Have We Seen Peak Louis Vuitton?

A guest is seen wearing Louis Vuitton shoes during President Donald J. Trump’s address at the ribbon cutting ceremony Thursday, October 17, 2019, at the Louis Vuitton Workshop- Rochambeau in Alvarado, Texas. (Official White House Photo by Shealah Craighead)

I can tell you from my recent visit to Paris that lines were not wrapped around the corner at the St. Honoré Louis Vuitton. I can also tell you from experience that not too long ago, they were. At this point in the cycle, the Chinese consumer is tapped out and is not spending like they used to. Bloomberg reports that the failure to launch the planned LVMH megastore in China is another sign things aren’t going well. Bloomberg explains:

When LVMH CEO Bernard Arnault toured China in June last year, he visited a five-story site in Beijing where the company’s top brand Louis Vuitton planned to open its flagship store in the first half of 2024.

More than a year later, the building remains fenced off. The store may not open until as late as next year, according to people familiar with the matter.

The slow progress of such a key project is symbolic of the challenges European luxury firms such as LVMH Moet Hennessy Louis Vuitton SE face in China. Demand that was supposed to roar back after the lifting of strict Covid restrictions is instead cratering, a disappointment that’s helped erase about $251 billion from the stock market value of these brands since March.

Signs that the slump has further to run are multiplying. Sales people at Hermes, whose Birkin bags could easily sell for tens of thousands of dollars, reduced how much shoppers need to spend to be able to buy the iconic products in a rare move, according to people familiar with the matter. Companies including Kering SA and Burberry Group Plc are resorting to discounts of as much as 50% to clear stock.

Sales executives, used to being pestered by clients about the latest product range, are struggling to get VIPs to return calls. To entice its biggest spenders in China, LVMH paid to fly a group of them to Paris for the summer Olympics. After years of heady growth, China’s luxury market is expected to shrink as much as 15% this year, according to consultancy Digital Luxury Group.

The downturn is partly cyclical, with China’s economy struggling to recover from a nationwide housing crisis. But even more concerning for Europe’s luxury giants are indications of a permanent shift in demand. President Xi Jinping’s campaigns to crack down on corrupt government officials and promote a more equal distribution of income have made displays of wealth not just passe, but potentially dangerous. Meanwhile, younger Chinese consumers are increasingly spending their money on experiences like travel rather than status symbols.

Action Line: The world’s wealthiest shoppers have their fingers on the pulse of the global economy. Shifts in the luxury goods cycle can be indicators of what’s to come. Stay on target with my free monthly Survive & Thrive letter. Click here to subscribe.

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