Shaky luxury market: the end of an era for LVMH

The Luxury Industry: Challenges and Opportunities

As the luxury sector, particularly LVMH, faces significant challenges, many investors are pondering whether these stock prices represent an investment opportunity.
What is plaguing the luxury sector, and specifically, what complicates the operations of major European brands?

How does the luxury sector respond to economic dynamics?

It may seem counterintuitive, but the luxury sector is often perceived as a safe haven during times of economic uncertainty.
This resilience can be attributed to several distinctive economic factors.
Luxury companies can easily pass on cost increases (the burden of inflation) to consumers, maintaining high profit margins compared to other sectors.
This is because typical luxury consumers tend to be less price-sensitive, enabling these companies to sustain steady sales even in tough economic periods.

What is driving the current crisis in the luxury sector?

Despite their historical resilience, luxury companies are facing a crisis.
LVMH, a giant in the industry, is a prime example.
In the first quarter of 2024, LVMH’s organic sales grew by only 3%, a significant drop compared to the growth recorded between 2020 and 2023.

While luxury companies may have more leeway in adjusting prices compared to other sectors, there are still “price limits” beyond which buyers’ interest shifts elsewhere.
In 2024, continuous price increases are dissuading many aspiring luxury buyers who prefer to avoid spending thousands of euros in this economic context.
In the case of LVMH, a renowned French brand, there are also political issues, notably the recent French parliamentary elections, which resulted in a political deadlock, creating an uncertain atmosphere that did not benefit sales.

Additionally, another element to consider when addressing the luxury industry is the China factor, LVMH’s largest market, which is experiencing an economic downturn.

What can we expect from LVMH?

Compared to historic highs, LVMH’s stock is down around 25%, reflecting the fundamental complications related to its industry.
A key level of support closely monitored by technical analysts is certainly the price of €660, where abnormal volume levels could occur.
From a technical perspective, it is interesting to keep an eye on the 14-period RSI on a weekly timeframe: reaching the 30 point zone could represent a potential bottom attracting new demand.