LVMH bets on sport to drive growth

After surfing a luxury boom during the pandemic lockdowns, LVMH — which owns Louis Vuitton, Bulgari, Dior and Moët & Chandon champagne among a collection of 75 high-end brands or “maisons” — is expected to report a further deterioration of sales in its key Chinese market when it reports third-quarter earnings on Monday.
Wealthy Chinese consumers, whose confidence has been shaken by economic woes and a property crisis, continue to cut back on luxury goods such as LVMH’s £47,000 Louis Vuitton luggage trunks and Bulgari silver necklaces.
The Parisian company, controlled by the billionaire founder Bernard Arnault, spooked investors in July when it revealed a 14 per cent fall in Asian sales (that includes China, but not Japan) in the second quarter. This followed a 6 per cent drop in the first three months of the year.
How serious is it for the world’s largest luxury conglomerate and will the sports that it is targeting propel future growth?
Chinese demand for luxury brands surged during the pandemic as a growing number of wealthy consumers were trapped at home with money building up in their bank accounts and nowhere to spend it, except online.
The recent drop in Chinese sales has knocked billions of euros off the market capitalisation of LVMH and other luxury groups and the fortunes of their billionaire owners.
LVMH’s shares have lost a quarter of their value since March to €652½, valuing the group at €326 billion. However, they are still worth double what they were at the start of the pandemic in March 2020.
Arnault, whose family own 48 per cent of LVMH (and nearly 64 per cent of the voting rights), rode the luxury wave to be crowned the world’s richest person in December 2022. He has since dropped back to fourth-richest on Bloomberg’s billionaire’s index, with a $190 billion fortune.
It hasn’t caused Arnault to rein in spending. He agreed this week to buy a 55 per cent stake in Paris FC that is understood to value the Ligue 2 club at more than €90 million. The team is leading the second-flight league and is favourite for promotion to the top flight, (where unusually for a European capital city, there is only one Parisian-based team, Paris Saint-Germain).
The week before LVMH struck a near-€100 million-a-year ten-year deal to become a leading sponsor of Formula One motor sport.
Chaumet, LVMH’s jewellery brand, designed the 5,084 medals that were hung around the necks of Olympians this summer as part of the conglomerate’s €150 million sponsorship of the Paris 2024 Olympics and Paralympics.
Jonathan Siboni, chief executive of Luxurynsight, the data intelligence company, reckoned the investment in sport was part of a “great transition as LVMH prepares for a next generation of growth”.
“The company is preparing for probably the biggest change since it was created 40 years ago,” he said. “It has grown to a level of power and dominance that is totally unprecedented. But it has to think about the future; where will it find growth and who will lead the company next?”
Siboni said LVMH “sells to anyone almost any product you can think of”. So growth will have to come from things that are not strictly products, but experiences. “They could sell something more emotional and experiential,” he said. “The Olympics were key — you could say they wanted to make the medals and medal trunks — but it is much more ambitious than that. It is saying ‘we are a major player in today’s world of entertainment’.
“They are across the Olympics, F1 and soccer. They’re anticipating where the focus of the world is going and it’s a lot more important than whether Chinese sales are plus one or minus one [percentage point].”
Siboni added that the Chinese slowdown might not be as dramatic as it appeared, because while sales were down Chinese people were buying a lot of luxury goods in other countries, notably Japan, where prices are much cheaper due to the weak yen.
On the last earnings call, Jean-Jacques Guiony, chief financial officer of LVMH, said sales in China were “slightly down because the business is taking place elsewhere and particularly in Japan. In Japan, traffic is going through the roof.”
LVMH’s Japan sales were up 57 per cent in the second quarter. The United States was up 2 per cent and Europe up 4 per cent.
Claudia D’Arpizio, a senior partner at the management consultancy Bain & Company and lead author of its global luxury market monitor report, said the luxury sector was experiencing a “year of normalisation” after rising sales during the pandemic.
“The market was growing and accepting new brands and price increases. Now everyone, even the very wealthy, is saving money and indulging less and brands that are particularly exposed to China are suffering more,” she said.
A year and a half after China reopened its borders following the pandemic, consumer confidence is still struggling to recover. China’s consumer confidence index dropped to 86 in July, according to the investment bank Nomura, just above the all-time low of 85.5 in November 2022. (The index measures consumer confidence on a scale of 0 to 200, with 100 indicating a neutral stance.)
Local and international investors are hoping that the Beijing government will deliver fresh policies as soon as this weekend to try to kick-start the economy. Lan Fo’an, the finance minister, will hold a press conference on Saturday on “intensifying” fiscal stimulus policies, according to the State Council Information Office.
The Chinese government has begun “a crackdown on online wealth show-offs” as millions struggle in tough economic times.
Wang Hongquanxing, a Chinese jewellery dealer and social media influencer who has been dubbed “China’s Kim Kardashian” for bragging about this fortune, has been banned from Douyin, China’s version of TikTok, where he had 4.3 million followers. His profiles on Douyin and the ecommerce platform Xiaohongshu, state that his accounts have been removed due to “violation of self-discipline”.
Hongquanxing, 31, had previously posted about owning seven luxury properties and claimed to have never left the house wearing less than $1.4 million worth of clothes and jewellery.
Several other ostentatious and “vulgar” accounts have also been banned by the country’s internet watchdog. D’Arpizio said the crackdown has partly led to “even those who can afford to buy buying less and less often as they don’t want to be seen to be showing off”. She said: “They’re also buying things that are less visible and less recognisable, while still luxury.”
D’Arpizio, who has been following the luxury goods industry for more than 30 years, expects another wave of consolidation in the sector. LVMH, the market leader, bought a 10 per cent stake last month in the holding company that controls the luxury skiwear brand Moncler.
The big question is who is going to take over when Arnault, 75, steps down. LVMH has raised the age limit for its chief executive from 75 to 80, giving a deadline of March 5, 2029 for a successor to be in place.
All five of his children — Delphine, Antoine, Alexandre, Frédéric and Jean — work in high-powered roles in the family firm. Delphine, 49, is the chief executive of Dior, perhaps LVHM’s most important label; Antoine, 47, is LVMH’s group head of image; Alexandre, 32, is a senior executive at the jewellery brand Tiffany; Frédéric, 28, is head of LVMH watches; and Jean, 25, is the watch director of Louis Vuitton.
“There are a lot of skilled and highly educated people in the family and I’m not just trying to be nice,” Siboni said. “How many family businesses have put their kids at the heart of it for so long? This is not improvised, it’s been very well planned. No leader can oversee 75 brands, so there is potential for joint governance.”