The luxury industry is poised for a significant resurgence, with key indicators pointing towards a promising future. The spotlight shines on Bernard Arnault's LVMH, a leading player in the sector. LVMH's third-quarter sales figures offer a glimpse into the industry's transformation, indicating a potential shift in consumer behavior. While revenues in its fashion and leather goods division, encompassing renowned brands like Louis Vuitton and Dior, continue to decline, the rate of decline has slowed from a staggering 9% to a more manageable 2%. This slowdown suggests that the luxury market may be reaching its lowest point, signaling a potential upturn in overall spending.
The impact of this turnaround extends beyond LVMH. The company's strong performance has not only boosted its stock price by 14% but also influenced the shares of other luxury giants such as Hermes, Burberry, and Gucci-owner Kering. However, LVMH's position as a market leader is expected to yield disproportionate benefits.
Handbags and frocks, heavily represented by the group's iconic LV brand, are projected to outperform other segments. The jewelry sector has recently outperformed 'soft' luxury, growing at a rate of 4% annually between 2022 and 2025, while 'soft' luxury remained stagnant, according to RBC analysis. This presents an opportunity for jewelry to catch up.
Furthermore, fashion and leather goods brands have taken proactive measures to enhance their value proposition. They have addressed the issue of price hikes and introduced more captivating designs, ensuring a better return on investment for customers. Despite the luxury industry's reputation for high prices, even the super-rich appreciate a fair deal.
The industry has curbed its price increases, with LVMH's improvement this quarter attributed to increased volume rather than mark-ups. Inflation has also aligned with LVMH's price adjustments in France and the US, according to Bernstein analysis. Additionally, new designers are generating excitement, as evidenced by recent fashion shows.
However, the luxury market's recovery will be more gradual compared to the post-pandemic boom. Brands will need time to readjust their pricing strategies before they can sell luxury items in large quantities. LVMH is not the sole beneficiary of the soft-luxury revival, and it shares this spotlight with other fashion houses. Demna Gvasalia at Gucci has also demonstrated encouraging growth.
Despite its recent struggles, LVMH's stock has been underperforming. This summer, it traded at a discount to the S&P Global Luxury Index, eroding its historical premium. Kering and Burberry have already priced in part of their turnarounds. While the industry's current challenges may not immediately reflect LVMH's substantial market share, the company's financial strength positions it well for future growth. This resilience will be crucial when the market cycle shifts.
