LVMH Moet Hennessy Louis Vuitton SE (ADR) Closing Stores In Chinese Market Over Low Demand

The company shuts one store in Guangzhou, Harbin, and Urumqi, and plans to close 20% more outlets

Louis Vuitton, which operates under the parent company LVMH Moet Hennessy Louis Vuitton SE (ADR) (OTCMKTS:LVMUY), is facing problems in China. It has shut one store in each city of Guangzhou, Harbin, and Urumqi, and further plans to shut 20% of the retail stores in Chinese market by mid of 2017. According to Financial Times, the luxury brand is closing its stores at a rate of about one store every month.

The company disclosed its 3Q earnings in October, and it showed that the Asian markets have been a challenge for the Louis Vuitton. The company sales declined 6% in the latest quarter for the Asian markets, apart from the Japan. Louis Vuitton showed total revenue of 8.3 billion euro.

On the other hand, major competitor of Louis Vuitton, Burberry, has performed well for more than a decade. Recently, a slowdown in the Chinese economy has declined the Burberry's sales by 9% in the Q3 result. The company saw a decline of single digit sales in the first half of the year; the decrease was due to the decline in demand from retail stores, especially in Hong Kong, Korea and Macau markets.

The major problem affecting the Louis Vuitton in Chinese market is a perception that the brand is not quite good enough to meet the customers’ demand and needs. As per the market research report, people say that Louis Vuitton has become ordinary product for them and is possessed by every other person. The brand is very common and can be found easily in Beijing's every restaurant. On the other hand, the demand for local brands, such as Bottega, and Vaneeta, is continuously increasing.

Despite Louis Vuitton's closure in the Chinese economy, other brands like Hermes, Versace, and Giorgio Armani have also been shutting down their business since 2013 in China. This is all because of slowdown in the world's second largest economy, as people are becoming more tight-fisted with money to save for long term than spend it on luxury items.