Louis Vuitton Moët Hennessy (LVMH), once hailed in global investment markets as one of the most valuable corporations after becoming the first European corporation to surpass a $500 billion (about 430 billion euros) market capitalization, has given back almost all of the share-price gains it reaped during the luxury boom in the COVID-19 pandemic.
According to the Financial Times (FT) in the U.K. on the 6th (local time), LVMH's market capitalization on the Paris exchange stands at 213 billion euros (about 316 trillion won), down to less than half of its 2023 peak. As a result, LVMH's corporate value has returned to a level similar to January 2020, just before the COVID-19 pandemic began. LVMH owns global luxury brands such as Louis Vuitton and Dior.
As luxury spending surged worldwide through the COVID-19 pandemic, LVMH's revenue and share price soared together. In particular, with luxury consumption jumping in China, the world's No. 2 economy, LVMH's first-quarter 2023 revenue growth rate reached 17%, about double market expectations.
However, as luxury spending weakened due to China's economic slump starting about three years ago, LVMH's growth also began to wobble. That is because dependence on the Chinese market was high, with the share of China in LVMH's total revenue once estimated to reach 30%.
Moreover, middle-class consumers who drove luxury market growth during the pandemic began to drop out of luxury spending as inflation eroded purchasing power. On top of that, geopolitical risks such as U.S. trade disputes and war in the Middle East compounded the downturn in the luxury industry.
Global consulting firm Bain estimated that about 60 million middle-class customers, known as so-called "aspirational consumers," have stopped buying luxury goods over the past three years. That accounts for about 15% of all luxury consumers.
Steep price hikes by luxury firms are also cited as a factor spurring the departure of middle-class consumers. According to Bain, many luxury prices have risen 50% to 70% compared with 2019.
Flavio Cereda, a fund manager at asset manager GAM, said, "LVMH has many top-tier customers with ample spending power, but they do not make up most of LVMH's business," adding, "As the middle class's spending power has weakened, signs of recovery have repeatedly turned out to be 'false rebounds.'"
However, the entire luxury industry is not experiencing the same slump. Swiss jewelry and luxury group Richemont has surged 28% over the past six months, pushing its market capitalization above 100 billion euros. Even within the LVMH group, demand for jewelry brands Tiffany and Bulgari showed strength.
Luxury industry executive Federico Marchetti analyzed that as handbag prices climbed steeply, consumers are shifting expenditure to jewelry such as bracelets and necklaces. "Given the current price levels, consumers seem to prefer buying 10,000-euro jewelry to a 7,000-euro bag," he said.