Louis Vuitton counts on lipstick as handbag sales slow

PARIS: Justine Le Sassier wouldn’t be caught dead buying a Louis Vuitton handbag. “They don’t have any appeal,” the 18-year-old art student said of the label’s $1,340 monogrammed handbags while shopping on the Champs Elysees in Paris. Happily for Vuitton’s owner, LVMH Moet Hennessy Louis Vuitton SA (MC), Le Sassier is crazy about the €13.90 ($18) foundation sold by Sephora, the company’s fast-growing fragrance and cosmetics retailer. “I love their makeup,” she said. “And it’s reasonably priced.”


With Vuitton’s sales growth slowing from Barcelona to Beijing, catering to beauty buyers like Le Sassier is getting more important for LVMH. As shoppers curb spending on $940 Neverfull bags while splurging on $31 Dior Addict lipsticks, Sephora will help LVMH’s Selective Retailing unit overtake fashion and leather goods as its biggest business by 2018, Sanford Bernstein estimates.

That leaves LVMH better placed than rivals such as PPR SA to weather stagnating luxury demand. “Sephora is a category killer,” said Sanford Bernstein analyst Mario Ortelli. Investors concerned that sales of the Vuitton brand will keep fading are “overcautious about LVMH.” The owner of more than 60 brands — from Dom Perignon champagne to Bulgari jewelry — LVMH in April reported its weakest fashion and leather goods sales in more than three years.

EXPANDING MIDDLE

LVMH’s Selective Retailing division, which includes Paris department store Le Bon Marche and duty-free shop operators DFS and Miami Cruiseline Services, accounted for 28% of 2012 sales. Ortelli recommends buying LVMH shares and holding PPR. LVMH revenue is set to advance 7.5% this year, according to estimates compiled by Bloomberg. That’s faster than the 5.2% growth analysts predict for PPR.

Sephora is introducing services such as mobile payments and enlarging its own-label assortment to keep shoppers spending. It’s also expanding in Latin America and Asia, aiming to attract middle class consumers driving growth in emerging markets. PPR, by contrast, is getting out of mass retail. The company aims to spin off its Fnac media and electronics chain and dispose of online fashion seller La Redoute this year. It’s also closing stores at sporting-goods maker Puma SE (PUM) as it combats declining non-luxury sales.

LUXURY HANGOVER

LVMH’s Selective Retailing division will have sales of €14.7 billion in 2017, Sanford Bernstein estimates. The unit’s 13% compound annual revenue growth, fueled by Asian and Latin American shoppers, is almost double the brokerage’s estimate for LVMH’s fashion and leather-goods’ business and about three times Euromonitor’s forecast for luxury overall. Slowing luxury demand isn’t unique to LVMH.

After binging on goods from Rolex watches to Hermes (RMS) Birkin bags, shoppers have cut spending as the economy splutters. Consumption is weaker in Europe, Taiwan and Korea and “China isn’t as buoyant as it was two years ago,” PPR Chief Financial Officer Jean-Marc Duplaix said in April after its Gucci brand reported its slowest sales growth since 2009, excluding currency swings.Yet Sephora and DFS keep growing