A profit warning by the parent of luxury brand Gucci has reverberated across the global luxury goods sector, sending shares in both the firm and its peers tumbling.
Shares in Kering, the French multinational owned by billionaire François-Henri Pinault slumped 14 per cent on Wednesday after the business said it expected to report a first-quarter revenue decline of 10 per cent.
Deteriorating Gucci sales in Asia were cited as the main reason for its weak performance.
The brand, best known for its belts, has now seen sales decline for two consecutive quarters.
The update knocked shares in luxury retailers across the board, retailers such as LVMH, Burberry, Prada and Watches of Switzerland.
Shares in LVMH, the owner of Louis Vuitton, were down by two per cent, whilst Burberry fell by over four per cent. Watches of Switzerland slumped seven per cent. Prada and Christian Dior both slumped two per cent.
The problems can be traced to China. Its sluggish recovery from the pandemic has bruised luxury markets, as its growth has been a key driver of growth in the sector over the past decade.
Earlier this week it was reported that exports of pricey Swiss watches such as Rolex and TAG Heuer fell for the second time in three years, led mainly by lower deliveries to Greater China and Hong Kong.
Alongside recovery from the pandemic, China’s economy has been buffeted by a property crisis and high levels of youth unemployment.
This, coupled with what has been dubbed a “richcession” in other western markets, has hindered sales of designer brands.
Charlie Huggins, head of equities at the Wealth Club, said:”Luxury spending is slowing and the Chinese economy remains weak. Gucci results were poor and people are obviously reading across to LVMH and Burberry.
“Coming out of the pandemic, the luxury sector experienced a boom period. Rising asset prices, fuelled by liquidity injections from governments, contributed to the wealthy getting wealthier.”
He added: “When combined with pandemic restrictions, it meant many people turned to spending on luxury goods.”
Huggins said luxury spending will bounce back, but “there could easily be further weakness before that happens”.
Earlier this year, analysts at Jefferies agreed to cut their 2024 industry demand growth assumption for global luxury brands from four per cent to two per cent.
Russ Mould, investment director at AJ Bell, said: “Kering stock is trading sharply lower in Paris and at levels last seen during the pandemic panic of 2020.”
“This echoes the themes which took a toll on the Stoxx Europe Luxury 10 index, which stumbled badly in 2023, amid concerns over weak demand in key markets such as China and Hong Kong, even once lockdowns were lifted.”
“He added: Luxury stocks were also hit by worries over consumer confidence amid a cost-of-living crisis. This might not affect their genuinely plutocratic customers, but aspirational buyers may have been feeling the squeeze and in many cases they buy high-margin products such as cosmetics and perfumes.”
“Luxury firms have jacked up their prices – and those lofty tags are at least part of the attraction to plutocratic purchasers – and it now remains to be seen whether they have pushed them too far or not.”