Ladies and gentlemen, welcome to the LVMH 2021 Third Quarter Revenue Conference Call. I will now hand over to Mr. Chris Hollis. Sir, please go ahead.
Thank you, Claire. Hello, I'm Chris Hollis, Director of Financial Communications with LVMH. I have with me Jean-Jacques Guiony, Chief Financial Officer, and we're pleased to be joining you. We'll be making remarks about LVMH's revenue for the third quarter of 2021, following which we'll be happy to take your questions. As a reminder, certain information to be discussed on today's call is forward-looking and is subject to important risks and uncertainties that could cause actual results to differ materially. For these, I refer you to the safe harbor statement included in our press release and on slide two of our presentation. Turning now to our announcement. If you haven't yet had the opportunity to read our release, it was issued a short while ago in both French and English, and is available on the LVMH website, www.lvmh.com, as are the slides for today's call.
I'll begin with our presentation on slide three, with highlights for the first nine months of the year. As we emerge from the depths of the pandemic, we've seen a strong rebound since Q3 of 2020, especially in our Fashion & Leather Goods business group. We're continuing to see strong revenue growth in Asia and the U.S., and the start of a promising gradual recovery in Europe. We're also very happy to report a successful start to the integration of Tiffany, which has been forming very well. While the strengths of the overall LVMH business has still been somewhat impacted by reduced international travel and hotel activities, all business groups contributed to the Q3 organic revenue growth versus the same period last year. As we've discussed in recent quarters, our year-over-year progress is not the most meaningful indication of our performance, given the volatility caused by the pandemic.
Throughout the presentation, we will look at revenue in the third quarter of 2021 versus the third quarter of 2019, or use the comparative nine-month period as a more indicative measure. If we turn to slide four, you'll see that revenue increased 15% on a reported basis and 11% on an organic basis for the first nine months of 2021 versus the same period in 2019. Compared to 2020, organic revenue growth was 40% this year after adjusting for a 10% structure impact, essentially resulting from the acquisition of Tiffany, and a negative currency effect of 4% for 2021. On slide five, we have the breakdown of the organic revenue change by quarter.
Total Q3 revenue increased 20% from this time last year, which you can see in the shaded band near the bottom of the slide. Using 2019 as our base, the third quarter continued the revenue trend we saw through the first half of the year, generating 11% growth on an organic basis. That's on the right-hand side of the slide. Turning now to our geographical revenue mix for the first nine months of 2021. We continue to have a well-balanced regional distribution of our revenue, despite the regions being at different stages of their reopening. Asia, excluding Japan, represented 36% of revenue as measured in euros. Europe, excluding France, was at 15%. France alone contributed 6%. The U.S. was at 25%. The rest of the world contributed 11% of revenue, and Japan contributed 7%.
You can see how the Asian and the U.S. markets have taken share from European and other markets. This is further illustrated on slide seven. Here, we're looking at the change in revenue for each region relative to the third quarter of 2019. Revenue is up 26% in Asia, not including Japan. Close behind, revenue is up 22% in the U.S., excluding Hawaii. The impact of the very gradual recovery of Europe can be seen in the 6% decline in revenue. Japan was also down 6%. That's a broad overview of the quarter and the first nine months, characterized by double-digit growth in Asia and the U.S. The slow return of Europe and Japan still impacted by the pandemic. Now we'll turn to the business groups, beginning with Wines & Spirits.
On slide nine, organic revenue for Wines & Spirits was up 10% over nine months 2021 versus the same period of 2019, and up 8% on a reported basis. From the last year period, organic revenue was up 30% and 20% 27% on a reported basis, accounting for 1% positive structure impact and a 4% negative currency effect. Total revenue was EUR 4.25 billion for the first nine months of 2021, up from EUR 3.35 billion in the same period last year. Breaking it down a level further, for the nine-month period, Cognac & Spirits organic revenue growth was up 23% compared to the last year's same period. After a 4% negative currency effect, it generated EUR 2.4 billion.
Champagne and wines, organic revenue growth was up 41% compared to last year's nine-month period. After adjusting for a 3% structure impact, that's from the consolidation of Armand de Brignac, and a negative 5% currency impact, reported revenue reached EUR 1.8 billion. Looking at the third quarter, specifically, organic revenue for Wines & Spirits was up 10% versus 2020. It was up 7% in Q3 2021 versus 2019, which you can see in the little key off to the right. Moving on to the highlights for this group. This is slide 11. Beginning on the left, champagne and wines saw 7% volume growth in the first nine months of 2021 versus the same period of 2019. This includes a 1% increase relating to consolidation of Armand de Brignac.
The group experienced continued growth in this quarter in key markets, including the U.S. and Europe, where there was a particularly strong uptick in Champagne demand as restaurants began to open, reopen, and tourism slowly came back to life. As we know, Japan and Southeast Asia have experienced residual COVID restrictions, as such, travel retail is still somewhat adversely impacted. Despite this, the brands continued to report successful launches, including the recently unveiled CHANDON Garden Spritz sparkling wine. The Château d'Esclans is continuing its solid momentum as well. This third quarter also brought the beginning of the integration of Armand de Brignac, 50% of which was acquired following a beneficial partnership with Jay-Z. Hennessy volumes were up 4% for the nine months of 2021 compared to 2019.
While demand remains steady, supply constraints continue to impede the free flow of product. The group also saw an improvement in the overall mix versus 2020, coupled with continued positive price impact. China experienced a solid rebound, which was helped by inventory restocking in anticipation of an earlier Mid-Autumn Festival than usual there. I'll also note that Glenmorangie and Ardbeg continued to grow at a rapid pace. Looking now at Fashion & Leather Goods, slide 13. Organic revenue was up an impressive 38% over the first nine months of 2021 versus 2019, and reported revenue was up 34%. Compared to the same period last year, the business group saw a 57% organic revenue growth and 53% reported reflecting a 4% negative currency effect.
Revenue was a record EUR 21.3 billion, up from EUR 13.9 billion in last year's first nine months. The strength we have historically seen across this group continued this quarter. Moving us to slide 14, we can see that restored momentum very clearly. Organic revenue was up 24% versus third quarter of last year. Even more indicative, we think, is the 38% increase versus Q3 of 2019, which is in line with the first six months growth rate versus 2019. These remarkable numbers are driven in large part by the successes of Louis Vuitton, Dior, Fendi, Celine, and Loewe, all of which delivered performance in line with the highest standards of excellent innovation and creativity. Vuitton celebrated the very exciting 200th birthday of the Maison's founder with several festive and creative events and initiatives.
The brand also unveiled a collaboration with six international artists, resulting in the creation of new innovative designs for the beloved Capucines bag. The brand expanded its product offering across categories, and to support a particular focus on the creation of specialty leather handbags, opened the Vendôme Ateliers in a restored Benedictine monastery in the Loir-et-Cher region of France. Christian Dior experienced growth across all categories and geographies with a fantastic reception of the Caro bag, great success of the in-person shows of Maria Grazia Chiuri's collections, and the popularity of the Christian Dior exhibit, which was recreated at the Brooklyn Museum in N.Y. after a long tour around the world. If you're in N.Y., which I know many of you are, I would highly recommend you see it before the end of February 2020. To give some highlights of happenings of other brands.
At Fendi, Kim Jones' first collections were very well received, notably the Fendi First bag. At Celine, the ready-to-wear collection and the leather goods line were both in extremely high demand. Notably, Loro Piana continued as the official supplier for the European team at the Ryder Cup, a testament to the simple elegance of the designs and incredible quality of its materials. Loewe launched a few of its newest creations, including the Goya and Amazona bags, with imaginative communication campaigns to effectively reach its desired markets. We were also very pleased to announce the exciting appointments of two new artistic directors, Nigo at Maison Kenzo and Camille Miceli at Maison Pucci. Next up is our Perfumes & Cosmetics business group. Turning to slide 17, organic revenue was slightly down just 2% over the nine-month period versus 2019. Reported revenue was down 5%.
Compared to the same period last year, the group saw 30% growth organically and 27% on a reported basis, taking into account a 3% negative currency effect. Looking at the overall numbers, revenue was EUR 4.7 billion compared to EUR 3.7 billion in last year's first nine months. Notably, Q3 saw a return to 2019 organic revenue levels, driven by sustained progress in both the U.S. and China and the steady improvements we're seeing in Europe. Organic revenue was up 19% versus third quarter of last year. This can be attributed to a pickup in direct sales in brick-and-mortar stores and online, with local customers driving the growth in revenue from selective distribution. Let's turn to the highlights from this business group, slide 19.
Along with the sustained popularity of its iconic product platform, including the coveted fragrances Collection Privée, beloved Prestige and Capture Totale skincare lines, Christian Dior successfully launched new iconic perfumes, including the Miss Dior Eau de Parfum and Sauvage Elixir. It's worth noting that the brand's revenue growth also benefited from direct sales to local clients and solid online sales, partially offsetting the offsetting adverse impact from the reduction in consumer spending in airports and abroad. The brand continued to be selective in distribution and limit promotions. Guerlain also performed quite well, where products like the Parfum Aqua Allegoria or the skincare products Abeille Royale and Orchidée Impériale have made great progress. The brand also brought to market the new Guerlain parfumerie line, L'Art et la Matière.
Parfums Givenchy saw continued success with its L'Interdit fragrance, sorry, and Prisme Libre makeup, while Fresh's Crème Ancienne premium skincare line drove fantastic results. New ventures included Maison Francis Kurkdjian's Cologne Forte collection and the opening of Acqua di Parma's flagship store in Shanghai. Lastly, Officine Universelle Buly was acquired by LVMH following nearly four years of support from LVMH Luxury Ventures. We look forward to adding this successful business to this group. Turning now to our Watches & Jewelry business on slide 21. Organic revenue increased 4% in the nine-month period versus 2019, and nearly 90% on a reported basis.
Compared to the last year's nine months, nine-month period, organic revenue grew 49%. After adding the structural contribution from the integration of Tiffany and a negative 3% currency impact, reported revenue reached EUR 6.2 billion versus EUR 2.3 billion for the same period last year. To explain an overall slowdown in growth, we look to Asia and the new COVID restrictions being implemented there. Revenue was up 18% in Q3 versus 2020. One percent versus 2019 by comparison. Importantly, the Tiffany integration has moved forward smoothly. Its performance has been strong. The popular Tiffany T line has done quite well, as did the launch of the About Love campaign, featuring the renowned duo Beyoncé and Jay-Z.
The brand also worked together with the artist Daniel Arsham to create a sculpture series of the iconic Tiffany blue box reimagined. More recently, Kyle Kuzma, the U.S. basketball star, has been named as the newest ambassador for Tiffany. Bulgari moved forward with strength in Q3, especially in its physical stores, including the newly refurbished Place Vendôme flagship store. People flocked to the Serpenti Metamorphosis exhibition in Milan, which offers participants an immersive and multi-sensory artificial intelligence data sculpture, showcasing some of the cutting-edge creativity we're so pleased to have among our brands and talents. Bulgari also launched the first India-specific product offering alongside brand ambassador, Priyanka Chopra Jonas, and brought on board Chinese actor Yang Yang, the leading man in one of Chinese most popular dramas of the year, as a new ambassador. Turning now to the other brands with some key highlights.
TAG Heuer saw fantastic success for its limited edition Super Mario connected watch, Ryan Gosling just joined the brand as an ambassador. Hublot chose tennis player Novak Djokovic as its newest ambassador. Popularity of Fred's Pretty Woman collection continued in the third quarter as well. Lastly, Zenith announced the opening of the Zenith manufacturing boutique in Switzerland, while Chaumet unveiled an exclusive diamond-cut called the Taille Impératrice, which translates to Empress Cuts in English. Now looking at the selective retailing group, slide 25. Organic revenue is down 23% for the first nine months of 2021 versus the same 2019 period, down 26% on a reported basis. As for the comparison to 2020 organic was up 13% and the reported change was 9%, inclusive of the negative 4% currency effect.
This brings us to a reported revenue of EUR 7.8 billion for the first nine months, compared to EUR 7.2 billion in the prior year period. For the third quarter, specifically starting with this year versus that of 2019, organic revenue declined 19% due to the continued impact of lower international travel. Looking at the figures relative to 2020, organic revenue increased 15% for the third quarter of 2021. Breaking this down, Sephora continues to perform well, fueled by the continued growth of online revenue and strong momentum in skin and hair care. The partnership with Zalando brought to the market a virtual Sephora store in Germany, and over 150 Sephora stores have already opened within Kohl's in the U.S. Sephora also completed the acquisition of Feelunique, a major online prestige beauty retailer in the U.K.
DFS is still experiencing an overall limited rebound due to suppressed international airline activities. Despite this, I would like to make the warm reception of La Samaritaine, Paris, a beacon of hope for the return of travel and tourism and to the health of the European economy. Revenue for DFS was still lower than 2019 levels, but new digital initiatives are underway to more effectively navigate the remote environment and enhance the user experience for customers around the world. Le Bon Marché in Paris remains on the cutting edge of creativity and inspiration, with playful animations in its marketing campaigns and the success of its Porte Bonheur exhibition and the continued progress of 24S.
Before we answer your questions, I'd like to take a moment to reemphasize the strength of this quarter and the encouraging signs we are seeing across business groups and markets through the first nine months of the year. With this strong rebound, LVMH is well-positioned to continue gaining market share and growing revenue as it's done in all its business groups, apart from the Selective Retailing. Among the factors contributing to this growth are the group's laser focus on e-commerce and innovative ways of interacting with those customers whose movement is still limited. We're so proud of the work our teams have done to focus on the most attractive selective investments, notably in the expansion of our already robust store networks, and to stay vigilant about managing costs and flexibility while the post-pandemic future takes shape across the globe.
As always, the brands have executed on their promise to deliver products of the highest quality and to reinforce our leadership in the global luxury goods market. With that, thank you all for joining us today, and Jean-Jacques and I are now happy to take any questions you may have, and I'll pass the call back to the operator.
Thank you, sir. Ladies and gentlemen, if you wish to ask a question, you may press zero one on your telephone keypad. It's zero one on your telephone keypad. We have one first question from Madame Zuzanna Pusz from UBS. Madame?
Hello, can you hear me? Oh.
Yeah, yes, we can.
Sorry, I thought I was on mute. Good afternoon, everyone. I have three questions, please, if possible. The first question is on recent trends. I know you're usually quite reluctant to comment on exit rates or current trends.
Yes
Unless the situation is a bit unusual, it seems like it is probably so. I will take my chance. Is there any chance you could provide any color on exit rate from Q3? Especially as it looks like by region, both the U.S. and APAC decelerated quite a bit versus Q2. I obviously wouldn't expect commentary on a weekly basis, just, you know, it would be helpful to know the cadence of growth during the quarter, especially if growth slowed down month-on-month or maybe if there was just some intra-quarter volatility which went away in September. The second question is hopefully a bit less complicated. It's on watches and jewelry. The division came a bit weaker than expected.
Would you be able to comment if this has been driven by watches, by jewelry or maybe both categories? Final question is, I would say a little bit more long term, on Fashion & Leather Goods division. Basically, look at the average organic growth over the past five years. You've delivered an average mid-teens growth, which is significantly above the, let's say, prior 15-year average, which was, I think, high single digits. In this context, I mean, what is the best way to really think of the normalized organic growth in the division, the mid to long term? I mean, if I look at consensus, again, I know you won't comment on consensus, it's roughly, I think, 9% for next year.
You know, is it fair to assume that the sort of a double-digit growth is the more normalized growth we should expect going forward because of innovation and mix? You know, was there anything extraordinary driving that in the last few years? Thank you.
Well, thank you, Zuzanna. Well, as you pointed out, we are particularly reluctant to comment on intra-quarter trends.
I'm not sure it is, as you said, unless there are specific circumstances. It's particularly when there are specific circumstances, and actually there are always particular circumstances. I don't see why we should make a different rule this time. Basically, what I would say is that if you look at Q3, as you can figure out from the numbers we published, are more or less in line, actually more than less in line with H1 numbers on a two-year basis. A one-year basis is meaningless obviously, as not all the regions had normalized.
Within the quarter, I will not comment, apart from saying that in August, we experienced a little bit of volatility, particularly in Asia, due to the fact that there were COVID containment measures being implemented here and there. The month of August was a little bit under pressure, but that's all I would mention. On your second question, which is in jewelry being a bit weaker, it comes mostly from jewelry. We were subject to some pressure in Asia, particularly for the reasons I mentioned before. Bear in mind that you don't have the Tiffany numbers here. We are just talking about organic growth, and organic growth, obviously, I mean, Tiffany is in parameter in scope adjustment.
It's outside Tiffany, so it's mostly related to Bulgari. You also question on the long-term fashion leather trend is obviously awfully difficult for us to answer. I won't actually, because it's, I mean, providing you with our view, if any, to be frank, on long-term growth in the division is awfully difficult, so I will not comment on that. I mean, you have a fairly long history of numbers and cycles and how we reacted to various events in the past. I think you can draw your own conclusions, which are probably no better nor worse than ours, because in the real life, I mean, unexpected circumstances can create unexpected results, good or bad.
Perfect. Thank you so much. That was very helpful. Just one sorry follow-up. Your answer to the first question was very helpful, but on the U.S., the slowdown was quite big from like 30% on versus 2019, roughly 31 in Q2 to 22. I know that obviously the region is quite exposed to Wines & Spirits. Could this also explain maybe partially some of the slowdown? I mean, the fact that August was a bit slower and more volatile in APAC, I think it makes perfect sense. In the U.S., I mean, Is there any additional color you could give on the U.S. and the sequential deceleration?
I know your passion for quarters and within quarters, your passion about months, but if you look at H1 was 23% up over two years, and Q3 is 22% up. That's what I call continuity and consistency in growth. There could be some volatility. The wine and spirit business is a bit below, but not markedly. We've seen some improvements here and there, some weakness here and there, but frankly, it's hard to comment. Bear in mind that we are in line with H1 and that the comparison with Q2 is probably a bit too precise to be relevant.
Perfect. Thank you.
Thank you, Madam. Next question is from Mr. Edouard Aubin from Morgan Stanley. Sir, go ahead.
Hi, Jean-Jacques and Chris. Three for me as well. Maybe on China, I guess I have to ask on the common prosperity policy, you know, if you could please share your view, Jean-Jacques, if you think, based on what we know now, obviously the policy can shift, but do you think intuitively it's likely gonna be a positive, negative or neutral for the space going forward? The second one is on the U.S., which sorry to come back on that, but which was clearly strong in absolute, but maybe a touch below, you know, the market expectation. Was this maybe the explanation for that? And if you could comment maybe on the performance of Fashion & Leather Goods and Wines & Spirits there.
You know, on margin, I know it's a sales call, but maybe if you could just give some qualitative high-level comments on margin in H2. Back in July, you were clearly positive about the earnings trajectory, at least for Fashion & Leather Goods. Any reason to believe that your view has changed since then on the margin trajectory? Thank you.
Thank you, Edouard. On the common prosperity comments by the mainland China, People's Republic of China leader, I'm obviously not in a position to comment internal policy decision by political leaders. The only thing I could say is that when we look at it, we don't see any reason to believe that this could be detrimental to the upper middle class, affluent class that is the bulk of our customer base. Therefore, this seems to us not to be negative if not positive. We are not particularly worried or concerned with the recent announcements. That's the first question. The second one on in the U.S. I mean, I'm sorry to hear that you're disappointed by, I think, this growth of 22%. I mean, that's really too bad.
I won't comment. I mean, the numbers are, in my view, quite outstanding. We've been delivering very solid growth in Fashion & Leather , in Wines & Spirits. Maybe some other divisions have been more volatile. All in all, I mean, we really cannot complain about the business. As I answered to Zuzanna previously, I mean, we are very much in line with H1. The comparison base in 2019 was a bit uneven, and that probably explains why Q1 and Q2 were not exactly in line. I'm sorry about that, but all in all, I mean, we are in line with H1, which is by far the most important.
With regards to margins in H2, I mean, I've no reason not to confirm what I said or what I expected when I commented H1 results, so I've no further comments to make.
Okay. And just maybe one small housekeeping. Could you please give us the Tiffany organic growth? Maybe it's in the release, I might have missed it, so apologies if I did.
No, you have not.
How it compares.
You have not missed it. You have not missed it but I won't give it to you. I mean, we are pleased with the outcome. I mean, the business is doing well. It's doing well in Asia. It's doing well in the U.S. As I said before, all the initiatives, be it product or marketing are getting a good response from the client base wherever it takes place. We are pretty happy. This was good enough so that we could decide to more or less remove the wholesaler business that we had. The wholesale business is down in a tremendous way, but the retail business is faring at a fairly high growth rate.
We are pretty pleased, but I will not comment on precise numbers.
Okay. Thank you.
Thank you, sir. Next question is from Mr. Antoine Belge from Exane BNP Paribas. Sir, go ahead.
Yes. Hi. It's Antoine at Exane BNP Paribas. Just three questions. First of all, I think you seem to indicate that there are, there's not much changes in Fashion & Leather in Q3. Could you confirm that it's also the case in terms of, you know, trends by brands? Also, you know, maybe comment if there have been any sort of changes there. Second question relates to the Dior, which has been enjoying absolutely spectacular growth in recent years. What's the internal thinking about not the moderation, but, you know, how is there a risk that this brand is, you know, growing too quickly?
What are the measures that you are taking to make sure that, you know, nothing happens in terms of the desirability of the brand? Third question relates to, you know, Wines & Spirits. Maybe first of all, give us the specific organic growth rate for Champagne and Cognac in Q3. And maybe, you know, elaborate a bit on the dynamics of these two divisions and especially in versus, you know, end demand versus, you know, the selling. Also what could be the outlook of regarding Q4. I think you mentioned especially in Cognac, you know, stocking ahead of the Mid-Autumn Festival, and then there is always the dynamics about, you know, Chinese New Year next year.
Yeah, any help on this would be helpful. Thank you.
Thank you, Antoine, for your three questions. First of all, your first question on Q3 fashion leather by brand. No particular change. I mean, the dynamics that we've seen so far, this year amongst the various brands is at play again in Q3. We have not seen many changes there is nothing really particular to comment. Second point on Dior. I think it's a good question, but bear in mind that there are many brands that are way bigger than Dior, unfortunately, but there are some. This gives us some headroom, I would say.
Also bear in mind that Dior is a fairly diversified brand from a product viewpoint, and the share for prêt-à-porter is higher than it is for Vuitton, for instance. I mean, it's a fact of life. It's not neither good or bad, but it is what it is. It's a more diversified brand, which in my view, makes it easier to develop the brand further. I don't think we are nowhere near the time when the brand is becoming too big or overexposed, even in terms of number of stores. I will not go into details, but we have way less stores than the biggest brands of the Fashion & Leather Universe.
That's also something we can count on to develop the business further. We have no particular concerns with regards to oversize or overexposure, and I think we have some clear waters ahead of us. On Wines & Spirits and the various dynamics, as Chris pointed out, we have in Q3, I mean, Champagne is doing better than Cognac. Champagne is about 10%. Champagne and wine is about 10% organic growth over two years, when Cognac is about 4%. We have a little bit more price impact, well, less price impact actually than we had in the first half of the year. This is pretty close to volumes.
For both categories, We are facing constraints in terms of availability of quantities or volumes. It's very true for cognac, and particularly in the U.S. where we have sold quite a lot of VS quantities over the past quarters, and we are a little bit reaching the limit of the growth there, hence the impact on growth over the last two quarters. With regards to Champagne, globally, we can probably keep on growing at this level, but demand is more on the top-end qualities where we have the highest constraints. Chances are that we shall experience some lower volume growth in the quarter to come. A specific comment on Mid-Autumn Festival that you mentioned in your question.
It went well, maybe not as good as we anticipated in terms of selling. We have a little bit, not a big deal, but a little bit of excess inventory in China that we shall have to absorb in Q4. Luckily, December will benefit from a low comparison base as most Chinese New Year 2021 selling took place in January. The month of December will be relatively easy, and we should be able to absorb by then all the excess inventories. We are very mindful of that. We had to pay a price for excess inventories at some point in time, five or six years ago, we are very, very worried that we don't build up excessive inventories there for that.
That's the only point worth to report on on cognac.
Thank you. Maybe a follow-up on pricing. You commented about Wines & Spirits. At that Louis Vuitton, is it fair to say that apart from a few very sort of targeted price increases on certain SKUs, there was no sort of overall price increase being taken in this third quarter?
No, there wasn't any, I mean, the last global price increases took place in, I think it was in March or April 2020, so more than a year ago. Nothing happened in Q3. As you said, I mean, the few prices increased that we implemented were on a product-by-product basis in order to ensure comparability of prices of comparable products. In order to have coherence prices, we adjusted some prices, but that's about it.
Thank you very much.
Thank you. Sir, next question is from Mr. Oliver Chen from Cowen. Sir, go ahead.
Hi, Jean-Jacques and Chris. Good to speak with you. Regarding the supply chain, the global supply chain's been under pressure for a lot of reasons, including transport costs, inflation, others. How has supply been relative to demand, you know, as you think about fashion and leather, and jewelry, and watches as well as a category? We've noticed a lot of positive innovation at 24S. As you think longer term digitally, what are your thoughts about platforms for LVMH in terms of running your own e-concessions or curated platform models? How might you approach supplying those for others as the industry continues to change digitally? Thirdly, we really like the Kohl's Sephora execution.
How has inventory management been there, and what have been some of the learnings as you observed in the initial rollout here? Thank you.
Thank you, Oliver. I would like a, well, a few general comments just to set the frame for the global situation we are facing. There are two different things. One is manufacturing, another one is shipping finished goods. With regards to manufacturing, we don't experience particular issues. I mean, our manufacturing operations are complicated from a craftsmanship viewpoint, I would say savoir faire viewpoint, but not very complicated from a sourcing and operation viewpoint. We basically source more or less everything from next door. I'm putting things a little bit to the extreme, but that's a bit like that, which means that basically we don't face a lot of constraints on that front. It's not a big deal for us.
With regards to shipping products, obviously, we are faced with the rising cost of shipping, which is a fact of life. We can absorb it. Obviously, we have sufficient margins to face it, but it's something that we have to live with. I mean, there is not much we could do. Our supply chain people were good enough so that we don't face a lot of shortage, but the cost is definitely rising. That's where we where we are, but it's not a particular I would say burning issue for for us. Your second question about the platforms. I don't think I have many more things to report.
We are still very doubtful as to our participation to outside platforms, even if they offer e-concession models, due to the fact that we cannot have access to client data, which is a big issue for us. We do that here and there, but not with a clear opinion that it is something we should be doing across the board for all the brands. We have a very limited participation to that business model. We try to develop 24S, which is much more successful than it used to be when we started the business.
It's quite positive, yet we have still some way to go before we think we have a model that could be the real way to develop platforms internally going forward. It's still a model that we are testing. Signs are positive, but we are, we have not yet come to definite conclusions to what we want to do. Finally, your question on Sephora and inventories. I'm not so sure what you have in mind. I mean, what's what is exactly your question about about Sephora execution there?
We've seen it really strong at Kohl's, and the assortment looks very good. Do you have enough inventory at Kohl's? Also the other question that's coming up is just the brands that you carry in a Kohl's, you know, relative to your mainline Sephora stores.
The merchandising is obviously of the essence when it comes to Sephora. I mean, they build the success on the quality of merchandising and whatever we do on inventories is of key importance to us. With regards to Kohl's, obviously the assortment is not exactly the same. To be frank, it will be refined as we move forward. I mean, for the time being, we tried obviously a slightly different assortment from the global assortment that we have in a Sephora store. The main constraint being the size, which is obviously quite different. Experience will tell us exactly what the good recipe will be. We experienced that in the past.
We can accommodate different formats of stores, but it takes a little bit of a while to really adjust what is a winning formula for inventory and merchandising in the different formats. We are very much on a learning curve course with Kohl's.
Okay. Lastly, at Tiffany, there's been some really great bold moves. You know, in New York, we're just seeing a lot of the marketing that you're doing, as well as emphasizing some new product. What are your thoughts on where you may wanna move the brand or execute with respect to marketing and/or product or price points? Any thoughts on where you see the most opportunity?
I think you have a really good response with the shift in marketing that we have implemented. We want the brand to have a broader appeal to a larger scope of clients. It is exactly what we are implementing from a marketing viewpoint, but also from a pro-product viewpoint. We are reviewing, but it will take much more time. We are reviewing all the various product categories, particularly from a price point viewpoint, and deciding what are the potential winners and what are the products that maybe we should put less emphasis on in the future. Progressively, we will design what we think is the real products and the real merchandising strategy.
As far as marketing is concerned, I think it's more obvious because we have already implemented a little bit the line that we want to be the communication line of Tiffany for the future.
Great job on Dior. Happy holidays. Thanks.
Thank you. Our next question is from Sir Erwan Rambourg from HSBC. Sir, you may ask.
Hi, good evening, gentlemen, congratulations on the figures and the slides. Three follow-ups for you from my side. I think you were calling out watches and jewelry in terms of a bit of relative weakness in Asia. I'm wondering, is this Bulgari specific, or do you consider there are reasons for jewelry to underperform other categories in Asia right now? Secondly, on Wines & Spirits, I think you mentioned that cognac inventories were pretty tight in the U.S. I'm just wondering if you can tell us what the, you know, the type of inventory days are right now, and if there's any potential for price increases in this market.
Thirdly, I think you answered a question from Antoine around no pricing at retail taken across the board this year, whereas it was the case last year. I'm just wondering what the rationale is in terms of limited pricing increases at retail, and are you doing anything for other brands within Fashion & Leather Goods, and I'm thinking there of Dior. Thank you.
Thank you, Erwan. Watches and jewelry in Asia is I mean, it's not that value specific to Bulgari. I mean, when we look at Tiffany, we have a little bit of softening. Frankly, I lack hindsight to comment on that. I mean, we are talking about numbers being a bit soft in August due to mostly COVID constraints. Better in September, I don't know about October. I want to draw hasty conclusions as to what this means. I mean, I'm just reporting the numbers as they are, I think it's way too early to draw any conclusions. We'll see with Q4 numbers whether this is a trend or not.
For the time being, I don't think so given the volatility in numbers. I mean, August bad, September before. We don't really know. I wouldn't want to leave you with the impression that things are going badly there. There are ups and downs, but for the time being, it's too early to analyze. Your second point about cognac in the U.S., I think it's 26 days or 28 days, so it's a low number of days in inventory in the U.S. We carry more inventories. I mean, our distribution partners carry more inventory, more inventories normally.
This shows how strong the demand is and how tight the supply could be at some point. With regard to price increases, I mean, we usually pass, implement price increases in March or April. Nothing will be implemented before the end of the year. With regards to price increases at Vuitton, well, I mean, most of the price, the global price increases, if you think about it, are reflecting currency movements. Otherwise, I mean, we are adjusting prices within categories to ensure coherence, as I said before.
We also look at the price at which we introduce novelties. From this, sometimes we draw conclusions that we should be moving the price of other goods. As far as Vuitton is concerned, you have a high share of existing goods, so that's why we manage it that way. For other brands, not necessarily Dior, but for many other brands, you have less existing goods and more novelties, and therefore the price questions is being more on the table than it is for some other brands. The pricing question sometimes depends very much on our anticipation of the success of a given item.
When it happens to be successful, we tend to increase price further later on, which we don't necessarily do, at Vuitton. That there could be different pricing strategies, and it's quite difficult really to comment because the different brands will do different things at different point in times.
Thank you. If I can just slip a follow-up. Oliver Chen was talking about, you know, logistics issues, supply chains, being under a certain amount of strain. Is there any possibility that you might miss sales in Q4 for inventory issues in any of the categories? Or do you feel confident that you'll be able to meet demand?
No, I don't think so. As I said, I mean, manufacturing product is not so much of an issue t o what you just mentioned. We are not particularly worried there. I mean, the only thing that could cause missing sales is if shipping capacities were to go down. I mean, capacity, not price, because prices would go up anyway. Capacities were to go down for some reason. We don't anticipate that, so we are not particularly worried for the year end season.
Thank you very much. Good luck. Thank you.
Thank you very much.
Thank you, sir. Next question is from Mr. Thomas Chauvet from Citi. Sir, go ahead.
Good evening. I have two questions, please. The first one, a follow-up on China, not so much on the wealth redistribution goal, but rather how you think, Jean-Jacques, that the Chinese government's crackdown in a number of key sectors of the economy may impact consumer sentiment. I would think it's quite different from the gifting crackdown of 2013, 2014 when Xi Jinping took office, obviously, but I'd love to hear your thoughts on that situation. Secondly, you talked about greater volatility in Asia in August due to COVID restriction.
Could you give some granularity as to whether you saw a quick change and adaptation in shopping behavior that was perhaps faster than at the start of the pandemic last year with, I don't know, higher e-com penetration, perhaps slow physical traffic, but very high conversion, very high average basket or some specific slowdown in some categories, perhaps high jewelry? I think you alluded to that. Finally, on beauty, you've acquired this very niche brand, [Buly]. I thought I would ask a broader question about beauty. In the past, you said that, you know, of the categories, makeup was saturated, fragrance, you know, barriers to entry were too low, and therefore skincare was perhaps the most attractive segment.
Do you still have the same views on this category then and a desire to reinforce the skincare exposure to transform that division? Perhaps, you know, that is currently quite still subscale and doesn't have maybe the industry-leading margins that you have in your other divisions. A quick word on that would be great.
Thank you, Thomas . First question on consumer sentiment in China due to some various crackdowns. The only answer I could make is that I don't see it. That's all. I mean, not for the time being. Maybe in three months time I'll have a different answer, but for the time being, we don't see it. We don't see a change in sentiment. The volatility, as I said, is mostly coming from physical factors than really changing the behavior of customers. That's all I can report at this stage. The second question is a real tough one. I mean, I wish I could answer, but frankly, it's tough.
I mean, we are talking about micro regions within China that were under some pressure due to COVID constraints. Sometimes we don't even have a store there, the consequences of that on digital behavior is frankly, a hard question. I wish I could answer and have a report off-the-shelf to really give you the extract of it. Unfortunately, it's not the case. I have a really hard time with this question. We haven't seen globally very different trends with regards to brick-and-mortar and digital in China. That's we all I can say. The third question on beauty and skincare.
Yes, reinforcing the portfolio with skincare brands is still an objective, although it's easier said than done, as I've said many times. I mean, we have never been able to find the right business that would suit our need, I mean, scalable, global, and that would work with what we are. It's not easy. I would just point out that what I mentioned before about fragrance is to be, if not reviewed, I mean, the fragrance business is doing fine. I mean, the top end of the portfolio, particularly with large brands, particularly with Dior, but it's the case with other brands, is doing really well. In all geographies, including the eastern part of the world, which is quite new.
The fragrance business, if well executed, and frankly, it is very well executed, particularly at Dior, is not to be ruled out. I mean, it's a very promising business with very good margins and where barriers to entry are very high. I mean, the bottom end of the business has very little protection from barriers to entry, but it's not the case for the top end of it. We are experiencing very, very good growth with the top end of the portfolio at high margins. We are very, very hopeful, we think that this is the direction to be taken by brands that have a particular DNA within within fragrances as it is the case for many of our brands within the portfolio.
Thank you, Jean-Jacques.
Thank you, sir. Next question is from Mr. Luca Solca from Bernstein. Sir, go ahead.
Yes, hello, Jean-Jacques and Chris. Three very different questions. One is on domestic consumer trends. You normally give us an update on how different nationalities are performing, especially looking at Louis Vuitton. Can we continue to draw the assumption that the geographic and nationality trends are static? There's more Asian and Chinese tourists in Paris, for example, and I wondered whether there was any support in the growth you reported or in the lower from overseas tourists coming and shopping in Europe. The second question on the competitive trends in Cognac. If I understood correctly, there's a very different situation in the VS and in the high-end Cognac, especially in China on this latter portion of the business. I wonder if the competitive dynamics in given-
Luca, Sorry, I will interrupt you because I think I understood the first question. Second one, the line is extremely bad. You're being scattered, I don't really get it. Maybe you should try another line. I don't think anyone can hear your question correctly.
Well, maybe you want to start with the first one and hopefully.
Okay
Better.
I will, I will, so the question was on domestic consumer trends. If we look at them on a two years view, I mean, like the rest of the business, there are not many changes to report particularly at Vuitton. I mean, the Chinese are growing more or less in line, a little bit less than the global growth of the brand. In other words, the share of the Chinese customers is not really increasing. We get positive numbers from the U.S. obviously, even from Japan and from all the customer bases in Europe. Maybe not as fabulous as they were in the early part of 2021, but pretty solid anyway.
We are quite happy with that. We see a very, very slight return of a portion of the business with the Chinese being made overseas, but a very small part of it and nothing in Europe. I mean, you live in Europe as well as we do. I mean, we don't see many Chinese tourists in Europe these days. There are not that many, but we see a little bit more flows within Asia, which is having a little bit of impact on the Chinese numbers, but not very meaningful at this point in time. Your second question, if I'm not mistaken, was about the Cognac and the VS trend versus VSOP.
I mean, the only thing I would say about that is that, yes, the demand is very much on fire. I mean, we've seen the U.S., which is the main VS area, having a very, very strong growth. We could, had we more bottles, we could fuel a much further growth. We commented already on the number of days of inventories, which are very low. It's really a demand play, which is very much positive, and we don't complain about that. With regards to VSOP, I mean, the situation is more diverse. The Chinese business is doing fine, but it's not brilliant.
It's from a sellout viewpoint, quite only slightly growing since the beginning of the year. I'm obviously comparing to 2019 because the situation, the comparison with 2020 is obviously much more flattering. The XO business is doing well in China, but the VS business is not great. Could be better, and hopefully will be better. We are implementing various measures to boost it. We really expect the business to show better growth in quarters to come.
Thank you, sir. Next question is from Madame Caroline Madjo from Barclays. Madame, go ahead.
Hi. Yes, hello. Carole Madjo here from Barclays. Two quick follow-up questions from me, if possible. The first one on Tiffany transformation. I think the brand is a bit less exposed than some of its peer to younger consumers, so to the millennials. Could you share some insight here on the Tiffany's customer profile and what your ambitions are on this, if possible? Just second question as well around pricing. There seems to be some questions around pricing and the ability long term to raise price in your key markets. On that, do you see any change in price elasticity notably in China and also overall? Thank you.
Thank you, Carole. Tiffany less exposed to millennials. I would say it's probably true, although I don't have a lot of statistics. This coming mostly from the fact that the brand is very exposed to the U.S. and traditionally, the U.S. market, particularly compared to Asia, is less exposed to millennials than Asian markets. As we have 45 of the business or something like that being done in the U.S., mechanically, this would probably cause the brands to be a little bit less exposed to millennials than typical brands that have a lower share of their business in the U.S.
Obviously, our aim is to develop our business with young people, but we don't have a particular, I would say, quantitative goals in that respect. I mean, the brand is what it is. It has a high exposure to the U.S., which is a great strength of the brand. We want to develop the rest of the business on a worldwide basis, but not at the expense of the U.S. business. The brand will hopefully develop everywhere at the same time, and maybe by doing so, we will increase the share of millennials. As such, it's not a particular objective. I mean, we don't target a specific audience.
I mean, we want to improve the desirability of the brand through products and marketing strategies that make sense with no particular designation to a specific group of customers. With regards to price elasticity, it's a difficult question, but traditionally, there is no such thing as price elasticity. I mean, basically, when we increase prices in a given geography, we don't see a big impact on volumes. Doesn't mean that we can increase price in a limitless way, but when we do price increases, we don't see a particular response from the client base in terms of volumes. This has been true for as long as I have been following the industry. We don't see a particular noteworthy change on that front.
Frankly, nothing really to report there.
Thank you.
Thank you, madam. Next question is from Mr. Rogerio Fujimori from Stifel. Sir, go ahead.
Oh, hi, Jean-Jacques and Chris. I have two questions. The first one is on Fashion & Leather , I was just wondering if you could talk about the organic two-year stack by region relative to the group averages you provided on slide 30, if there is any meaningful difference for Fashion & Leather versus the group average. I was wondering if you could share your thoughts on the Fashion & Leather performance in China and the U.S. based on what you hear from your people on the ground relative to competition. The second one is probably an easy one on Perfumes & Cosmetics. If you could quantify or talk about the impact of the disruption in domestic travel to high end to your beauty business in Q3.
I think you mentioned that you all had a strong quarter in China, and I know you were careful last year with parallel trading, but I was just wondering if Q3 for Perfumes & Cosmetics in Asia could have been even better. Thank you.
Thank you, Roger. Well, there are meaningful differences. I mean, to start with, I mean, two years growth in Fashion & Leather is 68%, and global growth for the group is 11%. By definition, each and any geography will show some differences. Where we have little differences is mostly in Europe. Otherwise, I mean, Fashion & Leather is doing much better than the average, I would say everywhere. That we end up with a growth which is almost 4 x as high as it is for the group. Your question, second question is on Perfumes & Cosmetics. The question is on Hainan, if I understood you well.
That's correct.
In travel retail. Yeah. Hainan is currently being developed. Some licenses have been granted. The business is developing particularly in perfume and cosmetic, and as far as we are concerned, only in perfume and cosmetic at this point in time. It's a very small share of the global business, it's hard to draw conclusions from that. Basically, our philosophy there is to say that as long as it is a regular business, in other words, we are talking to real clients and not to daigou, to be clear, we are okay with doing business in Hainan. If Hainan becomes a hub for daigou, that will be a different story, which basically leads to the second part of your question on travel retail.
We have been, this part of the business in Perfumes & Cosmetics is suffering a lot. We are doing good business on a domestic basis, but our travel retail business is roughly speaking down 50% compared to 2019. This comes from the fact that we have decided to control where the products would go through the travel retail channels. We don't want to end up fueling the daigou channels in a big way through travel retail. Hence the drop in the business. This mostly comes from the willingness to protect our brands and to protect the brand equity and not to compete with our other clients through the travel retail channel. We don't intend to change that.
As long as there won't be true customers into airports and travel retail locations, I mean, this business will certainly not recover as we don't want to play it the daigou way.
That's great. Jean-Jacques, sorry, I wasn't very clear on my first question. I was just wondering is that if the sequential trend in particularly, for example, in the U.S. and Asia and ex Japan in Q3 versus H1 in the U.S. was broadly stable and Asia was just a slight sequential deceleration. Was the same sequential trend that you saw in fashion and leather as well?
It was very close in the U.S. and Asia, and it was a bit better in Europe and slightly worse in Japan. Altogether, I mean, that explains the stable, sorry, Rogerio, if I didn't catch your question initially. But it's that explains the global flat trend for Fashion & Leather, but it's that's the big moves that we have are in Europe and Japan, which are obviously not the fastest-growing areas as we speak.
That's great. Thank you very much.
Thank you, sir. Next question is from Madame Louise Singlehurst from Goldman Sachs. Madame, please go ahead.
Hi, good evening. Hi, Jean-Jacques, Chris. Thank you very much for taking my questions. I will keep them brief. Let me just going back onto the current trading, and I know we're not gonna get much information, but you do say in the outlook statement the confidence of the continuation of the current growth. Just to make sure we're interpreting it correctly, presumably that's on the two-year run rate when we compare back to pre-pandemic. Secondly, I just wanted to ask a follow-up with regards to the local consumption point, particularly on Western Europe. Obviously a very nice uptick quarter-on-quarter in terms of the dynamic. I remember, Jean-Jacques, in July, you talked about the improvement in the domestic consumption.
Is the uptick coming from the, you know, the best performing brands jumping up another gear and jumping up a higher growth rate, or is this a rising tide for them all? Is there anything in that Western European consumer that you can tell us about? Obviously, the stores are all open in Q3, that's a big help. Thank you.
Thank you, Louise. Don't take me wrong. I mean, this sentence is not a guidance. I mean, we have not provided guidance since 2008, and we don't intend to come back there. It's not a guidance. Basically, what we say that we expect to operate in a sort of same environment in the quarters to come for what it means. I mean, obviously, the comparison base are so complicated to analyze that this makes analysis a little bit complicated. Anyway, that's not a guidance. With regards to Europe, I would say it comes more or less, I mean, we are still negative in Europe on a two-year basis in Q3, the improvement comes a little bit from all the divisions.
I mean, Fashion & Leather are doing better despite the lack of tourists in Europe. It's certainly doing better. The big improvement is with Sephora. I mean, Sephora has seen a big improvement, well, mostly stemming from the fact that H1 was very difficult with all the closures and the lockdown in Europe, in France, in Germany, in Italy, et cetera. Q3 has been much more favorable in this respect. It's not only Sephora. I mean, as I said, I mean, every division is showing a little bit of improvement and progressively and hopefully we are heading toward the level of business we were doing in 2019. We are not there yet, hopefully we'll get there soon.
Super. Thank you very much.
Thank you, madam. Next question is from Mr. Thierry Cota from Société Générale. Sir, please go ahead.
Yes, good evening, Jean-Jacques and Chris. I would have two follow-up questions. One on cognac. You have mentioned again the very low inventory days in the U.S., about 25, 26 for the last six quarters in a row. If I'm not mistaken, you lost share in the cognac industry at large last year after many, many gains or many years of gains previously. I was wondering if there was any, even though you said it's good news, naturally, that demand is so strong. I was wondering if there was any solution to these low inventory days. Is it in terms of production capacity or widening some inventory channels or any other solution that could reduce that, those loss, supposedly lost of revenues themselves, and naturally not, without hitting the revenues from the VSOP and XO.
The other question is on Tiffany. You did mention it was Well, I did understand that it was doing better than the segment at large. I was wondering whether you consider that it's due to mostly to the relaunch that it's been, notably on marketing, or whether to the local dynamics in the U.S. that might be stronger than elsewhere. Basically, I was wondering if it was doing well because of the U.S. or because of its initiatives, and whether Tiffany was now gaining share in the American market. Thank you.
Thank you, Thierry. On cognac, what is the solution? Well, ideally, it would be to have more VS bottles. Unfortunately, we can only produce as much as the harvest gives us, which is obviously a complicated business. Actually, it's not a business. It's what we can get from mother nature, and it's not something that we can modelize on spreadsheets. We do what we can, but frankly, I mean, supplying more VS bottles in the U.S. would be impossible. This said, so on the one hand, you could consider this is a lost opportunity, but on the other hand, I mean, when you look at the global luxury industry as a whole, I mean, scarcity is not always a bad thing.
I leave you to think about it's not always bad. The second question about Tiffany and reasons for growth, I would say that the main reason for the good health of Tiffany is that they are facing strong demand from Asia, and particularly China and the U.S., and they have a very big business in the U.S. Unlike Bulgari, I mean, Bulgari is doing, as I said during H2 comments, Bulgari in the U.S. is growing faster than Tiffany. Both of them are doing well, Bulgari is growing faster, they have a much smaller business there. The contribution of the U.S. to growth is much higher at Tiffany than it is for Bulgari.
Unfortunately, we are developing the U.S. business at Bulgari as much as we can, but it's a fact of life that it is smaller than Tiffany. As far as obviously China is concerned, both business are doing well. I would say that Tiffany has really two cylinders, and the two are firing at full speed. That explains why Tiffany is doing fine if we look at demand explanations, and that's basically the main reason.
Would you say that Tiffany is gaining share now in the U.S. market with all the initiatives taken, or it's difficult to measure for you?
Well, I would say that it's too early to answer. I mean, we've been only managing this business eight months. I mean, we need a little bit of hindsight and helicopter view to understand all this. I mean, we are, I mean, lucky enough to get good numbers there and which was not entirely obvious the year following an acquisition because it's always complicated. It happens well, but with regards to gaining market share and whether this is a good strategy or not, I mean, we lack a little bit the benefit of that view and hindsight.
Okay. Great. Thank you.
Thank you.
Thank you, sir. Next question is from Mr. Omar Saad from Evercore. Sir, please go ahead.
Good evening. Thanks for taking my questions. I have two questions. My first one is on Fashion & Leather . You know, the business obviously has done extremely well. You know, looking at it for, at a high level, it's, you know, not only price increases driving that, it's probably a lot of unit growth there. Maybe talk about what gives you know, confidence that that business, given the recent growth it's had, why it's rebased at a new level and why you should be able to grow it from here, despite its, you know, now massive size. Secondly, you know, a question on the Americas.
I know some people on the call were a little bit concerned about the slowdown there. Obviously, we're talking about big numbers. Maybe some are worried about stimulus, U.S. stimulus money rolling off having an effect. Maybe you could talk about why, you know, you're not concerned, as concerned on the U.S. customer, why you're bullish on the U.S. customer, maybe a longer-term view on the American consumer, especially, you know, from the lens of the younger consumers here and how they're interacting with luxury products and luxury goods and services. Thanks.
Thank you, Omar Saad. Actually the answer to both questions is the same. I mean, the business of luxury has been sort of surfing on the wave of developing and growing affluent customer base in more or less all geographies. I mean, it's the case in Asia, it's the case in Europe, and it's the case in the U.S. as well. Successful groups have been the one with the brands, with offer that was good enough to be able to capture their share of this of this growth. This has been going on for a while, and we have no particular worry about that.
I mean, all the policy, the economic policies that are being implemented are sort of helping in that direction. We don't see that happening, the change in that happening tomorrow. This being said, around this positive trend looking forward, there will be some cycles and some ups and downs as we've seen in the past, that's a fact of life. I'm making no forecast whatsoever with regards to the short term. I mean, anything could happen as we have experienced in 2020. The trend is there, the trend is favorable. Look at the past. I mean, look at the U.S. We've been growing the business more or less 10% per annum over the past 10 years or 12 years.
Definitely, I mean, this is a growing area for luxury. I mean, we have no reason to believe that what has been playing in our favor over the last 12 years will not be there tomorrow. This said, I mean, there could be some elements that in the short term could affect us. I don't see any, and that's not a forecast, as I said before. We have to accept, one, that we have to consider, one, that the trend is favorable, and two, that there could be ups and downs, and we have to manage the business accordingly by being flexible. I mean, I'm just recording what has been our strategy and our management culture over the years, over the past decades, I would say.
Understood. Anything new coming out of the U.S. in terms of the luxury segment here? Is there a new era? You know, U.S. has always been one of the richest economies and strongest economies, maybe not one of the biggest luxury markets. Is that changing?
Yes, it is. Definitely. I mean, the growth in the It's not something that changed yesterday. I mean, it's a move that has been going on for a long time. The growth on average in the U.S. is faster than than in other geographies, with China being a little bit on the side. Definitely, the penetration in the U.S. has improved, probably due to the fact that most luxury brands within and outside LVMH have been able to develop exclusive distribution strategies with own stores, which was not the case 25 years ago. That's probably the reason why people understand better what they can get from luxury brands.
The passion for discounts in the U.S. is probably something that people don't take into account when they shop luxury, which was not the case 25 years ago. All in all, I mean, the U.S. customer is progressively getting used and accustomed to what luxury is, and the equation is increasing, no doubt.
Thank you, Jean-Jacques.
Thank you. The next question is from Madame Dana Telsey from Telsey Advisory Group. Please go ahead.
Good afternoon, and hello, Jean-Jacques and Chris. Two questions on channels. As you think about the digital channel, any update on learnings by segment on the digital channel and how it's progressing and what you're seeing in terms of sell-through and how you're monitoring it or the data that you're learning from it? Just on physical real estate, what are you seeing in terms of having your own stores or being an in-store shop? I've seen naturally that you're doing more of your own stores now. What does this mean globally in terms of the footprint, and do you open more, remodel more? How does the scale of physical translate going forward? Thank you.
Thank you, Dana. Two very good questions. On digital, basically, what we've learned and what the business is doing is that we are doing more and more of our own digital. I mean, when I look at the digital business that we do, as you know, we don't disclose the numbers because we fear or we expect, let's put it that way, that the share will be going down when the business normalizes. Anyway, when we look at the breakdown of this business, I mean, the overwhelming part is our own vertical website. That's basically what we want to do. I mean, we have some doubts about the platforms.
As I said, as I said before, we are more or less rolling out, with the exception of Perfumes & Cosmetics, the wholesale business on digital. I mean, we don't do in digital what we do, we don't do in physical stores. Basically, what we are doing is developing our own websites and refining the strategies there because we think it's an ideal complement to our business. Not all the people can go into a physical store. Sometimes they are too far away from it, particularly in large country like the U.S. or China. That's an ideal complement. That's not something that we want to develop just for the sake of it.
I mean, it's really a complement to the physical store and nothing, as you know, we've said that many times, replaces the experience people get within physical stores. With regards to physical real estate, your second question, yes, we are developing freestanding stores in high streets when it is when it is possible. I mean, one thing that the pandemic has shown is that in large shopping malls in particular, the traffic could go down very severely. Despite the conversion rate being moving up, this has a negative impact on the business, and it is hard to recover.
I mean, as we speak, although the situation from a pandemic viewpoint has normalized in many countries, we are still way below the traffic level that we had in 2019 for instance. That is food for thought on our side. First of all, we try to develop high street presence. That's the obvious. When it comes to shopping mall, we don't rule them out. I mean, external shopping malls, I mean, shopping malls which are, where you have an outside presence, and you can basically park in front, as it is growing tremendously in the U.S., for instance, is something very interesting for us.
We are shifting a lot of Sephoras, for instance, from big shopping malls to suburban shopping malls, which are smaller and which allow people, which allow clients a much better conveniency, particularly from a parking lot viewpoint. We are working on that. The main directions are definitely high street presence and suburban malls that we are trying to develop. Therefore, from a pure capital spending viewpoint, we are remodeling, not at a great speed. Nevertheless, the bulk of the investments are aimed at remodeling the network into these two directions.
Thank you.
I will take the last question.
Thank you, sir. Last question is from Mr. Piral Dadhania from RBC Capital Markets. Please go ahead.
Thank you for squeezing me in. Just following up on a few points that have been raised. Just wanted to understand the strategy for Louis Vuitton and Dior, I guess, from a growth versus scarcity perspective. Obviously, the volume growth has been very strong for a while now, perhaps accelerated on a two-year basis in the last couple of years. I was just wondering how you're thinking about sort of the scarcity element of the equation going forward. Is there a view that perhaps you start to prioritize that a little bit more? We've noticed online on your louisvuitton.com website that you've pulled some products, perhaps with a view to driving traffic back into your store network.
I was just wondering if you could perhaps talk about that and also in the context of online versus in-store, to Dana's question just now. Thank you.
Thank you. I will try not to spend too much time, it's getting late, on this. It's a very global and very global question. Basically, luxury is about balancing scarcity and, I mean, exclusivity and availability. I mean, you have to do both. If you're too exclusive, I mean, nobody buys you. If you are too accessible, nobody buys you because you're too accessible. It's really striking a balance between the two. When you look at this equation from a growth viewpoint, it's basically striking a balance between volume growth and mix growth. There are three sources of growth. I mean, you have price. I commented that before. It's not usually the big chunk of the growth.
You have volume growth, the number of additional units you sell on a yearly basis, and you have mix impact. Over the years, the last few years, mix has been more important than volumes. In other words, we sell more expensive items, not that we increase the price, but the items that we are selling are more expensive on average. We sell more leather rather than canvas at Vuitton. Although canvas is progressing, I mean, it's not, leather is progressing faster. We have a big mix impact, which is a way to manage scarcity and exclusivity. I mean, we think it is very important to do it that way. It's not an equation we've been working on over the last weeks.
I mean, it's really something that has been at the core of the strategy of Vuitton for many, many years, particularly in a business like this, which is dominated by handbags. If you take other brands, I mean, there is a better balance or another balance. I am not sure it is better, but anyway, another balance between categories. At Vuitton, the handbag category is still dominant. Therefore, it is very important that within this category, in order to avoid overexposure, we rebalance the various lines of business in a clever way. This is what we are trying to achieve.
I will not go into details because I could be there another hour because it's very, it's a very complex question, but that's basically what we, what we are trying to achieve. That's the answer I would give to your pretty complex and far-reaching question.
Okay.
Thank you. That ends the Q3 call. I don't think we have further comments to make. I would just say that I look forward to discussing with you full year numbers at the end of January as usual. Thank you all, have a great evening.
Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.