LVMH CEO Bernard Arnault warned Thursday of a \u201cworld catastrophe\u201d 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\u2019s sales growth.<\/p>\n
\u201cThe world is now in a pretty serious crisis in the Middle East,\u201d the long-serving CEO told shareholders at the company\u2019s Annual General Meeting in Paris. \u201cEither it\u2019ll be a world catastrophe with very serious and very negative economic impact \u2013 in which case, who can say how 2026 will unfold \u2013 or it will be resolved more rapidly in some shape or form that we all hope for, even if it doesn\u2019t seem to be easy, in which case, business will recover and resume their normal course,\u201d he stated, according to an LVMH translation.<\/p>\n
Organic sales for the world\u2019s 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.<\/p>\n
Currently, a ceasefire is in effect, but clarity on the conflict\u2019s 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\u2019s head told CNBC on Thursday that the effective closure of the strait has led to the \u201cbiggest energy security threat in history.\u201d<\/p>\n
Arnault\u2019s remarks come as many of LVMH\u2019s 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.<\/p>\n
\u201cThe 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,\u201d McKinsey Senior Partner Gemma D\u2019Auria informed CNBC. D\u2019Auria added that, in the short term, brands will be affected by the conflict, which is significantly reducing traffic in the region. \u201cIt is yet to be seen whether this decline would be compensated for by Middle East clients shopping elsewhere outside of the Middle East.\u201d<\/p>\n
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\u2019 bottom lines more severe.<\/p>\n
Morningstar analyst Jelena Sokolova noted that a broad luxury recovery appears to be on track, \u201cbut at a fairly soft and uneven pace.\u201d 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\u2019s main growth drivers.<\/p>\n
\u201cLVMH saw improvement with Chinese consumers, but Kering didn\u2019t see it yet for Gucci,\u201d Sokolova told CNBC. \u201cFor Hermes, Asia excluding Japan slowed sequentially. So far, with real estate prices under pressure [in China], confidence in Chinese market remains subdued.\u201d<\/p>\n
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 \u201cwholesale activity was significantly affected by lower sales to concession stores, particularly in the Middle East and in airports.\u201d<\/p>\n
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.<\/p>\n
In what D\u2019Auria describes as a \u201ctwo-speed recovery,\u201d 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\u2019s ambition to further expand into the luxury jewelry business, which has shown greater resilience amidst the sector\u2019s downturn, as these consumers are typically wealthier and less price-sensitive. The CEO aims for his company to become \u201cthe leading jewelry brand\u201d within five years, largely driven by Tiffany.<\/p>\n
Richemont, Prada, and Burberry have yet to release their first-quarter earnings and comment on the impact of the Iran war on their operations.<\/p>\n
#LVMH #BernardArnault #MiddleEastConflict #LuxuryMarket #EconomicImpact #GlobalEconomy #RetailSales #LuxuryBrands #GeopoliticalRisk #StraitOfHormuz<\/p>\n","protected":false},"excerpt":{"rendered":"
LVMH CEO Bernard Arnault warned Thursday of a \u201cworld catastrophe\u201d 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\u2019s sales growth. \u201cThe world is now in a pretty serious crisis […]<\/p>\n","protected":false},"author":2,"featured_media":6817,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[33],"tags":[],"class_list":["post-6816","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-middle-east-news"],"_links":{"self":[{"href":"https:\/\/fajr.news\/index.php?rest_route=\/wp\/v2\/posts\/6816","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fajr.news\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fajr.news\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fajr.news\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/fajr.news\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=6816"}],"version-history":[{"count":0,"href":"https:\/\/fajr.news\/index.php?rest_route=\/wp\/v2\/posts\/6816\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/fajr.news\/index.php?rest_route=\/wp\/v2\/media\/6817"}],"wp:attachment":[{"href":"https:\/\/fajr.news\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=6816"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fajr.news\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=6816"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fajr.news\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=6816"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}