TIP852: Hermès and LVMH Stock: Time to Buy Luxury? w/…

PodcastWe Study BillionairesStig BrodersenOct 8

Luxury spending is broadly flat, while personal luxury goods have contracted since late 2023 and LVMH has faced sales declines across major regions. The discussion highlights a widening divide between resilient top-tier buyers and aspirational customers, whose spending is pressured by falling Chinese property values, higher prices, and weaker confidence. Jewelry and U.S. demand offer some support, but currency effects, margin pressure, and the uncertain pace of a China recovery weigh on the outlook. The LVMH base case implies about 11% returns including dividends, below the speaker’s 12% hurdle rate.

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Key Takeaways

China’s property downturn has weakened household wealth perceptions and encouraged mortgage prepayments, weighing especially on middle-class aspirational luxury buyers; the speaker says this downturn also lacks the wave of new customers that helped drive the 2013–2016 recovery. Analyst consensus expects home prices to fall another 4% to 5% this year, while the speaker cautions that the adjustment may take longer.

Luxury spending is weakening both in total and in customer reach: broad-market spending was flat at about $1.44 trillion, personal luxury goods have been shrinking by $5 billion to $6 billion annually, and the industry has lost roughly 70 million customers since 2022. Aspirational buyers account for about half of luxury-market value, but rising prices—including a Louis Vuitton bag increasing from $1,500 in 2019 to $2,500 today—make products harder for these buyers to afford.

LVMH’s exposure is concentrated in fashion and leather goods, which generate almost half of revenue and 75% of profit; that segment’s operating margin fell from nearly 42% in 2021 to 34% in the first half of this year. The pressure coincides with two consecutive years of declining sales and weakness across Asia, the U.S., and Europe, while management says it needs 3% to 4% growth to restore positive operating leverage.

Jewelry has been a relative bright spot: Richemont grew 20%, with jewelry its main contributor, and Bulgari and Tiffany were up 11% last quarter. Its ability to offset weakness varies by company—jewelry is only 12% to 13% of LVMH sales, while Richemont gets over 17% from jewelry—and the speaker says precious-metal price movements can influence both perceived investment value and brands’ ability to keep jewelry prices steady.

China’s luxury market tripled from 2017 to 2021, when Chinese consumers represented roughly one-third of global spending, but their share has since fallen below one-fifth. The speaker contrasts the current economic and policy pressures with the earlier period, when anti-corruption restrictions on gifting were followed by a recovery supported by millennial buyers, import-duty cuts, and harmonized local prices; queues for Chinese gold-jewelry brand Laobu may signal spending shifting toward gold and local designs.

Demand varies substantially by region: the U.S. accounts for about a quarter of LVMH sales and a fifth of Hermès sales, and Hermès U.S. sales grew 15% in the first half as the speaker linked demand to strong markets and affluent consumers. The Middle East, at about 5% to 10% of luxury spending, was expected to help offset China’s weakness, but Gulf customers’ absence contributed to a 3% first-quarter decline for Hermès in France; Richemont’s Gulf recovery was faster in Saudi Arabia and Qatar than in tourism-dependent Dubai.

GEO-POLITICS

China Anti-Corruption — The speaker says Xi Jinping’s anti-corruption campaign kept China’s luxury market flat from 2013 to 2016 by curbing luxury gifting and making officials wary of conspicuous purchases. The market later recovered as a new generation of Chinese millennial buyers emerged, import duties were cut, and local prices were harmonized.

“I think there's one major prior luxury downturn, especially in China, that matters to us because we can compare it. And that one happened from 2013 to 2016…”—

ECONOMY

China Property Downturn — The speaker says China’s property downturn began in 2021 and is now in its fifth or sixth year. The correction has already exceeded the historical average of about 30%, though the speaker cautions that this does not mean the downturn is over. Falling home prices have weakened households’ sense of wealth, and households save more than 30% of disposable income on average to prepay mortgages.

“Home prices have been basically falling for four years now, and there's also not really an end in sight yet…”—

MARKETS

Broad Luxury Spending — Consumers spent about $1.44 trillion on the broad luxury market last year, but spending was flat year over year. That included categories such as cars, hotels, yachts, and fine dining.

“If you take all of luxury together, so, you know, you're talking cars, hotels, yachts, fine dining, everything, you know, experiences plus things that you can buy, people spend about…”—

Personal Luxury Goods — The personal luxury goods market—including handbags, clothing, jewelry, watches, and beauty—is about $360 billion. It has been shrinking by $5 billion to $6 billion annually since the end of 2023.

“And if you narrow it to just personal luxury goods, so handbags, clothing, jewelry, watches, beauty, all that stuff that MS and LVMH are actually selling, then the market size…”—

LVMH Sales Weakness — LVMH has had declining sales for two consecutive years, an unusual result for a company that historically proved resilient even during the 2008 financial crisis. Asia revenue fell about 20% from its 2023 peak, while U.S. revenue has stagnated since 2022 and European revenue since 2024.

“And this is basically also what we've seen with LVMH and Hermes, which just due to their size are somewhat of a proxy for the overall luxury market…”—

FORECASTS

LVMH Spirits Outlook — The speaker expects LVMH’s spirits business to continue losing volume, arguing that demand from the top 1% will not make up for the overall volume decline.

“Although it's probably a similar debate to aspirational versus the top 1%, where the top 1% demand might not change as much, but overall volume is significantly lower…”—

China Home Prices — Analyst consensus expects Chinese home prices to fall another 4% to 5% this year before stabilizing in 2027. The speaker says the adjustment may take longer because households are paying down mortgages instead of spending.

“And that's just a much slower process than what happened in o eight. So I think it will just take a lot more time…”—

MS Valuation Model — The speaker says MS’s valuation multiple fell from the 40s to the low 30s, accounting for an estimated 20% to 30% drawdown from multiple compression. In the revised model, the speaker holds the exit multiple at 32 times and changes revenue-growth and margin assumptions.

“And I would say that worked out quite well, since a big part of the stock's decline that we've seen in the last couple of months was due to the…”—

LVMH And Hermès Revisited

The hosts revisit their earlier analyses, noting that both luxury stocks have fallen substantially but remain affected by concerning business trends and macroeconomic pressures.

Luxury Demand And Aspirational Buyers

Luxury spending is flat overall and personal luxury goods have contracted, as aspirational customers retreat while top-tier buyers remain comparatively resilient.

Luxury Pricing And Customer Tiers

Sharp price increases have pushed many aspirational shoppers out of the market, while high-end buyers account for a growing share of luxury demand.

Richemont And Jewelry Demand

Richemont's strong jewelry performance contrasts with weakness in fashion, supporting the view that affluent customers are holding up better than aspirational buyers.

Hermès And LVMH Brand Strategy

The hosts compare focused Hermès with LVMH's brand portfolio, discussing scarcity, controlled access, brand history, and the balance between desirability and volume.

LVMH Brand And Profit Concentration

Despite owning many brands, LVMH relies heavily on fashion and leather goods, while weaker core results and margins have weighed on profits.

China's Luxury Slowdown

Chinese luxury spending has fallen sharply amid property-market weakness, household caution, and changing preferences, creating a difficult backdrop for LVMH and Hermès.

China's Past And Present Downturns

The current Chinese slowdown differs from the earlier anti-corruption slump because today's property and economic problems may take longer to resolve and lack a clear wave of new buyers.

Gulf Demand And Geopolitical Risk

The Middle East is a relatively small direct market but also supports European luxury tourism, and uncertainty has interrupted a region brands hoped would offset China.

U.S. Demand And Currency Headwinds

Strong U.S. demand offers support, but currency translation has reduced reported growth and squeezed LVMH's profits despite better underlying sales.

LVMH Wine And Spirits

Declining alcohol consumption and a shift from cognac toward tequila challenge LVMH's spirits business, while excess inventory and past pricing decisions compounded the downturn.

LVMH Fashion Margins

LVMH's fashion and leather segment has suffered seven percentage points of margin decline as weaker sales meet high fixed costs and require renewed growth for operating leverage.

Luxury Cycle And Recovery

The contraction is unusually prolonged, and although history suggests a late-cycle opportunity, persistent Chinese property weakness and geopolitical uncertainty make recovery timing unclear.

Hermès And LVMH Valuations

The Hermès base case suggests returns around 12–13%, while LVMH's lower-growth assumptions imply roughly 11% including dividends, below the hosts' 12% hurdle.

Luxury Stocks And Investment Caution

The hosts respect Hermès' brand strength but are not sufficiently excited by current valuations, uncertain growth, and the possibility that luxury weakness could persist.