(Bloomberg) — Eighteen months ago, LVMH shares were trading at record highs and the group’s controlling shareholder, Bernard Arnault, was the richest man in the world.
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Fast forward to Wednesday, and weak Chinese demand for Louis Vuitton bags, Dior gowns and other high-end fashion had wiped out more than 150 billion euros ($163 billion) of LVMH’s market capitalization. Arnault’s wealth has fallen to fifth place on the Bloomberg Billionaires Index, meaning he has lost more money ($37 billion) than anyone on the world’s 500 richest people list over this period. It shows that.
According to the index, the 75-year-old French founder’s net worth is about $174.5 billion, more than Bill Gates, but also No. 1 Elon Musk and the top 10 whose total wealth has doubled. They are far behind the top billionaires, mostly from the technology industry. Billions of dollars this year.
The economic downturn has dashed prospects for a soft landing for the luxury goods industry, and the question for investors has become how long the recession will last and whether the recovery will resemble previous booms.
For the first time since the second quarter of 2020, when the world went into lockdown, LVMH’s fashion and leather goods division recorded a decline in quarterly organic sales.
LVMH Moët Hennessy Louis Vuitton SE is generally considered to be a bellwether in the broader sector, with its sales trailing smaller rivals such as Brunello Cucinelli SpA, Hermès International SCA, Kering SA and L’Oréal SA. It may foretell a decline in business performance. This week and next week. LVMH shares fell as much as 7.5% on Wednesday, hitting a two-year low and leading the decline among its rivals.
The geographic zone that includes China was LVMH’s worst performer, but the lack of growth in the group’s second-largest region, the United States, suggests the problem is widespread. The company surprised investors with vague guidance amid risks ranging from China’s economic growth to trade tensions.
LVMH Chief Financial Officer Jean-Jacques Guiony said Tuesday when asked about the outlook: “I don’t know.” “The visibility of our business is as good as yesterday’s sales. We’ve been through ups and downs. The only thing we know is that even when business goes down, it usually gets better afterwards. It’s a circular business.”
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In Asia excluding Japan (the region including China), organic sales fell 16% in the third quarter, a bigger drop than expected. This was the third consecutive period of negative quarterly results.
Chinese consumers, in particular, are restraining spending due to concerns related to the weak real estate market and uncertain job prospects. Concerns prompted Chinese authorities to launch economic stimulus measures last month, but they have yet to show any positive impact on consumer appetite.
“Consumer confidence in mainland China today is back to its lowest level ever recorded during the coronavirus pandemic,” Guiony said. He added that while it is difficult to assess the potential impact of such measures on demand at this point, “we can see that we are taking this issue very seriously.”
Citigroup said in a note that there is no sign that recent developments have changed consumer behavior, based on its conclusions regarding activity at upscale malls in eastern China during this month’s Golden Week period. The paper said the mall’s sales during the holiday period fell in the low teens as it failed to attract middle-class shoppers suffering from the negative wealth effect of China’s falling real estate prices.
Brands are now turning their attention to Singles’ Day, China’s biggest annual bargain event, built around the November 11 event popularized by Alibaba Group Holding more than a decade ago. Dew.
China’s economic downturn has increased the relative importance of the United States to LVMH. A year ago, the United States accounted for 24% of the French conglomerate’s total sales, while Asia excluding Japan accounted for 32%. The numbers were now 25% and 29%, respectively.
In addition to the economic slowdown, Arnault and LVMH are caught in a political crossfire both internationally and domestically. Republican presidential candidate Donald Trump has vowed to dramatically increase tariffs, which could further escalate trade tensions and has already hurt the prospects of LVMH cognac brand Hennessy. There is. The company is among the French spirits producers targeted by China in an escalating trade dispute.
Arnault and LVMH are also being targeted by the French government and lawmakers, who are trying to pass a 2025 budget to reverse the country’s widening budget deficit. LVMH will pay up to 800 million euros in additional taxes next year as part of Prime Minister Michel Barnier’s plan to increase levies on the country’s biggest companies.
Taxes on the wealthy are also set to rise, making Arnault a prominent target among opposition politicians calling for more “tax justice.”
–With assistance from Daniela Wei and Jack Witzig.
(Updates from second paragraph with context on Arnault’s decline in assets.)
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