driving explosive demand for luxury goods, and that the resumption of European shopping trips would lead to growth in luxury stocks’ earnings. However, as macroeconomic conditions such as inflation and high interest rates worsened in the US and Europe, and China also faced a real estate-driven economic downturn, demand fell short of market expectations, causing stock prices to continue their sluggish trend.

Bloomberg reported, "Concerns about economic slowdown in China, which accounts for more than one-fifth of luxury companies’ sales, are exerting downward pressure on luxury stock prices."

The gloomy outlook from Richemont Group’s chairman is also dampening investor sentiment. Johann Rupert, chairman of Richemont Group, said at the annual meeting held in Geneva, Switzerland, "Sticky inflation has begun to impact luxury demand," and predicted a prolonged downturn in the industry. He added, "The decade-long boom is over. It is difficult to expect sales normalization within the next one to two years. It will take longer."

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