Concerns of a prolonged economic slump cause luxury stocks to decline.

• High-spending Chinese consumers are driving a deteriorating demand outlook, causing luxury stocks to tumble Monday, according to analysts' warnings.
• In London, at midday, the Stoxx 600 index saw Germany's Hugo Boss among its poorest performers, with a 4% decline.
• Jon Cox of CNBC reported on Monday that Kepler Cheuvreux believes most people were hoping for improvement in the second half of the year, but there is no indication of that happening yet.

European luxury stocks plummeted on Monday due to analysts' warnings of a weakening demand forecast, particularly among affluent Chinese consumers.

By midday, Germany's stock was among the worst performers on the index, down 4%, after Bank of America Securities downgraded the stock to underperform from buy. The second half is expected to present a tougher consumer backdrop with higher discounting, analysts said.

In 2022, after the peak in consumption following the Covid pandemic, luxury sector revenues have been gradually declining. The American consumer was the first to adjust, followed by the Korean, European, and Japanese consumer, as reported by BofA Securities analysts in a research report on Monday.

The Chinese consumer, under pressure due to fading sector support, is now facing pressure along with all nationalities. Luxury consumers are "all shopped out" and Chinese domestic and travel demand has deteriorated. Across European luxury firms, they anticipate a 1% revenue decline in 2024.

In July, Hugo Boss cited "enduring economic and political difficulties," specifically in China and the U.K., as reasons for revising its sales forecast.

The stock price of shares in Britain dropped nearly 3% on Monday after BofA Securities analysts downgraded their target price to 475p from 700p.

They also cut ratings on French luxury giants and from buy to neutral.

On Monday, LVMH experienced a 0.24% decline, reaching its lowest point since July 2022, as per LSEG data. Kering dropped 1.7%, while Hermes fell 0.26%.

The Stoxx Europe Luxury 10 index, which tracks the top names in the luxury sector, remained unchanged but has dropped 3.82% so far this year.

'Prolonged period of weakness'

They're not alone in their bearish view on Europe's luxury sector.

China's dominance in the luxury goods industry over the past decade has become a problem, according to Jon Cox, head of European consumer equities at Kepler Cheuvreux, who stated this on CNBC's "Street Signs Europe" on Monday.

The property market challenges in China, along with the fragility in Europe and the uncertainty brought about by the U.S. election, are negatively impacting sentiment there, according to Cox.

The luxury goods industry may face a prolonged period of weakness, as we have already witnessed it for a few semesters. Despite hopes that things would improve in the second half of the year, there is no indication of that happening at the moment, according to him.

Aspirational buyers and fashion-forward youngsters pose a challenge for brands like Burberry, which have restructured and are trying to reposition, as their spending patterns can be unpredictable.

"If you believe in Kering, Burberry, and Gucci, the problem is the timing," he said.

"When luxury buyers are looking for products, they often prefer well-positioned companies like Hermes, Gucci, and Prada. However, for some reason, this particular company is currently capturing their imagination."

Hargreaves Lansdown's Susannah Streeter pointed out a challenge for luxury goods companies: the possibility of China imposing new tariffs on the industry.

The proposed extra duties on Chinese EVs by Brussels have raised concerns about retaliatory measures on well-known brands. While these products may be popular among Chinese fashion enthusiasts, they are not essential components for China's heavy industry and could be the first to be targeted, according to Streeter's email on Monday.