Louis Vuitton is closing what was its first store in the southern Chinese city of Guangzhou and is expected to shut as many as 10 more across the country in coming months, according to people familiar with the matter.
The closures by Louis Vuitton, the most recognised high-end brand in China, are just the latest sign of woes in the country’s luxury sector, which has been hit by a slowing economy and a three-year-long anti-corruption and anti-extravagance political campaign.
“According to my information, 20 per cent of Louis Vuitton’s stores in China will have disappeared by mid-next year: that is a closing rate of about 1 store per month,” said Emmanuele Hemmerle, managing partner at Emmanuele Hemmerle Ltd, a leadership consulting company based in Shanghai.
Closing the store in Guangzhou will leave LV with 50 stores across the mainland, many of them in smaller cities that are struggling with a pronounced slowdown in growth.
Rustbelt cities such as Harbin and Shenyang that have been particularly affected by China’s slowdown each have two or three LV stores and it is cities like these where the French brand is planning to close outlets, according to people familiar with the matter.
Louis Vuitton and its parent company LVMH declined to comment.
LVMH executives said last month that demand from Chinese customers for all of their products in all countries around the world was flat after growing at double-digit rates in the first six months of the year.
That news will worry all global luxury brands since the fall in luxury buying inside China has so far been partly offset by a big increase in purchases by Chinese tourists travelling abroad, particularly to Japan and Europe.
The LVMH executives blamed stock market turmoil in China in July and August for the weak Chinese buying.
They also acknowledged that overall sales of their products in Asia, excluding wines and spirits such as Moet champagne and Hennessy cognac, fell by more than 9 per cent in the third quarter with sales in China of LV in particular “suffering”.
“We may be closing down a couple of stores in China where we have two stores in second-tier cities,” Jean-Jacques Guiony, chief financial officer of LVMH, said on the sales call last month.
Many western luxury brands, led by LV, expanded rapidly in China over the past decade in an attempt to capitalise on the country’s burgeoning population of “bao fa hu”, as the nouveaux riches are called.
But the anti-corruption campaign launched by President Xi Jinping in late 2012 has dented demand for all types of luxury goods, long popular as bribes and gifts for government officials.
Some brands, particularly Louis Vuitton, have also fallen out of favour amongst China’s increasingly worldly and sophisticated consumers, who see them as commoditised and overpriced.
“To a certain extent LV has been suffering from brand over-exposure; having so many stores in China and particularly in these lower-tier cities doesn’t make sense economically but is also not very good for the brand,” said Torsten Stocker, partner at consulting group AT Kearney.
Just 18.8 per cent of survey respondents in China’s first-tier cities such as Beijing, Shanghai and Guangzhou said LV was the luxury brand they most aspired to own, compared with 38.3 per cent of consumers in smaller, poorer cities, according to data from FT China Confidential.
A separate China Confidential annual survey showed just 10.7 per cent of Chinese travellers abroad bought an LV-branded item on their most recent trip abroad, down from 15.5 per cent in the 2014 survey.
The decline was particularly pronounced amongst high-income travellers, with just 12.9 per cent of households with annual income above $56,500 buying LV on their most recent trip, compared with 24.3 per cent a year earlier.