Explain recession consumer psychology to me? – LVMH Sales Leap

[gerry]

LVMH Sales Leap
by Robert Murphy
Posted Thursday October 09, 2008
From WWD.COM

PARIS – LVMH Moet Hennessy Louis Vuitton said “remarkable” sales at its workhorse Louis Vuitton brand helped lift sales in the third quarter.

The French luxury group, which owns brands from Givenchy to Dom Perignon, reported 6 percent organic revenue growth in the quarter to 4.16 billion euros, or $6.27 billion at average exchange, broadly in line with analysts’ expectations, though slower than earlier in the year.

LVMH said the performance was “even more noteworthy in view of the high comparative figures seen in the third quarter” last year and the tough "global economic context." The third quarter last year was LVMH’s strongest, with 15 percent organic growth.


Why?

[Faust]

Two words - emerging markets.

[Bosozoku]

...and Japanese Conformism...

[Fuuma]

It has been observed that in markets such as Japan (a large chunk of LV's $$$) consumers that tighten their (LV) belts in time of economic dive will reduce their bolder consumption and stick to the tried and true formula of global, well recognized luxury; out with the Yohji, in with the Hermès "H" belt!

[noerml]

well it is also argueable if a recession hits those ppl who can afford LVMH products first or rather uh...the single mother who has to count each and every dime.

besides there is a lot of bogus financial talk out there. First of all there is a worldwide inflation of consumerprices due to higher energy costs and commodity prices. And then in addition to that there are clear signs for an emerging recession in the U.S and some other countries . China , despite some corrections, boasts an ecomomic growth of like what.. 9ish? %... i'd hardly call that recession. Most european states are so far, still above the zero, etc.

Also (even though i doubt this really matters here) ppl tend to invest into uh.. hard assets in times of financial turmoils, that being things like art, gold, silver and what not.

Faust already said it, emerging markets certainly figure in and also higher commodity prices. Now i am sure LVMH wasn't trying to be kind and swallow them up, they passed them on to the consumers and made sure to increase their profits at the same time.

now if you compare the revenues of other public clothing companys (and i know they do lot more shit) you will sort of find validation of fuumas argument i guess.


those figures really don'T suprise me.. what suprises me more is the fact that there finally is a management who apparrently managed to make the right choice ;-)

[Faust]

Well, yea, that's the point - EVERYBODY is losing money, except LVMH and Hermes.

[gerry]

While the emerging market argument makes sense, I was under the impression that apart from those specific markets, the people keeping the luxury industry afloat were mostly "middle class." I mean that in the sense that it's not like Dior, Givenchy or Marc Jacobs really make money off their clothing or even their bags (comparatively) – the real money is in incredibly trivial things like perfume and sunglasses, objects that are seen as entry level and are subject to incredible mark ups. LV and Hermes are different to me in that their profit bases don't seem to be in those things but rather in the leather goods. Hermes is different from LV because the "middle class" isn't seen their main customer base (which is why I believe their profits keep growing) – Hermes profits have actually gone down in Japan, haven't they?

Again, I understand the emerging market, but I don't think LV growth has slowed in the US, either. In fact, it almost seems like people see a "classic" brand like LV as an investment in status... and that confuses me to no end.

[Faust]

I think it has slowed in the US and Europe, but I would need the financial statements of course.

However, if we assume that you are right, let me ask you a hypothetical question. What is the ONE expensive status item that a typical middle class American woman would want? Personally, I can't think of a more desirable one than a logoed LV bag. I've seen it time and again, even amongst my friends 'wives - the woman will have a closet full of gap and BR (at best), but she will have that one LV bag to affirm her status. Think hard, and I'm sure you will find someone like that amongst the people you know.