China Gloom Hits LVMH as Luxury Sector Loses €330bn in Value

LVMH China sales weakened sharply in the third quarter, dimming hopes of a luxury revival and underlining how heavily Europe’s biggest luxury groups depend on Chinese consumer demand.

The world’s largest luxury group reported weaker-than-expected third-quarter sales as a sharp deterioration in Chinese consumer mood hit demand for flagship brands Louis Vuitton and Dior, according to Reuters. Organic sales rose 1 percent from a year earlier to 18.5 billion euros, missing analysts’ expectations for growth of 1.3 percent, according to a Visible Alpha consensus.

Europe’s leading luxury groups have lost around 330 billion euros in market value since the start of the year, with LVMH alone shedding roughly 40 percent, Reuters reported. LVMH’s US-listed shares fell more than 3 percent after the trading update was published.

Fashion leads the decline

The fashion and leather goods division, which generates nearly half of group revenue, posted a 5 percent fall in organic sales, against an expected 1.8 percent decline, according to Reuters. Sales in Asia, dominated by China, fell 5 percent from a year earlier, while sales in the United States rose 5 percent.

Growth in the watches and jewellery division, home to brands including Bulgari and Tiffany, slowed to 6 percent from 9 percent in the first half of the year, Reuters reported. The so-called hard luxury category has largely withstood the broader downturn, but some analysts have warned that resilience may be fading.

A three-year slowdown

The trading update from the first major sector player to report third-quarter results is likely to heighten concerns that the 350 billion dollar luxury industry, mired in a three-year slowdown, will struggle to regain momentum, according to Reuters.

Bank of America analysts said the results would likely still be a negative catalyst for the sector overall, while RBC analyst Piral Dadhania said he expected modest pressure on the stocks of LVMH and its peers. With Chinese demand still showing no sign of turning, according to a daily briefing on the sector, the luxury slump looks set to run into the final quarter of the year.

For the wider luxury industry, LVMH’s update sets the tone for the reporting season. Rivals reporting in the coming weeks will be judged against the same question: whether Chinese demand has stabilised, or whether the three-year slowdown still has further to run before any recovery begins.

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