Is it time to invest in the luxury sector?

Analysts reckon the slump is temporary, note sector boasts good profitability

- Kang Wan Chern

Shares of some of the world's most coveted luxury brands have taken a beating due to poor demand, but the sector's slump could be an opportunity to invest in high-end firms at a rare bargain price.

Shares of Europe-listed brand owners such as LVMH and Kering have fallen between 20 per cent and 46 per cent since the start of 2024 as big spenders, most notably from China, cut back on Louis Vuitton and Gucci purchases amid fragile real estate and employment markets.

The slide has accelerated in recent weeks, after the firms reported lower sales and uncertain outlook during the quarterly earnings season.

French luxury giant LVMH, which owns labels such as Louis Vuitton, Christian Dior, Tiffany & Co and Bulgari, reported a 3 per cent year-on-year fall in third-quarter sales to €19.08 billion (S$27 billion), its first decline in quarterly sales since the coronavirus pandemic.

Often used as a proxy for the sector, the world's biggest luxury group posted sales declines in its wines and spirits, fashion and leather goods, and watches and jewellery segments.

LVMH chief financial officer Jean-Jacques Guiony noted during the group's earnings call in October that the drop in demand is "not surprising", given that most of its key markets, mainly the United States, Europe and the Asia-Pacific, faced economic headwinds during the quarter.

Sales in the Asia-Pacific, which includes China, fell the most, down 16 per cent in the quarter compared with the year before.

Mr Guiony said: "Consumer confidence in mainland China today is back in line with the all-time low reached during Covid-19. We cannot expect discretionary consumption to expand in this context."