Has the 2023 party ended early for luxury goods?

LVMH, the French owner of brands including Louis Vuitton, Givenchy, Fendi and Bulgari, was the first European-listed company valued above $500bn. But is the luxury boom of early 2023 in danger of unravelling?

| 6 min read

The FTSE 100 is often known as a commodity-dominated index, due to its high weighting of oil and mining giants. Across the English Channel, the French blue-chip index – the CAC 40 – is more ‘luxury-weighted’. LVMH, Hermès and cosmetics maker L'Oréal represent about a quarter of the CAC 40 by weighting.

A seemingly banner year for the luxury sector helped boost Paris’ premier index to a record high in April. However, just a few weeks later, these gains have started to unravel. Nevertheless, despite recent losses, the index is currently up 14% so far this year compared with the FTSE 100’s more pedestrian 4%.

Before we unpick the causes of the recent stumble in the sector and its implications, let’s look at the fair winds that were driving equity market gains in the earlier part of this year. In April, LVMH was the first European company to cross the $500bn valuation level. Controlled by the world’s richest man, Bernard Arnault, the group has built up a business that now manages 75 prestigious, high-profile luxury brands.

LVMH’s diversity of fashion brands, cosmetics and luxury consumables such as champagne is its strength. Mr Arnault has strategically built up the business brand-by-brand over decades in an often-fickle industry – and he continues to maintain tight control over the group through his outsized (57% of total) voting rights. His personal drive and vision, which created the business’s strength through its diversity of luxury offerings, are the foundations of LVMH’s success.

High-spending consumers free from restrictions

The share-price gains in the sector this year have been spectacular as the industry is bouncing back from one its greatest-ever shocks – the Covid-19 pandemic.

Once the pandemic took hold, demand for luxury items dropped sharply as consumers changed their purchasing behaviours, stores closed under lockdown regulations, and international travel was dramatically curtailed.

This latter point – the grinding to a halt of the global travel industry – was a major setback for the luxury industry. The fact that China experienced the lengthiest and most stringent response to the pandemic – only relaxing rules in December 2022 – was another major headache hitting business at the world’s most-expensive luxury brands.

Before the pandemic, two-thirds of Chinese consumers’ personal spending on luxury goods took place outside of China – and Chinese consumers accounted for about 60% of total industry growth between 2000 and 2019, according to data from Morgan Stanley.

Over the last few months, Chinese citizens have been able to travel abroad once more following a three-year hiatus. This means they can once again take advantage of cheaper prices in Europe, where the ticket price is often 30% lower than in the cost of the same items in China, depending on the brand.

The Chinese market is, by far, the most important market for European luxury names. Even though high-spending consumers helped the sector be reasonably resilient last year, 2023 held the prospect of exceptional opportunities as travel normalised and the Chinese consumer was unleashed.

Sector share price gains 2023 and market value

CompanyListingMarket capGain 2023



Hugo BossGermany$5bn21.2%

Source: Bloomberg (data correct 25 May 2023)

Over the last few weeks, it has become clear that, although there is a boom in the East, Western luxury markets are stagnating. In early May, Johann Rupert, chairman of Cartier-owner Richemont, confirmed that the US market had been slowing since November last year. This trend was confirmed by Burberry – Britain’s only major, listed player in the sector.

At first glance, Burberry’s results were pretty good, with sales jumping 16% between January and March. This followed the scrapping of ‘zero-Covid’ restrictions in China after Beijing cast aside pandemic measures in favour of economic growth. Burberry’s sales in the Asia Pacific region jumped 19% in the first three months of 2023.

However, Burberry’s sales in the Americas fell 7% in the first three months of 2023 and were down 3% for the full year. Management also failed to upgrade its medium-term targets, something expected by the City. Investors are now concerned that the waning West could upset the luxury-goods sector’s gilded applecart in what was supposed to be a splendid year.

China the trendsetter for Europe’s fashionistas

The US slowdown represents a major problem for Mr Arnault’s luxury conglomerate. The group generated 23% of its sales in the US in its first quarter of 2023. Can growth emanating from China pick up this slack? Clearly, investors are becoming concerned that it may not. LVMH is no longer valued at half a trillion euros because of these worries.

The luxury-goods sector is not immune to the ebbs and flow of the global economy, but the sector has a wealthy clientele who relish in the status luxury-goods bring. This means the major brands of the moment will not be hit so severely by recessions or a cost-of-living crisis. They will muddle through with style. But standalone brands can get into trouble easily – just look at British handbag maker Mulberry as a good example. Currently fighting for control of the troubled fashion house is Mike Ashley, the pugnacious founder of “pile ‘e, high” athleisurewear company Sports Direct.

With clouds building over the demand outlook in the West, the sector really needs the wealthy Chinese consumer to embrace global travel and the luxury lifestyle once more as they emerge from their extended pandemic confinement. However, they need to do this with much vigour to make up for waning sales in West. The sector is likely to see continuing volatility until it becomes clear whether the positive drivers in the East can mitigate some of the negatives currently building in the West. If trading in America doesn’t pick up soon, holding investments in luxury-goods companies could become an investment trend that is so last season.

Read next: Has the luxury goods industry turned a corner?

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

Has the luxury goods industry turned a corner?

A nascent sales rebound in one of the world’s most important regions for luxury-goods sales will give executives plenty to talk about at Fashion Weeks in London, Milan, New York and Paris.

See more

More insights

Wall Street continues record-beating run
By Garry White
Chief Investment Commentator
14 Jun 2024 | 12 min read
Tariff wars over electric cars
By Charles Stanley
14 Jun 2024 | 7 min read
UK General Election: No return for the pension lifetime allowance but other pension reforms likely
By Rob Morgan
Spokesperson & Chief Analyst
14 Jun 2024 | 5 min read
General Election manifestos released – what could a change of government mean for your money?
By Rob Morgan
Spokesperson & Chief Analyst
13 Jun 2024 | 9 min read