By Mimosa Spencer
PARIS (Reuters) – Investors in French luxury group LVMH are eagerly awaiting signs that China’s new fiscal stimulus may finally lift wealthy and middle-class Chinese shoppers out of their blues, prompting them to spend 4 $300 for designer leather handbags before Singles Day. , China’s biggest annual shopping spree.
LVMH, the world leader in luxury, whose portfolio includes Louis Vuitton and Dior fashion and accessories, Tiffany & Co jewelry and Sephora cosmetics, publishes its third quarter revenue on Tuesday.
Global sales of high-end personal goods – clothing, accessories and beauty products – will be flat this year and up 4% year-on-year, at constant rates, consultancy Bain has previously said. The global slowdown is most pronounced in China, where economic uncertainty is weighing on middle-class shoppers and prompting those who can still afford luxury to be wary of ostentation.
LVMH shares, alongside peers Kering, owner of Gucci, Hermès and Richemont, owner of Cartier, have had a roller coaster ride this year. “The luxury consumer is exhausted,” Bank of America analysts said, citing in particular a deterioration in sales to the Chinese, who were the main driver of growth in the first half.
Predicting the third quarter to be the worst for the sector in four years, with organic sales down 1% year-on-year, they also lowered earnings per share estimates for next year by 17% on average.
Markus Hansen, portfolio manager at Vontobel, which owns shares in LVMH, Hermes and Richemont, said a “lack of confidence” among Chinese buyers persisted following the decline of the country’s property market. If confidence returns, even slightly, spending on luxury goods in China could become “pretty significant” again, Hansen said.
Analysts are confident that Chinese shoppers will regain their appetite for high-end fashion at some point, with Jefferies noting that industry forecasts already call for a healthy acceleration in Chinese demand in 2025.
Redoubling its efforts to increase its market share in China, LVMH recently deepened its partnership with Alibaba to leverage the e-commerce company’s cloud and artificial intelligence capabilities. LVMH’s travel retail unit, DFS Group, is building a major shopping and entertainment complex on the duty-free island of Hainan, China.
Luxury goods are unlikely to be the next target of China’s trade retaliation with the EU. But luxury goods companies expect a possible 10% drop in sales in China this year, compared with earlier forecasts of 5% to 6% sales growth, according to Patrice Nordey, CEO of the luxury goods firm. innovation consultancy Trajectry, based in Shanghai. “The growth problem is everywhere, high-end consumers, middle class, Gen Z, travel retail – there are too many problems for brands to solve.”
Analysts at TD Cowen on Thursday lowered their third-quarter organic sales estimates for LVMH and rival Kering to 2.9% and -10.4%, respectively, and for Richemont’s second quarter, ended in September, to 2%. .
Kering, which announces its sales on October 23, generates a large part of its annual sales in China, mainly through its flagship brand Gucci, with the Asia-Pacific region excluding Japan accounting for 35% of its turnover. Gucci’s recent emphasis on “timeless” styles and less on trendy new fashions may not have been effective with shoppers who need exciting looks to open their wallets, Cowen said.
(Reporting by Mimosa Spencer, Casey Hall, Elisa Anzolin; editing by David Evans)
