Ritika Janiya
LVMH – the flagship company with Louis Vuitton, Dior, Tiffany, and Moët & Chandon to its name – blindsided investors a little while ago by announcing it failed to meet analysts’ sales targets. That said, news about China’s slowing economy means that less of its people spend money on luxury items. Let’s look at what happened and why it matters.
A Stunning Sales Report
In the third quarter, from July through September, LVMH’s sales declined to around €19.1 billion, or roughly £16 billion. That marks a 3% decline when compared to the same period last year. The results were met with a keen investor response, and LVMH’s shares fell as much as 7%. This marked their biggest decline in over two years, and it sent the stock all the way down to its lowest level since the crisis triggered the mess last year. Although shares rebounded slightly from the slump, it was the overall luxury market that hurt the most from LVMH’s poor report.
Why are sales falling?
The primary reason for the sales decline is the cut in spending by Chinese consumers. Chinese citizens have practically trimmed their spending on pricey items such as high end designer handbags, pricey clothes, and even expensive drinks like cognac. This has reverberated through LVMH’s sales in Asia where revenues declined by 16%.
The sales in Japan have also decreased and it is largely because of the strong yen. Luxury products become dearer for the Chinese visitors and shoppers during their trip to Japan, because they are keen on bargain hunting. HENCE, many of the Chinese shoppers have been less likely to buy luxury goods while on a trip to Japan.
Impact on the Luxury Market
LVMH’s sales decline not only hurt it but also sent ripples into the trade for other luxury brands. For example, shares owned by Kering, which owns Gucci, also had to face erosion, just like Hermès and Burberry. The pain trickled down to the sector because it proves that they are all connected within the market.
For LVMH, its most important division has been the fashion and leather goods section, but it witnessed this division becoming the first to reflect the downturn in sales at 5%. The company reports this as the first time it faces sales decline since the pandemic earlier this year, when most shops globally were compelled to shut. Only a few years back, the luxury market was on a smooth upward swing, particularly in the past ten years. However, the luxury world seems to have hit some rough waters now.
What about sales in Europe?
The concern LVMH received in Europe was a slight increase in sales to the tune of 2%. However, the company was optimistic that more people will purchase after they have seen Louis Vuitton’s leather goods substantially featured at huge sporting events in Europe such as Paris Olympic and Paralympic Games. Louis Vuitton even supplied luggage trunks that carried the trophy in the renowned sailing race America’s Cup; however, the sales growth became insignificant.
The role of the economy of China
For months now, luxury brands like LVMH have actually faced the slowdown of the Chinese economy. China being one of the biggest markets for luxury goods, the impact level on consumers is reflected significantly. When consumer confidence fails, it definitely affects everybody, but when it happens, the demand for luxury products, especially handbags and clothing, is scary because it brings an end to the increasing sales from past days.
The Chinese government then started to announce its economic stimulus measures in September, which would restore some lost consumer confidence. Many believed these measures would lift the spending in the luxury sector. However, so far analysts believe that the actions have not had much of an impact on what people are willing to pay to buy luxury goods.
The Global Perspective: Ripple Effects
In a way, problems LVMH faces are a more general trend of the entire luxury market. As the country keeps appearing economically weak, other brands get squeezed as well. Even if the brand has the reputation, if consumers are not spending money, then sales is going to go down. And this is absolutely essential for luxury brands to shift gears pretty fast with a change in market conditions.
Analysts note that the rising Japanese yen and declining demand from Chinese shoppers will not help LVMH as well as its peers. For most luxury players, though, a reevaluation of how they sell to consumers, especially in Asia, is warranted.
Future Outlook: Will LVMH Bounce Back?
Recently, LVMH has faced some problems, and there are questions about what the future of the company could be. Will the company recover or is this just an announcement of an even deeper trend in the luxury market? According to most experts, LVMH and other luxury labels have to find innovation and create new things to catch their customers.
One opportunity area could be embracing the growth of luxury expenditure in emerging markets. Consider, for example, Southeast Asia and India. The middle classes here have increasingly strong affinities with luxury. If companies can grasp this sort of opportunity, they may at least compensate for losses in traditional heartlands such as China and Japan.
A Changing Landscape
In short, the serious sales slump from LVMH for this season is an especially difficult test for today’s luxury brands. Based on new changes in the economy and behavior of present consumers, these companies should learn to move with these changes. Although the portfolio of brands under LVMH is great and full of history, the current situation calls for a turnaround approach. With proper planning and innovativeness, LVMH can definitely turn around its chances in this ever-changing market.
The high-end industry is resilient, and despite the potholes on the road, there’s tremendous potential for the sector to bounce back better than ever before. And the coming months will be critical for LVMH and its peers as they navigate this uncertainty.
