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Luxury Stocks Plunge as Gucci Sales Decline Sparks Concerns

Luxury stocks across Europe recently experienced a sharp decline following a profit warning from Kering, the parent company of Gucci, signalling a notable slowdown in demand for high-end goods, particularly in China.

In Paris, shares of Kering plummeted by as much as 15%, while LVMH, owner of renowned brands like Louis Vuitton and Tiffany & Co., saw a decrease of over 3%. Swiss luxury goods company Richemont, known for Piaget watches and Van Cleef & Arpels jewellery, also experienced a 3% slip in its stock value. Meanwhile, Burberry, a British luxury brand, witnessed a decline of up to 6% in London, exacerbating concerns after issuing a profit warning earlier in January.

The setback comes after a prosperous period for luxury brands in the wake of the pandemic, with the current downturn primarily attributed to weakened demand in China. Economic factors, including a prolonged downturn in the property market and a resultant economic slowdown, have dampened consumer sentiment in the world’s second-largest economy.

In an unexpected trading update released late Tuesday, Kering disclosed that sales at its flagship brand, Gucci, were anticipated to plummet nearly 20% year-on-year in the first quarter, largely due to a significant decline in the Asia-Pacific region. Overall, Kering projected a 10% decrease in comparable sales for the period.

Adam Crisafulli, founder of market intelligence firm Vital Knowledge, expressed concerns regarding the implications of Kering’s warning, stating, “The magnitude of the warning is jarring and is raising further concerns about the state of high-end consumer demand.” He highlighted Gucci’s ongoing struggles and suggested broader worries about consumer spending and China’s economic health.

China’s economy has grappled with deflationary pressures, with consumer prices stagnating or declining in recent months. While the Consumer Price Index showed a slight uptick in February, driven by holiday-related spending during the Lunar New Year, challenges persist for luxury brands amid shifting consumer behaviours.

Kering, which also oversees brands like Saint Laurent and Balenciaga, has faced significant challenges amidst lower luxury spending trends. The company initiated a management restructuring last year aimed at revitalizing its performance, with a strong emphasis on rejuvenating the Gucci brand, which represents a substantial portion of its revenue.

In efforts to mitigate the sales decline, Kering introduced its Ancora collection in selected Gucci stores, receiving positive feedback from consumers. The company plans to gradually expand the availability of the new collection in the coming months in hopes of revitalizing sales momentum.

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