Company Trend Analysis - Domestic Chinese Spending A Key LVMH Driver - JAN 2018

BMI View: Similar to its product portfolio, LVMH is also well-diversified across geographies, with a strong presence in major markets. Increasingly, Asia is becoming its key growth driver, as the Chinese luxury market is strengthening within mainland China itself, with domestic Chinese consumers driving sales growth faster than the rest of Asia and the total LVMH Group. This is an important development for luxury companies with a presence in China, as five years ago sales to Chinese consumers occurred predominantly outside of the mainland . Ensuring its presence in China is bulked up over the coming years will be necessary to continue this sales growth.

Similarly to the distribution of its product divisions, LVMH is not heavily exposed to one market or region. It has a well-diversified geographic portfolio, with a presence in over 70 countries worldwide. LVMH continues to highlight France, the US and Japan as its three key markets, with the three combining to form 44% of sales in 2016. France is the conglomerate's headquarters and home market, Japan has the highest per capita spend on luxury, while the US is the largest luxury market in the world. For LVMH, the US continues to account for the largest portion of revenue, representing 27% of sales in 2016. The importance of the US market has grown for LVMH, rising from 23% of revenues in 2012, the largest increase of its geographic divisions by a high margin.

The success of selective retailing in the US has been the key driver of this growth in our view, as the division accounts for 41% of US revenue. While department stores, legacy retailers and other bricks-and-mortar shops have struggled over the last few years as consumers head to Amazon and other e-commerce platforms, Sephora has been one of the few retailers to buck this trend. Sephora's stores offer a unique experience in the cosmetics space, with well-designed, up-to-date stores that contrast traditional pharmacies, drugstores or department stores. It provides samples of every product it carries, encouraging consumers to test and interact with them, with large numbers of sales assistants on hand to offer advice in a low-pressure environment. Sephora also has its Beauty Insider membership programme which provides various rewards, promotions and other personalised touches such as birthday gifts. Finally, its ability to capitalise on growing demand for cosmetics, makeup and perfumes driven by young consumers who are spending time watching tutorials on social media should ensure that its selective retail and US units continue to expand rapidly ( see ' Beauty The Bright Spot In Bricks-And-Mortar Retail ' , March 28 2017).

US Accounts For Larger Revenue
Revenue By Geography
Source: LVMH

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