LVMH CEO Bernard Arnault warned Thursday of a “world catastrophe” if the conflict in the Middle East is not resolved. His comments followed a period where the Iran war impacted demand in the first three months of the year, effectively halving the luxury giant’s sales growth.
“The world is now in a pretty serious crisis in the Middle East,” the long-serving CEO told shareholders at the company’s Annual General Meeting in Paris. “Either it’ll be a world catastrophe with very serious and very negative economic impact – in which case, who can say how 2026 will unfold – or it will be resolved more rapidly in some shape or form that we all hope for, even if it doesn’t seem to be easy, in which case, business will recover and resume their normal course,” he stated, according to an LVMH translation.
Organic sales for the world’s largest luxury company grew by 1% in the first quarter. LVMH reported last week that the Middle East conflict had a 1% negative impact on organic growth, effectively cutting quarterly growth in half. Arnault anticipates a return to growth in the second half of this year, provided a solution can be reached between Iran, the U.S., and Israel.
Currently, a ceasefire is in effect, but clarity on the conflict’s resolution remains elusive. Both the U.S. and Iran are leveraging the Strait of Hormuz as a bargaining chip, a crucial waterway through which approximately one-fifth of global oil typically passes. The International Energy Agency’s head told CNBC on Thursday that the effective closure of the strait has led to the “biggest energy security threat in history.”
Arnault’s remarks come as many of LVMH’s competitors also experienced a sales hit in March due to subdued activity in the Middle East, impacting both quarterly earnings and share prices. Luxury stocks faced pressure following the negative impact of the Middle East conflict on March sales. This conflict emerges at a particularly delicate time for the luxury sector, which had largely anticipated a return to growth in 2026 after a year-long slump, a recovery now in jeopardy.
“The Middle East was one of the hot spots for growth… what I am hearing from our clients is that there is a double whammy of consumer sentiment declining, traffic declining, and spend declining,” McKinsey Senior Partner Gemma D’Auria informed CNBC. D’Auria added that, in the short term, brands will be affected by the conflict, which is significantly reducing traffic in the region. “It is yet to be seen whether this decline would be compensated for by Middle East clients shopping elsewhere outside of the Middle East.”
For many major luxury companies, the Middle East contributes around mid-single-digit percentages to total sales. Some, like Cartier-owner Richemont, have higher exposure to the region. However, profitability tends to be higher, potentially making the impact on companies’ bottom lines more severe.
Morningstar analyst Jelena Sokolova noted that a broad luxury recovery appears to be on track, “but at a fairly soft and uneven pace.” The luxury sector had begun to show signs of recovery after a years-long slump driven by soft demand from Chinese consumers, previously one of the sector’s main growth drivers.
“LVMH saw improvement with Chinese consumers, but Kering didn’t see it yet for Gucci,” Sokolova told CNBC. “For Hermes, Asia excluding Japan slowed sequentially. So far, with real estate prices under pressure [in China], confidence in Chinese market remains subdued.”
Gucci-owner Kering reported last week that retail revenue in the Middle East fell by 11% in the first quarter, despite growth over the first two months of the year. With 79 stores in the region, the Middle East accounts for approximately 5% of its retail revenue. Hermes, which has generally performed better than many peers due to its resilient ultra-wealthy clientele, also significantly missed first-quarter sales targets. It stated that “wholesale activity was significantly affected by lower sales to concession stores, particularly in the Middle East and in airports.”
Meanwhile, smaller peers Moncler and Brunello Cucinelli experienced a lesser impact from the conflict. Moncler indicated that EMEA sales declined by 1% year-on-year, partly due to subdued tourism trends in the region.
In what D’Auria describes as a “two-speed recovery,” some elite brands are thriving, while others, often targeting the middle-market for luxury, are lagging. Mid-market players are now strategically positioning themselves to attract consumers who were largely overlooked due to price increases in recent years, she added. Arnault emphasized LVMH’s ambition to further expand into the luxury jewelry business, which has shown greater resilience amidst the sector’s downturn, as these consumers are typically wealthier and less price-sensitive. The CEO aims for his company to become “the leading jewelry brand” within five years, largely driven by Tiffany.
Richemont, Prada, and Burberry have yet to release their first-quarter earnings and comment on the impact of the Iran war on their operations.
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