A deceleration in demand for high-end beverages, coupled with escalating inflation and global instability, is impacting LVMH, the luxury goods multinational conglomerate known for its prestigious brands, including Christian Dior, Louis Vuitton, and Moët & Chandon.
Growth Slowdown
In the period from July to September, LVMH reported a 9% increase in revenue to €20 billion (£17.25 billion). This represents a substantial deviation from the 17% expansion documented in the preceding quarter.
Stock Market Impact
LVMH’s stock prices faced a substantial decline of approximately 6% in early trading, marking the worst performance since March 2020. Following the Danish anti-obesity drugmaker Novo Nordisk assuming the position of Europe’s most valuable publicly traded company, this development transpired.
Wines and Spirits Division Struggles
The wines and spirits division, which includes the iconic Hennessy cognac, experienced a notable 14% decline during the quarter, making it one of the most severely impacted segments within LVMH.
End of Luxury Boom
These results signal a potential end to the luxury goods surge that followed the pandemic, which helped LVMH become the first European company to achieve a $500 billion valuation earlier this year.
Global Geopolitical Instability
Pauline Brown, the group’s former chair in North America, believes that rising global instability plays a role in the growth slowdown. Emotions drive luxury purchases, and worldwide crimes reduce the urge to buy them.
The Impact on Wines and Spirits
Brown noted that Hennessy accounts for roughly half of wines and spirits revenue. This division includes around thirty brands, with champagne being the other significant contributor, having grown marginally (around 3%) during the quarter. However, the decline is primarily attributable to cognac.
Market-Specific Impact
Cognac sales were particularly affected in markets such as China and North America, where aspirational consumers were not as enthusiastic as high net worth consumers.
Upcoming Reports:
In addition to LVMH, Hermès and Kering are also expected to release their earnings for the quarter soon. Bernard Arnault, LVMH’s CEO, has been alternating positions as the second richest person in the world with Elon Musk this year.
The Arnault Family’s Role
Bernard Arnault, a co-founder of LVMH, has strategically placed his offspring in key positions within the organization. His children are now actively involved in leading brands under the LVMH umbrella.
Retail Resilience
The upscale department store chain Selfridges reported a 29% increase in revenue to £844 million for the year ending January 28. Strong foot traffic and sales in physical stores, especially at Oxford Street in London and Exchange Square in Manchester, drove this development.
Accounting Standard Impact
Selfridges Retail lost £38 million in the year to January 2023 due to a new accounting standard, although it had no impact on cash flow.
