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Luxury Stocks in Europe record slump

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The European luxury goods sector was struck by a significant downturn, erasing more than $25 billion in market value, following remarks by Richemont Chairman Johann Rupert, who voiced concerns about rising inflation denting consumer demand across the region.

LVMH, a luxury conglomerate that was recently surpassed in market capitalisation by drugmaker Novo Nordisk A/S, saw its shares plunge by 3.6 percent, marking their lowest level since early January. This decline pushed its market capitalisation below the $400 billion threshold, a far cry from its peak of over $500 billion earlier this year.

Richemont, the Swiss luxury goods group boasting prestigious brands like Cartier and watchmakers IWC and Vacheron Constantin, experienced a sharp 5.2 percent drop in its share price. Similarly, Moncler SpA witnessed a 5 percent decrease, while Swatch Group AG, Kering SA (owner of Gucci), and Hermes International (known for Birkin bags) all registered declines.

Addressing shareholders at Richemont’s annual meeting in Geneva, Johann Rupert, the influential leader and controlling shareholder, acknowledged the prevailing challenges, stating, “We’ve seen the squeeze.”

In a parallel development on the same day, HSBC Holdings Plc issued a note that revised estimates and price targets downward for luxury companies. Analyst Erwan Rambourg attributed these adjustments to the impact of a resurgent euro and heightened near-term growth costs for the industry.

This setback marks another chapter in a sector that has faced increasing pressure in recent weeks, primarily due to persistent concerns about an economic slowdown in China. China, a vital market for luxury goods, accounts for approximately a fifth of the industry’s total revenue. This challenge compounds the sector’s difficulties as it navigates a shift from the initial sales boom during the pandemic recovery when consumers, fuelled by low-interest rates and accumulated savings, indulged in high-end purchases.

AlphaValue analyst Jie Zhang predicts that the luxury goods sector will continue to exhibit sluggishness and a negative trajectory until there is a “material change” in the multitude of factors affecting its performance.

Wednesday’s market decline has also adversely affected the wealth of Bernard Arnault, the controlling shareholder of LVMH. As of September 5th, Arnault’s wealth has decreased from a mid-July peak of $212 billion to $177.2 billion, thereby widening the gap with Elon Musk, the CEO of Tesla Inc., according to data from the Bloomberg Billionaires Index.

In conclusion, the European luxury goods sector finds itself at a crossroads, grappling with inflationary pressures, economic uncertainties, and evolving consumer behaviours. The ramifications of these challenges resonate not only within the industry but also in the realm of global wealth rankings, as exemplified by the shifting fortunes of key industry figures.