China makes luxury brands break records

Neither the slowing economy nor the threat of a trade war with the US stop this market. Dior, Moët & Chandon, De Beers, Louis Vuitton, Hermès, Porsche: luxury has never sold so much. And it's China's fault.

In the last five years, the value of the shares of the LVMH group, owner of Louis Vuitton and Moët & Chandon, among dozens of other luxury brands, more than doubled, being above 280 euros per share, with a market capitalization of around 150 billion euros. This puts it in first place in the French stock index CAC 40, far ahead of giants like Airbus, BNP Paribas or Vinci.

But the past two years have been particularly good for the world's largest luxury goods company. And there is a reason for this: the explosion of consumption in China. Although the president of the group that includes brands such as Dior, De Beers or Moët & Chandon is cautious in predicting the future - "despite the enthusiastic demand, there are monetary and geopolitical uncertainties that force us to remain vigilant," Bernard Arnault says - the latest results show that this market remains immune to the Chinese economic slowdown and the threats of the trade war with the United States that are felt in many other sectors.

Last year, LVMH's sales and profits hit record highs and China is to blame. The annual results now show a rise of 18% to 6.35 billion euros, with a 10% increase in sales, which generated revenues of 46 billion. And it is not a unique case. Hermès, second in the top of the global giants of luxury, has benefited from the Asian effect, with shares rising more than 30% in the last two years, to 540 euros (58 billion total value). "Despite a global context marked by uncertainty, we are very pleased with the revenue growth to 6 billion euros in the last year," Axel Dumas, president of the company, said, while talking about the 10% increase in sales (earnings are only disclosed in March, but are expected to be close to 1500 million, after a rise of 17% in the first semester). These results happened because of Beijing's performance: "Asia, excluding Japan, was responsible for a 14% increase, thanks to a strong growth in China" and the opening of Hermès stores in Shanghai, Hong Kong, Changsha and Xi'an. Sales to this region have already gone up 2 billion euros, a third of total revenue.

"We do not feel any sign of slowing down in this market," Jean-Jacques Guiony, LVMH's chief financial officer, confirmed to the Financial Times, even though he admits there has been a transition and that now the largest share of consumers is from mainland China, not Hong Kong. "Our customers tend to be a little vulnerable to changes in the economic climate. A real trade war between the US and China - and we have not yet come to that - can have real consequences."

Despite recent indicators that have discouraged investors and giants such as Apple or Nvidia, which slashed revenue prospects for 2018 by about 500 million euros - China's economy grew by 6.6% in 2018, a slowdown that represents the lower rate since 1990 - it appears that with regard to luxury goods enthusiasm is not close to slowing down. According to a study by Ruder Finn and the Consumer Search Group on the Chinese market and luxury products cited by China Daily, the Chinese spent an average of 240,000 yuan (about 30,000 euros) on luxury goods last year. More than a third of respondents expect to spend more in the next 12 months.

Clothing and jewelry are the favorite items, but with millennials coming into the equation - the generation that is now between 26 and 35 has already spent above that average in the last year - the wish list is widening, for example, to shoes and beauty products. And if the online world is the natural environment of millennials, for which the world's largest groups have turned their batteries since 2016, luxury brands have already picked up the digital train and are betting heavily on transposing their values and signature to these new customers who, according to a UBS Group study (involving more than 3,000 Chinese, European and American consumers), have contributed to more than 80% of the growth of the luxury market. By 2025, they are expected to account for almost half of the sales of brands such as Louis Vuitton - which is already one of the favorites of this generation.

So it is not surprising that both Hermès and LVMH have developed, in 2018, their own portals (in the latter case, the 24 Sevres, common to the group, and individual platforms for each of the houses that belong to it) to ensure they respond to what this generation seeks, without loss of quality.

Cars are the only exception when it comes to buying luxury goods online, but they have not performed worse - although the car market has seen a global fall of over 10%. Porsche, for example, delivered 256,000 cars worldwide in 2018, an absolute record that represents a growth of 4%, strongly driven by Panamera (+ 38%) and 911 (+ 10%). And with the Chinese market returning to the front of the race, with the biggest increase in sales of the brand: 12% more, totaling more than 80 thousand cars (20 thousand more than those sold in the US). Bentley also increased its sales to China by 19% and plans to increase production to this market until summer, since it entered Lamborghini's top five sales (+ 30% sales).

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