The luxury crisis has come to LVMH as well

If high tide lifts all boats, what happens at low tide? Until a few months ago, LVMH was considered more or less untouchable – after a year of luxury crisis, after all, its sales had merely stabilized instead of growing. But the results presented yesterday brought a surprise: the world's largest luxury group reported declining sales. Arnault's mega-company, also Europe's largest, began 2025 with a weak quarter, hit by growing macroeconomic difficulties, international political uncertainties, and above all a clear cooling of demand in the luxury sector. The French group closed the first quarter with revenues of 20.31 billion euros, down 2% compared to the same period in 2024. On an organic basis, i.e. net of scope and currency effects, the decline reaches 3%. The result is well below analysts’ expectations: Barclays, for instance, had forecast stable revenues around 21.2 billion euros. It doesn’t take much investigation to find the leak in the ship: in Asia, excluding Japan, sales dropped by 11%, only 1% in Japan and 3% in the USA. In Europe, however, thanks to tourism and exchange rates, there was a slight growth. It’s clear that the group's overreliance on the Asian market is starting to take a toll. So much so that yesterday the magazine La Lettre reported rumors in Parisian financial circles about a potential split of the giant: fashion on one side, and spirits on the other. A rumor which, if true, would confirm a trend towards spin-offs and streamlined corporate structures already seen at Kering, which is spinning off its real estate portfolio to reduce debt, and several smaller brands breaking away from luxury giants to go independent.

Even the divisional results turned out weaker than expected, especially in the fashion and leather goods category, which is the group's backbone and suffered a 5% organic decline. This is significant both because analysts had forecast a drop between 1% and 2%, and because the group’s entire cultural capital is based on luxury fashion. And while Louis Vuitton slightly outperformed the quarterly average, it was the second sales titan, Dior, that saw business dry up. According to BoF, the brand's problem is “fashion fatigue”, the combined result of media overexposure, price hikes and excessive supply that have worn out customers. Already suffering for several quarters, the most fragile segment, wines and spirits, recorded the worst result with a 9% organic sales decline. This drop is due to the fact that alcoholic beverages, along with perfumes, are most dependent on aspirational demand and highly sensitive to the import-export market turbulence: unsurprisingly, the difficulties were felt mainly in the USA. Further complicating the situation are increasing supply chain complexity and sluggish trade negotiations between the US and EU. Selective retail, which includes Sephora and DFS, did better, down only 1% organically. Revenues in the perfume and cosmetics sector, which includes brands like Parfums Christian Dior and Guerlain, also fell 1%. Sales in the watches and jewelry division remained stable, making it the most resilient of the quarter.

One of the most critical issues for LVMH remains the tariff risk tied to the US-China trade war. While the group is relatively protected compared to competitors thanks to high margins and partially localized production in the US, the impact on sales is tangible. American political instability, combined with inflation and currency pressure, makes a short-term recovery difficult. And while the idea of relocating production to America sounds good in theory, it's far from ideal in practice: in America, costs are much higher and workers far less experienced – they make mistakes, waste materials and produce bags below French quality standards. As revealed in a Reuters investigation a few days ago, manufacturing bags in America is tantamount to burning money as the group’s Texas factory is one of the worst performing of all. As the article states: «Mistakes made during the cutting, prepping and assembling processes led to as much as 40% of the leather being wasted, said a former employee with detailed knowledge of the factory’s performance. Industry-wide, typical scrap rates for leather goods are usually 20%».

In any case, LVMH has announced it will respond to the situation by trying to contain costs and making targeted investments. The upcoming quarters should also reveal new creativity from several key brands, even if, much like the Marvel universe after Endgame, between Jonathan Anderson, Hedi Slimane, Stella McCartney and Kim Jones, the group seems to have lost all its superheroes. While waiting for new debuts, marketing efforts are intensifying – especially through immersive exhibitions in Asia where, however, people seem to look more than buy. But now, a new and unsettling challenge looms: as reported by Investing, Morgan Stanley downgraded the group’s stock and predicted a further decline in the second half – if this happens, it would mark the first time in thirty long years that the group faces a four-month consecutive decline. Perhaps the tide really is turning.