China's Rebound Fuels Recovery of Luxury Fashion Brands

By Adriaan Brits Tuesday, November 3, 2020

China is again leading a recovery in sales of luxury fashion brands with LVMH, Hugo Boss, and Gucci’s Kering all reporting strong demand for its products in the world’s populated market.

Louis Vuitton and Christian Dior Fuel LVMH’s Recovery

LVMH reported strong sales results in the third quarter, thanks to an increase in demand driven by wealthy Chinese customers. Organic business at the company’s fashion and leather goods unit grew by 12% in Q3, fueled by a surge in sales of luxury items such as Christian Dior’s $3,000+ Bobby bags.

The results pointed out that some customers are fine with spending a lot of money even during a period of economic turmoil like now. The company’s most luxurious brands, such as Louis Vuitton and Christian Dior, helped it offset all the blows it took following the introduction of lockdown and travel restrictions.

The Chinese market was the largest contributor to the sales rebound after its incredible recovery from the deadly virus. Customers in China have been increasingly spending domestically, given that all the travel restrictions are still in effect.

Jean-Jacques Guiony, the CFO of LVMH, said the sharpest rebound in sales was registered during the third quarter.

“Many wealthy Chinese consumers are switching their spending from international travel to luxury purchases,” said Amrita Banta, a managing director at research and consultancy firm Agility Research.

“We have seen a lot of interest in more iconic brands and also we have seen people upgrading to the more well-known brands.”

A stronger-than-expected rebound in sales is likely to have helped LVMH close the $15.8 billion purchase of Tiffany & Co.

Hugo Boss Reports Higher-Than-Expected Profit

German luxury fashion company Hugo Boss also reported a strong rebound in profit in the third quarter and said it plans to concentrate on revitalizing its online business and operations in China amidst coronavirus-induced uncertainty.

The Metzingen-based company said its quarterly revenue plunged 24% to €533 million ($647 million), compared to consensus estimates of €553 million; however, the company reported an operating profit of €15 million ($17.5 million) - fairly higher than analysts’ expectations.

“We made further progress in the recovery of our business, with great contribution coming from Online and mainland China. Our profitability returned to positive territory, and we even accelerated our strong cash flow generation,” says Yves Müller, Spokesperson of the Managing Board of HUGO BOSS AG.

Hugo Boss reported a 27% surge in sales in China and a 66% jump in online sales as it rolled out 24 new ecommerce operations in June and August.

The German company started focusing more on sportswear and casual clothes even before the coronavirus outbreak and has reaped the benefits during the pandemic as people were forced to work from home.

China Pushes L’Oreal and Kering Sales Into Green

Luxury companies in France, such as L’Oreal and Kering, returned to profitability in the third quarter, also buoyed by a surge in demand in China, helping them deal with consequences induced by the pandemic.

During the quarter through September, L’Oreal’s sales dropped by 2% to €7.04 billion ($8.24 billion).

The strong rebound in demand across Chinese markets helped the company’s sales stay 8.6% in the green during the nine months to September, compared to the same period a year ago. The Chinese market is outpacing other markets around the world when it comes to recovering from the pandemic.

In China only, sales soared by more than 18% during this 9-month period, while broader sales across Asia-Pacific were only 1.9% in the red.

French personal care company L'Oreal didn’t provide full-year guidance. However, it said it estimated a positive second half of 2020, and a surge in like-for-like sales, driven by skyrocketing online demand which rose by 61% during the nine-month period and is responsible for almost 24% of its operations.

Similarly, the French luxury goods company Kering was also boosted by a strong recovery across Asian markets.

Kering, which owns the Gucci brand, reported a drop of only 1.2% in like-for-like sales during the three months to September, a much better result than analysts’ estimates of a 13% fall and following a 44% plunge from the previous quarter.

"The group is almost back at 2019 levels ... a remarkable (performance) in the current context," Kering’s CFO Jean-Marc Duplaix said.

Duplaix cited Gucci’s outstanding performance in the United States and China but added its business growth was still curbed by worldwide travel restrictions.

"Gucci has perhaps suffered more than others from the lack of tourist flows," Duplaix said.

Summary

European luxury fashion and goods companies including LVMH, Hugo Boss, Kering, and L’Oreal, posted strong third-quarter sales, driven by surging demand in key Asian and Chinese markets, which recorded a faster recovery from the coronavirus pandemic compared to other markets around the world.

About the Author


Headshot for author Adriaan Brits
As an analyst of global affairs, Adriaan has an MSC from Oxford, with diverse interests in the digital economy, entertainment, and business. He is a specialist trainer in Advanced Analytics & Media.

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