From tourist-driven demand to local consumption “The Group was buoyed by the loyalty and growing demand shown by our local customers,” Bernard Arnault, chairman and CEO of LVMH Group, said in a statement.  The French luxury group has seen a fading role of tourism-driven spending, particularly in Japan. The market had enjoyed an exceptional 2024 as a weak yen attracted overseas shoppers. However, that tailwind disappeared last year as the yen improved, dragging reported sales lower. Europe, too, softened in the second half as tourist flows normalised. By contrast, the US held up better than expected, supported by local demand rather than inbound travel. Asia outside Japan showed “a noticeable improvement” versus 2024, returning to growth in the second half, according to the group’s management. China, one of its most important markets, stabilised rather than deteriorated further last year. LVMH executives were careful not to overstate the China recovery. Demand improved compared to 2024, particularly in the second half, but management framed the trend as stabilisation rather than acceleration. Local Chinese consumption strengthened modestly, while offshore spending also improved, albeit from low levels. Bernstein analyst Luca Solca told CNBC that the Chinese consumer is showing “positive signs,” but the recovery path remains “unsteady,” especially when measured against tough post-pandemic comparisons. Fashion under pressure, beauty outperforms The divergence within LVMH’s portfolio became more pronounced last year.  Fashion and leather goods, LVMH’s largest and most profitable division, saw organic revenue decline 5 per cent, with operating profit down 13 per cent.  By contrast, Selective Retailing emerged as a clear bright spot. Organic revenue grew 4 per cent, while profit surged 28 per cent, driven primarily by Sephora. The beauty retailer gained market share across regions and expanded aggressively, opening around 100 new stores over the year.  DFS, by contrast, remained a drag despite operational improvements. Asia’s slower-than-expected recovery also explains LVMH’s decision to retreat further from travel retail. While DFS improved profitability through cost cuts, volumes remained constrained by uneven international travel and lower spending per passenger. The agreement to sell DFS’s Greater China business to China Tourism Group Duty Free in early this month marks a strategic acknowledgment that pre-pandemic assumptions around Asia’s travel retail growth no longer hold. Wines, spirits and geopolitics If there was one clear casualty of geopolitics, it was cognac. Wines & Spirits revenue fell 5 per cent organically, with profit plunging 25 per cent, as tariffs and customs issues weighed heavily on demand in both China and the US.  “We’re facing a difficulty due to that development, but we’re addressing it,” Arnault said during the earnings call. “We’re trying to reach agreements. We’ve made progress with China. I hope we’ll make progress with the United States, if international relations are restored and that’s to be hoped for.” Champagne proved more resilient, but could not offset the decline in brown spirits. Arnault warned “2026 won’t be simple,” citing an “unforeseeable” and “disrupted” economic environment. Analyst forecasts of a broader luxury recovery next year rest heavily on continued improvement in China. Further reading: Inside DFS’s China retreat and what LVMH gains from letting go.