LVMH’s strong brands and diverse offer drive growth streak amid global headwinds

The world’s largest luxury firm, LVMH, has beaten revenue growth expectations and defied warnings of negative impacts from China’s “common prosperity” policy – the key appears to be the French giant’s rock solid core brands which continue to post strong organic growth, in addition to market-share-seeking offers for a range of budgets.

Why it matters

LVMH Moët Hennessy Louis Vuitton is a vast company that makes everything from luxury handbags, to jewellery, to bespoke yachts, to hotels, and even a newspaper. Such a broad portfolio of brands has left it exposed to global headwinds: its travel businesses have suffered under mobility restrictions; its luxury businesses have faced a renewed volley of Chinese policy tackling inequality.

Despite these difficulties, the company’s ability to grow core brands – fashion and leather goods – by 38% versus the first nine months of 2019 means it has managed to erase pandemic-induced declines.

A strong quarter

The firm’s Q3 results, announced this week, beat forecasts of €15 billion in quarterly revenue by half a billion euros, and saw organic sales up 11% overall versus Q3 2019.

• Fashion and leather goods, driver of three quarters of the company’s operating profits – the ‘LV’ in LVMH – grew by 24% year-on-year, though the lift in growth from global recovery appears to be slowing.
• Asia (ex. Japan) was the largest region for the company, bringing in 36% of sales. The US, which has also continued to show strong demand,  accounts for 25% of sales.

Expected risks

Analysts had expected China’s “common prosperity” policies, designed to narrow the country’s wealth gap, to buffet luxury groups, a sector that according to the BBC brings in half of its total revenues from China’s fast-growing wealth. However, LVMH says it has felt no effect on its business, despite investor jitters knocking value off the company since the summer.

While CFO Jean Jacques Guiony notes that the potential impact is not yet clear, he emphasises, in comments reported by the FT, that the “bulk of our customers in China are not billionaires but the affluent and upper middle classes”. 

Analysts believe a combination of strong brands like Louis Vuitton and products available to a variety of budgets should help the company resist any impact.

Sourced from FT, Business of Fashion, BBC