LVMH markets level out in 2022, betting on the recovery in China for 2023
Geopolitical tensions, the war in Ukraine, inflation, rising energy and commodity prices, not to mention the aftermath of the pandemic... Faced with the instability of the past year, LVMH has shown incredible resilience, reaching nearly 80 billion euros in sales by 2022. A result due to a careful distribution of its activities around the world with the United States representing 27% of total sales, Europe 24% and Asia 30%. For 2023, its sights are set on China, which is expected to make a big recovery this year.
"The balance of sales by geographical area is both upset and not upset. Between Europe, Asia and the United States, we have achieved a rather interesting balance," summarised the group's financial director, Jean-Jacques Guiony, at the presentation of the annual results on Thursday evening in Paris. It should be noted that Japan remains at 7%, while in detail, France sees its share increase from 6% in 2021 to 8% a year later, just like Europe (without France) rising to a share of 15 to 16% over a year.
While sales in Japan soared by 31% last year, with the country "waking up quite spectacularly after being a very slow recovery from Covid", in Asia excluding Japan they remained stable. The region is "a little more complicated, both volatile and contrasted", according to the executive. In particular, the second and fourth quarters saw a decline in sales of 8% each, due to prolonged confinement in mainland China, with growth remaining under pressure for sanitary reasons throughout the region. By 2022, Asia's share has therefore fallen to 30% from 35% in 2021.
However, LVMH's management is confident for 2023, betting on a recovery in China. Although it is difficult to make forecasts, CEO Bernard Arnault has stressed that the country needs economic growth, believing that the Chinese leaders "will surely use the period ahead to revitalise Chinese growth. If this is the case, we have every reason to be confident, even optimistic. In Macau, for example, where the Chinese can now travel without having to show a negative PCR test or a health QR code, "the development is incredible. The shops are full. It's back on track," says Bernard Arnault, who believes Chinese travel will resume probably in the second half of the year. Even if it will be a while before the pre-Covid dynamic is restored.
Jean-Jacques Guiony nevertheless warned. "It's a bit early to change our budgetary outlook. We are on a few weeks of improvement, which leads us to believe that what happened in China in December was really a blip, and the page seems to be turning. It boosts our confidence, but it doesn't change our short-term plans. For him, "Chinese customers will still find it difficult to get out of China for a while", for reasons of flights, complicated visas with Korea and Japan, and tests of less than 48 hours required to travel to Hong Kong, for example, which limit travel. In any case, "traffic in China is not back to 2019 levels. In fact, we are still relatively far from it. In December, we were 85% below the 2019 level. In January, even if it has improved, we are at -35-40%", he underlines.
In the meantime, the number one in luxury goods can count on the United States - its main market - which continues to gain ground, rising from a 26% to 27% share over the year, even if since this summer a number of American customers have made their purchases in Europe. The first two quarters performed better with increases of 26% and 22%, while the last two quarters have indeed shown a slowdown (+11% and +7%). This is due to a very favourable basis of comparison in the first half of the year, as in the same period in 2021 many shops were still closed due to the pandemic. In addition, the rise of the dollar in the second half of the year generated tourist flows to Europe attracted by the opportunity of purchasing goods while benefiting from a strong dollar.
The fact remains that sales in this country grew by 15% in 2022. They are therefore in line with the 10% or more growth recorded each year by the company in this market since 2010. In any case, LVMH does not believe in a slowdown in American demand. "When you look at Sephora's sales in the US, the best quarter of the year was the fourth. Sephora is still a pretty interesting barometer of what's going on in luxury. So we are not particularly worried," says Jean-Jacques Guiony.
In Europe, the company's turnover jumped by 35% in 2022. As the manager explains, "the growth that we did not have in the United States was found in Europe, with a very bad basis of comparison at the beginning of the year, while remaining at extremely sustained levels of growth over the last two quarters, including the last one". Finally, the share of other markets in the group's total sales has also increased, rising from 11% to 12% between 2021 and 2022.
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