A war thousands of kilometres away is quietly reshaping what — and how — the world’s richest shoppers are buying.
Europe’s 10 publicly-traded luxury firms have shed $176 billion in market value since the start of the year, according to Bloomberg data. Since the sector depends heavily on global travel and cross-border spending, the Middle East conflict is likely a key reason for the loss, which has dented tourism and delayed a recovery in high-end demand.
The setback comes as the $400-billion global luxury industry was already grappling with slowing growth over the past three years, according to Reuters.
The pain is most visible at the top. LVMH alone has shed close to $100 billion in value, despite broader European markets holding up.
In the near term, stock moves suggest nerves haven’t fully settled. Over the past five days, LVMH shares have edged up 1.92% on Euronext Paris, signalling some stability after steep losses. Kering, however, is down 6.61%, dragged by weak brand performance, while Hermès has slipped 1.45%, extending its post-earnings decline.
Why the Middle East matters more than ever
For luxury brands, the Middle East has become a critical engine of growth rather than just another market.
The region was the fastest-growing luxury market globally last year and now accounts for roughly 6% of global sales, according to Bernstein luxury analyst Luca Solca. More importantly, its wealthy consumers don’t just shop at home — they spend big in Paris, Milan and London.
That model is now under stress.
According to Morgan Stanley, about 60% of luxury spending in the UAE comes from tourists, making the region highly sensitive to travel disruptions. Seven weeks into the conflict, fewer flights, cancelled holidays and rising uncertainty have sharply reduced tourist flows — hitting demand almost immediately across markets.
At Hermès, one of the industry’s most resilient players, the shift was abrupt. “January and February, we had great double-digit growth, which was very homogeneous across these two months. It’s only in March that the revenue started to go down” in the Middle East, CFO Eric du Halgouët said during the Q1 earnings call.
The Birkin maker still reported 4.1 billion euros in quarterly sales, up 5.6% year-on-year, but missed expectations of 7.1%. Sales in the Middle East fell, and even France — where more than half of Hermès’ business is tied to tourism — saw a dip as fewer Middle Eastern shoppers showed up.
Wholesale channels, particularly in travel retail and airport stores, were hit even harder. “Wholesale activity was significantly affected by lower sales to concession stores, particularly in the Middle East and in airports,” the company said.
Gucci struggles, Kering feels the spillover
The slowdown is more pronounced at Kering.
The group reported a 6% drop in first-quarter revenue, with flagship label Gucci seeing sales fall 8%, worse than expected.
In the Middle East, Kering’s retail sales dropped 11%, while Western Europe — typically buoyed by tourist spending — also saw a 7% decline, as fewer shoppers arrived from Asia and the Gulf, CFO Armelle Poulou said during the earnings call.
LVMH flags demand shock
At LVMH, the world’s largest luxury group, the impact is already visible—and often seen as a bellwether for the sector.
Its core fashion and leather goods division reported a 2% drop in sales — its weakest start to a year on record. The company said the Middle East conflict cut about one percentage point from growth, with demand in March falling as much as 30% to 70% in some locations, according to CFO Cécile Cabanis.
Empty malls, falling footfall
On the ground, the slowdown is stark and increasingly visible.
Sales at Europe’s biggest luxury brands have shrunk across key Gulf hubs like Dubai and Abu Dhabi, as the conflict disrupts what had been the sector’s fastest-growing market, Reuters reported.
At Mall of the Emirates, sales dropped 30-50% in March, while footfall fell 15%. Traffic at Dubai Mall — a magnet for luxury tourists — was reportedly down about 50%, pointing to an even sharper hit to spending.
Even in relatively resilient markets like Abu Dhabi, the Galleria Al Maryah Island saw sales decline around 10%.
The hit is tied not just to fewer travellers, but rising security concerns. Dubai’s airport hub has been targeted multiple times by Iranian drone attacks, while even high-profile landmarks like the Burj Al Arab have reported minor damage from intercepted debris, Reuters said.
Recovery pushed further out
The timing couldn’t be worse.
After two years of sluggish growth, luxury brands were betting on a rebound in 2026, supported by a recovery in China, strong US demand and steady tourism in Europe.
That outlook is now in question.
“If it now turns out that whatever luxury recovery we were hoping for in 2026 is not going to happen, and it’s going to be postponed at best into the second half or into next year, I don’t think anybody can be surprised by it,” Christopher Rossbach, portfolio manager at J Stern & Co in London, told Reuters.
UBS analyst Zuzanna Pusz wrote in a research note that sentiment is “the most bearish in years,” with geopolitical uncertainty likely to delay a recovery.
Higher oil prices and volatile markets could also weigh on spending, particularly among aspirational buyers, while even wealthy consumers may pull back as stock markets fluctuate.
Not all doom and gloom
There are, however, early signs of resilience.
Some brands are maintaining sales by reaching out directly to top clients or shifting demand to other geographies, even as travel slows.
Breitling AG CEO Georges Kern told Bloomberg that the watchmaker remains optimistic, saying tourism in the Middle East could “come back overnight” once stability returns.
For now, though, the conflict has exposed a fundamental risk in the luxury business: it thrives on movement. When wealthy consumers stop travelling, so does their spending.
And until that changes, the sector’s recovery may remain on hold.
