High-end customers and the Chinese market: luxury continues to grow

Thanks to the high-end clientele and the recovery of the Chinese market, sales in the luxury sector continued to grow in the first quarter of 2023 and should continue to do so throughout the year.

LVMH, the world's leading luxury goods company, saw its sales rise by 17% year-on-year, exceeding 21 billion euros in the first quarter. "This is just the beginning, we will continue in 2023," CEO Bernard Arnault told shareholders at the group's annual general meeting. "It's off to a good start as the first quarter figures are very good and will continue in April."

"The figures are excellent and above expectations," Arnaud Cadart, portfolio manager for the Flornoy Ferri management company, told AFP.

Indeed, in the wake of its quarterly results, LVMH, owner of Vuitton, Celine, Moët Hennessy and Dior among others, entered the top 10 best valued companies in the world. On Monday, its market capitalisation reached 500 billion dollars (454 billion euros), a first for a European company.

Hermès, a leather goods company, the third largest in the CAC 40 behind L'Oréal, saw its sales rise by 22% to €3.4 billion in the first quarter. The group "confirms an ambitious sales growth target at constant rates."

For its part, Kering, owner of Gucci, Yves Saint Laurent and Balenciaga to name a few, has recovered with sales up 2% to 5 billion euros after a difficult end of the year in 2022. However, its performance remains below those of its competitors.

"The more we address the wealthy, the better it goes," Cadart said. "This has been particularly noticeable among Italian brands," according to the portfolio manager, who cites as an example the Brunello Cucinelli brand, which "makes the best figures in the Italian luxury industry" while the average customer bill is the highest. The brand reported a 34.7% year-on-year rise in first-quarter sales to €265 million.

Nothing under €40,000

The fact that Gucci "targets a less affluent clientele" than its main competitors is one of the reasons for its poorer performance, according to Arnaud Cadart. Kering's flagship brand is trying to remedy this with a "strategy of elevation", as Kering CEO François-Henri Pinault explained on the sidelines of the annual results presentation.

In April, it opened its first "Gucci salon" in Los Angeles where "there are no products under 40,000 euros", to "attract an extremely high-end clientele, which we do not have at Gucci," explained François-Henri Pinault.

Overall, the figures for the luxury sector in this first quarter "are a very good indicator for the rest of the year", according to Arnaud Cadart. "A group that is able to maintain some volume growth, impose its prices and keep significant market share in China, is guaranteed to have a 12% or 13% organic growth in 2023," he said.

Despite fears of a slowdown in the US market, HSBC bank said in a note that "the next three quarters should grow in line with the impressive first quarter" achieved in the sector, thanks to the reopening of China.

"I am quite confident that the Chinese leaders are very wise and will surely use the period ahead to revitalise Chinese growth," said Bernard Arnault at the end of January. "If this is the case - and it started in January - we have every reason to be confident, even optimistic, about the Chinese market. The CEO of LVMH recently welcomed the Chinese Minister of Commerce, Weng Wentao, in his Dior boutique on Avenue Montaigne in Paris.