LVMH Sidelines China’s Middle Class Shoppers

    The hashtag #LVMH is betting on the high-end market in the future# is trending on Weibo. Will this result in a backlash from shoppers in lower-tier cities?
    The hashtag #LVMH is betting on the high-end market in the future# is trending on Weibo. Will this result in a backlash from shoppers in lower-tier cities? Photo: Louis Vuitton
      Published   in Fashion

    Update published April 20, 2022#

    LVMH’s results published on April 12 are still trending with citizens — and for all the wrong reasons. The hashtag #LVMH is betting on the high-end market in the future# is trending on Weibo with 239,000 views as netizens discuss the luxury conglomerate’s courting of ultra-high net worth shoppers.

    According to the media publication Fashion Business Daily, the number of LVMH’s ultra-high-net-worth consumers and the purchase quantity of the ultra-rich has increased in the past two years. It seems the company’s main objective was to meet the preferences of these ultra-high-net-worth customers. This has not played well with the billions of spenders in lower-tier cities.

    A post from @林登万大人 which outlined its own take on LVMH’s consumer classifications as well as its intentions has been circulating. It stated that, according to the company’s briefing, those with an income below three million yuan are categorized as “non-income” and should be “eliminated.” LVMH has yet to comment on the post.

    While it’s logical that LVMH will double down on its highest spenders, is it right to want to alienate — let alone eliminate — shoppers that might spend less?

    Original article published April 13, 2022#

    What happened

    Bernard Arnault’s luxury conglomerate LVMH continues to defy expectations, reporting record sales in the first quarter. It cited big flagship names like Louis Vuitton and Dior as having led these. Stablemates Celine, Loewe, Fendi, Marc Jacobs, and Loro Piana also performed strongly. The French company said its fashion and leather goods division, its largest, grew by 30 percent organically.

    There is, however, one (pretty major) fly in the ointment. Despite this success, Chief Financial Officer Jean-Jacques Guiony’s comments have indicated LVMH is bracing for future impact due to China’s ongoing zero-COVID policy and the changing situation.

    The Jing Take

    In sharp contrast to much of the rest of the world, Beijing continues to impose restrictions as it rolls out vaccines. Over the past weeks, the country has seen a spike in cases that are defying earlier, and effective, lockdown strategies. Shanghai set a daily record for the 11th time in 12 days, reporting 26,330 confirmed infections on Wednesday.

    The government’s blueprint is unlikely to be reversed — regardless of the cost to its economy — meaning companies will need to pay careful attention to the market. A confident Guiony said that while LVMH was bracing, it was not worried about the long-term implications of this latest wave of quarantines and expected demand to return once the virus was under control. Yet the CFO did note that even cities not currently curtailed have seen slower store traffic and people traveling less.

    With top tiers currently saturated, the trouble for brands going forward will be to connect with shoppers outside of these. What’s also new is the environmental issue accompanying this latest lockdown: global downturn and uncertainty, supply chain disruption, courier delays, and, of course, a landmass cut off from the West. More work will have to be done to reach consumers. While it’s clear that the mainland’s ultrarich will never tire of spending (domestic purchases of luxury goods in 2021 were valued at 74 billion), it won't be until the second-quarter results come in that we'll see where that’s been directed.

    The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.

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