The Price of Luxury: LVMH’s Disappointing Sales and the “Chinese Cluster” Conundrum
The luxuriously clad world of high-end fashion has suddenly found itself in a bit of a pickle, and no, it’s not just the overly priced handbags and shoes gathering dust. LVMH, the heavyweight champion of the luxury goods sector, recently reported a sales slump that sent shockwaves through the industry. And let me tell you, folks, it’s a trend not many were betting on—mostly because it feels like betting on a horse that’s already run the wrong way!
Bumpy Roads Ahead for LVMH
In an announcement that hit like a poorly timed punchline, LVMH’s sales figures revealed they weren’t just below expectations; they were more like *waaaay* below. We’re talking 19.08 billion euros in revenues for the third quarter—down 4.4% from last year! Yes, that’s right folks, the high-flying luxury market is taking a nosedive faster than a hot air balloon in a windstorm. And to think, analysts were expecting a modest growth of around 1%. It’s like ordering a medium fries and getting a sad, empty carton instead.
LVMH’s fashion and leather goods division particularly felt the sting, suffering a revenue decline of 5%. Cue the gasps—because who knew that the “Chinese cluster,” aka our friends with wallets wide enough to fund a small country’s budget, had decided to take a step back and cut back on those extravagant splurges?
The Chinese Cluster—A Deteriorating Situation
Now, let’s talk about the “Chinese cluster,” which sounds like a fancy term that one might hear in a sci-fi movie but actually refers to the spending habits of Chinese customers both at home and abroad. Well, it appears these spendthrifts have turned frugal, thanks to some rather unfun macroeconomic uncertainties. Jean-Jacques Guiony, LVMH’s finance chief, explained this decline succinctly—going from a single-digit increase in spending to a 5% drop is about as encouraging as a flat tire on your luxury yacht.
The woes don’t stop there; sales in Asia excluding Japan dropped by a jaw-dropping 16%, while Japan, which had been enjoying a peak thanks to Chinese tourists, also saw growth dwindle from an exuberant 57% to a still-respectable 20%. “Cyclical slowdown,” Guiony called it. That’s finance speak for “hold onto your hats; it could get bumpy!” Let’s hope they’ve got good insurance!
Luxury Isn’t Dying—Yet!
Despite the disappointing figures, Guiony is bullish about the future. He believes that luxury in China is not facing death but more of a “temporary slap in the face.” He’s pinning hopes on the emergence of an “upper middle class” that might just save them from this pricing plunge. Sounds optimistic, doesn’t it? Kind of like believing that your diet can survive a binge on chocolate cake because you plan to go to the gym tomorrow.
This grim news has gripped not just LVMH but its peers as well. Share prices of Kering, Hermès, and even Burberry took hits—sort of like a chain reaction of overpriced dominos falling down. And UBS, bless their cynical hearts, have stated that there’s a widespread weakness in demand for luxury goods globally. So, it’s not just a case of ‘the grass is greener’ in China, but an urgent yell from the luxury frontlines that the grass is more like “dried-out hay.”
What Lies Ahead?
So, what’s the takeaway from this swirling tempest in a teacup? Times are indeed “clearly struggling,” as Oddo BHF articulated—let’s face it, nobody enjoys being on the losing side of economic trends. Nevertheless, there remains a glimmer of hope. The path forward, it seems, involves a dose of innovation and smarter cost-management from LVMH. Jean-Jacques sounds ready to pivot—hopefully with more finesse than a clumsy dancer at a wedding.
As this luxurious soap opera continues to unfold, here’s hoping that the stars align for these fashion giants before they have to start hawking last season’s handbags on eBay. Until then, remember to check your wallets before you dream big—luxury, it seems, is not immune to the unpredictability of the economy.
This is a satirical take on the latest financial struggles of LVMH and the luxury sector, presented in the spirit of humor and light-heartedness. Always consult financial experts before making investment decisions!
(BFM Bourse) – The number one luxury goods company delivered sales on Tuesday evening that were significantly lower than expected, particularly in its fashion and leather goods division which suffered from the deterioration of Chinese households.
The market has known for several quarters that luxury is experiencing a slowdown. But the figures published Tuesday evening by LVMH, the number one in the sector, suggest that the brakes are much more severe than expected.
The owner of Louis Vuitton, Céline and Dior delivered activity well below expectations, marking a new disappointment after a previous publication already below consensus.
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On the Paris Stock Exchange, its LVMH share fell 6% this Wednesday at the start of the session. In the wake of the luxury conglomerate, Kering lost 5.2%, Hermès 3.1%. In Zurich, Richemont lost 2.7% while in London Burberry lost 3.3%.
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All divisions disappoint
“LVMH reported revenue for the third quarter of 2024 that fell short of consensus. All divisions’ performances were lower than expected during the quarter,” summarizes Jie Zhang of independent research firm AlphaValue .
In the third quarter, LVMH’s revenues stood at 19.08 billion euros, down 4.4% on a reported basis and 3% on a comparable basis. The gap with expectations is significant since, according to Deutsche Bank, analysts were expecting revenue growth of 1% on a like-for-like basis.
If all divisions were therefore disappointing, the most notable underperformance remains that of “fashion and leather goods”. This division saw its revenues decline by 5% on a comparable basis in the third quarter, when the consensus expected slight growth, of 0.5% according to Deutsche Bank.
The “Chinese cluster” in question
This division suffered from a deterioration in demand from Chinese customers, whose spending was reduced due to growing macroeconomic uncertainties.
The group’s financial director, Jean-Jacques Guiony, explained that the Chinese “cluster”, that is to say the spending of Chinese customers both in China and abroad, had experienced a “marked deterioration “. Their spending on fashion and leather goods went “from a single-digit increase in the middle of the range or even at the top of the range” in the second quarter to “a decline in the middle of the range”, explained the manager. To simplify, this amounts to going from an increase of around 5% to a decrease of around 5%.
This deterioration in Chinese demand weighed both on sales in Asia Pacific excluding Japan, where sales fell by 16% on a comparable basis, and in Japan where growth increased from 57% in the second quarter on a comparable basis. comparable to 20% in the third. Remember that luxury sales in Japan have been driven for several quarters by purchases by Chinese tourists attracted by the low yen.
Jean-Jacques Guiony, however, assured analysts that the group was confident about the future of luxury in China thanks to “the emergence of an upper middle class”. The leader considered that the current difficulties in China were more a matter of a “cyclical slowdown” than structural problems.
“The drop in Chinese demand does not seem to be fading in the short term even if the group remains confident of a recovery in the more or less long term. In the meantime, attention is now focused on offsetting the effect of the drop in activity through greater effort on costs”, notes Oddo BHF.
“Times are difficult now”
UBS points out, however, that the other “clusters” also showed timid activity in the third quarter. “In our view, this should dampen recent market enthusiasm about a potential recovery in China, driven by widespread weakness in demand for luxury goods in the rest of the world,” the company added. Swiss bank.
For Royal Bank of Canada, “these results indicate a more pronounced slowdown than expected” in luxury. Deutsche Bank, for its part, deplores “weak” figures and speaks of “capitulation”.
Oddo BHF recognizes that the activity is “clearly struggling” and “that times are now difficult”. “But we are not losing hope,” adds the broker.
Faced with this degraded environment, “we will not remain inactive”, promised Jean-Jacques Guiony, adding that the group intended to “focus on product innovation”.
Julien Marion – ©2024 BFM Bourse
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