LVMH Faces Margin Compression Amid Shifting Consumer Habits

LVMH US5024413065

The luxury goods sector is navigating a significant change in how consumers spend. LVMH, the industry's bellwether, is feeling the effects as pricing power weakens across the market. A clear indicator is the rising prevalence of discounts: approximately 35–40% of luxury items were sold at a reduced price last year. This figure marks an increase of around five percentage points above the ten-year average, raising questions about the group's ability to maintain its premium positioning without eroding profitability.

The consolidated margins for LVMH have been declining, a direct consequence of the growing share of discounted sales. Excluding the pandemic period, they have reached a 15-year low. This trend is fueled by a consumer pushback against the substantial price increases implemented between 2021 and 2024, which have left many high-end items priced at 1.5 to 1.7 times their 2019 levels. In response, a growing number of buyers are shifting their purchases to outlet stores, further intensifying margin pressure.

Strategic Cost Initiatives

To stabilize profitability in an environment of slowing organic growth, LVMH's management has launched a series of cost-management measures:
- Store Network Optimization: Underperforming boutiques in China are being closed to enhance overall network efficiency.
- Operational Efficiencies: The company is cutting travel budgets and scaling back on large-scale marketing initiatives.
- Focused Capital Expenditure: Strategic prestige investments, such as "The Louis" project in Shanghai, continue to receive funding.
- Centralized Treasury: A group-wide centralized currency clearing system aims to reduce transactional costs across its portfolio of brands.

Regional Dynamics and Forward Indicators

While there are initial signs of stabilization in the crucial Chinese market, particularly within jewelry and experiential segments, the recovery remains uneven across LVMH's brand portfolio. An additional operational risk emerged recently from a transportation accident involving a 50%-owned subsidiary in Peru, potentially exposing the "Luxury Experiences" division to liability and reputational concerns.

Following a challenging period, LVMH shares showed modest stabilization in the initial trading sessions of 2026. Analyst consensus projects earnings per share (EPS) to reach 14.95 for the first half of 2026, up from 10.99 at the close of 2025.

The path forward for LVMH hinges on its ability to leverage product innovation and targeted high-profile investments to drive demand based on brand allure rather than price. Should discounting fail to recede, the company's margins and share price will likely stay vulnerable to economic cycles and shifts in consumer sentiment in its core markets, the United States and China.

Key metrics to watch will provide clarity: a meaningful reduction in the proportion of discounted sales coupled with a broader-based recovery in Chinese consumer demand could support earnings improvements this year. Conversely, a persistently high discount rate will signal continued pressure on profitability.