In one of Shanghai’s most exclusive malls, the Dior store spans four floors and also features a special tea room for luxury shoppers in a market once associated with the rapid growth of luxury brands. Masu.
But there were few customers on Thursday afternoon, even though it was the launch day of the French company’s new spring collection in China.
“You can’t compare it to what it was before,” said one of the assistants. “This is what the entire market looks like.”
Chinese consumers have helped drive an unprecedented boom in the global luxury goods sector in recent years, but a deepening slowdown in key markets is now hitting some of the sector’s biggest players. There is.
Stocks across the industry fell this week after LVMH, owner of Dior, the world’s largest luxury goods group, reported lower third-quarter sales due to weak demand in China.
Sales at LVMH’s core fashion and leather goods division, an industry standard-bearer with top brands such as Louis Vuitton and Dior, fell 5%, the first since the coronavirus pandemic began in 2020. The result was negative, lower than consensus expectations.
“If you look at the growth rate from 2021 to 2023… something has to give in the end, it’s not sustainable. We’re getting back to normality very quickly, but… I think the problem at the moment is Dior,” said GAM luxury investor Flavio Cereda.
“Louis Vuitton has held up pretty well – not great, but it’s a great brand. They’ve managed to make products for everyone, rich and poor. But Dior is now holding up better. It’s getting difficult.”
This poses a challenge for Delphine Arnault, the eldest child of LVMH’s billionaire owner and chief executive Bernard Arnault. She became Dior’s CEO early last year after the brand’s sales quadrupled to about 1 euro under her predecessor Pietro Beccari. 10 billion, according to HSBC estimates.
LVMH does not publish financial data on the performance of individual brands. But Chief Financial Officer Jean-Jacques Guiony said Louis Vuitton’s sales in the fashion and leather goods division were “slightly above average” in the quarter, while “Dior’s sales were slightly below average.” .
Louis Vuitton’s sales were down in the low single digits, while Dior’s sales were in the low double digits, according to people familiar with the results. Fendi, a small and medium-sized company with sales estimated at 2.5 billion euros last year, is also facing a decline in revenue, people familiar with the matter said.
HSBC analysts said, “Louis Vuitton and Dior used to be on a similar trend, but now they are quite polarized,” adding, “The success of[smaller brands]Loro Piana, Loewe and Rimowa is , which will be offset by weakness in other brands,” he added. It’s part of that portfolio. ”
LVMH and Dior declined to comment.
LVMH, the world’s largest luxury goods group with a market capitalization of 312 billion euros, owns around 100 brands ranging from hotel chains to perfumes, but also owns mega-brands Louis Vuitton and Dior, with annual sales of around 22 billion euros. contributes significantly to profits. The companies accounted for about 65% of the group’s profit before interest and tax last year, HSBC said.
LVMH is not alone in facing tougher conditions as the industry adjusts after years of record growth, but it is faring better than some of its peers. Burberry and Gucci stores in the same downtown shopping complex in central Shanghai were also deserted.
Another Dior store in the city’s financial district has seen an increase in customers for the new collection, but staff at the company’s makeup booth elsewhere in the city have seen a 20 percent drop in foot traffic and are asking repeat customers to stop by. He said he was calling. Start a business.
Shares in LVMH rival Kering have fallen more than 40% this year after a series of profit warnings, an unusual move for the sector. When the flagship Gucci brand releases third-quarter earnings next week, sales are expected to fall 23% from a year ago, according to Barclays.
But within LVMH, Dior now faces the challenge of carving a path forward under a new chief executive after rapid growth.
“There’s some kind of reset going on,” one high-level investor said, adding that Delphine Arnault’s “energy isn’t the same as Beccari’s” and that “she’s probably a little stressed out after being milked for growth.” “We are now in a situation where we are in a situation of
Beccari, now Vuitton’s chief executive, has transformed Dior by moving it into new categories and gaining market share across women’s and men’s fashion, leather goods, jewelry and homewares.
During his time at Dior, Sereda told GAM, he was “all about volume and aggressiveness, and he was very good at that.” “However, as we saw with Chanel, exceptionally strong growth was driven by excessive price increases.”
The average price of luxury goods tracked by HSBC has risen 50% since 2019. According to Bernstein’s analysis, Dior has increased prices the most, with comparable prices for Evergreen products rising more than 60% by 2020 and 2023.
“At a certain point in the consumer’s mind, absolute numbers don’t mean anything at all,” the high-end investor said. As for the industry as a whole, “we can no longer grow on price alone” – top brands such as Dior and Louis Vuitton in particular are now huge, and we need to look at sales beyond the ultra-wealthy.
Delphine Arnault focuses on “long-term desirability” and invests in the Dior brand through major runway shows, such as the one recently held in Scotland, and dressing stars from Celine Dion to Lady Gaga A person close to her said. Opening ceremony of the Paris Olympics.
Industry insiders say a recent investigation by Italian authorities into poor working conditions at subcontracted factories for brands like Dior and Armani has had little impact on customers, but some It said it faces broader questions about the quality of its products. Prices will rise.
“Dior’s price range is problematic because we’ve already reached a price point where wealthy customers are having problems with their purchasing power,” said another person close to the group.
Analysts at research firm Third Bridge say Dior, whose creative director Maria Grazia Chiuri has been in business since 2016, is the first to have a new big hit since the Book Tote hit the market more than three years ago. It is also noteworthy that the company does not sell bags.
“Handbags are the cornerstone of luxury brands, as they are often the most prominent and profitable category,” said Third Bridge analyst Yangmei Tan. “The handbag sector’s lack of customer relevance appears to be part of a wider problem affecting Dior’s product range.”
A source close to Delphine Arnault said that recent product launches, such as the Toujours bag launched six months ago, have been doing well. Under her leadership, the brand also increased the number of bags participating in Chiuri’s runway shows to focus on appealing to the brand’s most premium customers and strengthen its core product lineup. “Most of Dior’s growth is coming from here,” the person said.
For the biggest brands in the luxury industry, once they reach a certain scale, maintaining momentum becomes a challenge.
After sales exceed 10 billion euros, “we will need great storylines, heritage and products for many different customers, while managing the dilution of exclusivity,” Sereda said. “Walking through the Dior megastore, it’s easy to see today’s challenges.”
