Hermès Spring Summer 2014 Campaign
Though growth percentages did moderate when compared to previous years, 2013 revenue reports were genuinely positive for France’s luxury giants
In 2013, luxury goods spending was expected to grow to €217 billion, up 2% on the previous year, according to Bain’s Luxury Goods Worldwide Market Study. Leather goods and shoes were estimated to account for 28% of total revenue (up 4%), as apparel climbed 1% to account for one-quarter of all goods sold.
At constant exchange rates, overall luxury growth would have clocked in at 6%, closer to the 5% market growth witnessed in 2012. Yet the devaluation of the Japanese Yen was responsible for more than half of the gap.
“The hyper growth of recent years was destined to moderate,” explained Claudia D’Arpizio, a Bain partner in Milan and lead author of the study. “The silver lining for luxury brands is that they can now change their focus from keeping up with the present to planning for the future.”
“ In 2013 luxury goods spending was expected to grow to €217 billion, up 2% ”
And for the three biggest players – LVMH, Hermès International and Kering – growth has indeed notably slowed in comparison to the past few years. LVMH’s Fashion & Leather Goods business group recorded organic revenue growth of 5% in 2013, reaching €9,882 million.
Profit from recurring operations decreased by 4%, despite ‘record profitability’ at Louis Vuitton. Céline reported record revenues, though a figure was not disclosed.
Hermès International reported revenues of €3,754.8 million, up 7.8% at adjusted exchange rates. At constant exchange rates the figure was 13%. Throughout the year currency fluctuations had a negative impact of €183 million on revenue.
Though an official announcement had not been made at time of press, profitability is expected to surpass 2012’s record-breaking margin of 32%.
Kering’s Luxury Division achieved €1,612 million in revenue, up 4.4% on 2012, and reported record operating profitability. Still, the fourth quarter was Gucci’s weakest since the third quarter of 2009, when comparable sales fell 7% (Bloomberg).
Growth in the fourth quarter of 2013 was largely fuelled by Bottega Veneta (up 13%) and Saint Laurent Paris (up more than 40%).
“ Q4 growth for Kering was largely fuelled by Bottega Veneta & Saint Laurent ”
Sales across the LVMH group remain reasonably balanced across North America (23%), Europe (30%) and Asia (30%), reflecting almost no changes whatsoever in their revenue by region in 2012. Other markets remained static at 10%, as Japan dropped from 8% to 7%, which could also have been affected by the devaluing of the Yen.
At Hermès, all geographical regions contributed to growth. Non-Japan Asia (up 16%) and America (up 14%) were particularly dynamic. Japan (up 7%) posted a very good performance. Europe (up 12%) saw sustained activity in all countries despite a difficult financial climate.
For the Kering Group (including its Sport & Lifestyle Division), comparable sales growth in mature markets was sustained at 4.3%, driven by Japan and North America. Emerging markets comparable sales were up 3.4% and accounted for 38% of sales with 25.3% of this amount generated in the Asia-Pacific region (excluding Japan).
Louis Vuitton Campaign featuring Michelle Williams
Despite discussions of a dramatic slowdown in China, little evidence could be found on the balance sheets of the big three. The LVMH Group still relies on the Asian region (without Japan) for 30% of its sales, and this was the sole region to grow its share of revenue in 2013.
The same could be seen at Hermès, as revenue creation in Non-Japan Asia grew at the fastest pace of all the regions. And again at Kering, who reported a 3.4% increase in emerging markets, fuelled largely by growth in the Asia-Pacific region.
What these results figures also fail to consider is the impact of travelling consumers, namely Chinese consumers, who were named the world’s top luxury goods spenders in 2012 (Bain & Co). Tourist spending now drives half of revenues in Italy, 55% of revenues in the U.K., and 60% of revenues in France
Bain & Co estimated Greater China to grow at 4% in 2013, split in performance between the Mainland, which will grow at 2.5%, and Hong Kong and Macau, which increasingly capture Chinese spending as the nearest-to-home touristic markets.
Their research suggests that overall, Chinese consumers have increased from 25% to nearly 30% of the luxury market, including local luxury consumption, and purchases made by tourists abroad.
“ Bain & Co estimated Greater China to grow at 4% in 2013 ”
Acquisition remained a key strategy at both of the two major French conglomerates. LVMH loudly snapped up an 80% share in Loro Piana for €2 billion, in a bid to bolster its ready-to-wear activities at the highest end of the market. The group also invested in new talents, with minority shares in Nicholas Kirkwood and J.W. Anderson.
Kering took a majority stake in Christopher Kane and a minority share in Joseph Altuzzara, as it launched a joint venture to develop the eponymous brand of long-time Bottega Veneta creative director, Tomas Maier. The group also bolstered its jewellery activities, completing the majority acquisition of Qeelin and took a majority stake in Pomellato.
At the close of 2013, LVMH reported free cash flow of €2,958 million, whilst Kering maintains the more modest sum of €858 – hit by restructuring costs and a year of acquisitions. Given the liquidity of the two conglomerates, one can only expect further M&A; activity for 2014.
“ LVMH expressed confidence for 2014 despite an uncertain economic and monetary environment ”
Going forward, all three parties remain positive. LVMH expressed ‘confidence for 2014 despite an uncertain economic and monetary environment in Europe’. The group will continue the strategic development of Louis Vuitton under new creative director Nicolas Ghesquière and seek to accelerate profitable growth of its other fashion brands.
2014 will be the first full year Loro Piana’s activities are integrated into the balance sheet, as LVMH seeks to support further development of leather goods and accessories, under the leadership of Antoine Arnault.
Hermès will continue its long-term strategy ‘based on creativity, fantasy, maintaining control over its knowhow, expanding its distribution network, strengthening its production capacity and protecting its supply sources’. The company will focus on the themes of metamorphosis and brining precious materials to life in the skilled hands of artisans.
Having completed its transformation from PPR in 2013, Kering is moving towards 2014 with confidence. Drawing on its positioning in structurally high-growth markets and its portfolio of powerful brands with strong potential, Kering will continue to implement its strategy of rigorously managing and allocating its resources.
2014 will be marked by dedicated action plans for each of the Luxury Division’s brands, focusing on achieving profitable organic growth. In this context, Kering is forecasting growth for both its revenue and recurring operating income in 2014.
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