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Louis Vuitton sees demand in mainland China picking up steam

By
Reuters
Published
today Jun 7, 2019
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Louis Vuitton, LVMH’s biggest sales driver, has beefed up stocks of its handbags and other luxury wares to feed its growing online business in mainland China, as Chinese consumers spend more at home, its management told analysts.


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Chinese shoppers are increasingly splurging on high-end fashion and accessories locally rather than overseas, encouraged by a leveling out of prices as import tariffs drop, although that has penalized some brands struggling to capture the shift.

Vuitton is benefiting thanks in part to a Chinese e-commerce push, according to analysts who attended a two-day closed-door briefing with the brand and LVMH.

More broadly, demand for Vuitton products within mainland China was still at “unheard of” levels, its CEO Michael Burke was quoted as saying. LVMH had no immediate comment.

“Although only a third of spend on Louis Vuitton is currently local, this is growing twice as fast and a 50:50 split is now on the cards,” Citi analyst Flavio Cereda wrote in a note.

Over the past nine months, Vuitton shifted inventories from neighboring countries to its e-commerce site in China, which now accounted for 8 percent of the brand’s sales there, Cereda added.

Vuitton launched its online business in China in mid-2017 - just after Kering-owned rival Gucci - with Prada and Hermes following suit.

Jeweller Tiffany, which has suffered from sharply lower spending among Chinese tourists in the United States, said this week it also planned to invest in e-commerce operations in China.

Relations between the world’s two largest economies have soured amid a trade war, adding to a tougher backdrop for luxury firms in their biggest markets.

But Vuitton gave a rosy view of its U.S. business and told analysts it had opened its third U.S. handbag manufacturing site, in Texas.
“Investors should be reassured by Louis Vuitton’s ‘healthy’ trends in Asia and the United States,” RBC Capital Markets analyst Rogerio Fujimori wrote.

LVMH shares were flat at the close of trading on Thursday, after rising more than 2 percent earlier in the day and hitting record highs of 357.10 euros ($403.27).

Vuitton, with annual sales around the 10.5 billion-euro mark, aims to make 1 billion euros in revenues from its watches and jewellery in the coming years, RBC’s Fujimori added.

It has already passed that threshold in its women’s and men’s clothing ranges, Fujimori’s said.

Asked by analysts whether LVMH might buy Chanel - after the French label sparked speculation it was on the block when it published earnings for the first time last June - the group’s CFO Jean-Jacques Guiony said its size would be a challenge for any buyer.

Guiony said Chanel was worth closer to 100 billion euros than the 50 billion euros often cited in media reports, Jefferies’ Cereda wrote.
Chanel did not immediately respond to a request for comment.

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