Stocks of luxury brands are falling, a sign that consumers’ high-end spending spree is over.

• The luxury goods boom is over as consumers abandon their years-long high-end spending spree.
• This is evidenced by the rout of LVMH shares, which have fallen by around 20% over the last six months.

The consumer spending spree on high-end goods that began during the pandemic has petered out.

Luxury retailers that have enjoyed healthy profits in recent years are starting to feel challenges in 2023, as financial conditions tighten and consumers appear to be pulling back from ultra-high-end purchases.

LVMH shares fell to their lowest level for 2023 in Paris on Thursday, sliding to 675 euros after the company reported weaker-than-expected quarterly revenue growth. Sales rose 9% in the quarter, down from the 17% increase recorded in the previous three months. Shares of the European luxury giant have fallen about 20% over the past six months, and according to Bloomberg, LVMH led a sale that wiped out $245 billion in value for Europe’s seven largest luxury companies over the past six months. of this period.

“Today’s announcement that LVMH’s revenue growth has slowed significantly likely marks the end of a global luxury bubble,” Nicholas Colas, co-founder of DataTrek, said in a note Thursday. “LVMH is a very well-managed company and investors have become accustomed to seeing strong double-digit revenue growth.”

In the United States, card spending on luxury fashion has been declining for six consecutive quarters, with a 16% year-over-year decline in the most recent quarter, according to Bank of America card data.

In the United States, Tapestry and Ralph Lauren, the two luxury brands in the S&P 500, are also down significantly in 2023, and luxury stocks overall are down 17% from their most recent peak, Bank of America estimated. America.

Industry experts have warned that luxury brands – which previously had a reputation for being “recession-proof” – can now no longer rely on high-income consumers to continue boosting profits in times of recession. economic uncertainty.

This is largely due to China’s economic woes in 2023. Consumers in the world’s second-largest economy were previously huge buyers of American and European luxury items, but that has slowed as the country faces a series of economic problems, including sluggish consumer demand.

Experts also warn that Americans’ incredibly resilient spending habits may be about to change course, particularly as student loan payments resume and shoppers squander the excess savings they accumulated during the pandemic . The San Francisco Fed predicted earlier this year that U.S. consumers would run out of savings by the end of last quarter, and analysts have sounded the alarm about the potential impact on shares of detail.

But the rout of luxury brand stocks could have a beneficiary: the American technology sector. Indeed, European investors often consider technology stocks in their portfolios as competitors of luxury stocks, Colas explained.

Tech sector names are also riding a wave of investor enthusiasm as companies embark on an arms race in artificial intelligence.

“The difference is that Tech is constantly creating “new” products at all price points, where luxury brand portfolios are heavily stacked with many similar products at very high price points. A Kelly bag in a new and rare leather is not considered disruptive. innovation,” he said.

Colas added that technology, healthcare and luxury retail are among the few sectors showing real growth in recent years. As luxury brand stocks stumble in the face of declining spending around the world and health care remains better suited to defensive plays, the only obvious option for investors looking for growth stocks is technology.