How Luxury Brand LVMH Is Adapting In China

Despite discussion that China's economic growth may be picking up again after several months in slowdown mode, LVMH still posted lower-than-expected sales growth numbers for the third quarter last week that was due in large part to stagnant China numbers.

"Growth in mainland China for the group in Q3 was about 5 percent in local currency, which is better than what we had in Q2 but which is in line more or less in line with what we had in the first half of the year," said LVMH CFO Jean-Jacques Guiony in a conference call last week.

Since the start of both slowing economic growth and China President Xi Jinping's corruption crackdown, luxury brands such as Louis Vuitton have taken a hit in their previously booming China sales. Louis Vuitton's owner, conglomerate LVMH, has been particularly feeling the pain. Its shares have risen only "marginally" higher since the beginning of 2013, while Cartier, Richemont, Burberry, and Kering have all seen shares rise by 20 percent.

One main reason for this is that a Chinese shift away from ostentatious logos, fueled by both the corruption crackdown as well as a shift in global trends, dented LVMH's cash cow Louis Vuitton, which is known for its bags emblazoned with its iconic "LV" emblem.

The company has been making numerous efforts to respond to this issue. One main strategy has been to cut down on promoting its classic logo-printed leather goods, instead opting to advertise its low-key products, as was apparent in a recent Beijing store opening in which celebrity ambassadors showed up clad head-to-toe in LV, but with very few logos in sight.

This isn't the only move LVMH has made to respond to this issue in recent months, however. In fact, it has undertaken several additional strategies in the China market to reassert its exclusive brand image in China's changing luxury landscape. Below is a list of some of its new strategies this year:

Cracking down on fakes

One major problem facing Louis Vuitton is the prevalence of fake bags readily available in China, which may have contributed to diluting the brand's image. In order to combat this problem head-on, the company has signed an agreement with Alibaba to prevent the sale of counterfeit Louis Vuitton bags on its Taobao e-commerce site. Alibaba and Louis Vuitton signed a Memorandum of Understanding on October 11, 2013 that will include several preventive measures to stop fakes, such as a takedown system which will shut down the webpages selling them. The measure can't do anything to stop people from going to the Silk Market, but it's a start.

Convincing China that "vintage" has cachet

Because the shift away from logos is not just a Chinese, but a global phenomenon, Louis Vuitton has been touting a "vintage" image abroad to promote its brand heritage. However, the concept of "vintage" does not necessarily have the same connotations in China as in the United States, which prompted LV to use actress and brand ambassador Fan Bingbing (???) to promote the idea. "These pieces are vintage style, and at the same time, very functional. I personally love the vintage style very much," said Fan at LV's Beijing opening.

Adding a fresh face

Although Fan has done a great deal of work for Louis Vuitton as a brand ambassador, the company has not used her as its sole representative in China, where some believe she may convey more of a mass-market than a luxury image. The company also hired Liu Wen (??) for an ad campaign this year promoting its recent Les Foulards D'Artistes artist scarf design collaboration.

Diversifying its wares

In the wake of the logo's decline, niche brands have been doing a lot better in terms of growth numbers than "mega-labels" such as Louis Vuitton, and it has been speculated that LVMH will go on a "buying spree" to add to its already extensive list of luxury brands.

This has proven true so far in the world of beauty, as LVMH-backed L Capital Asiaacquired Chinese beauty brand Marubi this July, with plans to sell its products in LVMH-owned Sephora.

According to Guiony, beauty has remained a bright spot for the conglomerate during the slowdown. He stated that in the third quarter, BeneFit cosmetics "made good progress in Asia, particularly among Chinese consumers." Meanwhile, Louis Vuitton is planning tolaunch a perfume at some point in order to tap into the beauty market that has been helpful for companies such as Burberry and Chanel. In addition, the company's ownership of Hong Kong-based duty-free retailer DFS, which sells a wide range of luxury brands that do not all fall under the LVMH umbrella, allows it to continue to diversify its profit model away from reliance on Louis Vuitton while still benefiting from the widening range of tastes among high-spending Chinese luxury consumers.