What Will LVMH's Annual Results Reveal About the China Slowdown?

Hello BoF Professionals, welcome to our latest members-only briefing: The Week Ahead. Think of it as your "cheat sheet" to what everyone will be talking about on Monday.

THE CHEAT SHEET

LVMH Results Promise New Clarity on China

Source: Shutterstock

LVMH, owner of Louis Vuitton, Dior, Fendi, Celine, Givenchy and more, reports 2018 results on January 29
Shares are down 9 percent since reporting "a little slowdown" in third quarter sales in China in October
LVMH is reportedly planning a new fashion house with Rihanna and considering investing in Off-White parent New Guards Group

More interesting than LVMH's annual results is the accompanying commentary, particularly from chief executive Bernard Arnault, who often takes this opportunity to drop hints about the direction of some of the world's biggest luxury brands. Last year, in a call with analysts, Arnault declared his intention to turn Celine into a €2 to €3 billion a year business, and sounded a note of caution that today looks prescient, given the tumult that rocked the luxury market in the final months of 2018. Among the questions we'd like answered: Will LVMH confirm that it's launching a fashion house with Rihanna? Will the "little slowdown" chief financial officer Jean-Jacques Guiony spoke of in October develop into a deeper downturn? What's next for the company's e-commerce strategy, particularly the underwhelming 24 Sèvres? Are Virgil’s sales matching his hype?

The Bottom Line: LVMH's results will set expectations for other high-end brands, which in the coming weeks will report financial results amid growing uncertainty about consumer spending in the US and China, luxury's two biggest markets.

Fashion Has the Shutdown Blues

Protest of government shutdown by furloughed federal workers, contractors and their supporters | Source: Shutterstock

A temporary funding agreement ended a partial US government shutdown after 35 days
Most federal employees return to work Monday and will receive back pay
Spending at chain stores fell two weeks in a row in January, and consumer sentiment plunged to a two-year low

And just like that, the shutdown is (at least temporarily) over. Some 800,000 federal workers are back on the job, with back pay. Fashion brands won't be made whole so easily. When consumer sentiment — an indicator of future spending — plunges, apparel and other discretionary expenses are among the hardest-hit categories. There’s no guarantee a furloughed IRS agent who had to pass on the sneakers she spotted at the mall will go back and buy them when her missing paycheck arrives. Federal employees will also return to a massive backlog of product recalls, trade disputes, regulatory filings and other behind the scenes activities that keep the fashion supply chain humming.

The Bottom Line: Retailers aren't out of the woods yet; with a second shutdown possible on February 15 if lawmakers fail to strike an immigration deal, employees facing another potential furlough may choose to save their next paycheck rather than spend it.

Amazon Fashion Just Keeps Getting Bigger

Amazon website | Source: Shutterstock

Amazon reports fourth-quarter results on January 31; analysts gave an average forecast for sales to grow 19 percent to $72 billion
Amazon likely surpassed Walmart as America's biggest apparel seller, with $30 billion in fashion revenue last year, according to Wells Fargo
The company is expanded brand partnerships and stepping up marketing of its private label apparel lines

Despite running neck and neck with Walmart as America’s biggest apparel seller, Amazon is actually an underperformer in the category, grabbing 35 percent of online apparel sales compared with 46 percent of e-commerce overall, according to Bernstein. The e-commerce giant struggles with a perception that it presents anonymous clothes in an unattractive way; the reality is more nuanced. Amazon has made strides in bringing on or expanding relationships with popular brands like Calvin Klein, Nike and J. Crew and is paying influencers 10 percent commissions to wear its private-label products (which increasingly garner favourable attention in fashion media). The company has also leveraged its unmatched shipping network to expand its Prime Wardrobe "try before you buy" service.

The Bottom Line: As Alibaba has demonstrated in China, there is no ironclad law preventing an online marketplace from attracting fashion-minded consumers. Amazon hasn't cracked the code quite yet in America, but the fact that it's still trying should keep the fashion industry on guard.

Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholders’ documentation guaranteeing BoF’s complete editorial independence.

COMMENT OF THE WEEK

Diet Prada's Tony Liu and Lindsey Schuyler | Images: Camila Falquez for BoF

"Honestly, when no one else is going to speak up about injustice because they're all getting paid by the same advertisers and companies, how are creatives and small brands supposed to fight? No one dares to call them out on their BS for fear of not being invited to another show. We NEED more people/accounts like Diet Prada to push for socially responsible agendas in fashion and media." @milzxho, on "Diet Prada, Estée Laundry and the Rise of Watchdog Culture: Harmful or Helpful?"

SUNDAY READING

Professional Exclusives You May Have Missed:

How to succeed in fashion media in 2019.
Diet Prada, Estée Laundry and the rise of watchdog culture.
China feels the lipstick effect.
Making the business case for sustainability.
Can Tiffany boost its Gen-Z cred?

The Week Ahead wants to hear from you! Send tips, suggestions, complaints and compliments to brian.baskin@businessoffashion.com.

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