Luxury goods company LVMH’s first quarter sales were hurt by a drop in cognac sales in China due to the country’s crackdown on lavish spending.
While overall sales at LVMH increased by 4 percent to 7.21 billion euros ($10 billion), sales from wines and spirits declined by 3 percent on an organic basis, largely attributed to weakness in cognac sales in China.
Other producers of high-end spirits are experiencing similar sales decline as a result of the Chinese government’s crackdown on spending by officials on lavish banquets and gifts. As reported by Bloomberg, Pernod Ricard’s, the maker of Martell, first-half China sales fell by 18 percent. Meanwhile, Remy Cointreau, the maker of Remy Martin, expects weak cognac sales and is forecasting “significant double-digit decline” in profit this year.
Trevor Stirling, an analyst at Sanford C. Bernstein, does not expect Chinese cognac sales to recover until 2015. “With the intensity of the anti-extravaganza and anti-corruption campaigns getting stronger, we expect the underlying drag on depletions in China to continue,” said Stirling.
On a brighter note, LVMH’s fashion and leather-goods sales rose by 9 percent, compared with a 3 percent gain a year ago. Sales got a boost from the acquisition of Italian cashmere clothier Loro Piana SpA and British shoe brand Nicholas Kirkwood in 2013.
Faced with more competition from accessible luxury brands such as Michael Kors and Coach, LVMH has embarked on a strategy to elevate its exclusivity with higher-priced products at Louis Vuitton, while investing in smaller, independent fashion brands.
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