Louis Vuitton sales’ slump in China showed pull back from traditional high spenders, deepening worry across the broader for luxury segment, according to reports. Demand weakened, especially in fashion and leather goods, the company said in Q3 results.
LVMH Moët Hennessy Louis Vuitton SE saw Q3 sales drop in the double digits in China, contributing to a 5% drop in organic revenue in Asia, according to a Bloomberg report. It added that overseas purchases by Chinese shoppers also declined by a mid-single-digit percentage, Chief Financial Officer Cecile Cabanis told analysts on a call.
Why is luxury sector worrying after LVMH results?
Sales slump in China is being watched as the country last year fueled industry wide rebound. Further, Louis Vuitton is viewed as a bellwether for the luxury industry, and lower sales signals trouble for competitors Kering SA (owned by Yves Saint Laurent) and Hermès International SCA, which are due to report earnings later this month, it added.
“The news flow has not been particularly good in China in the summer. So, this has really weighed on the feel-good factor and created a short-term subdued Chinese backdrop,” Cabanis told analysts, the report said.
The luxury industry is facing pressure also from the war in the Middle East and concerns over inflation that are restricting spending across the globe. In China, 25 of the largest luxury labels saw sales drop by over 10% in July, the report added.
Economic slowdown is restraining spending
According to the report, broader economic slowdown and consumer wariness has impacted demand for luxury products in China. Many are restricting spend and choosing cheaper, local brands. For the richer consumers, tougher taxation and stock market weakness has caused some pullback, it added.
“Everybody’s having a tough time. LVMH as a portfolio of scale is such an industry index, and the other luxury listed companies are not going to significantly outperform that,” Jacques Roizen, co-founder of Shanghai-based consultancy Foresight Performance Partners told Bloomberg.
The slowdown in Chinese demand contrasted with spending by US customers, which rose by a mid-single-digit percentage.
Public backlash over trademark dispute put pressure?
Notably, Louis Vuitton has also faced public backlash in China after being involved in a trademark dispute with local chain Molly Tea. Cabanis in the call said it was difficult to quantify the impact, but the report noted that customer pushback hurt the brand’s sales at least at the start of the quarter.
“There was a shift in the Chinese consumer backdrop, and this forces us to sharpen our self-help effort. “We need to do more, but we have not stopped investing in China,” Cabanis added.
Indicating that the pressure was temporary, she also said Louis Vuitton was hit by “a one-off logistic and transportation disruption” that cost “a bit more than a point of growth” in the quarter, according to an Investing.com report.
(With inputs from Bloomberg)