How does Richemont’s outlook in China compare with LVMH, Kering?

Even Richemont – the Swiss luxury conglomerate behind Cartier, Van Cleef & Arpels, and Jaeger-LeCoultre – is not immune to global luxury market fluctuations. This is reflected in the company's FY24 annual report, which highlights how challenging the global luxury market has become in the post-pandemic period. On a turbulent global stage, Richemont's sales reached 20.6 billion euros ($22 billion) in FY24, up 3% at actual exchange rates and 8% at constant exchange rates. However, operating profit decreased by 5% to 4.8 billion euros ($5.1 billion), reflecting the complex economic environment and substantial impairment charges, particularly linked to its watch reselling Watchfinder unit. This is reflective of the broader problems facing the secondhand watch market, which has dropped off in recent years. The Bloomberg Subdial Index, which monitors the pricing of the top 50 luxury watches traded by value, is down nearly 28% over the past two years and flat over the past 30 days, indicating stabilization, but not growth. Looking at China China remains a critical market for Richemont, contributing substantially to its overall sales. However, the country’s economic volatility and changing consumer sentiment pose significant risks. For instance, Richemont’s directly operated stores in China significantly contributed to 5% growth in retail sales at constant exchange rates, yet these gains are sensitive to socio-economic fluctuations. In contrast, LVMH’s performance in the Asia (excluding Japan) market contracted by 6% due to the offshore retail recovery, highlighting similar regional challenges. Regulatory challenges in China also present substantial risks. The tightening of anti-bribery, anti-money laundering, and data privacy laws increases compliance and monitoring burdens. Richemont – like its competitors LVMH and Kering – must navigate these complexities to maintain operational stability. Its close luxury rivals have similarly faced regulatory pressures, with LVMH reporting cautious restocking and soft demand in China during this Chinese New Year, impacting its wines and spirits division. How do Richemont’s prospects compare? Richemont’s focus on enhancing its retail network and investing in digital platforms aligns with the still-growing importance of e-commerce and digital touchpoints in China’s luxury landscape. Meanwhile, the group’s emphasis on sustainability resonates with the increasing environmental consciousness among affluent Chinese consumers, who are placing a premium on brands that prioritize eco-friendly practices. But it takes more than lip service to sustainability efforts to drive revenue. LVMH’s outlook, as reflected by its 2023 annual report, is bolstered by its plans to strengthen its physical presence through new store openings while simultaneously enhancing its digital strategy to create seamless omnichannel experiences. This dual approach is crucial in capturing the preferences of both traditional and digitally native luxury consumers in China. Based on its 2023 annual report, Kering’s strategy centers around innovation and, naturally, sustainability, which may help some of its portfolio brands resonate with younger Chinese consumers. However, a broader turnaround for Kering in China this year will depend on whether its core portfolio brand Gucci can reverse its ongoing downturn in China. So, who is best positioned to succeed in 2024? Considering the current state of China’s luxury market – which is to say, complicated – LVMH may be best placed owing to its strengthened brick-and-mortar presence combined with enhanced digital capabilities, a strong duty-free network by way of its DFS retail portfolio brand, and focus on sustainability. This positions LVMH and its wide range of portfolio brands favorably both within China and globally this year, helping it potentially cash in on a Chinese outbound tourism revival as well as the increased proclivity for domestic luxury shopping among mainland Chinese consumers.

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How does Richemont’s outlook in China compare with LVMH, Kering?