LVMH’s Q1 2023 results revealed that the U.S. luxury consumer is still traveling abroad, and that the Chinese luxury tourist has yet to arrive in the U.S. (Recall, CEO Arnault believes that Europe and the U.S. will begin to see that tourist this summer.) Management also flagged an intra-quarter slowdown in the U.S. for the Fashion & Leather and Jewelry divisions. Is this because of the Silicon Valley Bank fall-out, growing tech layoffs, declining home values, higher interest rates? It's too soon to tell. However, remember the slowdown at Costco that we reported on last week was due to non-foods merchandise categories were negative mid- to high single digits, including double-digit declines in home furnishings, toys and seasonal, majors and jewelry.
All-in, the luxury conglomerate produced +17% organic revenue growth during the quarter, which was in line with last year’s trend. The U.S. was a softer region (+8%) for the company for the reasons noted above and because the region is still recovering from a large Cognac hangover that was over-consumed during the period of COVID stimulus checks (yes hundreds of millions of stimulus dollars went towards buying Cognac, champagne, and other “bling” spirits).
Source: LVMH Q1 2023 Revenue Presentation
The Selective Retailing division (DFS and Sephora) led in growth. Sephora U.S. was called out for “strong growth” which we estimate at over +30%. Fashion & Leather Goods (+18%) followed and then came Watches & Jewelry (+11%) and Perfumes & Cosmetics (+10%). The reopening of Tiffany’s Fifth Ave flagship remains on track for Q2 2023 and management expressed pleasure with its series of new concept stores.
Hermès reported astonishing figures; overall organic revenue growth of +19% was on top of a +44% increase in the based period and the U.S was up +23% on a +27% compare (no Cognac in its revenue mix to have a hangover from). Their Ready-to-Wear & Accessories segment (+34%) continues to rip because it is less supply-constrained than their Leather Goods & Saddlery (+19%) segment.
LVMH’s revenue is now 68% above 2019’s level and 2023’s revenue will be $34B above 2019. Hermès is 110% above. Why does luxury continue to produce such outstanding growth? Most significant is its affluent customer mix. In a “normal” recessionary fear environment, the affluent keep spending, whereas middle-income and younger consumers disengage. The form of these dynamics is what is called the “hourglass effect” which was last seen in late-2018 and early ‘19 and which we show in the second graphic below (this was part of our Holiday 2022 & Beyond Outlook).
Source: Placer.at Analytical Research Holiday 2022 Outlook and Beyond Presentation
Another contributor to luxury’s growth ironically is many of the psychographics, social media, and influencer dynamics that we discussed in the prior thrift/resell/circularity story. This is best exemplified by Hermès, whose marketing and brand messaging centers around its products are crafted to last forever so that they can be handed down between generations and are to be mended when broken (and not thrown out). As such, buying these brands’ products isn’t viewed as conspicuous, wasteful, or Earth-polluting consumption. It is prestige luxury that is promoted and celebrated on social media. It is prestige luxury brands like Louis Vuitton, Christian Dior, and Hermès that are seen as having genuine providence and that will hold, if not, increase in value. In a world filled with fakery, deceit, and cheating, these brands are seen as having genuine providence, authenticity, and trust. It is these qualities that millennials and Gen-Z want their personality associated with, and they are willing to pay up for that relationship, be it buying new, or buying resale.
