On the heels of a Citi report that U.S. consumer spending on luxury dropped 5% in the third quarter, LVMH delivered more sobering news. As the world’s luxury leader, it is a bellwether of the sector’s performance—and its results point to a luxury market that remains strained and far from a rebound.

Third-quarter revenues slipped 1%, from $20.7 billion (€18.5 billion) last year to $20.5 billion (€18.3 billion) this. The end result is a 2% year-to-date decline to $64 billion (€57.2 billion).

Yet, it wasn’t all bad news. Thanks to a more favorable currency impact, organic growth rose 1% in third quarter, putting a 2% positive spin over the past nine months. Organic sales in the U.S.—25% of revenues— rose 5%. Watches and jewelry advanced 6% and selective retail, led by Sephora, climbed 8%.  

Still, the flagship fashion and leather goods group, which drives 45% of total sales, fell 5% on an organic basis and a slowdown in China, particularly in fashion and leather goods, pushed Asia (excluding Japan) down 5% organically. Asia remains LVMH’s largest market, accounting for 27% of revenue.

Taking the pulse of the luxury market overall, Bank of America wrote, “Luxury demand has deteriorated in the third quarter.” And Berenberg put it more bluntly: “The reality is that the disposable income of the majority of luxury consumers is under pressure,” adding “the luxury supercycle is over,” according to the Wall Street Journal.

Weathering The Storm

LVMH is taking the current setback in stride. It’s been through these cycles before and with a portfolio spanning 70 luxury brands across all personal luxury categories, it is prepared to weather the rising uncertainties in the market, notably the China slowdown and ongoing conflicts in the Middle East. 

But LVMH’s actions make one thing clear: the luxury market hasn’t stabilized. Pressure is building and even the sector’s most powerful player is recalibrating for a tougher cycle.

“To counter a macro that is deteriorating, we need to increase and to sharpen self-help initiatives and bottom-line execution, and that’s exactly what we are doing,” said CFO Cecile Cabanis during the earnings call. “We make sure that we work on what we control, which are really self-help initiatives that are gradual, but that are already paying off.” 

Adding to the headwinds, civil unrest in France has recently turned on luxury retailers, potentially disrupting business and travel during the vital fourth quarter—France drives 8% of group sales. 

Staying Customer Focused

On the marketing front, Cabanis said the company would maintain the right balance between “elevation on one side”—heightening the desirability and perceived value of its offerings—and recruitment of new customers on the other. He rejected the temptation “to go for a very tactical or drastic change or things that are a bit disruptive.” 

One of those disruptive things under discussion is price cuts. “We don’t believe this is something that is advisable,” he said. Rather the company will stay the course. “I don’t think there are a lot of shortcuts here.”

LVMH has the discipline and financial wherewithal to see its way through this rough spot, despite the 20% average decline across European luxury market share prices, with WSJ noting that LVMH is among the worst performers. Yet that is the least of its worries. 

“Too many luxury brands believe the stock exchange is the main stakeholder,” said Susanna Nicoletti, industry advisor and author of the insightful SUN Newsletter. “But it’s the customer who needs to be understood—and understood in the field—not just through analyst or consulting firm reports.”

Indeed, Cabanis said LVMH is keeping its focus on “all clusters of customers geographically, by age cohort and by income cohort” to maintain “momentum for the next cycle to come.”  

Luxury Industry Wake-Up Call

LVMH’s performance and the steps it is taking in the face of a deteriorating market should be a wake-up call to other luxury brands. “Louis Vuitton is the greatest luxury brand in the industry today per revenues as well as per strong brand equity,” Nicoletti shared. “It is the best-in-class for luxury brand management. But it has reached such a relevant dimension in the market that we cannot reasonably expect further relevant growth.”

As recently as June, Bain was predicting that the personal luxury market would grow between 2% to 4% this year. That looks increasingly unlikely. Rather, another year of 2% or even greater decline is to be expected.

“The whole industry has reached its plateau, and now Darwinian selection has started,” Nicoletti concluded. “Only those brands who kept high the level of reputation and credibility will survive—only those with strong and well-kept brand DNA will continue to be relevant players.”