Middle East "Airport Gate" Closes, Luxury Goods Sector Q1 Sales Expected to Decline 1%

Investing.com - As Middle East conflicts escalate, global luxury giants are preparing for regional sales declines, but analysts believe the main impact on valuations may already be priced in.

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According to Bernstein’s in-depth research report, the region has become a key growth engine, now comparable in importance to Japan, accounting for about 6% of total sales in the sector.

The impact of regional instability is expected to hit the largest corporate groups the hardest. Bernstein estimates that LVMH (EPA:LVMH), Richemont (SIX:CFR), and Kering (EPA:PRTP) have the highest exposure, with around 8% of their total sales coming from the Middle East.

In contrast, brands like Hermès, Moncler SpA (BIT:MONC), and Salvatore Ferragamo SpA (BIT:SFER) have smaller operations in the region and are less affected.

Although the “airport gates” are still largely closed, affecting about 9% of the retail network, the sector is relying on its high-net-worth individual (HNWI) clientele.

Similar to trends during the COVID-19 pandemic, sales assistants have shifted to “outreach activities,” maintaining contact with wealthy local customers who are “stuck at home with nothing to do but shop.”

Bernstein expects sales in the region for March to be halved rather than zeroed out, which will pose a manageable 100 basis points headwind to first-quarter total sales.

Beyond direct retail disruptions, the report also warns that if the conflict continues into the medium term, broader “indirect impacts” could occur. The Middle East is the fastest-growing region for the sector in fiscal 2025, with organic growth rates of 6% to 8%.

Bernstein notes that prolonged warfare could reverse recent growth by pushing up energy costs, potentially triggering inflationary pressures and weakening global consumer confidence.

The geographic focus remains on the UAE and Saudi Arabia, which together host over half of the region’s luxury stores and are currently the “least affected” areas, with most boutiques still open.

However, since 30% of global luxury sales depend on tourism, a broader regional crisis could threaten the “super tourism” that has driven recent performance. The “direct impact” is considered already reflected in current stock prices, but the ongoing trajectory of the war remains a key variable for the sector’s outlook through 2026.

This article was translated with the assistance of artificial intelligence. For more information, please see our Terms of Use.