LVMH Looks for a Comeback
The luxury giant tries to recover after a weakened consumer and disappointing quarter
This week on Monday, the Parisian fashion giant LVMH Moët Hennessy Louis Vuitton reported a disappointing first half of 2020. Faced with international lockdowns and succeeding crumbled economies, customers are less willing to make purchases they deem as inessential.
High quality goods during a recession
Personally, I’d assume that higher-end brands’ revenues would remain mostly unchanged during economic turbulence because their demographic’s disposable income may not be as affected. However, data from the Great Recession tells a different story.
Vogue Business points out changes from several retailers:
- The luxury goods market loss nine percent of its value
- High-end department stores’ sales dipped 25 percent in 2009
- Kering’s (then PPR) revenues declined 5.6 percent
Interestingly, LVMH remained flat and Gucci (PPR portfolio company) showed growing sales. A New York Times report explained that brands like Gucci and Louis Vuitton weather difficult times better than competitors because of their household-name recognition.
Luxury after a recession
The same companies that were harmed by the 2008–09 crisis experienced quick rebounds. This time around, the remaining retailers most likely will be able to do the same—and with less barriers.
The shutdowns have devastated businesses that drive a bulk of their sales from foot traffic. Nieman Marcus filed for Chapter 11 bankruptcy in May, and while it will remain operational in the end, it may be a foreshadowing of things to come for smaller boutiques and labels that don’t have a global presence.
The brands that do survive crises typically come out stronger, gaining market share and potentially cheap assets.
LMVH’s lower-than-expected quarter
Because of the abnormality of coronavirus and its handicapping of retail stores, LVMH’s typical namesakes were propped up by revenue contribution increases from its Wine and Spirits and Leather Goods groups.
For the six month ending on June 30, revenue fell 27 percent to $21.6 billion. However, the second quarter was strong in China and e-commerce sales increased.
Perhaps the bleakest part of the reporting was an 84 percent decrease in profit. Luxury businesses usually have high over head—especially LVMH which owns a lot of its manufacturing and storefronts. It’s a true direct-to-consumer business.
Don’t expect LVMH to struggle for much longer though. As its biggest territories by revenue in Europe and China, and travel, wakes up, the conglomerate will see its customers come back. Especially for its popular RIMOWA luggage business, which recently introduced an eyewear collection.