Luxury goods makers in China facing closures

LOUIS Vuitton is to get smaller in China and other luxury goods makers may follow as the heady days of expansion in that market have drawn to a close.

The French maker of monogrammed luggage was reviewing eight stores in second-tier cities, or about a fifth of the total in China, according to someone familiar with the situation. While some might be moved or refurbished rather than closed outright, the Chinese store count would drop, said the person, who asked not to be identified as the plans were private and no final decision had been made.

Vuitton was closing stores “to avoid being overexposed” as market dynamics changed and more Chinese shopped abroad, said Mario Ortelli, an analyst at Sanford C Bernstein in London. “This is quite normal when you have a fast expansion of a store network.”

Vuitton is evaluating its exposure to China as consumers shift more spending to Japan and Europe, where the weak yen and euro make it cheaper to shop. A government campaign against extravagance has also weighed on demand in China and neighbouring markets.

Watchmaker TAG Heuer shuttered a store in Hong Kong in August and Burberry Group said earlier this month that it would reduce the size of its largest shop in the island city.

Louis Vuitton has 41 stores in China of 453 worldwide, according to Exane BNP Paribas. A spokesman for parent company LVMH said Louis Vuitton would continue to invest in its retail network in China, adding that the company would open two stores there in 2016 and refurbish two others. He declined to comment on closures.

Closures by other luxury 0goods makers could follow, said Exane analyst Luca Solca.

Kering-owned Gucci and Burberry, both of which have also struggled in China, have more stores there than Louis Vuitton, according to Exane.

Chinese consumers account for about a third of global luxury sales. Gucci has 57 stores in China, while Burberry has 55.

“As more sales move abroad on the back of large price gaps, mainland China stores risk poor space productivity, hence the adjustment,” Solca said.

LVMH chief financial officer Jean-Jacques Guiony said last month that Louis Vuitton might shut a couple of boutiques in China where it had two in second-tier cities.

Its Chinese store count should remain “reasonably flat for the years to come”, he said.

Globally, the market for personal luxury goods is predicted to grow as little as 1 percent this year, the weakest rate since 2009, Bain & Co estimated.

LVMH reported third-quarter fashion and leather goods sales as rising 3 percent trailing estimates. – Bloomberg