Editor’s Note
Soaring gold prices, U.S. tariffs, and a weaker dollar are converging to squeeze margins in the luxury sector. As this analysis highlights, even industry titans like LVMH’s Tiffany face a significant challenge in maintaining profitability amid these compounded pressures.
Gold prices have doubled in two years, and combined with U.S. tariffs and a weakening dollar, have made it difficult for players in the luxury goods industry, such as LVMH, owner of American jeweler Tiffany, to defend their gross margins.
Last week, gold surpassed $4,000 per ounce and reached a record, as investors seek safety amid economic and geopolitical uncertainty, as well as expectations of new interest rate cuts in the United States.
LVMH, the world’s largest luxury conglomerate, is expected to announce stable sales in the third quarter when it releases its results on Tuesday, with a 4% decline in fashion and leather goods and 1% growth in 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 and profit fell 13%. Its fashion and leather goods division, which includes Louis Vuitton and Dior, saw its profit shrink by 18% and turnover decline by 7%.
Watches and jewelry account for more than 12% of LVMH’s sales, while fashion represents roughly half of the group’s turnover.
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 part of the production costs for luxury jewelry brands, i.e., only 10% of jewelry sales on average, according to Manuel Lang, equity and consumer goods analyst at Vontobel.
This percentage falls between 5% and 8% for ultra-high-end designer brands, according to Luca Solca, analyst at Bernstein.
Thus,
As brands seek to reduce pressure on margins, they should act cautiously when passing price increases on to consumers so as not to erode demand, other analysts warned.
For Swiss Richemont, which is more oriented towards jewelry than its rivals and has outperformed its competitors, this has not translated into upward revisions to profit forecasts due to factors such as interest rates and gold prices, which were
