Growth Among Chinese Luxury Customers Pushes Them Beyond Japanese, Americans To Become Top Consumers Of LVMH Brands#
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LVMH Moët Hennessy • Louis Vuitton S.A., the mighty global juggernaut, has had a bit of a rough year in the traditionally reliable markets of North America, Japan and Europe. Despite cutbacks in spending in these established markets, however, there have been bright areas for LVMH, namely in emerging markets like China and the other BRIC nations and pockets of Southeast Asia. In regions where LVMH has only operated for a few years, or a few decades at the most, newly rich consumers are opening their wallets and flaunting their wealth in a way never seen before -- and all of this translates to high hopes for luxury's standard bearer.
In the wake of the global economic crisis, China has leapfrogged its developed-world counterparts in many high-end segments, driven mainly by the country's second-tier urban growth, which -- fueled mostly by commodity industries like coal which have not been as badly affected by the downturn -- continue to grow and attract foreign investment. Second- and third-tier cities, which have seen high-end foreign boutiques opening up only in the last few years, have been a boon to major foreign brands because customers in these smaller cities present virtually no signs of "luxury fatigue" and feel that expensive luxury brands are an excellent way of conveying their newly found status -- the flashier the better.#
Earlier this year, China surpassed the United States as the world's second-largest luxury market, and the country has Japan, #1, firmly in its sights. Many analysts believe that China, given current growth figures, should overtake Japan as the world's top luxury market within five years. So what does this all mean for luxury brands? Today, the Wall Street Journal's Matthew Curtin looks into LVMH's "China Syndrome," and make the case that where LVMH goes, so goes the luxury industry:
Chinese customers, both at home and on holiday in the shopping malls around the world, have become the biggest buyers of Louis Vuitton clothes and handbags and Hennessy cognac ahead of the Japanese and overtaking Americans.
The French group's exposure to China helps explains why it is pulling out of the industry slump faster than expected. The number of Vuitton stores in China will increase by half to 30 by year-end while Sephora, LVMH's perfume retailer, will have 70 compared with 234 in home market France. Across the group, same store third-quarter sales fell 3% as robust Asian demand almost entirely offset falling sales of brandy, champagne, jewelry and watches -- still shrinking as a result of continued destocking.
Where LVMH goes, the rest of the luxury-goods industry looks set to follow.