London Fashion Week commences this weekend against a backdrop of declining stock values for major luxury brands, including Burberry and LVMH. The STOXX Europe Luxury index has fallen 20 percent since January, a downturn attributed to weak sales and disappointing profits, according to an HSBC report.
Shares in LVMH, which owns brands such as Dior, Louis Vuitton, Tiffany, and Sephora, have dropped 35 percent this year. Similarly, Hermes, known for its Birkin bags, has seen its stock price decrease by a third. Burberry's stock is down 17 percent over the same period and 50 percent in the last three years.
This slump in luxury goods comes as high street fashion retailers like Marks & Spencer, Next, and Inditex, the owner of Zara, are experiencing prosperity. Marks & Spencer will make its London Fashion Week debut, alongside established luxury brands.
Several factors contribute to the luxury sector's challenges. Conflict in the Middle East has impacted tourism, and consumer demand in China, a previously strong market for luxury items, has softened. While American consumers have shown increased interest, potentially fueled by gains in technology stocks, concerns about an AI stock bubble persist. Bank of America analysts note a dip in demand in the U.S. and other key markets like South Korea.
High living costs have also reduced spending among aspirational shoppers globally. Compounding these issues, many luxury brands, including LVMH, increased prices by 50 to 70 percent between 2019 and the present. In response, companies are introducing more accessible products, such as LVMH's £120 lipsticks, as a stepping stone to higher-priced items like the Louis Vuitton Neverfull bag, which now costs around £1,400, up from £990 in 2020.
Despite the current downturn, some analysts project future growth for the luxury sector. Bain anticipates a 3 percent increase this year and 4 percent annually for the next three years, while Bernstein forecasts 5 percent growth.
Analysts offer mixed views on investment opportunities. While Burberry, Kering, and LVMH are largely rated as 'hold,' Hermes, Richemont (owner of Cartier and Van Cleef & Arpels), and Watches of Switzerland are viewed more optimistically, with some analysts recommending them as 'buy' at current levels. The appeal of jewelry and watches as relatively affordable luxury assets or stores of value in uncertain geopolitical times is growing.
On the high street, Next's shares have risen 9 percent this year, with some analysts rating them as a 'buy.' Marks & Spencer shares have advanced 17 percent this year, and a majority of analysts consider them a 'buy.' Inditex reported a 7.6 percent increase in first-half sales, and its shares are also tipped as a 'buy.' The company is expanding its offerings, including its discount chain Lefties.
For investors, the current market presents a dichotomy between struggling luxury brands and thriving high street retailers, prompting questions about whether Bond Street now offers bargain opportunities or if the High Street is the more prudent investment.