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Global luxury sector to get a boost on China’s reopening

Global luxury sector to get a boost on China’s reopening

After a year of record sales and profits despite slowing global growth the luxury sector is looking to the reopening of China to deliver further expansion in 2023.
The world’s largest luxury group LVMH posted a 23-percent jump in sales to a record of €79 billion ($86 billion) in 2022 and saw profits climb 17 percent to €14 billion.

The company’s chief executive, Bernard Arnault, wants to continue along that path in 2023, “at the risk of becoming boring.”

LVMH’s rivals also managed blistering growth in sales and profits last year.

Sales at Hermes jumped 29 percent to €11.6 billion and profits soared 38 percent to a record €3.4 billion.

Kering, despite a tough time for its flagship brand Gucci, still managed a 15-percent increase in sales to €20 billion, while profits rose 14 percent to €3.6 billion.

Ferrari also saw sales race to a new record of €5 billion, delivering 13,221 vehicles last year.

The 2022 results were barely dented by the disruption in China linked to end of its coronavirus-related travel restrictions and their progressive lifting at the end of the year, with LVMH calling the month of December an “air pocket.”

Only Hermes escaped unscathed.

“There was no drop in traffic in our stores,” said Hermes chief executive Axel Dumas.

The company’s sales rose 30.7 percent in its Asia-Pacific region excluding Japan.

The gradual reopening of China — which abandoned the last of the draconian travel restrictions of its zero-COVID policy on Jan. 8 — should help its economy expand by 5.2 percent in 2023, according to the International Monetary Fund’s latest forecast.

With the restrictions having restrained consumption, the reopening of the Chinese economy is being looked at as a growth opportunity for 2023.

Analysts at UBS say 2023 will be the “year of the Chinese consumer,” noting that the pandemic restrictions pushed down the share of Chinese consumers in global luxury spending to 17 percent last year, compared with 33 percent before the pandemic.

“The Chinese clientele is much more important than it was in 2019,” LVMH’s Financial Director Jean-Jacques Guiony told journalists.

Guiony does not expect Chinese tourists to return to Europe, where they traditionally spent heavily on luxury goods, before next year.

Instead, luxury groups are focusing on Chinese consumers at home.

LVMH’s Arnault said it was no secret that China needs growth and that the government would likely take steps to facilitate economic expansion as the country reopens.

“If that is indeed the case — and it began in the month of January — we have every reason to be confident, even optimistic about the Chinese market,” he said at the presentation of LVMH’s 2022 results.

China is a “volcano ready to explode,” said Arnaud Cadart at asset manager Flornoy Ferri.

“There is an incredible amount of savings that has been built up, an incredible reserve in the hands of the well-off class which wants to purchase luxury goods,” he added.

Cadart estimated the luxury market in China could jump by 30 percent this year.

Kering’s chief executive Francois-Henri Pinault visited China at the end of January and said he was amazed by the people thronging stores “like the virus had never been in China.”

“This is a good sign,” said Pinault, who also welcomed moves by Chinese authorities to boost domestic consumption.
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