LVMH update sounds alarm on global luxury market

Today’s top stories

• Kamala Harris is betting on a surge of Democratic enthusiasm to propel her to the US presidency. Pennsylvania’s Josh Shapiro, Arizona senator Mark Kelly and Roy Cooper of North Carolina are the frontrunners to become her running mate.

• The Eurozone economy has slowed sharply due to weaker than forecast growth in services and steep falls in manufacturing, according to the latest S&P Global PMI survey.

• The US warned tech start-ups that foreign adversaries, including China, were using investments to acquire sensitive data and threaten national security.

For up-to-the-minute news updates, visit our live blog

Good evening.

Global luxury stocks took a dive today after industry bellwether LVMH reported slower than expected sales, increasing investors’ concerns about a sector slowdown amid waning demand from China.

LVMH, owner of Louis Vuitton, Dior and Tiffany, is closely watched by analysts because of its size and the fact that its more than 75 companies span luxury segments from watches and bags to travel. The disappointing second-quarter update, including a 14 per cent drop in sales in Asia, dragged down shares from Hermès, Brunello Cucinelli, Prada, Kering and Richemont, owner of jeweller Cartier.

Kering, owner of Gucci and Saint Laurent, later gave a similarly downbeat update and said operating income would fall by 30 per cent in the second half of this year.

The Chinese luxury market, the second largest in the world, doubled in size between 2019 and 2021 as travel restrictions forced shoppers to purchase goods at home. However, a downturn took hold in 2022 when fresh lockdowns were imposed in cities including Shanghai, Beijing and Guangzhou. After restrictions were eased, the fledgling recovery was hit by slowing economic growth, a property crisis, rising youth unemployment and low consumer confidence.

Luxury brands have been discounting products by up to 50 per cent in an attempt to lure Chinese shoppers back while authorities are looking at incentives such as building the world’s biggest duty-free area in tropical Hainan to persuade shoppers to buy their luxury goods at home.

LVMH is just the latest luxury business to sound the alarm. Burberry and Hugo Boss both issued profit warnings last week, with the former also replacing its chief executive. Performance has also diverged across the sector, with companies benefiting from wealthier client bases, such as Hermès, faring much better.

Another cloud over the industry comes in the form of investigations into fashion groups Armani and Dior for unfair commercial practices connected to the alleged exploitation of workers in their Italian supply chains.

Pockets of optimism remain. Buyers of high-end jewellery are proving relatively resilient for example. Retail in Europe also appears to be holding up. Luxury stores are pouring money into the Champs-Élysées in Paris, while the boss of Frasers, the UK stores group, said last week that the appetite for luxury goods from aspirational shoppers would “come back strong”.

What does appear to be over however is the post-pandemic phenomenon of “revenge spending”. Companies had used the opportunity of this pent-up demand to jack up prices way beyond inflation, delivering corresponding rises in share prices.

They now however face a backlash as the rich ask: is it worth it? As one fund manager says: “The lesson for investors is that we cannot blindly assume that strong brands have unlimited pricing power.”

Need to know: UK and Europe economy

The UK’s PMI result, in stark contrast with the Eurozone, showed British business activity expanding, fuelled by a two-year high in manufacturing, giving a welcome boost to the new government. The return of political stability and hopes for an improving economy have led to an uptick in investor appetite for UK equities.

UK insurers are in the spotlight after a report highlighted the soaring costs of premiums and deteriorating levels of customer service. The Money Clinic podcast has some tips on getting a better deal.

European Commission president Ursula von der Leyen and new British Prime Minister Sir Keir Starmer are to organise a meeting within weeks to accelerate a “reset” of relations, three years after the UK left the EU. The UK’s spending watchdog has questioned whether Britain’s investment in the European Space Agency is delivering value for money.

Need to know: Global economy

A UN report said levels of hunger around the world remained “shamefully” high as governments cut back on foreign aid in favour of defence spending and national interest. More than half a billion people are forecast to be undernourished by 2030 — a long way from the UN target of zero hunger.

India announced a spending splurge as Prime Minister Narendra Modi’s government rewarded two regional parties in his new coalition. The country is catching up on China as the largest emerging market in a benchmark investment index.

China’s four-day policy plenum has failed to reassure economists hoping for a structural shift to consumption to revive weak demand. President Xi Jinping instead doubled down on his bet that High Tech would lead to the “great rejuvenation”.

Protests are mushrooming across Europe against record numbers of tourists. Policymakers are juggling how to soothe their anger while holding on to travellers’ spending. A Big Read explains.

Commentator Martin Wolf examines the economics of immigration and the case for temporary work contracts.

Need to know: Business

Insurers’ losses from last week’s global IT outage could run into billions. Broker Aon said it was the most important cyber insurance loss event since the NotPetya malware attacks of 2017. Cyber security company CrowdStrike is putting in new checks to avoid a repeat.

Google parent Alphabet ended talks on the proposed $23bn purchase of Israeli cyber security company Wiz in what would have been the largest deal in the search group’s history. Alphabet’s revenues jumped 14 per cent in the second quarter as strong advertising growth suggested AI chatbots had yet to make a dent in its search business.

Tesla delayed the launch of its “robotaxis” as it announced a slump in profits. General Motors suspended work on Origin, its self-driving vehicle that has no pedals or steering wheel, because of costs and “regulatory uncertainty”.

Footballers and top leagues came together to make a formal complaint to the European Commission against Fifa, the sport’s global governing body, over the increasingly congested match calendar. They also raised antitrust concerns, arguing that Fifa’s dual role as a regulator and competition organiser “creates a conflict of interest”.

The market for rough diamonds for jewellery has suffered from a sustained downturn as consumers switch to much cheaper factory-made stones. But with retailers finding it hard to make good profits, industry experts are predicting a comeback for their natural counterparts.

The World of Work

We all work to different schedules — but can we use science to better tailor our tasks to our timetables? Listen to the new Working It podcast.

Some good news

Wildlife tracking technology that sticks to fur has delivered promising results from trials on wild polar bears.