On August 24, French luxury giant LVMH Group announced its performance for the first half of 2024. During this period, the company’s sales revenue dropped by 1% year-on-year to €41.7 billion, falling short of analysts’ expectations of €42.2 billion. Operating profits plummeted by 8% to €10.7 billion, while net profits saw a significant decline of 14% to €7.3 billion.
These results came as a surprise to the market and sparked widespread attention, particularly in China—a market once regarded as the engine of growth for the luxury sector. The country was mentioned 48 times during the earnings call.
Although LVMH does not typically disclose specific sales figures for China, the recently released data indicated a notable decline in second-quarter sales in Asia, excluding Japan. Meanwhile, other regions such as the U.S., Japan, and Europe experienced growth.
According to LatePost Finance, “China” was mentioned 48 times during LVMH’s second-quarter earnings call, marking a new high over the past two years. A similar surge in references occurred in Q1 2023 when LVMH achieved a 17% year-on-year growth in revenue, driven by robust sales in China.
However, the situation has changed this quarter. Sales in Asia, excluding Japan, fell by 14% year-on-year, partly due to Chinese consumers’ growing preference for purchasing luxury goods during overseas travel. LVMH noted that China’s high-end consumers are shifting their luxury buying power to foreign markets, which has contributed to sales growth in Japan and Europe.
Despite the challenges, LVMH’s CFO Jean-Jacques Guony had a positive outlook on Chinese customers, stating that their performance was “quite good” and noting that Chinese buyers continued to show steady single-digit growth in fashion and leather goods purchases.
Guony expressed caution regarding the market outlook for the second half of the year, emphasizing that currency fluctuations have made Japan a preferred shopping destination for Asian consumers. While this trend benefits LVMH, it also presents challenges. For example, Gucci bags are approximately 20% cheaper in Japan than in China due to regional pricing, tax rebates, and exchange rate differences. However, rising rents in Japan could offset the profit gains from increased sales.
In terms of specific sectors, LVMH’s core fashion and leather goods division, which accounts for half of the company’s revenue, saw a 6% drop in operating profit and a 2% decline in revenue to €20.77 billion, missing analysts’ expectations of €21.02 billion. This division includes iconic brands such as Dior and Louis Vuitton.
While management did not disclose detailed performance metrics for brands like LV and Dior, they did note that the fashion and leather goods segment was not performing poorly. In contrast, the watches and jewelry and wines and spirits divisions saw sharper declines, with sales dropping by 5% and 16%, respectively.
Guony emphasized, “The luxury market is not just about demand, as we often say, it’s also about supply. That’s why we continue to invest in China. This market remains crucial for us.” This indicates that despite the challenges, LVMH is optimistic about China’s long-term potential and plans to continue investing there.
Industry-wide Challenges
LVMH is not the only company struggling as the luxury sector faces a downturn.
Gucci’s parent company, Kering Group, reported a 42% drop in operating profits for the first half of 2024, falling to €1.58 billion. More concerning, despite predicting an improvement in revenue, the group still expects a further 30% decline in the second half of the year.
In early 2024, Kering had warned the public that its operating profit for the first half might fall by 40% to 45% compared to the previous year. Unfortunately, this prediction came true. Even Gucci’s bold changes in designers and brand image have not been enough to reverse its fortunes.
Kering’s total revenue for the first half dropped by 11% to €9 billion. Gucci’s revenue fell sharply by 20% to €4.09 billion, making it the group’s worst-performing brand. In contrast, Bottega Veneta’s revenue remained stable, while Saint Laurent and other brands saw declines of 9% and 7%, respectively.
Operating profit also took a hit, with Gucci suffering a 44% drop, while Bottega Veneta, Saint Laurent, and other brands saw their profits decline by 28%, 34%, and 80%, respectively.
From a regional perspective, the Asia-Pacific region, once the largest contributor to revenue at 32%, saw a 5% decrease. The only region to experience growth was Japan, with a 22% increase, largely at the expense of a 22% drop in the broader Asia-Pacific region, particularly in China.
Last week, Swiss watchmaker Swatch Group, British trench coat brand Burberry, and German fashion house Hugo Boss all expressed concerns about the challenges in the Chinese market. Cartier’s parent company, Richemont, also reported a decline in sales in China.
For years, Chinese consumers have been a major driving force in the luxury sector. However, the slowdown in economic growth and reduced consumer spending have directly impacted luxury sales, both domestically and internationally. China’s luxury e-commerce platform, Secoo, has also faced a double blow, with plummeting performance and stock prices leading to its delisting.
Changing Landscape in Luxury?
While LVMH still ranks in the mid-range within the industry, competitors such as Kering and Burberry have faltered due to the slowdown of their core brands. On the other hand, brands like Hermès and Brunello Cucinelli, which cater to wealthier customers, continue to lead.
Citi analysts previously stated that Hermès could overtake LV in the coming years as the highest-grossing luxury brand, projecting Hermès’ sales to reach approximately €20 billion by 2027 or earlier, matching LV’s 2022 sales. Hermès is set to release its financial report soon, which will provide further insight into the luxury industry’s overall performance.
There is no doubt that pleasing Chinese consumers has become one of the most critical and competitive challenges for luxury brands.
The “2023 New First-Tier City Gen Z Consumer Trend Report” revealed that 43% of surveyed post-95s prefer domestic brands, ranking it as the top category that drives impulse purchases.
Increasingly, luxury brands are collaborating with local Chinese brands and designers. For example, French modern jewelry brand FRED partnered with Chinese skateboarding brand AVENUE & SON to launch a limited-edition collection.
Additionally, on July 22, LV opened its third global chocolate store, Le Chocolat Maxime Frederic, in Shanghai, which saw an overwhelming response from consumers, with long queues forming immediately upon opening.
Clearly, for today’s consumers, luxury represents not just a display of items in shop windows but a refined and selective lifestyle.
As the market environment continues to evolve, brands must continuously adjust their strategies. With the high-growth phase behind them, how brands delve deeper and more meticulously into the market to adapt to new trends will define the next stage of competition.
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