Luxury fashion houses bag a return to sales growth

**Luke Wilson** (0:01)
Shares in South Korea's biggest chip makers take another hit. It's World Business Express from the BBC World Service, I'm Luke Wilson. Some of the world's biggest luxury brands have returned to growth despite a slowdown in sales in the Middle East, and another German car maker announces plans to cut thousands of jobs.
It's Groundhog Day in Seoul as the biggest Korean chip makers, SK Hynix and Samsung have seen further sharp falls in Asian trading. Shares in SK Hynix dropped 9% after the world's second biggest chip maker reported a 550% increase in profits short of what analysts were expecting. Its listing in Seoul has now lost 28% of its value in just a month. My colleague Sean Farrington spoke to Peter Kim from the Seoul-based investor, KB Securities.

**Peter Kim** (0:56)
There are two sets of views on this. One is the fund flow retail driven center, which is pretty terrific. On the other side is the institutional investors who are very, very confident about the long-term, even midterm fundamentals of the industry. So right now, it's overwhelmingly on the negative side, but I think on the way up, it was greed and fear.
The swing has been pretty shocking, hasn't it?

**Sean Farrington** (1:22)
Shocking would be the word. Is it indicative of something more widely going on here, where the money that is going to be spent on these memory chips just isn't going to be at the scale that people thought it might be?

**Peter Kim** (1:36)
If you look at the share price, that's probably what people are worried about clearly. But I think for the experts who understand how this industry has evolved over the past 10, 15 years, is that it's a lot more stable than before.
The visibility of earnings is a lot more longer and clearer. But as I said, there's been this very unpredictable share price movement. It's because of the leverage ETF that's been, actually not just in Korea, US, UK and Hong Kong, that has amplified the volatility, it feels like the sector hasn't changed much at all in terms of its boom bust history.

**Luke Wilson** (2:19)
Peter Kim of KB Securities in Seoul. Some of the world's biggest luxury brands say they've returned to growth in the last three months after a sharp slow down because of the impact of the US-Iran war on sales in the Middle East. The biggest, LVMH, saw its fashion and handbags division climb for the first time in two years and Kering, which owns brands like Gucci, saw sales rise for the first time in three years. But it's not all good news. Shares in Hermes are down more than 13%, despite its revenues increasing. I asked Pauline Brown, the former chair of LVMH North America, what's driving the growth?

**Pauline Brown** (2:56)
Brands that had fairly healthy jewelry business in terms of their portfolios, number one, Richemont and then LVMH Secondly, which has about 15 or 16 percent of its sales come from jewelry.
They had an extra boost from that. Did not benefit Hermes as much, which is not as much of a jewelry brand. So that would be point number one. And point number two is yes, North America outgrew all other regions.

**Luke Wilson** (3:25)
And you mentioned Hermes having that challenge in the jewelry sector, but there was also seems to be a lot of concern around Hermes, particularly around growth in China. How important is China as a market to these companies?

**Pauline Brown** (3:35)
China has been the single biggest locomotive to growth and luxury for the last 15 plus years.
It is no longer that. It is a mature market. And I would say it's stabilizing relative to what I might have said a year ago, but we're not seeing the kind of growth. And there's a few reasons for that. The obvious one is that consumers in China are cautious. There are a lot of still economic concerns, but I think there's another one. They're changing their appetite for what they buy. I'd say relative to a few years ago, they're looking more favorably on local brands, and they're also pulling back from some of the more logo driven.

**Luke Wilson** (4:12)
And some interesting comments from the Chief Financial Officer of LVMH, saying that all the success we talk about in the tech industry is creating new billionaires, new millionaires in that space, and they're becoming a sort of a new luxury customer. Are you seeing that?

**Pauline Brown** (4:28)
Well, for sure there is a new customer base, but that's a really small number. I mean, if you actually counted the number of people who are benefiting from the IPOs and so forth, obviously it's great for stockholders, and when the equity markets are strong, luxury industry tends to be strong. But if you try to correlate the actual people working in the industry with their spending, yes, you would see a boost, but I think there are some other things going on. In fact, I think that the broader equity gains are driving luxury sales more than the actual individuals and their employment base.