Luxury retailers facing slowing growth

Nova Safo Oct 12, 2015
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Luxury retailers facing slowing growth

Nova Safo Oct 12, 2015
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Luxury brand giant LVMH reports third-quarter earnings Monday amid concerns of a slowdown in China taking its toll on luxury brands.

LVMH has had a good year. It reported 19 percent revenue growth in the first half of 2015.

The company owns 70 luxury brands ranging from wine and perfume to clothing and watches, including Louis Vuitton, Donna Karan, Tag Heuer, Moet and Marc Jacobs. It has almost as many stores in Asia as it does in Europe, and that has exposed the company to the economic slowdown in China. 

“Luxury growth trends are slowing down,” said industry consultant Milton Pedraza of the Luxury Institute.

A lot of that slowdown has been attributed to China. But Pedraza said U.S. sanctions on Russia and Brazil’s economic slowdown are also responsible.

As for Chinese consumers, they are still buying luxury items, just not in China, said luxury retail analyst Paul Swinand of Morningstar. The Chinese are going to Europe, he said, where “prices are actually 30, 40 even 50 percent lower.” 

And that has meant increases in sales in some European markets, he said, while Asian markets have seen declines. Even in the U.S., luxury brand CEOs have reported slowing traffic in stores, Pedraza said. A lot of this has to do with currency valuations, he said. 

As a counter move, luxury brands have been investing in e-commerce. LVMH recently hired an Apple executive to lead its digital operation.

“If you’ve only got so many Cartier, or Omega, or Rolex watches made in the world, then it really doesn’t matter where you sell them,” Swinand said, predicting that eventually, e-commerce sales could add up to as much as 20 percent of a luxury retailer’s revenues. 

Correction: Louis Vuitton and Marc Jacobs were misspelled in a previous version of this story. The text has been corrected.

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