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LVMH has reported better than expected first quarter sales, with handbags the star of the show. Be careful not to read too much into it.
The performance – with group organic sales up 11 percent in the first quarter and fashion and leather goods up 15 percent – has potential to guide sentiment about the industry.
Concerns that the luxury party may be coming to an end have been rising for the past year or so, amid skepticism that China’s extraordinary sales growth over the past couple of years could continue. But the rebound in stock markets at the start of 2019 had fostered hopes that high-end consumers would continue to spend. So LVMH’s sales report late Wednesday, the first hard data from a global group for the first three months of the year, could be taken as a signal that all is well in luxury land.
That conclusion would be hasty. The group’s strong showing isn’t a signal that all manner of top-range brands have customers who are shopping till they drop.
With scale, strong brands in fashion, cosmetics and beverages, as well as geographic reach, LVMH can prosper in both good times as well as bad. It’s a similar story for Kering SA and Hermes International – the latter has a particular talent for controlling the supply of its iconic handbags.
Shares in the big luxury names have rebounded since the start of the year. LVMH rose to a record on Thursday.
It’s worth pointing out that it wasn’t all stellar news for LVMH: watch and jewelry sales missed analysts’ expectations.
That doesn’t bode well for the broader timepiece industry. As I have noted, mid-market watch brands also face competition from smart models. This could be a worry for the likes of Swatch Group AG, as well as Richemont, which has been limiting its own growth by buying back excess inventory to bring supply and demand more into line.
And for some smaller houses, such as Prada SpA, Burberry Group Plc, Salvatore Ferragamo SpA and Tod’s SpA, life has been more difficult. They don’t have the same advantages as the global giants, and are mostly in the midst of turnaround efforts. They risk getting knocked off course by any deterioration in the backdrop for consumers. And even if China seems to be heading for a soft landing in luxury, the global economic outlook is still a worry: the International Monetary Fund has cut its growth forecast to the lowest since the financial crisis.
Upmarket purchases do well when stock markets are buoyant and consumers feel confident.
Though that seems to be case right now, like the latest It-bag, this scenario might not stay in fashion.
To contact the author of this story: Andrea Felsted at [email protected]
To contact the editor responsible for this story: Jennifer Ryan at [email protected]
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.
©2019 Bloomberg L.P.
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