The rich live in a different economic world


“Luxury is not a proxy for the general economy,” Jean-Jacques Guiony, chief financial officer of LVMH Moet Hennessy Louis Vuitton SE, said on Tuesday.

He couldn’t be more correct. As you flip through LVMH’s third-quarter trading update, you’ll think the world isn’t facing geopolitical turmoil, rising inflation, and falling stock markets.

The bling behemoth reported a 19% increase in sales in the three months ended September 30, excluding mergers and acquisitions and currency fluctuations. Organic sales of fashion and leather goods increased 22%. Both results exceeded analysts’ expectations.

Investors should continue to be cautious. The third quarter was always a blockbuster with travel restrictions eased and many Americans venturing back to Europe with a strong dollar to make the most of it. And now LVMH has set the bar very high for the upcoming earnings season — at a time when risks are mounting, even for the industry giants.

Although Europe shone, the key drivers of peak demand are consumers in the US and China. And both have significant uncertainties.

US large-scale spending is more vulnerable to shocks than a slowdown in economic growth, and as such recent swings in equity markets are a cause for concern. Demand from US customers was “more or less” in line with the second quarter, LVMH said. But a slowdown at Tiffany’s is worth watching. The company said the weakness in the silver business was due to an inflationary environment in which customers prefer gold. But it’s also possible that some luxury buyers are being more careful with their budgets.

LVMH’s sales to customers in mainland China remained flat amid Covid-19 restrictions. That’s an improvement from the second quarter, but far from a recovery. Demand in the country remains clouded by pandemic lockdowns and a clouding economic outlook. Even if life returns to normal after two years of yo-yo between lockdowns and freedom, there’s no guarantee consumers will spend with the same enthusiasm as when China reopened after the first Covid wave in 2020.

A joker is travel. Strong dollar could be tailwind for more US spending as travel to Europe continues into latest quarter. Any significant easing of restrictions in China could result in more Chinese tourism to Europe – and more lavish spending in Paris or Milan – although that’s a long way off for now.

Against this background, LVMH seems to be best positioned among the luxury companies. It’s the largest and has a solid balance sheet that’s moving toward a net cash position in early 2024, according to Bloomberg Intelligence. That gives it the clout to invest in marketing while others cut back and potentially make acquisitions. It is well diversified through beverages and beauty and owns two of the most successful brands in the business, Louis Vuitton and Christian Dior.

If the luxury shopper narrows it down—let’s say they buy one handbag a year instead of two—they’re likely to focus on brands with the most prestige. You can even spend more on that single item. LVMH and its competitor Hermes International should benefit from this.

Smaller names are of greater concern. The exception here is Prada SpA. It’s experiencing a Gen Z revival, with younger shoppers snapping up the bucket hats and logo loafers. If the Italian company can translate that into lucrative handbag sales, it could surprise on the upside.

The macro environment is more challenging for Kering SA, which is managing Gucci’s transition to a classic company from the cutting edge. The luxury conglomerate should benefit from the strength of its other houses like Yves Saint Laurent and Balenciaga, but rebalancing its biggest brand through an industry downturn will be hard work.

Burberry Group Plc is also in the midst of a turnaround and is vulnerable. However, if new designer Daniel Lee can create the kind of award-winning bags and shoes he has delivered at Kering’s Bottega Veneta, Burberry may be able to navigate the choppy waters to come.

Shares in the luxury goods maker rose on Wednesday after rising for the past few weeks. Even with LVMH’s stellar performance, that looks optimistic given the dangers facing bling purveyors.

“Everyone’s talking about the recession, but nobody’s seen it yet,” said LVMH’s Guiony. If and when it arrives, the giant should be the most resilient. But if Luxonomics goes in the wrong direction, it won’t be immune either.

This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.

Andrea Felsted is a columnist for Bloomberg Opinion covering consumer goods and retail. She was previously a reporter for the Financial Times.

More stories like this are available on


Comments are closed.