LVMH Revenue Falls, Sparking Fears Of A Luxury Market Recession

Luxury marketplace leader LVMH conscionable delivered disappointing results for nan 3rd 4th pinch integrated maturation crossed nan group down 3%. Coming disconnected 2023 erstwhile revenues roseate 14% to $93.4 cardinal (€86.2 billion), quarterly revenues person sequentially slowed from 3% maturation successful first 4th and 1% successful nan second.

Through nan 3rd quarter, LVMH has brought successful $65.9 cardinal (€60.8 billion) and things look little and little apt that LVMH is going to propulsion retired of its slump by nan extremity of nan year. Most telling is nan 5% driblet successful its Fashion and Leather Goods business (FL&G), nan company’s rate cattle which accounts for astir half of group revenues.

“A quarterly diminution successful nan income of LVMH’s manner and leather equipment section is conscionable excessively large to ignore,” said ISTUD Professor Balossini Volpe, particularly since nan conception eked retired only a 1% uptick done nan first half of nan year. The F&LG conception includes specified industry-leading manner brands arsenic Louis Vuitton, Christian Dior, Celine, Loewe, Givenchy, Fendi, Marc Jacobs, Loro Piana and others.

Chief financial serviceman Jean-Jacques Guiony described results arsenic a “cyclical downturn,” pointing to a 16% pullback successful Asia, excluding Japan, its largest market. Yet, nan U.S., its second-largest market, flatlined successful nan 3rd quarter. Together Asia and nan U.S. relationship for 54% of revenues – Asia 29% and U.S. 25%.

As nan marketplace stock leader, LVMH is simply a bellwether for what’s happening crossed nan broader individual luxury equipment market. And since its FL&G and 2 starring markets group nan gait for LVMH’s group performance, LVMH’s results are an early informing that nan luxury marketplace whitethorn beryllium headed for a fall, arsenic bad aliases perchance worse than what happened successful nan 2008-2009 Great Recession erstwhile nan personal luxury equipment market declined 8%, according to Bain.

“It is now very apt that nan individual luxury equipment marketplace arsenic a full will station antagonistic maturation successful 2024 and apt for 2025 arsenic well,” Balossini Volpe predicted.

Luxury Recession Alarm Bells

“The luxury assemblage continues to acquisition recessionary pressures, arsenic we show user confidence,” TD Cowen reported successful an LVMH net update, adding it foresees “further request deterioration, peculiarly successful China.”

In nan recession year, LVMH slid by pinch only a 1% driblet successful revenues from 2008 to 2009, but it was a very different institution backmost then, little than a 4th of its existent size and FL&G accounted for conscionable somewhat much than one-third of group revenues. Yet, its FL&G business stayed beardown passim nan recession, increasing 5% that year.

Now TD Cowen warns, “A diminution successful nan F&LG business is unluckily uncharted territory. This ‘discretionary recession’ is different successful that LVMH is seeming effect crossed Wines & Spirits, Watches & Jewelry and Fashion & Leather Goods.”

In nan 3rd quarter, Wines & Spirits were disconnected 7% and Watches & Jewelry down 4%. And while nan institution held up Perfumes & Cosmetics and Selective Retailing (Sephora, Le Bon Marché Rive Gauche, La Samartaine) arsenic beardown performers, up 3% and 2% respectively successful 3rd quarter, some person knowledgeable a sequential slowdown successful maturation this year, suggesting that a continued pullback whitethorn beryllium up for these segments too.

Bernstein luxury equipment expert Luca Solca gave a sobering appraisal of wherever LVMH, erstwhile nan industry’s sparkling star, stands. “We spot LVMH arsenic nan weakest among nan value names. We judge Richemont will beryllium better, Hermès will beryllium best.”

China In The Crosshairs

China is simply a large mobility people for nan luxury equipment marketplace successful wide and LVMH specifically. The Chinese system is sputtering and nan authorities is moving connected a stimulus package to boost nan economy.

Guiony tried to put a affirmative rotation connected nan news retired of China during nan net call. “Against this backdrop, it is not peculiarly astonishing to spot softer request for luxury goods, peculiarly considering wherever we were still increasing double digit successful nan 2nd half of past year. However, nan spot of Chinese request successful nan first half of nan twelvemonth provides caller grounds of nan enduring appetite of nan Chinese customer for luxury.”

However, nan information challenges nan declare of “strength” successful China successful nan first half of nan year, pinch Asia, excluding Japan, disconnected -6% successful first 4th and -14% successful second. And Guiony forthrightly said, “Most of our markets presently look economical challenges, including mainland China.”

TD Cowen is alarmed by nan “marked deceleration successful nan business among Chinese consumers.” It figures that China accounted for upwards of 50% of nan company’s maturation pre-Covid. And nan F&LG conception is peculiarly limited connected China, pinch TD Cowen estimating Asia, excluding Japan, makes up astir 40% of revenues successful that conception pinch “a mostly of that operation based successful Greater China.”

Mainland China and Asia mixed were nan world’s starring individual luxury equipment marketplace past twelvemonth – $61 cardinal successful China and $60 cardinal successful Asia, according to Bain. Continued weakness location could person a profound effect connected LVMH and nan individual luxury equipment marketplace overall.

“Slowing Chinese maturation has a cascading effect crossed nan full globe,” Nick Marro, a Hong Kong-based lead expert for world waste and acquisition pinch nan Economist Intelligence Unit (EIU) shared pinch South China Morning Post. “The prolonged play of request weakness that we’ve seen successful China has already been acting arsenic a nett resistance connected world activity.”

Weakening Fashion And Leather Goods

As troubling arsenic China is correct now, LVMH’s results successful manner and leather equipment whitethorn beryllium much important for nan institution and what it signals for nan luxury marketplace astatine large.

Leather equipment ($88 billion), apparel ($81 billion) and shoes ($30 billion) made up 53% of nan individual luxury marketplace mixed successful 2023 and a sizeable stock of nan market’s wide 4% maturation past twelvemonth was credited to value increases, alternatively than request growth.

While it’s difficult to get a hole connected precisely really overmuch Louis Vuitton handbag prices person increased, Reuters reported past twelvemonth that prices could summation by arsenic overmuch arsenic 20% successful China and Pursebop estimated prices successful nan U.S. and Europe roseate successful nan 7% scope past year.

Nonetheless, Guiony defended nan company’s value hikes. “All nan players person done nan same, each players. And I’d opportunity that pinch this successful mind, do you really deliberation that if we had not accrued prices nan measurement we’ve done, we would beryllium faring double-digit today? I really don't deliberation so.”

Yet 14% maturation successful F&LD past twelvemonth went to -5% successful nan 3rd quarter. Yes, this twelvemonth F&LG was up against precocious comparables from past year, but successful 3rd 4th 2023, they weren’t astir arsenic precocious arsenic they had been successful nan first half 2023, 20% versus 9% successful 3rd 4th 2023. So nan F&LG slowdown was already taking clasp successful nan 2nd half of past year.

“When customers recognize that nan aforesaid container doubled successful value successful little than 5 years pinch nary mentation but greed, and astatine nan aforesaid time, they perceive astir subcontractors utilizing underpaid forbidden workers, they consciousness angry and fooled. Their consciousness of spot is broken,” observed Balossini Volpe.

Guiony said that nan existent diminution successful nan F&LG conception is “more demand-driven than offer-driven.” However, to Balossini Volpe’s point, luxury consumers’ request tin beryllium cooled by a deficiency of spot and what they comprehend arsenic an unjustified offer.

Going forward, Guiony indicated nan institution sees nary logic for changing course, alternatively it will proceed to do what it does best: Luxury.

“The connection successful Luxury has been nan cardinal spot complete nan years. I'm not saying that we neglect nan unit that we get from demand, but not needfully pinch a position to alteration wholly nan connection pinch a very short-term view. We still support connected nan thought that we should enactment religious to what has been nan look of our occurrence complete nan years,” he said.

Doubling Down

Despite nan downward move successful business, Guiony emphatically stated, “We don’t intend to alteration our strategy.” Instead nan institution will double-down connected invention to flooded what he sees arsenic portion of a normal business cycle.

One of nan past quarter’s successful innovations called retired successful nan net telephone is nan Neverfull Inside Out bag, launched successful business pinch character Sophie Turner.

However, it’s really nary invention astatine each because fashionistas person known for years that by turning nan Neverfull tote container wrong out, they could guidelines retired among nan crowds carrying nan ubiquitous handbag pinch nan logo broadside out. LVMH did not supply a remark aliases a image of nan Neverfull Inside Out container to exemplify this story, but you tin spot it displayed here.

Whether nan luxury marketplace is simply going done nan down shape of a normal business rhythm aliases connected nan precipice of a overmuch deeper trough, LVMH needs much important innovations successful its quiver.

“So our business, arsenic I said galore times, is not to forecast our business but to adapt, and this is what we are trying to do,” Guiony concludes. “We’ve been done ups and downs. The only point we cognize that erstwhile nan business is bad, usually, it's bully thereafter.”

See also:

ForbesItalian Court Reveals Dior’s Unethical Supply Chain And Puts Other Luxury Brands On NoticeBy Pamela N. DanzigerForbesLuxury Market Confidence Erodes As Demand Weakens In The U.S. And ChinaBy Pamela N. Danziger