PARIS (Reuters) – Customers in the United States for luxury goods are reducing their spending on high-end fashion and leather goods, LVMH’s quarterly results showed on Wednesday, attesting to the probable end of the long frenzy of post-pandemic purchases in the country.

The luxury giant, which has become the first market capitalization in Europe, reported a 17% increase in sales in the first quarter, much stronger than expected, thanks to the rebound in activity in China with the lifting of COVID-19 restrictions.

But in North America, its turnover increased “only” by 8%. Most of this increase is linked to the sustained activity of the chain of beauty products stores Sephora, explained the financial director of the French group, Jean-Jacques Guiony.

“Otherwise, activity is slowing down a bit,” he acknowledged, citing weaker demand for jewelry as well as fashion and leather goods, where sales to U.S. buyers, both in their country and abroad, were “more or less stable”.

“Maybe interest rate hikes are weighing on spending,” he surmised.

European luxury brands, including Louis Vuitton and Dior which are owned by LVMH, as well as Chanel and Hermès, have benefited in recent months from strong demand from Americans, emerging from the health crisis with savings and a desire to spend on designer brands.

Last year, LVMH’s sales in the United States increased by 15% and the American market accounted for 27% of the group’s total turnover, as consumers failed to pay attention to rising prices and market turbulence.

This strong demand has led to a wave of investment: rival brands Hermès and Gucci, owned by Kering, have opened new retail spaces in giant shopping centers or in new cities, such as Austin, Texas.

But the shopping frenzy is starting to show signs of slowing down.

Credit card data released this week by Citi shows that luxury spending in the United States fell 18% year on year in March, after already falling 15% in February and 8% in January.

Citi analysts say younger consumers, who dipped into their savings during lockdowns, are now feeling more pressure from rising prices than older, higher-income generations.

“POINT OF VIGILANCE”

The United States is the main risk for the luxury sector, HSBC analysts warned in a recent note, stressing nevertheless that fears of a sharp slowdown could be exaggerated.

“The weakening of American consumption is an important point of vigilance”, also underlined Oliver Chen, analyst at Cowen, highlighting the possible risks for Tapestry and Capri, owner of Versace, due to their exposure to the bag sector. by hand.

LVMH noted in particular a slowdown in American demand for its Hennessy cognac. The sharp increase in prices, intended to offset rising energy and glass costs, was “probably a little difficult for some customers to absorb”, acknowledged Jean-Jacques Guiony.

The group has decided to take a cautious approach to price increases this year, he said, and not just for cognac.

LVMH will also soon reveal the results of its considerable investment in the American jewelry group Tiffany, which it bought for 16 billion dollars (14.53 billion euros) in 2021, with the reopening of the flagship store in New York. after three years of renovation.

The store, which accounted for around 10% of Tiffany’s sales before it closed for renovations, is expected to reopen towards the end of the month.

“It’s probably the most iconic luxury store in the world,” said Jean-Jacques Guiony.

Developing Tiffany’s sales through product innovation, store expansion and renovation will be a priority, said the French group’s chief financial officer.

Margin expansion will probably come at a later stage, as part of a strategy similar to that applied to Bulgari, explained the leader.

For Elliott Savage, portfolio manager at YCG Investments which owns shares of LVMH and other luxury brands, a weakening of the US luxury market in the short term could present LVMH with an opportunity to take market share from its competitors.

“In fact, it could be better (for LVMH) in terms of strengthening their position,” he told Reuters.

(Report Mimosa Spencer and Silvia Aloisi; Gaëlle Sheehan, edited by Blandine Hénault)

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