LVMH sales decline in China unsettles luxury investors: Report

LVMH's sales drop in China has raised concerns among luxury investors, leading to uncertainty in the market. The decline highlights challenges in one of the key regions for luxury brands, prompting fears about slower growth and profitability in the sector. Investors are closely watching the impact on LVMH and other high-end brands as they navigate the changing dynamics in the Chinese market.

Eighteen months ago, LVMH shares reached a record high, and its main shareholder, Bernard Arnault, held the title of the world’s richest person.

As of Wednesday, a decline in demand from China for Louis Vuitton bags, Dior gowns, and other luxury items has led to a loss of over €150 billion in LVMH’s market value. This downturn has pushed Arnault’s wealth to fifth place, dampening hopes for a smooth recovery in the luxury market. The key question for investors is how long this slump will persist and whether a rebound will resemble previous high growth periods.

For the first time since the second quarter of 2020, when global lockdowns were in effect, LVMH’s fashion and leather goods segment reported a drop in quarterly organic sales. As LVMH Moët Hennessy Louis Vuitton SE is often seen as an indicator for the luxury market, its decline hints at potential weaker performances from smaller brands like Brunello Cucinelli SpA, Hermes International SCA, Kering SA, and L’Oreal SA, all set to release their revenue reports soon. On Wednesday, LVMH shares fell as much as 7.5%, reaching a two-year low and impacting its competitors’ stock prices.

The region including China performed the worst for LVMH, but sluggish growth in the US, its second-largest market, indicates broader challenges. The company unsettled investors with uncertain guidance, amid risks like slow Chinese economic growth and trade tensions. “I’ve no idea,” LVMH’s CFO Jean-Jacques Guiony remarked about the future outlook, emphasizing the unpredictable nature of their business cycle.

Excluding Japan, organic sales in Asia, including China, dropped 16% in the third quarter, marking a larger-than-expected decline and the third consecutive negative quarter. Chinese consumers have cut back on spending due to concerns over a weak property market and job uncertainty. In response, Chinese authorities introduced a stimulus package last month, but it has yet to boost consumer spending. “Consumer confidence in mainland China is now at its lowest point since the pandemic,” Guiony noted, adding that while the stimulus indicates the government’s seriousness, its impact on demand remains unclear.

There are no signs of changes in consumer behavior following recent government measures, according to a Citigroup note, which highlighted a sales decline during the Golden Week holiday at a luxury mall in Eastern China. Middle-class consumers have been absent, likely impacted by lower property values. Brands are now focusing on Singles’ Day, China’s major shopping event on November 11, for signs of recovery.

In the US, Donald Trump, a presidential candidate, has pledged to impose higher tariffs, potentially worsening trade tensions that could further impact LVMH’s Hennessy brand in China.

The decline in China’s market is making the US more significant for LVMH. A year ago, the US accounted for 24% of the company’s revenue, while Asia (excluding Japan) represented 32%. These figures have shifted to 25% and 29%, respectively. As LVMH faces this downturn, Arnault’s personal wealth has also taken a hit. As of Tuesday, his net worth was estimated at around $182 billion, according to the Bloomberg Billionaires Index, making him the only member of the top five wealthiest individuals to see a decline this year, down by approximately $26 billion.

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Source: business standard‍