The numbers are clear, the Middle East war has driven down luxury fashion sales worldwide
The seven-week war in the Middle East is suppressing demand in the luxury industry and LVMH, Kering and Hermes all reported weak sales in the first quarter.
Shoppers from the Middle East are among the world’s biggest spenders, spending money in retail hubs such as Dubai and other luxury destinations including Paris and Milan.
The disappointing results from three of the most important groups show how grounded flights and disrupted holidays are impacting the industry.
Hermes International SCA, usually the sector’s most reliable outperformer, disappointed with a 5.9% decline in sales in the sector.
Hermes lost about US$20bil (about RM79bil) in value on Wednesday (April 15) alone as its shares fell as much as 14%.
“In January and February we had beautiful double-digit growth, but the Middle East stalled in March,” Hermes Chief Financial Officer Eric du Halguet told reporters on a call on Wednesday (April 15).
Read more: Is luxury fashion losing its momentum? French group Kering is seeing a decline in sales
In France – where more than half of Hermes’ business is linked to tourism, sales fell 2.8% due to lower spending by visitors, du Halguet said.
The Birkin handbag maker’s stores in Switzerland and the UK were also hit by fewer Middle Eastern shoppers.
While the Middle East represents about 4.4% of Hermes’ total sales, customers in the region account for about 7% of the total, du Halguet said.
Earlier this week, LVMH Moët Hennessy Louis Vuitton SE’s most important fashion and leather goods units reported a 2% decline in sales. Kering’s retail revenue in the Middle East fell 11% during the first quarter, with Gucci’s sales also falling.
investor selling
Hermes shares declined as investors sold shares based on earnings, which they considered disappointing, particularly in France and Asia as well as the Middle East.
The collective market capitalization of 10 listed European luxury companies has fallen by US$176bil (RM696bil) since the end of last year, according to data compiled by Reuters. bloomberg.
LVMH has seen its value shed nearly US$100bil (RM396bil) as its shares continued to slide after the luxury giant posted its worst first-quarter performance on record.
The war in the Middle East has disrupted oil and gas supplies and clouded the economic outlook with fears of a global inflation crisis.
The longer the conflict continues, the greater the impact, with the turmoil already dampening expectations that the luxury sector will see a recovery following the arrival of new designers at brands like Dior and Gucci.
LVMH’s business in the Middle East, which represents about 6% of total sales, took a hit after a “very positive start to the year”, the company’s chief financial officer, Cecile Cabaniss, said on Monday (April 13).
The war reduced the group’s organic growth for the quarter by approximately one percentage point.
Read more: Dubai’s luxury fashion scene has faltered as major malls remain vacant due to regional conflict
Apart from ready-to-wear fashion and handbags, the luxury watch sector is also feeling the chill from lower demand in the Middle East.
Breitling AG CEO Georges Kern said bloomberg Given the lack of tourism and reduced flight schedules in the region, the watchmaker has optimized shipments to the Middle East for some time.
He said some price points, such as the mid-segment, are suffering more than others.
Despite the disappointment, Hermes indicated that the situation was beginning to improve and du Halguet said sales in the Middle East had started to increase in the current quarter.
Kern is also optimistic about the future of the Middle East in the long term.
“This is a region where tourism will come back overnight. It will not be a long recovery like China, it will be back in 24 hours,” he said on the sidelines of the Watches & Wonders event in Geneva.
“That’s because it is safe, the infrastructure is the best in the world, the service, tourism, hotels, airlines are the best in the world.” – Bloomberg
