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Louis Vuitton China to cull store network

Louis Vuitton China is to close one in five of its Mainland China stores as luxury spending falls across the nation.

Three stores have already closed, including its first store in Guangzhou and others in Harbin and Urumqi.

The Financial Times has quoted Shanghai-based leadership consultant Emmanuel Hemmerle saying he has information 20 per cent of Louis Vuitton’s mainland stores will be shuttered by mid next year.

“That is a closing rate of about one store per month,” he told the newspaper.

Such a cull will leave the French luxury brand with just 50 boutiques in the Mainland.

Louis Vuitton appears to be encountering most of its Chinese challenges in second tier cities it may have entered prematurely in expectation of continuing rapid economic and spending growth. But spending on luxury goods has been impacted by the central government’s crackdown on graft and gift-giving launched in 2012, which often involved luxury goods, rather than cash.

The retailer has opened two or three stores in some tier two cities, such as Harbin and Shenyang – but those markets appear barely capable of sustaining one.

Torsten Stocker, a partner at consulting group AT Kearney, told the Financial Times that Louis Vuitton was suffering from brand overexposure in China.

“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,” he said.

Further exacerbating the problem is that cashed up Chinese who can still afford to splurge on luxury goods for their own use can also afford to travel and favourable exchange rates in recent months have seen them head to Japan, Korea or Europe to buy such items.

By nature, Chinese trust luxury goods purchased overseas even if the items are the same as displayed in local stores.

Louis Vuitton has played down the closures, this week stressing it will “continue investing in China in the current store network in order to enhance the level of experience we wish to offer to our clients”. New stores have opened this year in Beijing and Hangzhou

“We may be closing down a couple of stores in China where we have two stores in second-tier cities,” LVMH CFO Jean-Jacques Guiony, said during an earnings conference call last month.

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