LVMH Warns That Dipping Demand in China Could Hurt the Luxury Sector
Shoppers in China aren’t buying as many luxury goods as they once did, and it’s hitting some companies—and potentially the high-end sector—hard.
Shares in LVMH dropped on Wednesday, following less-than-stellar financial results announced by the luxury conglomerate the day prior, The New York Times reported. The high-end powerhouse—which owns brands such as Tiffany & Co., Dior, Louis Vuitton, and more—said sales fell 3 percent last quarter, when compared with the same time period last year. Notably, sales dropped in the fashion and leather-goods department for the first time since early in the pandemic.
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A large part of the overall decline is thanks to people pulling back in China, a huge market for the luxury sector. “Consumer confidence in mainland China today is back in line with the all-time low reached during Covid,” Jean-Jacques Guiony, the chief financial officer at LVMH, told analysts on Tuesday, according to the Times.
As a leader in the luxury market, LVMH is considered an indicator of the sector’s overall status, meaning trouble could be looming for the brand’s competitors as well, Bloomberg reported. Following suit, shares in Hermès and Kering, the company that owns Gucci and other brands, have also dipped, the Times wrote. And earlier this year, a slowdown cause executives in the luxury industry to lose a combined $24 billion, with the LVMH founder and CEO Bernard Arnault dropping from his spot as the richest man on the planet. (The 75-year-old now sits at fifth, with a fortune of $182 billion, according to Bloomberg’s Billionaires Index; he has lost $37 billion in the last 18 months, more than anyone else on the publication’s 500-person ranking.)
As for China, trends over the past few months have made consumers put away their pocketbooks. Contributing to less spending are factors such as a volatile real-estate market and weakened banks. With the European Union imposing higher tariffs on electric vehicles made in China, Beijing has pushed back with penalties on European brandy. (LVMH also owns Moët Hennessy.)
In response to doubts about the strength of the Chinese economy, the country has unveiled measures that are meant to help turn things around, The New York Times noted. Details are scarce, but some analysts remain hopeful that the changes will lead to increased demand for luxury goods in the future. “We are not sure this quarter particularly changes the LVMH story,” Bernstein analysts wrote in a note quoted by the newspaper.
Wednesday’s news doesn’t inspire much confidence in a turnaround, but China’s stimulus measures may soon result in shoppers’ return to the luxury realm.
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