French luxury retailer reels from austerity measures, slow sales

Louis Vuitton has pulled the plug on one of its two flagship stores in Guangzhou, Guangdong province, as the French fashion house continues to grapple with slow sales in China.

Separately, the Financial Times said that the company has already closed three outlets in China－Guangzhou, Harbin and Urumqi－and was drawing up plans to close several others, citing people familiar with the matter. The store closures will leave LV with about 50 stores across the mainland.

The Guangzhou outlet was located in the La Perle shopping mall and unconfirmed reports had said that the retailer's lease was set to expire at the end of this month.

LV officials in Shanghai did not immediately respond to queries from China Daily on the development.

Industry experts, however, do not see anything untoward in the move as a senior company official had earlier in the year indicated that the company would close some of its stores in China as part of an ope--rational restructuring.

Jean-Jacques Guiony, chief financial officer of LVMH Moet Hennessy Louis Vuitton, the world's largest luxury group by turnover and the parent of LV and about 70 other luxury brands, said during an earnings call last month that most of the store closures in China would be in the second-tier cities.

Guiony said the group's business in China was battered in the third quarter due to the wild stock market swings. The group's revenue growth in Asia, except Japan, in the first nine months of this year fell by nearly 6 percent from a year earlier, despite an 18 percent increase in revenue to 25.3 billion euros ($27.1 billion) during the period.

This is, however, not the first time that foreign luxury brands are closing stores in China. Other leading retailers such as Giorgio Armani, Hermes and Versace have been closing shops since 2013.

China's slowing economic growth and the government's austerity campaign have triggered a steep fall in luxury consumption.

Data provided by market research firm Bain & Co show that luxury consumption in the Chinese mainland recorded a negative growth in 2014 for the first time, after years of rapid growth. The consultancy said that unlike the past two years, the current closures are a strategic adjustment and more brands will close stores this year.

"Luxury brands are preparing for the changed situation by store upgrades and downsizing," said Zhou Ting, director of Shanghai-based Fortune Character Research Center, a consulting firm for the luxury industry.

Zhou said for luxury brands, store upgrades and closures are a more viable option than investing further amounts on these outlets or opening new ones.

Zhou said some of the luxury brands are betting big on online platforms and have even cut product prices in China this year.

"What this means is that the rapid growth phase of the Chinese luxury market has passed and brands are now banking on strategy, technology and price adjustment for growth."

The testing times for luxury retailers has also affected the fortunes of high-end malls such as La Perle.

"We and Louis Vuitton decided not to renew the lease contract out of concerns for our respective development," the promotional department of La Perle Management Consulting Co Ltd told China Daily.

Opened in 2003, the LV store used to occupy a conspicuous place on the left of the shopping mall's entrance. Now the store's door is closed and the windows are covered with the mall's posters, with only the Hermes store next door an indicator of its earlier glory.

La Perle officials said they will find another "leading international luxury brand" to fill the Louis Vuitton vacuum and it has no plan to shift its high-end retail focus. They, however, did not give any indication as to who the new client would be.