Investors in LVMH, the renowned French luxury conglomerate, are anxiously awaiting indications that recent fiscal stimulus efforts in China will invigorate affluent and middle-class consumers, encouraging them to spend on high-end products like $4,300 designer handbags in the lead-up to Singles Day, the country’s biggest annual shopping event.
LVMH, which boasts an impressive collection of brands including Louis Vuitton, Dior, Tiffany & Co., and Sephora, is set to unveil its third-quarter revenue figures on Tuesday. According to Bain & Company, the international luxury market—which encompasses apparel, accessories, and beauty products—will likely see revenue growth of 0% to 4% year-over-year at constant exchange rates. However, the growth slump is especially noticeable in China, where economic concerns are making shoppers more hesitant to indulge in luxury purchases.
Share prices for LVMH, along with competitors such as Kering (the owner of Gucci), Hermes, and Richemont (which owns Cartier) have faced volatility this year. Analysts from Bank of America suggest that “the luxury consumer is all shopped out,” emphasizing a significant decline in sales to Chinese consumers, who were the primary drivers of growth earlier in the year.
The forecast for the third quarter paints a stark picture, anticipating a 1% decrease in organic sales year-over-year, prompting analysts to reduce their earnings per share estimates for the upcoming year by an average of 17%. Markus Hansen, a portfolio manager at Vontobel, which holds shares in LVMH, Hermes, and Richemont, noted a persistent “lack of confidence” among Chinese consumers stemming from the downturn in the country’s real estate market. Nevertheless, he expressed that even a slight recovery in consumer confidence could spur a significant revival in luxury spending in China.
In the optimistic camp, some analysts foresee an eventual resurgence in demand for high-end fashion from Chinese consumers. Jefferies has pointed out that industry projections already anticipate a healthy recovery in demand from this segment in 2025.
On the strategic front, LVMH is amplifying its commitment to capturing market share in China. The company has recently furthered its collaboration with Alibaba, capitalizing on the e-commerce giant’s cloud computing and artificial intelligence capabilities. Additionally, LVMH’s travel retail division, DFS Group, is making significant investments in creating a massive shopping and entertainment hub on Hainan Island, a key tax-free destination in China.
While luxury brands currently face challenges, including the potential for a 10% drop in sales in China compared to initial forecasts of 5% to 6% growth, some in the industry remain hopeful. Patrice Nordey, CEO of the Shanghai-based innovation consultancy Trajectry, remarked that the issues affecting luxury sales are extensive, impacting top-end consumers, middle-class shoppers, and various segments like Gen Z and travel retail.
On the analytical side, TD Cowen recently revised down their organic sales projections for LVMH and Kering, expecting declines of 2.9% and 10.4%, respectively. Richemont’s estimates for the second quarter, which concluded in September, have been adjusted to a 2% decline.
Kering is particularly exposed, earning a significant portion of its total revenue from the Chinese market, largely driven by its flagship Gucci brand. The Asia-Pacific region, excluding Japan, contributes around 35% of Kering’s annual sales. However, concerns have been raised regarding Gucci’s recent focus on “timeless” styles that may not resonate with consumers seeking fresh and exciting fashion trends.
The luxury goods sector stands at a crucial juncture, where understanding consumer sentiments and adapting to the changing landscape will be essential for brands to navigate these challenging times successfully.