Luxury goods market on a high, despite conflict, pandemic

·3-min read

Global luxury brands have posted strong results for the first quarter of this year despite global hardships including the conflict in Ukraine, inflation and Covid restrictions in Asia. This comes on the back of an exceptional year in 2021.

LVMH, the world's number 1 luxury brand, sold €18 billion worth of goods in 2022's first quarter. That's 29 percent more than in the same period in 2021.

Hermès posted a €2.76 billion in turnover (up 33 percent), Kering €4.96 billion (up 27 percent) and L'Oréal recorded more than €9 billion (up 19 percent).

"The first quarter was good, and the beginning if April is continuing the same way, after that, it will depend on many things, the health situation in China, and the geopolitical context in Europe. We can say 'so far so good'," LVMH director Bernard Arnault told a press conference this week.

In March, some major luxury brands chose to temporarily close their shops in Russia following Moscow's decision to invade Ukraine. However, this did not appear to affect their turnover.

"The impact has not been significant for the group," Eric Halgouët, financial director at Hermès told AFP, adding that sales (from the brand's three shops) in Russia represented 1 percent.

At Kering, the figure is similar, with less that one percent of the group's revenu coming from Russia, financial director Jean-Marc Duplaix said.

Younger clientele

Although one percent of companies worth billions of dollars is certainly not to be sneezed at, the relative loss has been made up for with the growing European and American markets.

"The momentum for the key markets in North America, Europe and Japan is growing, while China was very advantageous until the end of February," RBC consultants said earlier this month.

"Today the entire world buys luxury products and that is continuing with an even younger clientele, which is an advantage in this sector," Arnaud Cadart, a portfolio manager for Flornoy.

UBS carried out a survey in China, the United States and Europe from November to February that showed "despite incertitude due to geopolitical tensions, inflation and the resurgence of Covid, consumerism in the luxury sector remains resilient."

However, the consultancy warned that risk increased inevitably with the more complex geopolitical situation and stricter health restrictions in China.

"With China, it's not a question of demand - the demand is there. But it's a question of how the health situation and the restrictions evolve," Bernard Arnault said.

No concern for long term

"We could be affected in the short term, but we're not worried on the long term," explained Jean-Jacques Guiony, LVMH's financial director, adding that observations made in 2020 showed that as soon as restrictions were lifted, clients returned as before.

In terms of inflation, most groups said it was too soon to evaluate the consequences. However, even if groups put up prices 3-5 percent as a result, "that kind of increase doesn't put off the clients," Arnaud Cadart said.

On top of that, the Ukraine crisis has lead to a drop in the euro, which has worked in the market's favour.

"Three-quarters of the planet has improved their purchasing power in euros in the past two months. 80 percent of what luxury groups sell is outside the eurozone, but their production costs are in euros," he explained.

(with wires)

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