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LVMH investors eye China's stimulus measures for a boost in luxury demand ahead of Q3 results and Singles Day.

Investors in French luxury giant LVMH (LVMH.PA) are closely watching China’s new fiscal stimulus measures, hoping they can reignite consumer enthusiasm for high-end products. As the world's largest luxury group prepares to report its third-quarter revenue on Tuesday, many are anticipating signs of recovery among China's wealthy and middle-class shoppers ahead of Singles Day, the country's largest annual shopping event.

Luxury Sector Faces Headwinds as Chinese Demand Softens

LVMH, which owns prestigious brands like Louis Vuitton, Dior, Tiffany & Co., and Sephora, has experienced a roller-coaster year in the market. Chinese shoppers, historically major drivers of global luxury sales, have grown cautious amid economic uncertainty and a slumping property market. This shift has dented growth, creating unease among investors and analysts alike.

The global luxury goods sector, encompassing fashion, accessories, and beauty, is expected to post modest growth of up to 4% year-on-year, according to consultancy Bain. However, China’s slowdown has been the most pronounced, weighing heavily on the sector's outlook. Consumers who once fueled luxury’s meteoric rise are now hesitant to display wealth, reflecting broader concerns about economic stability and social sentiment in the region.

Analysts at Bank of America observed, “The luxury consumer is all shopped out,” highlighting the downturn in sales to Chinese consumers, which had been a significant growth engine in the first half of 2024.

LVMH and Peers Brace for a Challenging Quarter

The third quarter is projected to be the most challenging for luxury brands in four years, with a 1% decline in organic sales expected year-on-year. This has led to revisions in profit forecasts. Analysts have lowered earnings-per-share estimates for 2025 by an average of 17%, citing slower-than-expected consumer recovery in China. LVMH’s peers, including Kering (PRTP.PA), which owns Gucci, Hermes (HRMS.PA), and Richemont (CFR.S), the parent company of Cartier, have faced similar market volatility this year.

Markus Hansen, portfolio manager at Vontobel, which holds shares in LVMH, Hermes, and Richemont, attributed much of the slowdown to a “lack of confidence” among Chinese consumers. The decline in the property market, a key component of wealth for many Chinese, has diminished their willingness to indulge in luxury spending. However, Hansen expressed optimism, stating that even a slight improvement in consumer confidence could lead to a significant rebound in demand.

Long-Term Optimism Amid Short-Term Challenges

Despite the current slowdown, analysts remain confident that Chinese demand for luxury goods will recover. Jefferies forecasts a healthy acceleration in demand by 2025, suggesting that the market may only be in a temporary slump. LVMH is already positioning itself for this expected rebound by expanding its presence and capabilities in China.

LVMH recently strengthened its partnership with Alibaba (9988.HK) to leverage the Chinese tech giant's cloud and artificial intelligence expertise. This collaboration aims to enhance LVMH’s reach within the Chinese market and create more personalized shopping experiences for consumers.

Additionally, LVMH’s travel retail arm, DFS Group, is developing a shopping and entertainment complex on the duty-free island of Hainan. Hainan has become a key destination for Chinese consumers seeking luxury goods without the burden of import taxes. The island’s booming tourism sector offers a promising channel for luxury brands to reach affluent Chinese shoppers.

Singles Day: A Critical Test for Luxury Brands

The upcoming Singles Day shopping festival, held annually on November 11, will be a critical moment for LVMH and other luxury brands. The event has historically been a barometer of consumer sentiment, with millions of shoppers participating in massive online sales. Success during Singles Day could provide much-needed momentum for LVMH and indicate that the Chinese market is starting to recover.

However, the road ahead remains uncertain. LVMH's strategy of expanding partnerships and investing in retail infrastructure demonstrates a long-term commitment to the Chinese market. Yet, the effectiveness of China’s economic stimulus measures in restoring consumer confidence will determine the speed of recovery.

LVMH and its investors are navigating a challenging period as Chinese demand for luxury goods softens amid economic uncertainty. While the third-quarter results may reflect these difficulties, the outlook remains cautiously optimistic. With strategic investments in partnerships and infrastructure, LVMH is preparing for a rebound in 2025. In the meantime, all eyes will be on Singles Day to gauge whether China’s shoppers are ready to indulge in luxury once again.