Bernard Arnault’s US$37 billion wealth loss comes as luxury dims in China

EIGHTEEN months ago, LVMH shares were trading at a record high and the group’s controlling shareholder, Bernard Arnault, was the world’s wealthiest person.

Fast forward to Wednesday (Oct 16) and a slump in Chinese demand for Louis Vuitton bags, Dior gowns and other high-end fashion has wiped out more than 150 billion euros (S$214 billion) in LVMH market capitalisation. Arnault’s fortune has been relegated to fifth place on the Bloomberg Billionaires Index, which also shows that he has lost more money – US$37 billion – during the period than anyone else on the ranking of the world’s 500 richest people.

The 75-year-old French founder’s net worth stood at about US$174.5 billion, according to the index, ahead of Bill Gates but well behind No 1 Elon Musk and other mostly tech industry billionaires in the top 10 whose fortunes have all swelled by double-digit billions this year.

The downturn has dashed any prospect of a soft landing in luxury and the questions for investors have become how long the slump will last and whether the recovery will look anything like the good times that preceded it.

For the first time since the second quarter of 2020, when the world went into lockdown, LVMH’s fashion and leather goods unit posted a drop in quarterly organic sales.

Since LVMH Moet Hennessy Louis Vuitton is generally considered a bellwether for the wider sector, its sales potentially presage weaker results from smaller rivals such as Brunello Cucinelli, Hermes International SCA, Kering and L’Oreal, which will publish revenue updates this week and next. LVMH shares dropped as much as 7.5 per cent on Wednesday to a two-year low, leading its competitors lower.

The geographical zone that includes China was the worst performer for LVMH, but the lack of growth in the US, the group’s second-largest region, shows the trouble is widespread. The company spooked investors with vague guidance amid risks ranging from Chinese economic growth to trade tensions.

“I’ve no idea,” LVMH chief financial officer Jean-Jacques Guiony said on Tuesday when asked about the outlook. “The visibility of our business is as good as yesterday’s sales. We have been through ups and downs. The only thing we know, when the business is bad, usually it’s good thereafter. It’s a cyclical business.”

Asia excluding Japan, the region that includes China, saw organic sales tumble 16 per cent in the third quarter, a bigger decline than expected. That was the third negative quarterly performance in a row.

Consumers in China in particular have curbed spending amid worries related to a weak property market and uncertain employment outlook. These concerns have prompted Chinese authorities to launch a stimulus package last month that’s yet to show a positive impact on consumers’ appetite.

“Consumer confidence in mainland China today is back in line with the all-time low reached during Covid,” Guiony said. It’s currently hard to assess the potential impact on demand of such measures, he added, but “it shows that they are taking the issue very seriously”.

There are no signs the recent moves have changed the behaviour of consumers, Citigroup said in a note, basing its conclusions on activity at a luxury mall in Eastern China during the Golden Week holiday this month. The mall saw a low-teens percentage sales decline during the holiday, with middle-class shoppers failing to turn up in numbers as they suffer the negative wealth effects of China’s weaker property prices, the note said.

Brands will now be looking at Singles’ Day, China’s biggest annual bargains extravaganza built around a Nov 11 event that Alibaba Group Holding popularised more than a decade ago.

The downturn in China is increasing the relative importance of the US for LVMH. A year ago, the US represented 24 per cent of the total revenue for the French conglomerate, with Asia excluding Japan generating 32 per cent. The numbers are now 25 per cent and 29 per cent respectively.

In addition to the slowdown, Arnault and LVMH have also been caught up in political crossfire both internationally and at home. Donald Trump, the Republican candidate for president of the US, has vowed to impose dramatic tariff increases that could further stoke trade tensions that are already hurting the outlook for Hennessy, the LVMH cognac label. The firm is among French producers of the spirit that have been targeted by China in an escalating trade dispute.

Arnault and LVMH are also in the crosshairs of the French government and lawmakers trying to pass a 2025 budget to claw back the country’s widening deficit. LVMH is expecting to pay as much as 800 million euros in additional taxes next year as part of Prime Minister Michel Barnier’s plan to raise levies on the country’s biggest companies.

Taxes on the wealthy are also slated to rise, with Arnault a prominent target among opposition lawmakers who have called for more “tax justice”. BLOOMBERG