Chinese sales boosts luxury goods market in 2009

(Dmitriy Shironosov)

Despite the economic crisis, 2009 ended better than it began for the French luxury goods sector, thanks largely to China's growing taste for high-end products, encouraging thoughts of a better 2010.

Following the trend set by other global luxury brands, Hermes and LVMH (Louis Vuitton Moet Hennessy) announced fourth quarter sales growth on Thursday and Friday, suggesting the worst of the crisis could be over for the sector.

After announcing that annual profits fell 13 percent to 1.7 billion euros (2.3 billion dollars), LVMH chief executive Bernard Arnault said he was pleased with "record" sales figures for December, which he said would "grow in January".

Good news for the number one global luxury group after almost stagnant sales in the first three quarters, slowed by wholesale stock clearances, which particularly affected watches, jewellery and champagne.

Thanks to Christmas sales, Hermes - whose 1.9 billion euro turnover is a fraction of LVMH's 17.5 billion euros - said it achieved its target of annual turnover growth of 8.5 percent.

At LVMH, champagne was behind an 80 percent fall in the turnover of the company's wines and spirits division.

The division head Christophe Navarre said bubbly was always the worst-affected product in an economic downturn, but December had been a good month.

Luxury firms are cautious about the future and reluctant to make forecasts, but they plan to continue their disciplined management approach.

LVMH and Hermes have both underlined their resilience in the world financial crisis, but Arnault observed that this was in large part due to "emerging markets supporting growth in 2009 and compensating for a fall in business in other markets".

Put another way, China's growing appetite for luxury goods offset the fall in sales in the United States and Europe, the areas worst affected by the recession, and Japan which was hurt by the falling yen.

To illustrate the point, China's consumption of LVMH goods rose by 15 percent in 2009 and now represents six percent of all company sales. For two of LVMH's leading brands the figures are more striking - China is now the world's top consumer of Hennessy cognac and the second biggest Louis Vuitton buyer.

Over at Hermes, sales jumped 32 percent in Asia in 2009, excluding Japan, and it will open four new shops in China in 2010.

Louis Vuitton plans to open five including two in Shanghai, host city for the 2010 World Expo from May to October.

"Between 70 and 100 million visitors are expected over the six months, most of them Chinese," said Yves Carcelle, Louis Vuitton president.

In 2010, "China will remain a motor of growth for the sector", according to Catherine Rolland, analyst with Kepler Capital Markets.

"An improvement in the trend in North America, which declined sharply in 2009, could also be a factor in improving the overall trend in the market," she added.

Hermes said its sales in North America, essentially the United States, rose by 11.8 percent in the final quarter of 2009.

da/clp/rl