Sales of Europe's biggest luxury brands disrupted amid Middle East tensions

The global luxury goods sector is suffering from slowing growth momentum amid escalating geopolitical tensions in the Middle East, directly impacting the finances of major European brands.

The instability reduced local demand in the Middle East and put pressure on luxury retail sales across Europe, especially in France, as tourist traffic declined.

French fashion behemoth Hermes posted a 5.6% increase in currency-adjusted sales in the first quarter of the year, but the figure fell short of market expectations of 7.1%.

The euro’s strong performance reduced the firm’s revenue by around €290 million ($342 million), while Hermes’ total revenue fell 1% to €4.07 billion.

Hermes’ shares dropped more than 10% to a three-year low, while sales to the Middle East were hit the hardest with a 6% drop.

Hermes executives attributed the waning performance of the firm to the Middle East crisis and the resulting decline in tourist numbers as the primary causes.

Hermes Chief Financial Officer Eric du Halgouet said sales at luxury shopping malls in Dubai and other Gulf cities plummeted 40% in March, and while the decline in tourism affected European and Asian operations of the firm in this period, Hermes posted a 17.2% increase in sales in the US market.

Rival brands observed a similar trend, with shares of Kering, the parent firm of luxury brand Gucci, declining 10% after an 8% downtick in sales due to the Middle East war and waning consumer demand.

*Writing by Emir Yildirim in Istanbul