Bernard Arnault's wealth has dropped to fifth place in the global billionaire rankings.
18 months ago, LVMH's stock traded at a record high and billionaire Bernard Arnault, the controlling shareholder of the group, became the richest person in the world. But by this Wednesday, declining demand in China for products such as Louis Vuitton bags, Dior dresses, and other high-end fashion items has caused LVMH to lose more than 150 billion euros (163 billion USD) in market capitalization. Bernard Arnault's wealth has dropped to fifth place in Bloomberg's billionaire rankings, indicating he has lost up to 37 billion USD, more than anyone else on the list of the 500 richest people in the world during this period.
According to the rankings, Arnault's net worth, the 75-year-old French founder, is currently around 174.5 billion USD. Although this is higher than Bill Gates, Arnault is still far behind the number one billionaire Elon Musk and many other tech billionaires in the top 10, who have added tens of billions of USD to their wealth this year.
This downturn has dampened hopes for a gentle recovery in the luxury goods sector. What investors are currently concerned about is how long this recession will last and whether the recovery process can return to strong growth as before.
For the first time since Q2 2020, when the world was locked down, LVMH's fashion and leather goods segment recorded a quarterly decline in organic sales.
Considered a leading enterprise in the industry, the decline in LVMH's sales could be a harbinger of an unfavorable situation for smaller competitors such as Brunello Cucinelli SpA, Hermes International SCA, Kering SA, and L'Oreal SA – companies that will report revenue in the coming week and next week. LVMH's shares fell by as much as 7.5% on Wednesday, reaching a two-year low, dragging down the shares of its competitors.
The region including China is the worst-performing area for LVMH, but the slowing growth in the US, the group's second-largest market, indicates that the problem is spreading. The company's unclear guidance amid concerns about China's economic growth and trade tensions has left investors unsettled.
When asked about the company's outlook on Tuesday, LVMH's Chief Financial Officer, Jean-Jacques Guiony, said: "I don't know. The company's situation is currently as unclear as yesterday's business results. We have gone through many ups and downs. The only thing we know is that when the situation is bad, it often gets better afterward. This is a cyclical business."
The Asia region excluding Japan recorded a 16% decline in organic sales in Q3, a larger drop than expected. This is the third consecutive quarter that LVMH has reported poor performance.
Chinese consumers are tightening their spending, primarily due to concerns about the weak real estate market and unstable job prospects. Although the Chinese government announced an economic stimulus package last month, this package has not yet had a significant positive impact on consumer demand.
"Consumer confidence in mainland China has now fallen to a record low as during the Covid period," Guiony said. He added that it is currently very difficult to assess the potential impact of stimulus measures, but "it shows they are really serious about this issue."
Theo Citigroup Inc., there is no sign that recent measures have changed consumer behavior, based on observations at a luxury shopping center in Eastern China during the recent Golden Week holiday. Sales at this center decreased by less than 10% during the holiday.
Brands are preparing for Singles' Day on November 11, the largest shopping event in China, initiated by Alibaba Group Holding Ltd. over a decade ago.
In the context of an economic downturn in China, the US market is becoming increasingly important for LVMH. A year ago, the US accounted for 24% of LVMH's total revenue, while Asia (excluding Japan) accounted for 32%. Currently, this ratio has changed, with the US accounting for 25% and Asia decreasing to 29%.
In addition to the economic downturn, Bernard Arnault and the LVMH group also face many political challenges both domestically and internationally. Donald Trump, the Republican presidential candidate, has announced plans to impose strong tariffs, which could escalate trade tensions and negatively impact the outlook for the Hennessy brand, one of the famous cognac brands owned by LVMH. Hennessy is currently on the list of French spirits producers targeted by China amid increasing trade disputes.
Additionally, LVMH is also becoming a target of the French government, as lawmakers are working to pass the 2025 budget aimed at reducing the national deficit. Under the proposed tax increase on the largest corporations by Prime Minister Michel Barnier, LVMH is expected to pay an additional 800 million euros in taxes next year. At the same time, taxes on the wealthy will also increase, with Arnault being one of the main targets of opposition lawmakers, who are calling for a fairer tax system.