The stock of luxury conglomerate LVMH has taken a hit after a drop in fashion and leather goods purchases marked the first sales dip since the onset of the global pandemic. This downturn has cast a stark spotlight on the waning demand from previously voracious Chinese consumers. The crucial business segment boasting brands like Christian Dior and Louis Vuitton saw a third-quarter organic revenue decrease of 5%, disappointing analysts who anticipated modest growth. It’s the poorest quarter since the world was forced into lockdown in the second quarter of 2020.
Early trading in Paris saw LVMH shares take as much as a 7.5% dive. To date, the stock has fallen 21% this year. These downward trends in luxury shares caused the removal of a staggering €30 billion from the market values of four primary European stocks within this sector – Kering, Hermes, Richemont and, of course, LVMH.
During a recent quarterly presentation, LVMH’s CFO, Jean-Jacques Guiony, highlighted that many of their markets, including mainland China, are currently dealing with economic obstacles. He noted that Chinese consumers’ confidence is as low as it was during the worst of the Covid crisis.
Recent attempts by Beijing to stimulate the economy have focused largely on bolstering their struggling equity and property markets. However, these measures have thus far failed to yield significant improvements to the consumption sector.
Citigroup, in a recent note, expressed similar sentiments, indicating that luxury consumption has not seen noticeable recovery despite changes in macroeconomic policies.
The CFO of LVMH conceded that gauging the potential demand impact of these measures is challenging, however, he did acknowledge that Chinese authorities are taking the issue seriously.
The conglomerate’s organic sales in Greater China, including the mainland, experienced a 16% decline in the quarter, exceeding predictions; a significant let-down for a group that had previously stayed robust amidst the slowing down demand in the country.
A 35-year-old finance professional from Guangzhou, Louisa Chen, has admitted she hasn’t made any purchases exceeding 5,000 yuan (€645) since her bonus was halved last year, despite the recent stock market uplift. Evidently, she’s not ready to return to her old shopping habits.
The outcomes present a “distinct disadvantage for the sector preceding the third-quarter announcement schedule and the lead up towards significant Christmas and Chinese New Year sales phases,” commented Thomas Chauvet, an analyst from Citigroup, in a brief report. Managed and operated by Bernard Arnault, one of the world’s wealthiest persons, VMH Moët Hennessy Louis Vuitton is a behemoth in the luxury industry with a portfolio of 75 brands in fashion, jewellery, hospitality, and spirits. All the primary divisions of the company fell short of the analysts’ predictions for the third quarter, as reported by Bloomberg.