Op-Ed | The World Just Can’t Get Enough Louis Vuitton Handbags

PARIS, France — Simply what number of Louis Vuitton monogrammed purses does the world want? Rather a lot, it appears.

Robust demand on the label greatest recognized for its coated canvas totes helped dad or mum LVMH ship higher than anticipated natural gross sales development in its style and leather-based items division within the first quarter, and throughout the group.

The efficiency, all of the extra spectacular provided that it compares with a really sturdy interval a yr earlier, cements LVMH’s place because the sector’s wardrobe workhorse. Little surprise that the shares reached an all-time excessive on Tuesday.

The group is demonstrating that the luxurious celebration that started within the second half of 2016 continues to be in full swing. However there are causes to be cautious.

First, a lot of the demand that fuelled LVMH’s development has come from China.

The nation’s customers are again after a crackdown on extravagance and a slowdown within the financial system took their toll. There has undoubtedly been a component of catching up after the hiatus, and that super-charged spending may begin to wane because the yr progresses. What’s extra, the sturdy euro might deter Chinese language consumers from travelling to Europe, the place they have a tendency to splash out extra.

There’s a additional threat to Chinese language demand if commerce tensions with the U.S. escalate, or attract different nations — although LVMH is a French firm, it is arduous to see that these points cannot contact it. The spat might create a drag on Chinese language financial development and harm sentiment among the many nation’s customers, making them much less inclined to go on a high-end procuring spree. Given they account for about 40 % of luxurious items teams’ gross sales, based on analysts at HSBC, this represents a big threat to the business.

However there are different areas to fret about. Although the U.S. has been one other vibrant spot, inventory market volatility this yr will do little to encourage the sensation of prosperity that is essential for confidence to spend on costly watches or designer style.

Any slowdown may truly work in LVMH’s favour. Valuations throughout the sector are the best in 12 years, however it is a story of mega-brand dominance that is left many smaller labels behind. Bernard Arnault, LVMH chief govt officer, has mentioned that costs are too wealthy proper now for acquisitions. This leaves him room to swoop if a shake-out comes.

His group trades on a ahead worth to earnings ratio of 24 instances, and at a deserved premium to Kering. True, that hole might slender — for one, the group’s Gucci label nonetheless has lot going for it, regardless that it is already had a stellar restoration. There’s additionally scope for a re-rating after its resolution to spin-out Puma leaves it as a pure luxurious participant.

LVMH ought to nonetheless be capable of retain its lead. Given its scale, and with operations spanning cosmetics to wines and spirits, it ought to be capable of face up to pressures on the business higher than most. That additionally makes it effectively positioned to choose off weaker rivals when the bling binge lastly involves an finish.

By Andrea Felsted; editor: Jennifer Ryan.

The views expressed in Op-Ed items are these of the creator and don’t essentially mirror the views of The Business of Fashion.

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