China’s economy is facing a downturn, with the National Development and Reform Commission and the Ministry of Finance of the Chinese Communist Party holding consecutive press conferences before the arrival of the “Double Eleven” shopping spree festival. Meanwhile, luxury brands like LVMH of France are expected to report their lowest quarterly revenue in four years.
According to Reuters, consulting firm Bain previously stated that global sales of personal luxury goods (including clothing, accessories, and beauty products) are expected to remain flat or grow by 4% this year at constant exchange rates compared to last year. The global economic slowdown is most apparent in China, where economic uncertainty is putting pressure on the middle class, and those who can still afford luxury goods are being cautious about flaunting their wealth.
Leading the global luxury goods industry, LVMH is set to report its third-quarter revenue on Tuesday, October 15th. LVMH’s portfolio includes fashion and accessories from Louis Vuitton and Dior, jewelry from Tiffany & Co, and cosmetics from Sephora.
This year, LVMH, along with competitors like Kering, parent company of Gucci, Hermès, and Richemont, which owns Cartier, all experienced significant stock price fluctuations. Analysts from a major US bank said that “luxury consumption has reached its limit,” emphasizing the worsening sales to Chinese consumers, with growth in the first half of the year being largely dependent on them.
They predicted that the third quarter would be the worst in the industry in four years, with organic sales expected to decline by 1% year-on-year, and they have revised down next year’s average earnings per share forecast by 17%.
Markus Hansen, portfolio manager at Vontobel holding stocks in LVMH, Hermès, and Richemont, said that with the downturn in the Chinese real estate market, Chinese consumers continue to “lack confidence.”
While luxury goods are unlikely to become the next target of the Chinese Communist Party’s trade retaliation against the European Union, according to Patrice Nordey, CEO of the innovation consulting firm Trajectry based in Shanghai, sales of luxury goods in China this year could plunge by 10%, whereas earlier forecasts indicated a growth of 5% to 6%.
“Growth issues are everywhere, from top consumers, the middle class, Generation Z, to travel retail – brands are facing too many problems,” said Nordey.
TD Cowen analysts downgraded their organic sales forecasts for LVMH and its competitors, Kering, to 2.9% and -10.4% respectively for the third quarter on October 10th, while Richemont’s organic sales estimate for the second quarter ending in September was lowered to 2%.
Kering is set to publish its sales data on October 23rd, with a significant portion of its annual sales coming from China, relying heavily on its strong brand Gucci, with the Asia-Pacific region, excluding Japan, accounting for 35% of its revenue.
The National Development and Reform Commission of the Chinese Communist Party held a press conference on Tuesday, October 8th, but did not announce any anticipated stimulus policies, leading to a simultaneous decline in Chinese stocks. In Europe, luxury goods companies and Chinese risk assets such as commodities saw sharp declines in their stock prices on the same day.
On Saturday, October 12th, the Ministry of Finance of the Chinese Communist Party held another press conference, yet failed to provide details of any large-scale new stimulus plan.
The Wall Street Journal reported that the Ministry of Finance’s press conference last Saturday only outlined the plan without giving a specific total figure, leaving investors in the same state as earlier that week.