LVMH Warms to E-Commerce as Prospects Brighten

James Fallon and Joelle Diderich
·7 mins read

PARIS — Long averse to selling its luxury products online, LVMH Moët Hennessy Louis Vuitton is projecting a bigger role for its e-commerce platforms, including multibrand site 24S, as the coronavirus pandemic reshuffles the landscape of brick-and-mortar retail.

The luxury conglomerate said its sales trends improved significantly in the third quarter, driven by its key fashion and leather goods division, amid signs of a global upturn in activity, particularly in the U.S. and Asia.

Although LVMH did not disclose the increase in online sales, the company said e-commerce had compensated for prolonged store closures through spring and summer.

“We’ve seen a big surge in the share of the business we do with online, I would say across the board,” chief financial officer Jean-Jacques Guiony told analysts on a conference call on Thursday.

“What this complicated period has shown us is that there is a validity in the vertical e-commerce system for all the brands,” he added. “Online will continue to develop, [but] certainly not at the speed we’ve seen this year, which was definitely a function of stores being closed.”

LVMH reported that organic revenues fell by 7 percent in the three months ended Sept. 30, beating market expectations and marking a dramatic improvement from the second quarter, when comparable sales plummeted 38 percent as the pandemic shut down stores and factories worldwide and grounded travelers.

The Bloomberg consensus estimate was for a 12 percent drop in the third quarter, with fashion and leather goods seen down 0.9 percent.

Instead, the division recorded a 12 percent jump during the period, fueled by its star brands Louis Vuitton and Dior, which both staged physical shows during Paris Fashion Week.

“Some businesses, particularly Celine, Loewe and Fendi, had a big improvement in Q3 so we are very pleased. Not all of them did as well, but all in all, we see a gradual improvement in all our businesses, and that’s quite encouraging,” said Guiony.

While he declined to comment on LVMH’s acrimonious legal dispute with U.S. jeweler Tiffany & Co. over their soured $16.2 billion merger deal, he appeared to strike a more conciliatory tone when asked what would be the group’s strategy in the event that a Delaware court rules that it has to go through with the transaction.

“We still believe Tiffany’s a great brand, that the stock market was not necessarily the best home for Tiffany with the short-term view on quarterly earnings that was preventing Tiffany a little bit from developing a sound marketing strategy,” he said.

“This is what we would implement, but I will not make further comments. All these comments we made in due course when we announced the transaction. Nothing has changed,” he said.

LVMH added that it expects to receive the European Commission’s regulatory approval for the deal by the end of October.

As the COVID-19 outbreak reconfigures the geography of luxury, the group reported that overall sales in Asia grew 13 percent in organic terms in the third quarter, increasing the region’s share of global revenues at LVMH to 34 percent from 31 percent at the same time last year.

Meanwhile, revenues in Europe declined by 24 percent as strong domestic sales failed to compensate for the absence of tourists, leaving the region with a 23 percent share of overall revenues, versus 27 percent a year ago.

With Chinese travelers grounded for the foreseeable future, LVMH is putting the accent on local marketing campaigns and rethinking its attitude toward 24S, the online arm of Paris department store Le Bon Marché, considered the poor parent of its selective retailing division since its launch in 2017.

“Our 24S platform did quite well, I’m happy to say, in the recent months,” said Guiony. “We wouldn’t call this a full and lasting success yet, but it’s encouraging.”

Guiony noted that LVMH was unlikely to partner with online giant Amazon or Facebook on their luxury ventures, and will continue instead to invest in its own e-commerce capabilities.

“Some partners like Tmall, for instance, in China are extremely important and not being with them — and I’m talking about mostly cosmetics — is really not getting access to a large chunk of the potential customer base,” he acknowledged.

“But it’s not the general case for luxury — this is the exception more than the norm. So maybe we’ll have a different reasoning in five years’ or 10 years’ time, but for the time being, we don’t see the need to team up with anybody when it comes to distribution. We feel we are doing pretty well ourselves,” he added.

While 24S has already changed names once — it was originally known as 24 Sèvres — he believes it should be more closely identified with Le Bon Marché.

“To be frank, we cannot use the Bon Marché dot-com name, which doesn’t belong to us. But definitely we want more integration between the 24S and Bon Marché, because we think the curation potential of Le Bon Marché is obviously extremely important,” Guiony said.

While it marks a change of tone from LVMH, which has frequently criticized the presence of counterfeit goods on online sales platforms, Guiony clarified that e-commerce would remain a complementary channel.

“Stores will be the privileged way to deal with our customers going forward. We are not trying to replace stores with online sales, but we welcome our customers to shop online if they feel that way,” he said.

Looking ahead, he said LVMH was still adjusting to the collapse in global tourism, whose ramifications were felt in almost every division. Before the pandemic, travelers accounted for 40 percent of luxury goods purchases in value terms, according to analysts.

Sales of perfumes and cosmetics were down 16 percent in the third quarter, despite a steady increase in online sales and a promising start for Fenty’s new skin-care line.

There was a 14 percent decline in sales of watches and jewelry, while selective distribution — which includes Sephora and DFS, LVMH’s travel-retail business — saw revenues plummet 29 percent.

In wines and spirits, the decline in revenues was limited to 3 percent, thanks to the strong performance of Hennessy cognac, especially in the U.S.

Guiony did not forecast much change in travel trends until a vaccine for the coronavirus is found. “I am not particularly hopeful that we’ll see a lot of touristic flows before that,” he said.

That means luxury brands have to find new ways of capturing Chinese spending, of which 40 percent occurred overseas before the pandemic. “There is no such thing as a Chinese traveler for the time being,” said Guiony.

“We hope that we shall be able in due course to extract as much value as we can from the Chinese customers by enabling them to shop where they want to shop. But for the time being there are serious constraints as to their ability to shop outside China, and this is obviously a weight on the growth for coming quarters,” he added.

LVMH’s revenues totaled 11.95 billion euros in the third quarter, down 10 percent in reported terms. The group confirmed its ambition to strengthen its lead in the global luxury market in 2020.

Analysts expect the group to outperform the rest of the luxury sector. HSBC has maintained its “buy” rating on the stock, and raised the target price to 480 euros, versus a closing price of 403 euros on the Paris Stock Exchange on Thursday.

“For LVMH’s key profit contributors there is no such thing as a ‘new normal’ because of COVID-19,” HSBC said in a recent research note. “LVMH’s high margins and healthy balance sheet should allow the group to increase its leadership positions even further. LVMH has now created a gap versus competitors in size and quality that we believe should prove difficult to close.”

LVMH is the first major luxury group to report third-quarter results. Kering and Hermès International are scheduled to publish their sales on Oct. 22, while Compagnie Financière Richemont is set to present interim results on Nov. 6, and Burberry on Nov. 12.

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