Shares in Europe’s luxury goods sector reached record levels on Wednesday after Moët Hennessy Louis Vuitton SE (LVMH) bucked the pandemic’s effects and reported strong sales figures for the first quarter.
In both China and the U.S., demand for luxury leather goods soared as vaccination programs take effect and restrictions slowly ease. Sales at LVMH stores, which include brands such as Dior and Luis Vuitton, reached $16.75 billion for the first quarter. This is up by 30% from the corresponding quarter last year. They are also up by 8% for the same period in 2019.
Sales in Asia alone rose by 86% from the same quarter last year, and in the U.S., there was a 23% increase from the first quarter of 2020.
The released figures triggered an upturn in luxury industry shares across the market. Kering, the parent company of Gucci, rose 2.4% to €644 ($771), and Compagnie Financiére Richemont, owner of Cartier rose by 3% to 96.68 Swiss francs ($107).
This increase has valued LVMH at over €300 billion, making it the most valuable company in Europe, ahead of the food and consumer-goods giant Nestle, and Roche Holdings, the pharmaceutical giant.
An upside-down world
It is worth looking into the reasons behind a luxury goods business rising to become the most valuable company in Europe. First, there is the strategy deployed by LVMH.
The company owns 75 brands and has created a mass market for luxury goods. It has achieved this by selling goods that have a range of prices to attract more than just their traditional market of the super-wealthy. LVMH has created a pricing strategy that is designed to attract customers from all age groups and incomes.
Luis Vuitton manufactures leather goods that can be purchased for a couple of hundred dollars, whilst maintaining their grip on the higher end of the market by producing handbags that cost thousands of dollars. Similarly, their drinks arm Hennessy, sells bottles of cognac starting at $25.
Another crucial factor is their expansion into the U.S. and China markets over recent years and an expansion of their e-commerce operations. It is these sectors that have fueled the boom in sales, particularly as Europe’s slow vaccine rollout still has many parts of the continent living under strict restrictions.
Secondly, there is the fate of Europe’s more traditional business sectors. The automobile industry is struggling to come to terms with a rapid shift towards electric vehicles and a host of new regulations designed to curb carbon emissions.
A similar tale applies to Europe’s oil behemoths. Market uncertainties as the pandemic gripped made an already turbulent market even more so. Then there is the move towards renewable energy and the imminent erosion of much of their traditional markets, as the world moves away from fossil fuels.
Banks and financial institutions throughout Europe are also struggling, as they fend off the effects of the pandemic and grapple with new regulations and tighter controls imposed after the last financial crisis.