Is the luxury bubble over?

LVMH’s revenue growth has slowed dramatically in the last quarter, a signal some are marking as the end of the global luxury bubble. Global growth investors may cycle into US Big Tech as a result, DataTrek said in a Tweet. “Today’s news that LVMH’s revenue growth has slowed dramatically likely marks the end of a global luxury bubble” DataTrek cofounder Nicholas Colas said in a note last week. “LVMH is a very well-managed business, and investors have gotten used to seeing it post strong double-digit top line increases.”

LVMH, a bellwether of global luxury, posted slower sales growth in the third quarter, and could sound alarm bells for other, less buoyant luxury brands.

Luxury brand stocks experienced remarkable growth during the pandemic period, with LVMH briefly holding the position of Europe's most valuable company, under the leadership of the world's second-richest individual. From high-end handbags to luxury cars, the industry thrived as both the ultra-wealthy and aspirational mass-affluent consumers displayed strong interest in their products, noted Barrons.

Expectations for luxury sales were high, particularly with China, a crucial luxury market that had been adversely affected by pandemic restrictions, reopening its economy. However, China's fragile economic situation has failed to provide the anticipated boost. Recent reports from LVMH indicate that demand is decelerating not only in China but also in other regions, particularly the United States and Europe, Barrons wrote.

Investors are on red alert for a slowdown in luxury sales with stocks cooling, and fashion’s loss may be tech’s gain. “A Kelly bag in a new, rare leather does not count as disruptive innovation,” Colas stated. “Global growth investors who have now been disappointed by European luxury stocks will likely shift capital to US Big Tech.”