There is no recession in luxury with Dior, Mercedes sales booming

The jump in sales reported by LVMH, owner of Louis Vuitton and Christian Dior, suggests that at least one segment of the economy remains sheltered from the crises besetting retailers – luxury goods.

The gyration of markets, soaring inflation and growing economic gloom have proved no impediment to demand among the well-heeled for handbags, watches, jewelry and cars. This can be seen in the 22% jump in LVMH’s fashion and leather goods sales last quarter.

“The relief of coming out of the pandemic alive has overshadowed any bad news, as consumers may adopt a ‘carpe diem’ attitude,” Bernstein analyst Luca Solca said in a note to clients. “Nobody wants to be the richest person in the graveyard.”

The attitude has caused queues to build up outside Christian Dior and Chanel boutiques in Paris, Berlin and London, in scenes reminiscent of the pre-pandemic era when Chinese tourists took advantage of lower prices in Europe. Only now, with Chinese shoppers still largely absent due to their country’s Covid policy, it’s Americans with strong dollars and Europeans doing the shopping.

The lingering appetite for sought-after brands among the affluent transcended expensive handbags and trinkets and helped boost Mercedes-Benz AG car sales by more than a fifth last quarter. Porsche’s IPO benefited from the luxury cachet of the brand, whose market value exceeded that of its parent company, Volkswagen AG, after listing. Sales of other cars fell.

Jean-Jacques Guiony, chief financial officer of LVMH, told analysts that in past recessions, luxury customers have tended to react more to stock market shocks than to slowing economic growth. Unlike mass retailers, LVMH has the ability to pass on cost increases to its affluent customers, he said.

Meanwhile, the spending spree continues. Sotheby’s sold its most expensive handbag, a crocodile-skin Hermes Kelly, at auction in Paris late last month for 352,800 euros ($341,862). (The all-time record is still held by Christie’s.) There will be another opportunity to test the appetite of the wealthy when Sotheby’s holds another luxury bag auction – which ends on Thursday – in Hong Kong.

The question now is how long this conspicuous consumption can last. Flavio Cereda, an analyst at Jefferies, said that while LVMH’s results were positive, there was still uncertainty about the trajectory ahead.

“This is another beat from the post-pandemic winner,” he wrote in a note to clients. But it’s still unclear “if we’re seeing a final hurrah,” he added.

-With the help of Benedikt Kammel.

Comments are closed.