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, Cesar. Hello, I'm Chris Hollis, Director of Financial Communications with LVMH. With me Jean Jacques Guillenie, Chief Financial Officer, and we're pleased to be joining you We'll be making remarks about LVMH's revenue for the Q3 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. So these are referred to the Safe Harbor statement included in our press release and on Slide 2 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 3 with highlights for the 1st 9 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 session on other Goods Business Group. We're continuing to see strong revenue growth in Asia and 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 performing very well. While the strength 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.
Thus, throughout the presentation, we will look at Revenue in the Q3 of 2021 versus the Q3 of 2019 will use the comparative 9 month period as a more indicative measure. If we turn to Slide 4, you will see that revenue increased 15% on a reported basis and 11% on an organic basis for the 1st 9 months of 2021 versus the same period in 2019. Compared to 2020, organic revenue growth 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 5, 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 Q3 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 1st 9 months of 2021. We continue to have a well balanced regional distribution of our revenue, despite the regions being at a different stages of our 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. Is 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 7, here we are looking at the change in revenue for each region relative to the Q3 of 2019.
Revenue was up 26% in Asia, not including Japan. Placed behind revenue was up 22% in 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%.
So that's a broad overview of the quarter and the 1st 9 months characterized by double digit growth In Asia and the U. S, the slow return of Europe and Japan is still impacted by the pandemic. And now we'll turn to the business groups, beginning with Wines and Spirits. On Slide 9, organic revenue for Wines and Spirits was up 10% over 9 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 27% on a reported basis, accounting for 1% positive structure impact and a 4% negative currency effect.
Total revenue was €4,250,000,000 for the 1st 9 months of 2021, up from €3,350,000,000 in the same period last year. I'm breaking it down a further a level further for the 9 month period. TRONIET and Spirits organic revenue growth With up 23% compared to the last year's same period. And after a 4% negative currency Generate currency effects generated EUR 2,400,000,000 Champagne and Wines organic revenue growth was up 41% compared to the last year's 9 month period. And after adjusting for a 3% structure impact, That's from the consolidation of Armand de Beugnac and a negative 5% currency impact, reported revenue reached 1.8 €1,000,000,000 Looking at the Q3, specifically organic revenue for Wines and 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 wine stores 7% Volume growth in the 1st 9 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. Of course, as we know, Japan and Southeast Asia have experienced Residual COVID restrictions and 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 Sporting Wine. Chateau Desclamps is continuing its solid momentum as well.
And this Q3 also brought the beginning of the integration of Armand de Bruyne, 50% of which Was acquired following the beneficial partnership with JZ. Hennessy volumes were up 4% For the 9 months of 2021 compared to 2019, and 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 And an earlier mid autumn festival than usual there. I'll also note that Glenmorangie and Adberg continue to grow at a rapid pace.
Looking now at Fashion and Evidence, Slide 13. Organic revenue was up by an impressive 38% Over the 1st 9 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 €21,300,000,000 up from 13,900,000,000 Euros in last year's 1st 9 months. The strength we have historically seen across this group continued this quarter.
Moving to Slide 14, we can see that restored momentum very clearly. Organic revenue was up 24% versus Q3 of last year. And even more indicative, we think, is a 38% increase versus Q3 of 2019, which is in line with the 1st 6 months growth rate versus 2019. These remarkable numbers are driven in large part by the successes of Louis Vuitton, Dior, Fendi, Celine and Ove, all of which delivered performance in line with the highest standard of excellent innovation and creativity. Vuitton celebrated the very exciting 200th The birthday of the Maybelline founder with several festive and creative events and initiatives, the brand also unveiled the collaboration with 6 international artists, resulting in the creation of new innovative designs for the beloved Capucine bag.
The brand expanded its product offering across categories and to support a particular focus on the creation of specialty leather handbags, Open the Vendome Atelier in a restored Benedictine monastery in the Loire and Cherbourg region of France. Christian Dior experienced growth across all categories and geographies with a fantastic reception of the Caroll bag, great success of the in person shows As Marie Grazieciuri's collections and the popularity of the Christian Dior exhibit, which was We created at the Brooklyn Museum in New York after a long tour around the world. If you're in New York, which I know many of you are, I would highly recommend you see it before the end of February 2020. Now to give some highlights of happenings of other brands. At Fendi, Kim Jones' first collections were very well received, notably the Fendi First bag.
And it's Celine, the registered wear collection and 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 design And the incredible quality of its materials, the way we launched a few of its newest creations, including the Goya and Amazon bags with imaginative communication campaigns to effectively reach its desired markets. And we were also very pleased to announce the exciting appointments Two new Artistic Directors, Niguel at Maison Kenzo and Kimi Micheli at Maison Pucci. Now next up is our Personalities and Cosmetics Business Group. Turning to Slide 17.
Organic revenue was slightly down to 2% over the 9 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 €4,700,000,000 That's €3,700,000,000 in last year's 1st 9 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
from 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 on private and beloved Christian Dior successfully launched new iconic perfumes, including 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 brand offsetting adverse impact from the reduction in consumer spending in airports and abroad. The brand continued to be selective in distribution and limit promotions. Guerin also performed quite well, where products like the perfume Aqua and Aubreyas or the skincare products, AVAIL Royale and Orchidae and Australial have made great progress.
The brand also brought to market the new Guerlain, Tafinoy line, L'aire de la Mathiere. Vansa Givenchy saw continued success at its Lanterie fragrance and premium libra makeup. Well, firstly, the Clementienne premium skincare line drove fantastic results. New ventures included Maison Francois Caergan's Cologne's Fort Collection and the opening of Aqua Department's flagship store in Shanghai. Lastly, Officially Universal Bulli was acquired by LVMH for nearly 4 years of support from LVMH Luxury Ventures.
We look forward to adding this successful business to this group. Turning now to our Watches and Jewelry business on Slide 1, organic revenue increased 4% in the 9 month period versus 2019 and nearly 90% on a reported basis. Compared to the last year's 9 months 9 month period, organic revenue grew 49%. And after adding the structural Contribution from the integration of Tiffany and a negative 3% currency impact, reported revenue reached EUR 6,200,000,000 versus EUR 2,300,000,000 for the same period last year. To explain an overall slowdown in growth, we look to ensure being implemented there.
Revenue was up 18% in Q3 versus 2020, but 1% versus 2019 by comparison. Importantly, the Tiffany integration has moved forward smoothly, and 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 announced duo, Beyonce and Jay Z. The brand also worked together with the artist Daniel Larsham to create a sculpture series of the iconic Tiffany blue box we imagined. And more recently, Kyla Kuzma, the U.
S. Basketball star, has been named the newest ambassador for Tiffany. Bvlgari moved forward with strength in Q3, especially in its physical stores, including the newly refurbished Place on Derm flagship store. People flock to the Serpenti Metamorphoses exhibition in Milan, which offers participants An immersive and multisensory artificial intelligence data sculpture showcasing some of the cutting edge creativity we're so pleased to have among our brands and Balgru also launched the 1st India specific product offering alongside brand ambassador Priyanka Chopra Jonas 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 and Ryan Gosling just joined the brand as an ambassador. Hublot chose tennis player Novik Djokovic as its newest ambassador, popularity of Fred's Pretty Woman collection continued in the 3rd quarter as well. And lastly, Zenith announced the opening of the Zenith Manufacturing Boutique in Switzerland, while Chonnet unveiled an exclusive diamond cut Which translates to Empress Cartes in English. Now looking at the Selective Retailing Group, Slide 25. Organic revenue is down 23% for the 1st 9 months So, 21 versus the same 2019 period and 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 This brings us to a reported revenue of €7,800,000,000 for the 1st 9 months compared to €7,200,000,000 in the prior year period. For the Q3 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 Q3 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 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 Filionique, a major online prestige beauty retailer in the UK. DFS is still experiencing an overall limited rebound due to suppressed international airline activities. And despite this, I would like to make a warm reception of this maritime guide on this, a beacon of hope for The return of travel and tourism demand for the health of the European economy. Revenue for DSS was still lower than 2019 levels, New digital initiatives are underway to more effectively navigate the remote environment and enhance the user experience for customers around the world. The Bon Marche and Paris remains on the cutting edge of creativity and inspiration with playful animations in its marketing campaigns And the success of its Porte Donaire exhibition and the continued progress of 24S.
So before we answer your questions, I'd like to take a moment to reemphasize the strength of this quarter and the encouraging signs we're seeing across business groups and markets through the 1st 9 months of the year. With this strong rebound, LVMH is well positioned to continue gaining market share and growing revenue It's done in all its business groups apart from the Selective Retail. Among the factors contributing to this growth, The group's laser focused 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 selected 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. And 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
We have one first question from Madam Susana Putz from UBS. Madam
Hello, can you hear me?
Yes, mute if
you can.
Sorry, I thought I was on mute. Good afternoon, everyone. I have three questions, please, if possible. So the first question is on recent trends. I know you're usually quite reluctant to comment on exit rates or current trends unless the situation is a bit unusual.
But 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 I'd like to comment on a weekly basis, but just it would be helpful to know the cadence of growth during the quarter as to achieve growth Slowdown on Mannorf 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 Perfect. So would you be able to comment if this has been driven by watches, by jewelry or maybe both categories? And final question is, I would say, a little bit more long term on Fashion and Letter Group division.
Basically, look at the average organic growth over the past 5 years, you've delivered an average mid teens growth, which is significantly above the, let's A prior 15 year average, which was, I think, high single digits. So in this context, I mean, what is the best way to really think The normalized organic growth in the division, the mid to long term. I mean, if I look at consensus, and again, I know you want to comment But it's roughly, I think, 9% for next year. So is it fair to assume that the sort of double digit growth is More normalized growth we should expect going forward because of innovation and mix? Or was there anything extraordinary driving that in the last few years?
Thank you.
Well, thank you, Susan. Well, as you pointed out, we are particularly reluctant To comment on intra quarter trends, I'm not so 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. So I don't see why We should make a different call 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 2 year basis and a 1 year basis is meaningless, obviously, As not all the regions have normalized, within the quarter, I will not comment apart from saying that in August, we There is 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, watches and 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 adjustments.
So it's outside Tiffany, so it's mostly related To Bvlgari. Your third question on long term fashion level trend is obviously Hopefully difficult for us to answer. And 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 I think you can draw your own conclusions, which are probably no better and worse than ours because in the real life, I mean, unexpected circumstances can create unexpected Effective circumstances can create unexpected results, good or bad.
Perfect. Thank you so much. That was very helpful. Just one sort of follow-up. So your answer to the first question was very helpful.
But on the U. S, So the slowdown was quite big from like 30% on versus 2019, roughly 31% in Q2 to 2022. And I know that, obviously, the region is quite exposed to Wines and Spirits. Could this also explain maybe partially some of the slowdown? Because I mean, The fact that August was a bit slower and more volatile in APAC, I think it makes perfect sense.
But in the U. S, I mean, just maybe to is there any additional color you could Yes, on the U. S. And the sequential deceleration?
Well, I know your passion for quarters and within quarters, your passion about months. But If you look at H1, H1 was 23% up over 2 years and Q3 is 22% up. So 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. So 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.
Yes. Hi, Jean Jacques and Chris. So 3 for me as well. So maybe on China, I guess I have to ask On the common prosperity policy, 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 going to 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 The market expectation, was Sephora maybe the explanation for that? And if you Good comment maybe on the performance of fashion and the goods and wine and spirit there. And then on margin, I know it's 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 and Other Goods.
So any reason to believe that your view has changed Since then, on the margin trajectory. Thank you.
Thank you, Edouard. So on the common first priority comments By the Mainland China, the Prosperity 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 be a per middle class, affluent class That is the bulk of our customer base. Therefore, this seems to us not to be negative, if not Positive. So we are not particularly worried or concerned with the recent announcements. So that's the first Question.
The second one in the U. S, I mean, I'm sorry to hear that you're disappointed by this growth of 20% in the sense. I mean, It's really too bad. So I won't comment. I mean, the numbers are, in my view, quite outstanding.
And we've been delivering very solid growth in fashion, leather, in wine and spirit. Maybe some other divisions have been more volatile. But all in all, I mean, we really cannot complain about the The business and as I answered to Susanna previously, I mean, we're very much in line with H1. So the comparison base in 2019 was a bit uneven and that probably explains why Q1 and Q2 were not exactly in line and I'm sorry about that. I mean, we are in line with H1, which is by far the most important.
With regards to margins in H2, I mean, no reason to not to confirm what I said or what I expected in when I commented H1 results. So I have no further comments to make.
Okay. And just maybe some one small housekeeping. Could you Please give us the Tiffany organic growth and maybe it's in the release, I might have missed it, so apologies if I did, but No, you have not missed
it. You have not missed it and 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, the product or marketing We are getting a good response from the client base wherever it takes place. So we are pretty happy. This was good enough so that we could decide to more or less remove the wholesale business that we had. So the wholesale business is down in a tremendous way, but the retail business is faring at a fairly high growth rate.
So we are pretty pleased, but So I will not comment on precise numbers.
Okay. Thank you.
Thank you, sir. Next question is from Mr. Antoine Beyles from Exane BNP Paribas. Please go ahead.
Yes. It's Antoine at Exane BNP Paribas. Three questions. First of all, I think you seem to indicate that there are there's not much changes in Fashion and Leather in Q3. Could you confirm that it's also the case in terms of the sort of trends by the by brands?
And so maybe comment, is there been any sort of changes there? Second question relates to the Dior brand, which has been enjoying absolutely spectacular growth in recent years. So what's the internal thinking about not the moderation, but how is there a risk that This brand is going too quickly or what are the measures that you're taking to make sure that nothing happens in terms of the Desirability of the brand. And third question relates to wine and spirits. Maybe first of all, give us the Specific organic growth rate for Champagne and Cognac in Q3 and maybe elaborate a bit on the dynamics of these two Division and especially in versus like end demand versus the sell in and also what Could be the outlook of regarding Q4.
I think you mentioned, especially in cognac sort of stocking ahead of the Middleton Festival and then there is always the dynamics about Chinese New Year next year. 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 by brands, 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. So we have not seen many changes there. So there is nothing really particular to comment.
2nd 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. And so this gives us some headroom, I would And also bear in mind that Dior is a fairly diversified brand from a product viewpoint and the share of 82 is higher than it is for Vuitton, for instance. I mean, it's fact of life, it's not neither good or bad, but it is what it is. So it's a more diversified brand, which in my view Makes it easier to develop the brand further.
So 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. So that's also something we can count on to develop the business further. So we have no particular concerns with regards To oversize or over exposure, and I think we have some clear waters ahead of us. On wine and spirit and the various dynamics, so 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 2 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. So this is pretty close to volumes. Basically, 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 Versus 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, the demand is more on the top end qualities where we have the highest constraints. So chances are that we shall experience Some lower volume growth in the quarter to come. A specific comment on Middleton First of all, that you mentioned in your question, it went well, but maybe not as good as we anticipated in terms of Selling, so 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 sell in took place in January. So the month of December It will be relatively easy and we should be able to absorb by then all the excess inventories, but we are very mindful of that.
We had to pay a price for excess inventories at some point in time 5 or 6 years ago. So we are very Worry that we don't build out excessive inventories there for that. But that's the only point was to report on Connect.
Thank you. Maybe a follow-up on pricing. You commented about wine and spirits. At Equivitong, it's fair I said that apart from a few very targeted price increases on certain SKUs, there was no The overall price increase being taken in the Q3?
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 Nothing happened in Q3. And as you said, I mean, the fuel prices increased that We implemented where on a product by product basis in order to ensure comparability of prices of comparable Products, so in order to have coherent 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, Jon, Joc and Chris. Good to speak with you. Regarding the supply chain, the global supply chain has Been under pressure for a lot of reasons, including transport costs, inflation, others. How has supply been Relative to demand, as you think about fashion and leather and jewelry and watches as well as a category. And then 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 And how might you approach supplying those for others as the industry continues to change digitally? And then thirdly, we really like the Kolsa for 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. On supply chain, well, a few general comments just to set the frame for The global situation we are facing, there are 2 different things. 1 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 little bit like that, which means that basically we don't face a lot of constraints On that front.
So 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. So that's where we are, but it's not a particular, I would say, burning issue 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 don't we cannot have access to client data, which is a big issue for us.
So we do that Here and there, but not with a clear opinion that it's something we should be doing across the board for all the brands. So So we have a very limited participation to that business model. We try to develop Venkatres, which is much More successful than it used to be when we started the business. So 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. So it's Still, a model that we are testing, signs are positive, but we have not yet come to definite conclusion as 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 is exactly your question about super 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? And also the other question that's coming up is just The brands that you carry in Coles relative to your mainline Sephora stores?
The merchandising is obviously of the essence when it comes to Sephora. I mean, they built the success on the quality of merchandising and whatever we do on inventory It's of key importance to us. With regards to calls, obviously, the assortment is not exactly the same. And 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 Sephora store, the main constraint being Size, which is obviously quite different, but experience will tell us exactly what the good recipe will be.
So 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 the winning formula for inventory and merchandising in the different formats. So we are very much on a learning curve course with Cource.
Okay. And lastly, Tiffany, there's been some really great bold moves in New York where you're 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 want to 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 already a good response with the shift in marketing that we have implemented. We wanted The brand should be to have a broader appeal to a larger scope of clients and it is exactly what we are implementing from a marketing viewpoint, But also from a 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 and fuss is on in the future. So progressively, we will design what we think is a real product So we are recognizing S4HV. But 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, sir. Next question is from Mr. Erwan Rambod from HSBC Therapy.
Yes. Hi. Good evening, gentlemen, and congratulations on the figures and the slides. Three follow ups, please, 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 Bvlgari specific? Or do you consider there are reasons for jewelry to underperform other categories in Asia right now? Secondly, on Wines and 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 type of inventory days are right now and if there's any potential for price increases in this market.
And then thirdly, I think you answered a question from Antoine around no pricing at Vuitton 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 Ritouan. Are you doing anything for other brands within fashion and leather? And I'm thinking that's a BDI. Thank you.
Thank you, Owen. What is in Germany in Asia is I mean, it's not entirely specific to Bvlgari. I mean, when we look at Tiffany, we have a little bit of softening. But 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, and I don't know about October.
So I wouldn't want to draw I see conclusions as to what this means. I mean, I'm just reporting the numbers as they are, but 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, September before, We don't really know. So I wouldn't want to leave you with the impression that things are doing badly there.
There are ups and downs, but For the time being, it's too early to analyze. Your second point is 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 inventories, nobody. So 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 implement price increases in March or April, so nothing will be implemented before the end of the year. And 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. And we also look at the price at which we introduce novelties. And then from this, sometimes we draw conclusions that we should be moving the price of other goods. As far as return is concerned, you have a high share Of existing goods. So that's why we manage it that way.
For other brands, not necessarily Joe, but for many other brands, we have less Existing goods and more novelty, and therefore, the price questions is being more On the table, then it is for some other brands. So 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 At Uitung. So 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 was talking about 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 these 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 With regards to what Chris mentioned, so 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. But 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, sir. Next question is from Mr. Thomas Chauvet from Citi. Sir, please go ahead.
Good evening. And I have two questions, please. The first one, a follow-up on China and not so much on the welfare Distribution growth, but rather how you think, Jean Jacques, that the Chinese government's crackdown in a number of key sectors, the economy may impact consumer sentiment. I think it's quite different from the gifting crackdown of 2013, 2014 when CGP took off, it's obviously, but I'd love to hear your thoughts On that situation. Secondly, you talked about greater volatility in Asia in August To COVID restriction, could you give some granularity as to whether you saw 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 store physical traffic, but very high conversion, very high average basket or some specific slowdown in some categories, Perhaps, hi, Jori.
I think you alluded to that. And finally, on beauty, you've acquired this very niche brand of 15 years of sale brulee. I thought I would ask a broader question about beauty in the past. You said that of the categories makeup was saturated, Fragrance, barriers to entry were too low and therefore skincare was perhaps the most attractive segment. Do you still have the same views on these categories and a desire to Reinforced the skincare exposure to transform that division.
Perhaps that is currently quite Still subscale and doesn't have maybe the industry leading margins that you have in your other divisions. So the quote 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 3 months' time, I'll have a different answer. But 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 And really changing the behavior of customers. So that's all I can report at this stage.
The 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 we're under some pressure due to COVID constraints. Sometimes we don't even have a store there and the consequences of that on digital behavior is frankly a hard question. So I wish I could answer and have A report of the shelf to really give you the extract of it, but unfortunately, it's not the case.
So I have a really hard time So with this question, we haven't seen globally very different trends with regards To brick and mortar and digital in China, that's all I can say. Just a 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. So it's not easy. I would just point out that what I mentioned before about fragrance is to be It's 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, It's doing really well and in all geographies, including the eastern part of the world, which is quite new. So the fragrance business, if well executed and frankly, it is very well executed, particularly at Dior, It's 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, it's the bottom end of the business has very little protection from barriers 2 and 3, but it's not the case for the top end of it.
And we are experiencing very good growth with the top end of the portfolio at high margins. So we are Very, very hopeful and we think that this is the direction to be taken by brands that have a particular DNA Within fragrances as it is the case for many of our brands within the portfolio.
Thank you, Zolgag.
Thank you, sir. Next question is from Mr. Luca Solca from Bernstein. Sir, please 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 Can we continue to draw the assumption that geographic and nationality trends There's more Asian and Chinese tourists in Paris, for example. And I wondered, well, there was any support in the growth you reported or in the lower applicable property from Overseas tourists coming and shopping in Europe.
The second question is on the competitive trends in If I understood correctly, there's a very different situation in the Versus and in the high end cognac Mr. Borr, that's a better lead in China on this latter portion of the business. I wonder if Look,
maybe I will sorry, I will interrupt you because I think I understood The first question, the second one, the line is extremely bad. You're being scattered. So I don't really get it. So maybe I should try another line, but I don't think anyone can hear your question correctly.
Well, Maybe you want to start with the first one and hopefully, it sounds better.
So the question was on domestic Consumer trends. If we look at them on a 2 year's view, I mean, like the rest of the business, there are not many changes To report, particularly at Agitur, I mean, the Chinese are growing more or less in line, A little bit less than the global growth of the brand. So in other words, the share of the Chinese customers is not Really increasing and we get positive numbers from the U. S. Obviously even from Japan and from all The customer base is in Europe, maybe not as fabulous as they were in the early part of 2021, but pretty solid anyway.
So 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. That's 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 any Chinese tourists in Europe In your these days, so 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 BS trend versus the SOP. 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 Versus Yeah, I think a very, very strong growth and we could had we the bottle or more bottles, We could fuel a much further growth. We commented already on the number of days of inventories, which are very low.
So it's really a demand play, which is very much positive, And we don't complain about that. With regards to the SOP, 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 I mean, only slightly growing since the beginning of the year. I'm obviously comparing to 2019 because the situation the comparison with 2020 It's obviously much more flattering.
The IXO business is doing well in China, but the VF business is Not great. I mean, it could be better and hopefully, it will be better. We are implementing various measures To boost it, I will not go into details, but we really expect the business to show better growth in the quarters to come.
Thank you, sir. Next question is from Madam Caroline Madhu from Barclays. Madam, go ahead.
Hi, yes. Hello. Karl Major here from Barclays. Two quick follow-up questions from me, if possible. The first one on Tiffany's transformation.
I think the brand is
a bit less exposed than some of its peers to younger consumers, so to the millennials. Could you share some insight here on the Tiffany's consumer profile And what your ambitions are on this, if possible? And just second question as well around pricing. So there seems to be some questions around pricing and the ability Long term to raise price in your key markets. So on that, do you see any change in price elasticity and it could be in China and also overall?
Thank you.
Thank you, Carole. Tiffany is 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. So 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 competitive growth in that respect. I mean, the brand is what it is. It has a high exposure to the U. S, which It's 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. So the brand will hopefully develop everywhere at the same time and maybe by doing so, we will increase the share of millennials. But 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 brands 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 response from the client base in terms of volumes. And this has been true for as long as I have been following the industry. And we don't see a particular noteworthy change on that front. So frankly, nothing really to report there.
Thank you.
Thank you, madam. Next question is from Mr. Hojero Fujimori from Stifel. Sir, go ahead.
Hi, Zijan Jacques and Chris. I have two questions. The first one is on Fashion and Leather. And I was just wondering if you could talk about the organic 2 year stack by region relative to the group averages you provided on Slide 3, if there is Any meaningful difference of Fashion Leather versus the group average? And I was wondering if you could share your thoughts on the Fashion Leather performance in China and the U.
S. Based on what you I hear from your people on the ground relative to competition. And then the second one is probably an unusual one on Provenus Cosmetics, if you could quantify or talk about the impact of the Disruption in domestic travel to Hainan at your beauty business in Q3. I think you mentioned that you had a strong quarter in China. And I know you're careful with last year's parallel trading, but I was just wondering if between for preference, basket and Asia could have been even better.
Thank you.
Thank you, Rogerio. Well, there are meaningful differences. I mean, to start with, I mean, 2 years growth International Leila is 38%, and global growth for The group is 11%. So by definition, each and any geography will show some differences. Where we have little differences is mostly in Europe.
But otherwise, I mean, Fashion Nova is doing much better than the average, I would say, everywhere. So that we end up with a growth which is almost 4x as high as it is for the group. Your question second question is on customer and cosmetic. The question is on Hainan, if I understood you well.
That's correct.
Intraver retail, yes. So well, 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, so it's hard to draw conclusions from that.
Basically, our philosophy there is to say that as long as it is Regular business, in other words, we are talking to real clients and clients and not to diagnose to be clear. We are okay with doing business in Hainan. If Hainan becomes a hub for Daigou's, that would be a different story, which basically leads So the second part of your question on Travel Retail, we have been this part of the business in Parfums and Cosmetics It's 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, and we don't want to end up fueling the channels in a big way Through travel retail.
So 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, And we don't intend to change that. So 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 Daigo way.
And Jean Jacques, sorry, I wasn't very clear on my first 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 And Asia was just a slight sequential deceleration.
Was it the same sequential trend that we 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. So 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 and 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.
Okay. Thank you very much.
Thank Your next question is from Madame Louise Singerhurst from Goldman Sachs. Please go ahead.
Hi, good evening. Hi, Jean Jacques, Chris. Thank you very much for taking my questions. I will keep them brief. Just going back on to the current trading, and I know we're not going to 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 2 year run rate when we compare back to pre pandemic. And then secondly, I just wanted to ask a follow-up with The local consumption points, particularly on Western Europe, obviously, a very nice uptick quarter on quarter in terms of the dynamic. And I remember Jean Jacques in July, you talked about the improvement in the domestic consumption. Is the uptick coming from the best performing brands jumping up another gear and jumping up a high growth rate?
Or is this a rising tide for the mall. Is there anything in that Western European consumer that you can tell us about? Obviously, the stores are all open in Q3, so that's a big help. Thank you.
Thank you, Luis. 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. So it's not a guidance.
Basically, what we say that we expect to operate In the 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. But anyway, that's not the guidance. With regards to Europe, I would say comps more or less, I mean, we are still negative in Europe on a 2 year basis in Q3, The improvement comes a little bit from all the divisions. I mean, Fashion and 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, etcetera. So Q3 has been much more favorable in this respect. But it's not only for us.
I mean, as I said, I mean, every division is showing a little bit of And hopefully, we are heading towards the level of business we were doing in 2019. We are not there yet, but Hopefully, we'll get there soon.
Super. Thank you very much.
Thank you, Madam. Next question is from Mr. Chiricotta from Societe. Sir, please go ahead.
Yes. Good evening, Jean Jacques and Chris. I will have 2 follow-up questions. 1 on cognac. You have mentioned again the very low Inventory days in the U.
S. About 25, 26 for the last 6 quarters in a row. And 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. So I was wondering if there was any, Yolanda, you said it's good news, naturally, that demand is so strong. But 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 those loss supposedly loss Of revenues and sales. And actually not without hitting the revenues from the SOP and XO. And 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, not to be 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, Jimmy. So on cognac, what is the solution? Ideally, it would be to have more V. S. Bottles.
But unfortunately, we can only produce as much as the August gives us, which is obviously a complicated business, actually it's not a business, it's We can get from Mother Nature and it's not something that we can modelize on spreadsheets. So We do what we can, but frankly, supplying more Versus bottles in the U. S. Would be impossible. This said, so on the one hand, you could consider this is a large 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 really think about it, but 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 able to 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 Bvlgari. I mean, Bvlgari is doing, as I said During the during H2 comments, Bvlgari in the U. S. Is growing faster than Tiffany.
Both of them are doing well. But Bvlgari is growing faster, but they have a much smaller business there. So the contribution of the U. S. To growth is much higher at Tiffany than it is For Bvlgari, unfortunately, we are developing the U.
S. Business at Bvlgari as much as we can, but it's a fact of life that it is smaller than Tiffany's. As far as obviously China is concerned, both businesses are doing well. But I would say that Tiffany has really 2 cylinders and the 2 are firing at full speed. So that explains why Tiffany is doing fine if we look at demand explanations, and that's basically The main reason.
And 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 it's too early to answer. I mean, we've been only managing this business 8 months. I mean, let us 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. So 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 Backview 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 and Leather. The business You've done extremely well.
Looking at it at a high level, it's 40% bigger than it was before COVID. Obviously, it sounds like from some of the comments on today's call, it's not only price increases driving that, it's probably a lot of unit growth there. Maybe talk about what gives you 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 not a massive size. And secondly, 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. But maybe you could talk about Why you're not concerned is 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 from the lens of the younger consumers here and how they're interacting with luxury products and luxury goods and services? Thanks.
Thanks, Emma.
Actually, the answer to both questions It's 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, It is in the U. S. As well.
And successful groups have been the one with the brands with offer That was good enough to be able to capture their share of this growth. This has been going on for a while, and we have no particular Worried about that. I mean all the policy, the economic policies that are being implemented are sort of Helping in that direction, and 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, and that's a fact of life.
And I'm making no forecast whatsoever with regards to the short term. I mean anything could happen as we have Experienced in 2020. So 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. So definitely, I mean, this is a growing area For Lottery, 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.
But we have to accept, 1, that we have to consider, 1, that the trend is favorable and 2, that there could be ups and downs and we have to manage the business accordingly by being flexible. I mean, I'm just recalling what has been our strategy and our management's culture over The years over the past decades, I would say.
Understood. And anything new coming out of the U. S. In terms of the luxury segment here? Is there a new era?
U. S. Has always been one of the richest economies and Strongest economies, but maybe not one of the biggest luxury markets. Is that changing?
Yes, it is. Technically, 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, but the growth on average in the U. S. It's faster than in other geographies with China being a little bit on the side.
So definitely, the penetration in the U. S. Has improved, probably due to the fact that most luxury brands within and outside of the image I've been able to give a lot excluding distribution strategies with own stores, which was not the case 25 years ago. And that's probably the reason why people understand better what they can get from luxury brands. And the passion for discounts in the U.
S. It's probably something that people don't take into account when they shop luxury, which was not the case 25 years ago. So All in all, I mean, the U. S. Customer is progressively getting used and accustomed to What luxury is that the inflation is increasing, no doubt.
Thank you, Jean Jacques.
Thank you. Your next question is from Madam Dana Del Prie 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? And then 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 they will be The share will be going down when the business normalizes. But anyway, when we look at the breakdown of this business, I mean, the Overwhelming part is our own vertical website.
And that's basically What we want to do, I mean, we have some doubts about the platforms. As I said before, we are more or less rolling out, with the exception of The wholesale business on digital, I mean, we don't do in digital what we do we don't do in physical stores. So basically, what we are doing is developing our own websites and refining the strategies there, We think it's an ideal complement to our business. Not all the people can go into physical Sometimes they are too far away from it, particularly in large countries like the U. S.
Or China. So that's an ideal complement. But 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 regard to physical real estate, your second question, Yes, we are developing freestanding stores in high streets 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. And this despite the conversion rates 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, many countries, we are still way below the traffic level that we had In 2019, for instance. So that is fruit of salt on our side. First of all, we try to develop high street presence.
That's the obvious. And when it comes to shopping mall, we don't rule them out. But 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. And 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 convenience fee, particularly from a parking lot viewpoint.
So we are working on that, The main directions are definitely high street presence and suburban Most that we are trying to develop. And therefore, from a pure capital spending viewpoint, We are remodeling not at a great speed, but 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. The last question is from Mr. Pierre D'Aubigne 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 Chief, 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 2 year basis in the last couple of years. I'm just wondering how you're thinking about sort of the scarcity The 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 lv.com website that you pulled some products, perhaps with a view to driving traffic back into your store network.
So So I was just wondering if you could perhaps talk about that and also in the context of online versus in store to Daniel's question just now.
Thank you.
Thank you. I will try not to spend too much time. It's getting late on this, but it's a very global question. Basically, luxury is about balancing scarcity and I mean exclusivity and availability. I mean, you do both.
I mean, if you're too exclusive, I mean, nobody buys you. If you are too accessible, nobody buys you because you're too accessible. So it's really striking the balance Between the 2. When you look at this equation from a growth viewpoint, It's basically striking the 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. And 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 Lever is progressing faster. So we have a big, big 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 out the brands, I mean, there is a better balance or another balance, I'm not sure it is better, but anyway, And on the balance between categories, as we turn the handbag category is still dominant. Therefore, it is very important that within this category, In order to avoid over exposure, we rebalanced the various lines of business in a clever way. And this is what we are trying To achieve, I will not go into details because I could be there another hour because it's a very complex question, but that's basically what What we are trying to achieve, so that's the answer I would give to your pretty complex and far reaching question.
Thank you. That ends the Q3 call. I don't think we have further comments to make. And 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 And have a great evening.
Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.