Luxury brands are facing fresh pressure from China’s tax crackdown on wealthy individuals and signs of weaker consumer spending in the US. The challenges come as major companies prepare to report quarterly results. That raises concerns about recovery in the USD 350 billion luxury market.
Shares of LVMH and Hermes have fallen around 40% this year, while Kering, which owns Gucci, has dropped 29%. The declines reflect growing investor concerns over demand after three years of sluggish growth.
China has introduced measures requiring wealthy individuals who used offshore trusts to protect assets to declare and pay past taxes by October 22. The 20% levy could limit spending among high-net-worth consumers, who have helped support luxury sales in recent years.
Chinese shoppers account for about one-fifth of global luxury purchases. However, demand has weakened since the COVID pandemic, and the latest tax measures are adding to concerns about consumer confidence. Alexis Bonhomme, head of Shanghai-based luxury consultancy Trinity Asia, said some wealthy consumers could face cash shortages before the deadline.
"Until the deadline to pay the tax, some people may face liquidity issues", Bonhomme said. "This doesn't mean they won't start buying again, but right now, the mood just isn't there," he added.
Luxury brands are also seeing different results in China. Smaller labels such as Brunello Cucinelli and Loro Piana are performing better than more prominent brands such as Louis Vuitton and Gucci, according to industry sources.
The US market is also showing signs of weakness. Credit card spending on luxury goods tracked by Citi fell for a third consecutive month in August as consumer confidence declined.
Kering has warned of another sales contraction at Gucci, prompting several brokerages to lower their price targets. High-end jewellery has offered some support, with Cartier benefiting from demand for gold and other precious materials.
Investors will look to upcoming earnings for signs of the sector’s direction. LVMH reports on Monday, with analysts expecting quarterly sales of EUR 18.5 billion, up 1% from a year earlier. Kering and Hermes are scheduled to report on October 22.
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