Billionaire's Best Friend: How Hermès and Brunello Cucinelli Defy Market Trends with Exclusivity

LVMH Falters, Hermès and Cucinelli Weather the Storm

Nov 05, 2024

LVMH

The stark October 16 headline in Le Monde read, “LVMH experiences an unprecedented drop in sales. Faced with a depressed luxury goods market, the sector's global leader LVMH has published a fall in revenue for the first time since 2020.”

The article goes on to say that handbags have been piling up in warehouses without being shipped. Staff is being forced to take vacations, whether they’re wanted or not, in an effort to reduce production and stem the bleeding.

The Financial Times reported that LVMH shares fell 7%, missing market estimates, a day after reporting a dip in third-quarter sales and concerns about the “economic and geopolitical environment”.

Weak spending by Chinese consumers was noted as one cause of the drop.

The Japan market was also seen as a cause. LVMH said the contraction in third-quarter group revenues “mainly arose from lower growth seen in Japan, essentially due to the stronger yen”.

LVMH is the world’s largest luxury powerhouse, with revenues of 90B euro. The LVMH fashion and leather goods segment, which includes handbags, represents half of all revenues at $42B euro.

Hermès

Hermès has stated that "their luxury is not in crisis."

Unlike LVMH, Hermès recently reported a quarter in-line with analyst expectations.

Revenues grew at double digits, with the leather goods division Maroquinerie-Sellerie showing 14% growth during the July-September 2024 period.

Hermès' client base is comprised primarily of the ultra-rich (as compared to the rich and aspirational with LVMH) and the brand embodies luxury and, especially, exclusivity.

The firm perceives its performance as ‘reliable’, as its market is consistently comprised of the ultra-wealthy. After all, a billionaire is a billionaire. In contrast, LVMH tends to represent fashion, which is subject to the ebbs and flows of the market.

There is a significant difference between buying a $5,000-$10,000 Louis Vuitton handbag, which is usually in-stock and attainable, and purchasing a $50,000-$100,000+ Hermès handbag, which is only accessible to those who have demonstrated adequate spend with the ultra-luxury brand. The aspirationally affluent and rich may sit things out when times are scant. Times are never tight for billionaires.

From a numbers perspective, Hermès generated 3.7 billion euro in sales through the third quarter 2024, and analysts are bullish: Citi has estimated that Hermès could reach a turnover of 20 billion by 2027.

Brunello Cucinelli

Declares Brunello Cucinelli, as reported by La Repubblica, “It’s not at all true that customers have lost the love for luxury. But if you find it everywhere, what kind of luxury is it? What has been lost is exclusivity.”

For LVMH and even Hermès, China, even Japan, have been down markets. For ultra-luxury brand Brunello Cucinelli, this has not been the case.

Brunello Cucinelli parent Foro delle Arti S.r.l., of which Brunello Cucinelli himself holds a controlling stake, grew by 13% in the first nine months of 2024. Top markets contributing to the stellar results included The Americas and Asia (including China).

In the third quarter, group revenues were 300M euro, an increase of 9%, and above consensus estimates.

The reason for the strong financial posture, as compared to LVMH, and even Hermès: Brunello Cucinelli (in contrast to LVMH) targets the super-rich. The firm also carries less exposure to China.

Cucinelli’s thoughts on the Chinese market: “Sales in the Chinese market continue to be of great quality”, citing to WWD the brand’s positioning, exclusive distribution, and appreciation for the highest craftsmanship. “

Added CEO Luca Lisandroni. “We see significant opportunities in the exclusive and true luxury market”.

The Prada Group has also defied the odds with stellar results for the group and one of its banners, Miu Miu. We will cover this topic in a future Retail Dispatch.

Until then, happy retailing!

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