The luxury wave dissipates

After a pandemic-driven boom, luxury sector growth rates are slowing and returning to something approaching the long-term norm.

Context

The recent results announced by LVMH are a sign of the direction of travel. The French giant reported Q3 sales growth of 9%; that was down from 17% in the first two quarters and less than half the annual 20%+ growth it registered in the last three years. 

“After three roaring and outstanding years, we’re converging toward numbers that are more in line with historical average [which is around 6%],” said LVMH chief financial officer Jean-Jacques Guiony. 

Why sector growth matters

A slowdown had to come at some point – 20% growth rates are not sustainable for an extended period – but the question now being asked is how far the pendulum might swing in the opposite direction, especially as “aspirational” buyers at the bottom end of the market cut back.

As one luxury analyst noted – Jean Danjou at Oddo – “Maybe people are starting to get bored of buying so many luxury goods. And then there is this macro pressure. With the combination of the two, you have a normal deceleration. But when a deceleration starts you never quite know where it will end up.” 

By sector and region 

• At LVMH, organic revenue growth has slowed in watches & jewellery (Q3 3% vs Q2 14%), fashion & leather goods (9% vs 21%) and perfumes & cosmetics (9% vs 16%). Negative growth is accelerating in wines & spirits (-14% vs -8%).
• Geographically, Japan is a bright spot for LVMH, with Q3 sales growth of 30% compared to the same period a year earlier, boosted by an influx of Chinese tourists; the equivalent figure for the rest of Asia is 11%; Europe (7%) and the US (2%) are feeling the effects of inflation on consumer spending power. 
• Changed shopping patterns are evident in North American department stores – “Designer businesses are in the toilet,” one buyer told the Financial Times – and inventory is adapting accordingly. 

Sourced from LVMH, Financial Times