A PROFIT warning by the parent of luxury brand Gucci has reverberated across the global luxury goods sector, sending shares in both the firm and its peers tumbling.

Shares in Kering, the French multinational owned by billionaire François-Henri Pinault closed down 11.91 per cent yesterday after the business said it expected to report a first-quarter revenue decline of 10 per cent.

Deteriorating Gucci sales in Asia were cited as the main reason for its weak performance.

The brand, best known for its belts, has now seen sales decline for two consecutive quarters.

The update knocked shares in luxury retailers across the board, retailers such as LVMH (down 1.63 per cent), Burberry (down 3.29 per cent), Prada (down 2.28 per cent) and Watches of Switzerland (down 6 per cent).

The problems can be traced to China. Its sluggish recovery from the pandemic has bruised luxury markets, as its growth has been a key driver of growth in the sector over the past decade.

Earlier this week it was reported that exports of pricey Swiss watches such as Rolex and TAG Heuer fell for the second time in three years, led mainly by lower deliveries to Greater China and Hong Kong.

Alongside recovery from the pandemic, China's economy has been buffeted by a property crisis and high levels of youth unemployment.

This, coupled with what has been dubbed a "richcession" in other western markets, has hindered sales of designer brands.

Charlie Huggins, head of equities at the Wealth Club, said: "Luxury spending is slowing and the Chinese economy remains weak.

"Coming out of the pandemic, the luxury sector experienced a boom period. Rising asset prices, fuelled by liquidity injections from governments, contributed to the wealthy getting wealthier."

Huggins said luxury spending will bounce back, but "there could easily be further weakness before that happens."

Earlier this year, analysts at Jefferies agreed to cut their 2024 industry demand growth assumption for global luxury brands from four per cent to two per cent.

(c) 2024 City A.M., source Newspaper