Bifurcation between luxury brands is growing: Fmr. LVMH exec

Luxury brands are experiencing difficulties in their recoveries in European and Chinese consumer markets. Former Chairman of LVMH North America Pauline Brown — LVMH (MC.PA) owns high-end brands like Christian Dior, Louis Vuitton, and Marc Jacobs — sits down with Yahoo Finance Live to discuss factors accelerating spending from select segments of luxury consumers.

"The reality is there is some shift going on in terms of experiences versus goods, and what is a really interesting trend which I'm going to continue to watch are the bigger luxury brands going into hospitality. For example, Vuitton will be opening its first-ever hotel in Paris — Vuitton Hotel," Brown says.

She goes on to comment on bifurcation from Chinese customers stemming from the overall quality of brands.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

JOSH LIPTON: How much, Pauline, do you think, you know, kind of the momentum we're seeing here with the luxury shopper, how much would you pay on that in the stock market?

PAULINE BROWN: Some, some, not a direct correlation. There are definitely segments of luxury spenders, high net worth-- ultra high net worth whose net worth is very tied up in stocks. And when they're feeling confident, when they have events and travel and all the things that go with the stock market, they spend.

But most of the growth of the last decade or two has come from aspirational consumers. And I'd say the housing market, jobs, other factors have more played into whether they're in the mood to go shopping. And they are, by the way, they are shopping.

JULIE HYMAN: Yeah. It seems like, I mean, it's also interesting if you look at the trend that we have seen among middle income shoppers to do stuff instead of buy stuff, right, over the past year. How is that playing out with the luxury shopper? Are they just doing both?

PAULINE BROWN: Well, some of it is-- when you do stuff and you are visible, you also--

JULIE HYMAN: You have to look good.

PAULINE BROWN: You have to look good. So there's always a bit of a compulsion to buy stuff to look good while you're doing stuff, so that certainly plays out for travel and for weddings and other big occasions, even for going out to dinner. The reality is there is some shift going on in terms of experiences versus goods. And what is a really interesting trend, which I'm going to continue to watch, are the bigger luxury brands going into hospitality.

So for example, Vuitton will be opening its first ever hotel in Paris, Vuitton Hotel. RH, another business, home furnishings based here in the US, they opened a very successful restaurant starting with the one here in the meatpacking district. Dior, Christian Dior has a patisserie, a cafe, in their French flagship. So I think you're going to see that. I don't think those initiatives make money. I don't think they're very profitable. But I think they bring people into the store.

JOSH LIPTON: Another big topic, Pauline, we talk a lot about on this show is China. What are the trends there with regard to luxury shopping?

PAULINE BROWN: A few things. First of all, they're much more discriminating now than they were five or 10 years ago. So as I said before, there's a bifurcation between high-performing luxury brands and the rest. I think the Chinese have shown a level of sophistication that is playing into that as well.

Secondly, they're not spending while they travel to the same extent that they did. So they're spending a lot more at home. They are traveling. They're not traveling to the US or Europe in the same numbers, but they're going to Korea and to Japan. But they've become accustomed to shopping locally. So where they're buying has shifted.

And here in the US, if you speak to any of the local luxury general managers, they saw a huge drop off in Chinese shoppers visiting the US for that very reason.

JULIE HYMAN: To just drill down, again, into that bifurcation that you alluded to, is it just a matter-- is it a matter of execution? Is it a matter of creativity in terms of offering what people want between the ones that are doing well and the ones that are not doing as well? What's the distinction?

PAULINE BROWN: Well, yes and yes. It is both of those. What I would say is you take a gold standard like Hermes. Yes, they execute well. And yes, they have first rate creativity and artistry and craftsmanship. But they also have, I think, managed this very delicate balance between heritage and modernity. So how do I stay true to what I have always stood for, and how do I continue to create new desirability and feel relevant to the times we live in?

Many of the luxury brands, particularly the younger ones, I think have gone way too heavily into the trend, into the contemporary, into digital marketing. And I think in the process, they've lost their roots, they've lost authenticity. And they also have overexpanded in an effort to be so commercial. Whereas, Hermes has been very, very disciplined in not overexpanding. If they wanted to double their business tomorrow, they could. But they know that if they want to be around in a hundred years from now, they better restrain that growth level.