Interface News Reporter | Chen Qirui
Interface News Editor | Lou Jingqin
When a luxury company starts to emphasize organic growth, the actual sales are often not as good as they could be.
On April 16, LVMH released its first quarter 2024 results. In the three months ended March 31, sales revenue fell 2% year-on-year to 20.7 billion euros (about 159.4 billion yuan). On its official website, LVMH highlighted the 3% organic growth, calling it a good start to 2024.
By comparison, LVMH's revenue increased by 18% year-on-year to €10.7 billion in the first quarter of 2023 and by 5.5% to €23.9 billion in the fourth quarter. The first quarter of 2024 was even worse than the third quarter of 2023, when sales revenue for the entire group increased by only 1% year-on-year to 19.96 billion euros.
After the outbreak of the pandemic, LVMH began to return to growth in the first quarter of 2021, while the fashion and leather goods divisions began to recover in the third quarter of 2020. Even in the first half of 2022, sales revenue across the group increased by 28% year-on-year. Today, three of LVMH's five main business units are in decline
The largest decline was in the Wine & Spirits division, where sales fell by 16 percent year-on-year to 1,417 million euros. LVMH said the decline was mainly due to inventory build-up and a high base comparison for the same period in 2023, but also said retailers remained skeptical about the industry's prospects.
Revenues in the Fashion & Leather Goods division, which accounted for the largest share of total results, fell 2 percent to 10.49 billion euros, or 2 percent in organic terms. Jean-Jacques Guiony, LVMH's chief financial officer, said in a post-earnings conference call that Louis Vuitton's sales were slightly above the division average, but Dior was below that.
Sales performance has an impact on the recent marketing activities of both brands.
Dior's menswear show, scheduled for March in Hong Kong, China, has been postponed indefinitely. The South China Morning Post quoted sources as revealing that the event was about 100 million Hong Kong dollars (about 92 million yuan), and the change was mainly caused by "business factors". Louis Vuitton's Parade in Shanghai will be held in April.
Other brands that were praised in the earnings report included Celine, LOEWE, Fendi and Loro Piana. Once again, the long-troubled Givenchy is not mentioned, with the previous creative director Matthew Williams leaving in the fourth quarter of 2023 and no clear successor yet to emerge.
Entry-level consumers used to be the main driver of the fashion and leather goods divisions, but Jean-Jacques Guiony says he will not be able to target more adaptable products because of the cold industry environment. He believes that persistent inflation is the reason for the decline in the purchasing power of this group of people, and it is difficult for LVMH to make too many interventional measures in this regard.
In the future, LVMH brands will continue to increase their prices. In the first quarter, the average price increase for brands in the fashion and leather goods division was 2%, while the price increase in the jewelry and watches division was 6%.
However, the effect of price increases on performance is slowing down. Sales in the Jewellery & Watches division fell by 5 percent to 2,466 million euros. Jewelry and watches are usually purchased by high-net-worth individuals, who are often considered to be the least exposed to the larger environmental impact. Today, however, the division is underperforming as the perfume beauty division, which offers entry-level products.
In the first quarter, revenue in the Fragrance & Beauty segment increased by 3% year-on-year to 2,182 million euros, while the Select Retail segment, which includes Sephora and DFS, increased by 5% to 4,175 million euros. It is worth mentioning that a large number of countries, including China, collectively opened their borders in 2023, allowing the annual performance of the select retail sector to increase by 20%.
But judging from the latest financial report, this is also the result of a low base.
By region, the U.S. and European markets were lackluster. Both markets grew organically during the quarter by 2 percent and accounted for 23 percent and 7 percent of total global sales, respectively. Sales in Japan increased by 32 percent, while sales in Asia-Pacific, excluding Japan, declined by 6 percent.
Although LVMH did not disclose sales in Asia-Pacific countries other than Japan, the 6% decline was clearly due to the impact of the Chinese market.
Jean-Jacques Guiony said that in the first quarter, the contribution of Chinese consumers to global fashion and leather goods sales increased by 10%, but the proportion of consumers spending in Asia fell from 90% in the same period in 2023 to 80% today. After three years of resurgence of consumption, many people are returning to overseas to buy luxury goods.
To a certain extent, this shows that the accelerated deployment of various luxury groups in the Chinese market and the opening of a large number of new stores in the past few years have not brought much positive benefits after the resumption of entry and exit. Louis Vuitton, which had planned to open at least one store in every provincial capital in China, has also returned to cities such as Nanning and Taiyuan, which had previously closed stores during the pandemic.
In the past, many consumers used to prefer to choose the latter between buying in other cities and purchasing in outbound travel because they did not have direct purchase channels in the local area. Luxury brands, on the other hand, envision that opening stores in more cities will strengthen their relationships with this segment of consumers, including offering more intimate services and a wider range of products.
However, at a time when overall consumption choices tend to be cautious and conservative, price differentials have become an overwhelming factor. This is one of the reasons why luxury consumption in Japan is growing rapidly. With the combination of exchange rates, price differentials and tax rebate advantages, a large number of consumers from Asian countries choose to travel to Japan to buy luxury goods.
It is also foreseeable that if this trend continues, a large number of new stores opened by luxury brands during their expansion in the past may close after the lease expires.