LVMH sales slow in Hong Kong as Chinese demand drops globally

PUBLISHED : Friday, 25 July, 2014, 11:58am
UPDATED : Saturday, 26 July, 2014, 12:11am

LVMH has seen a drop in demand from Chinese buyers in its home market and overseas, as well as a slowdown in Hong Kong because of political unrest, the French fashion, spirits and cosmetics group said after posting below-forecast second-quarter sales and profits.

The world's No 1 luxury group said growth in sales from Louis Vuitton, its main cash cow, had dropped in China in the second quarter from the first, while revenue from Chinese tourists declined in major European markets such as France.

It also said fewer tourists, particularly from mainland China, were shopping in Hong Kong because of pro-democracy protests. Many leading luxury brands generate more than 10 per cent of their global revenue in the city.

"After May, we have seen the level of business [in Hong Kong] slowing down markedly," chief financial officer Jean-Jacques Guiony said, adding the group's duty-free unit, DFS, had particularly suffered.

Guiony's comments echoed watch specialist Swatch Group, which voiced concerns on Tuesday about the outlook in Hong Kong in the near term.

Regarding mainland China, Guiony did not provide an explanation for the decline in growth other than pointing to a general difficult business climate affected by the government's efforts to crack down on corruption and conspicuous spending.

Louis Vuitton, the top luxury brand by revenue, which generates more than half of LVMH's operating profit, has also been struggling to counter a growing perception among customers in emerging markets that it has become too ubiquitous.

The brand's sales growth collapsed to zero from 9 per cent in the previous quarter.

Louis Vuitton has been trying to win back customers and regain exclusivity by strengthening its higher-end offerings with leather goods and smart designs, but its efforts have been taking time to pay off.

LVMH's sales growth in the quarter reached 3 per cent on a like-for-like basis, below analysts' expectations for 5 to 6 per cent, while operating profit in the first half fell to 18 per cent from 19.8 per cent last year.