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Ex-LVMH chair: 'We have an awful lot of' luxury brands out there

Sarah A. Smith
·Segment Producer/Booker

The retail industry faced a number of challenges in 2019, with many brands having to close stores across the country, due in part to the e-commerce boom and economic uncertainty.

Yet, the global luxury-goods market is improving headed into 2020. According to one top luxury executive, the sector may not be able to sustain its growth rates — and might need to consolidate further.

“With the exception of very recessionary years, luxury and premium brands have always outgrown on a yearly basis, the sort of more mass brands,” Pauline Brown, the former LVMH Chairman of North America, told Yahoo Finance.

She said this “trend” has persisted over the last 20 years, and predicts it will continue, but only up to a point. Brown believes the global luxury marketplace’s rate of growth isn’t sustainable, given global headwinds and other macro factors.

Last year’s strong performers included LVMH Moet Hennessy Louis Vuitton (LVMUY), and Kering (KER.PA) owned Gucci. The latter’s sales climbed over 10% in the third quarter, while LVMH Moet Hennessy’s Louis Vuitton reported a 16% increase in revenue within the first nine months of 2019.

Yet overall, Brown believes one one of the biggest hurdles facing luxury retail is that “there are too many brands.”

LVMH and Gucci should “continue to do very, very well,” said Brown. "But we have an awful lot of brands out there that just shouldn't be.”

The effects of the trade war

A woman walks past a Gucci advertising poster as shoppers and anti-government protesters gather at New Town Plaza in Sha Tin, Hong Kong, China November 3, 2019. REUTERS/Shannon Stapleton
A woman walks past a Gucci advertising poster as shoppers and anti-government protesters gather at New Town Plaza in Sha Tin, Hong Kong, China November 3, 2019. REUTERS/Shannon Stapleton

Trade tensions between the U.S. and its major trading partners still overshadow retail and luxury. Brown said China’s luxury market is “still healthy” given the Sino-American trade war, but growth has slowed down compared to years prior.

And looking ahead to 2020, Brown is most concerned with President Donald Trump’s threat for additional tariffs on $2.4 billion worth of French products, which would directly impact the U.S. high-end fashion market. The December announcement caused shares of LVMH and Hermès International to drop.

“You know we do have an issue in some segments of luxury around the tariffs that are being proposed,” Brown said. “And that's between, most recently between the U.S. and France where many of these luxury brands emanate.”

The pro-democracy protests in Hong Kong has also caused concern in the high-end sector. The city accounts for between 5% and 10% of the estimated $285 billion annual global sales of luxury goods, according to Bernstein analysts.

Still, Brown doesn’t believe the protests have impacted the luxury market as much. “Even in its best years, Hong Kong luxury was still a very small portion of the global total,” she told Yahoo Finance.

“A lot of the [luxury] buyers in Hong Kong are travelers, and those travelers, if they're not buying in Hong Kong, they might be buying it in Seoul or in Tokyo, or in Shanghai,” she added. However, she recognized that some brands may be more susceptible to the broader retail closures.

“I think the watch brands are probably the most vulnerable,” she said.

Sales of watches and other luxury goods in Hong Kong dropped roughly 48% in August from the same month back in 2018, according to data from Hong Kong’s Census and Statistics Department.

Sarah Smith is a Segment Producer/Booker at Yahoo Finance. Follow her on Twitter @sarahasmith

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