Luxury in Flux: LVMH, Kering, and the Post-Boom Reality of China

Insights

• China’s Luxury Reckoning: Once the beating heart of luxury’s global growth, China’s appetite is cooling, tempered by economic slowdown and government policies urging modesty. Brands like LVMH and Kering face a reality check, forcing them to rethink how to sustain relevance in a market that now feels more cautious and controlled.

• Japan’s Spark Amid Uncertainty: Japan shines for now, drawing tourists and benefiting from a weaker yen. But the question lingers—can this be more than a short-lived lift? Sustained growth will hinge on stoking domestic demand, a challenging feat in a market traditionally driven by inbound luxury spend.

• New Frontiers Beckon: Southeast Asia, India, and the Middle East step into the spotlight, regions brimming with untapped potential and a youthful, affluent base. Luxury brands see promise here, yet they’ll need cultural fluency and digital finesse to truly resonate.

• Adaptive Playbook for a Shifting World: Success in this evolving landscape calls for agility, an artful blend of global brand power and local resonance. Diversifying portfolios and investing in creative direction tailored to each market will be essential if these giants are to capture both familiar and frontier markets.

• Update: Prada Group has just unveiled its Q3 results, showcasing remarkable growth across all regions. Prada posted a 2% rise, while Miu Miu soared by an extraordinary 105%. Overall, the group climbed 12% in APAC and an impressive 53% in Japan, underscoring that brand affinity and product appeal, fueled by strong creative direction, can fortify a brand even amid the most difficult economic conditions.

The Q3 results from LVMH and Kering draw a clear divide in the luxury landscape. A decade ago, China’s insatiable demand could turn even the most cautious investors into optimists, but the Q3 numbers tell a different story. These financial statements don’t just signal a passing storm—they reveal seismic shifts that are prompting luxury’s biggest players to reassess their strategies, especially in markets that once seemed destined for unending growth.

This story speaks not only to the economic turbulence across regions but also to the resonance of each group’s brand direction and the strength of its categories within these markets.

Fashion & Leather

For LVMH, Fashion & Leather Goods remains the cornerstone of its portfolio, experiencing only a minor 1% decline in organic growth over the first nine months of 2024—a resilient performance given challenging economic conditions. However, the real story lies in the contrasting trends within the Asia-Pacific region: a 12% decline across Asia offset by an impressive 36% growth in Japan.

Courtesy of LVMH

The strategy here is clear: strengthen flagship brands like Louis Vuitton and Dior through creative direction, targeted investments, and high-profile global events. The 2024 Paris Olympics offered an ideal opportunity for LVMH to spotlight iconic pieces such as Louis Vuitton’s custom trunks and the expanded Miss Dior line, underscoring both cultural relevance and the allure of exclusivity and craftsmanship.

Kering faces a more challenging path this quarter. Gucci, the jewel in its crown, has taken a hit, with revenues dropping 25% amid waning consumer demand in Asia-Pacific. Bottega Veneta, on the other hand, has emerged as a quiet counterpoint, delivering 5% growth fuelled by loyal followings in North America and Europe. But Gucci’s decline is a stark reminder of the risks inherent in placing too much weight on one iconic name, especially when global tastes and economic pressures are in flux.

Bottega Veneta’s renaissance began with Daniel Lee’s reimagining in 2018, a resurgence that Matthieu Blazy has since cemented, transforming the brand into a cultural touchstone. The numbers reflect not just sales but the impact of a brand that has captured the moment.

In luxury, creative direction is paramount. The transition from Alessandro Michele’s bold, maximalist vision, and meteoric growth, to Sabato de Sarno’s refined approach was bound to bring some disruption. Such a seismic shift takes time as Gucci adjusts and seeks to resonate with a new audience. Sabato now leads the way, and his perspective feels well-suited to guide Gucci forward. Given the resources and patience to fully embed his vision, he could be the one to shape Gucci’s next chapter, drawing in a new generation of fans and bringing sustainable and steady growth.

Beauty

Beauty highlights the strategic contrasts between these two luxury houses. LVMH’s beauty segment achieved a solid 5% organic growth this quarter, powered by stars like Dior’s Sauvage and Guerlain’s Aqua Allegoria, both reinforced by high-impact campaigns that have strengthened the brand’s position in China and other high-potential markets. Sephora’s 6% growth further boosted LVMH's beauty presence, leveraging its established retail network to capture demand across key regions.

Courtesy of Bottega Veneta

In Q3, Kering’s beauty division posted a robust 32% revenue increase to €440 million, reflecting a sharpened focus on fragrance as the heartbeat of its beauty strategy. Recently acquired star Creed led this surge, with strong demand across North America, the UK, and travel retail, bolstered by a strategic expansion into the Middle East. Both Creed and Bottega Veneta are squarely positioned at the ultra-premium level—distinctly above standard designer fragrances—underscoring Kering’s dedication to true luxury. The October launch of Bottega Veneta’s high-end fragrance collection only deepens this appeal to the ultra-luxury consumer. Yet, a tantalizing gap remains in Kering’s lineup for luxury beauty beyond fragrance, particularly in cosmetics and skincare—a move that could amplify the brand’s reach, introduce new consumers, and offer accessible entry points within Kering’s evolving beauty portfolio.

In tough economic times, beauty can provide an anchor for luxury brands. It can be a guilt-free luxury for every person. The ‘lipstick economy’ is a tried and tested strategy, where accessible luxury thrives even when other sectors falter, and one that Kering should be eager to fortify as it looks to deepen its foothold in beauty.

Japan’s Boost, China’s Challenge

Japan, buoyed by a weakened yen, has emerged as a bright spot, drawing a record 17.8 million tourists in the first half of 2024 alone, eager to take advantage of favourable exchange rates. LVMH, with its established presence, has leveraged this trend well, driving sales that help offset softer demand in China. But Japan’s growth story raises questions of longevity, particularly as the yen could strengthen if the Bank of Japan shifts its monetary policy by raising its intentionally low interest rates. In the short term, Japan may continue to serve as a growth engine, albeit a modest one, but sustaining momentum will likely depend on local demand—a nuanced challenge for luxury brands accustomed to the ebb and flow of tourist spending.

China, however, is the true wild card. With GDP growth slowing to 4.6% in the third quarter and consumer conservatism rising amid regulatory scrutiny and ‘common prosperity’ policies, China’s luxury sector is losing the momentum that once seemed unbreakable.

Looking Beyond China

As China’s growth decelerates, emerging markets across Southeast Asia, India, and the Middle East are stepping into the spotlight for luxury giants. Southeast Asia, with its expanding middle class and youthful population, holds long-term potential for luxury brands. Countries like Vietnam, Indonesia, and Thailand are showing high brand affinity—a trend that both LVMH and Kering are eager to nurture through digital outreach and localized strategies.

India stands as the next powerhouse of growth for luxury. LVMH’s alliance with, and trust in Reliance Industries to expand its presence is more than just a business move—it’s a testament to the brand’s commitment to a market where heritage meets cultural relevance. With an affluent population on the rise and a rapidly maturing luxury landscape, India promises a compelling future for brands willing to embrace its unique sensibilities.

The Middle East is another area of high growth. With the luxury market valued at around €15 billion in 2023, largely driven by the UAE and Saudi Arabia, the region’s market is expected to double by 2030. LVMH has expanded its presence in the UAE, emphasizing personalized retail experiences, while Kering’s recent opening of a Gucci boutique in Dubai Mall demonstrates a dedication to tapping into the Middle East’s increasing demand for luxury. Dubai has welcomed approximately 4,500 high-net-worth individuals in 2023 alone, reinforcing its status as a key hub for luxury retail.

A New Blueprint

The luxury landscape is undeniably shifting as the post-boom reality of China prompts groups like LVMH and Kering to recalibrate. Japan’s surge offers a modest and potentially temporary counterbalance, while new frontiers in Southeast Asia, India, and the Middle East present compelling opportunities. In navigating these varied regions, agility, strategic investment, and cultural engagement are essential. For these luxury giants, success will hinge on an innovative balance of creative direction and category diversification, building portfolios that can thrive amid the complexities of emerging markets.

The road ahead will test their endurance and adaptability, but, in troubling times, it’s worth remembering that difficult paths often lead to beautiful destinations.

-G

Update

Prada Group has just unveiled its Q3 results, showcasing remarkable growth across all regions. Prada posted a 2% rise, while Miu Miu soared by an extraordinary 105%. Overall, the group climbed 12% in APAC and an impressive 53% in Japan, underscoring that brand affinity and product appeal, fueled by strong creative direction, can fortify a brand even amid the most difficult economic conditions.