Editor’s Note
This article examines the mounting pressure on luxury jewelers like LVMH’s Tiffany, as soaring gold prices, U.S. tariffs, and currency fluctuations converge to squeeze profit margins. It highlights a critical challenge for the high-end goods sector in maintaining its financial resilience.
PARIS (Reuters) – The doubling of gold prices over two years, coupled with U.S. tariffs and a weakening dollar, has made it more challenging for players in the high-end goods industry, such as LVMH, owner of American jeweler Tiffany, to defend their gross margins.
Gold surpassed $4,000 per ounce last week to reach a record high, as investors sought safety due to economic and geopolitical uncertainty and expectations of further U.S. interest rate cuts.
LVMH, the world’s largest luxury conglomerate, is expected to announce stable sales for the third quarter when it reports results on Tuesday, with a 4% decline for fashion and leather goods and 1% growth for watches and jewelry, according to a VisibleAlpha consensus cited by HSBC.
Jewelry brands, including Tiffany and Bulgari (LVMH), Cartier, Van Cleef & Arpels (Richemont), and Boucheron (Kering), have recently outperformed their fashion-focused peers.
At LVMH, watch and jewelry sales stagnated in the first half of the year, and profit fell by 13%. Its fashion and leather goods division, which includes Louis Vuitton and Dior, saw its profit drop by 18% on a 7% decline in revenue.
Watches and jewelry account for over 12% of LVMH’s sales, and fashion for about half of the group’s sales.
Tiffany and Bulgari are among the five most important brands for LVMH in terms of annual revenue, according to HSBC estimates.
Despite the sharp rise in gold, the metal represents only a small portion of the production costs for luxury jewelry brands, averaging only 10% of jewelry sales, according to Manuel Lang, equity analyst for consumer goods at Vontobel.
This percentage falls to between 5% and 8% for ultra-high-end designer brands, said Luca Solca, an analyst at Bernstein.
As brands seek to reduce margin pressure, they should be cautious in passing price increases on to consumers so as not to erode demand, other analysts said.
For Swiss company Richemont, which is more focused on jewelry than its rivals and has outperformed its peers, this has not translated into upward revisions to profit forecasts due to factors such as interest rates and gold prices, which were “completely out of their control,” said Zuzanna Pusz, an analyst at UBS.