In a continuation of the growth seen throughout 2017, LVMH posted an impressive 13 percent growth in sales in the first quarter of 2018. Sales across the board for the company were up, including leather goods and fashion, perfume, cosmetics, watches, and fashion. It was previously expected that the company would post only a nine percent growth in sales.
LVMH does not report individual sales numbers for its various brands, which include: Louis Vuitton, Christian Dior, Fendi, Givenchy, Guerlain, Hennessy, etc. However, the earnings report wrote that “this performance was driven by the very solid momentum achieved by Louis Vuitton, as well as Loewe, Kenzo, Fendi, Berluti and Loro Piana”. Meanwhile, the company is expanding manufacturing of its “high-margin handbags,” further indicating confidence in future sales.
In fact, the fashion and leather goods department saw a Q1 growth of 25 percent, with watches and jewelry and perfumes and cosmetics growing by nine percent and eight percent, respectively. Last year, LVMH’s leather goods saw year-over-year growth of 13 percent, reaching approximately 19.09 billion (15.5 billion euro) in revenue.
China as the Growth Engine#
Growth in Asia, particularly China, is the most significant driver of this performance, which is now LVMH’s largest market. Twenty-eight percent of the company’s revenue came from Asia (excluding Japan) in 2017.
Moreover, Asia’s share of revenue for wine and spirits has remained steady at 22 percent for 2016 and 2017, while overall revenue increases. Asia’s share of fashion and leather goods and perfumes and cosmetics respectively grew by one percent reaching 29 percent and grew by 2 percent reaching 30 percent. This further points to growing Chinese demand for products in these categories as a driver of sales growth going into 2018.
During the sales call on April 10, the spokesperson of the company also highlighted the contribution from Duty-Free Shops in Hong Kong and Macau, where saw the massive return of mainland Chinese tourists last year after the sluggish 2016.
Streetwear as the Secret Weapon#
Chinese millennials, the key force in the future luxury consumption, has been known for taking the streetwear products very well.
Knowing the needs of their core customers, the recent hire of the streetwear designer Virgil Abloh as the Artistic Director of Louis Vuitton indicates LVMH’s full embrace of streetwear trend after tasting success from Louis Vuitton-Supreme collaboration last year. In addition, marking its 120th anniversary, the German luxury suitcase maker Rimowa that was acquired by LVMH in 2016 will release the special edition in collaboration with Supreme on April 12.
The designer reshuffle, as well as the continuation of close collaboration with other streetwear fashion labels, are projected to improve the performance of the company.
Trade War Concerns#
Still, there are concerns that a trade war between the United States and China could lead to a sharp drop in sales via alterations to tariff laws. 2017 also saw the euro strengthen against the yuan. This seemingly did not lead to a drop in sales, but nonetheless could dampen spending by Chinese tourists abroad in the year to come.
The continued growth of demand for LVMH, and other luxury goods within China itself, could prove to ameliorate some of these concerns and make the company less dependent on the rapidly changing landscape of Chinese outbound tourism.
Additional reporting by Yiling Pan