Even LVMH Moet Hennessy Louis Vuitton SE, the world’s most resilient luxury conglomerate, can’t escape the economic woes emanating from the East. The Paris-based company, which owns iconic brands like Louis Vuitton and Dior, reported a meager 1% increase in sales in Q2, the lowest since the 2009 Global Financial Crisis, excluding the pandemic’s early days. Its operating margin also took a hit.
The primary blame lies with a weak yen, which hasn’t rebounded despite nominal rate changes. Wealthy Chinese consumers, a vital market for luxury fashion, have taken advantage of Japan’s favorable exchange rates, boosting sales there by 57% but causing a slump back home. This same trend has boosted sales for other luxury firms like Swiss-based Compagnie Financiere Richemont SA, which owns Cartier and Van Cleef & Arpels. However, the yen-denominated revenue undermines overall profitability for European fashion houses due to currency mismatches.
Luxury goods are significantly cheaper in Japan—about one-sixth less than in China—and this cost discrepancy is reshaping spending. Despite Chinese consumers holding a 26% share of the global luxury market, a significant portion of their expenditure is now overseas, particularly in Japan. This shift negatively impacts companies that have heavily invested in China’s struggling domestic economy.
The root issue extends beyond currency: Chinese consumers are mirroring Japanese shoppers of the ’90s, becoming more prudent as China’s economy faces a housing market correction. Like Japan post-‘80s bubble burst, Chinese shoppers now prefer value-for-money buys, a shift reflected on platforms like Xiaohongshu. Here, influencers teach how to mix high-end and affordable brands to maintain style.
Social media and e-commerce reinforce this trend. Influencers often flaunt luxury items online but return them afterward, causing an increase in luxury goods returns. Platforms like Richemont’s Yoox Net-A-Porter have even exited China due to this trend. Brands resorting to discounts face difficulty luring Chinese buyers to pay full price—a predicament even affecting affordable labels like Uniqlo.
Complaints about China’s economic slowdown, regulatory crackdowns, and volatile currencies are common among luxury executives, but these issues underline a broader shift. Chinese consumers, much like a previous Japanese generation, have developed their own fashion sensibilities, raising the bar for international brands.
This article originally appeared in Bloomberg Opinion, authored by Shuli Ren, an experienced market analyst, and former investment banker.
Original Story https://www.livemint.com/news/world/big-luxury-frets-that-china-is-turning-japanese-11722200366021.html
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