Growth across the world's largest luxury goods companies is expected to slow to an average of 2.7% in the third quarter, down from 7% in the second quarter, according to forecasts from HSBC covering eight major players in the sector.
The deceleration is led by LVMH, the industry's bellwether, which HSBC expects to grow just 1% in the quarter. Its key fashion and leather goods division — home to Louis Vuitton and Dior — is forecast to shrink 2%, a reversal for a unit that has long driven the group's expansion.
The slowdown traces largely to China, where a new tax on foreign assets and softer consumer spending have weighed on demand for high-end goods. HSBC analysts said they turned more cautious on the sector in early September as news about the Chinese market deteriorated.
"There has been a sequential deceleration in China that's partly linked to the introduction of a new tax on foreign assets," the analysts wrote.
Richemont stands out as the exception. The Swiss owner of Cartier and Van Cleef & Arpels grew 20% in its fiscal first quarter, nearly triple the industry average of 7%, prompting HSBC to revise its expectations for the group upward.
Investors are watching whether the pullback represents a temporary dip or a permanent shift in the luxury market's trajectory. HSBC noted that a weak third quarter could push some shareholders toward the view that the slowdown is structural rather than cyclical.
"In the event of a weak Q3, some investors may be more inclined to view the slowdown in the luxury market as structural," the analysts wrote.
The sector is also contending with legal and brand-protection battles. Louis Vuitton won a ruling against Chinese tea brand Molly Tea, which was ordered to pay approximately $1.5 million in a trademark dispute.
Luxury houses have relied on China for roughly a third of global sales growth over the past decade, making any sustained weakness there a direct threat to earnings across the sector.
