‘I think it would be a mistake.’
The chief financial officer of the French luxury group LVMH MC -3.68%, Jean-Jacques Guiony, was responding to the idea that the company should lower the prices of its goods.
During the company’s third-quarter earnings call, Guiony was asked if the recent 3% year-over-year drop in sales could be fixed by selling goods at lower prices to attract “aspirational buyers.” Aspirational buyers are people who want to own luxury brands’ products.
“The offer in luxury has been the key strength over the years,” Guiony said, so the company shouldn’t have “affordable product.” He also told LVMH that they should “stick to what has made us successful over the years.”
LVMH owns a number of high-end names, such as Moët & Chandon, Christian Dior, Louis Vuitton, and Bulgari.
There aren’t many people who can afford a Louis Vuitton bag that costs thousands of dollars, but the company has kept the brand’s status by making high-end items that only a few people can afford. That could hurt sales, especially when the economy is bad, but luxury companies can run a big risk in the long run if they react too quickly to changes in the short term.
People don’t buy nearly as many expensive Kate Spade items as they do Louis Vuitton items, but that brand shows what can happen when a company puts short-term sales ahead of its brand image. Kate Spade put a lot of effort into sales promotions near the end of its time as a separate business. When it finally agreed to be bought by Coach in 2017, Coach’s CEO at the time said that sales promotions can “lead to meaningful brand deterioration over time.”
In the case of LVMH, Guiony said that the company’s prices have gone up over the past few years because of inflation. He did say, though, that LVMH wouldn’t have to deal with these price increases forever.
It’s also hard for the company because Chinese consumers are losing faith in it. China has been a huge market for expensive goods because the upper class is growing. According to Guiony, things were better in the first half of the year, which showed “the enduring appetite of the Chinese customer for luxury.” This made them “very confident that demand will recover when confidence troughs.”
Since LVMH is one of the biggest names in luxury goods shopping, its share price has gone up 60% in the last five years. This is more than double the iShares MSCI France ETF’s 0.08% gain during the same time period. Since it first went public in 2008, the stock is up more than 800%.
LVMH made a new business record of €86.2 billion, which is about $93.6 billion, in sales in 2023. The company said this was due to the success of high-end brands like Louis Vuitton, Cristian Dior, and Fendi. Those things show that the company has a long-term strategy, even though it has to deal with the effects of short-term economic trends right now.
The price of LVMH shares on the Euronext Paris stock market dropped 4% on Wednesday. They are now down 18.5% for the year 2024.
Bernard Arnault is the CEO of LVMH. At one point last year, he was the richest person in the world. The Bloomberg Billionaires Index says that he is worth $182 billion right now.
