LVMH Moet Hennessy Louis Vuitton SE

PAR:MC

Earnings Call Transcript 2021-Q3

[Operator]

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.

[Chris Hollis, Director of Financial Communications]

Thank you, Cecille. Hello, I'm Chris Hollis, Director of Financial Communications at LVMH. I have with me Jean-Jacques Guiony, Chief Financial Officer, and we're pleased to be joining you. We will 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 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 first 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 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 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 third quarter of 2021 versus the third quarter of 2019 or use the comparative 9-month period as a more indicative measure. If we turn to Slide 4, you'll see that revenue increased 15% on a reported basis and 11% on an organic basis for the first 9 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 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 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 9 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% 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 7. 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 was up 22% in the U.S., excluding Hawaii. The impact of the very gradual recovery of Europe can be seen in a 6% decline in revenue. Japan was also down 6%. So that's a broad overview of the quarter and the first 9 months, characterized by double-digit growth in Asia and the U.S., a slow return of Europe and Japan still impacted by the pandemic. And now we'll turn to the business groups beginning with Wines & Spirits. On Slide 9, organic revenue for Wines & 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 EUR 4.25 billion for the first 9 months of 2021, up from EUR 3.35 billion in the same period last year. And breaking it down a further -- a level further, for the 9-month period, Cognac and Spirits organic revenue growth was up 23% compared to the last year's same period. And after a 4% negative currency, generate -- currency effects generated EUR 2.4 billion. 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 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 a 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 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 a recently unveiled Chandon Garden Spritz sparkling wine. Château d'Esclans is continuing its solid momentum as well. And 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 9 months of 2021 compared to 2019. And while demand remained steady, supply constraints continue to impede the free flow 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 continue to grow at a rapid pace. Looking now at Fashion & Leather Goods, Slide 13. Organic revenue was up an impressive 38% over the first 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 EUR 21.3 billion, up from EUR 13.9 billion in last year's first 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 third quarter of last year. And even more indicative, we think, is a 38% increase versus Q3 of 2019, which is in line with the first 6 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 higher standards of excellence, innovation and creativity. Vuitton celebrated the very exciting 200th birthday of the Maisons founder with several festive and creative events and initiatives. The brand also unveiled a 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, opened the [ Mondeau Matilier ] in a restored Benedictine monastery in the Loire and 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 collections and the popularity of the Christian Dior exhibit, which was recreated 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 (sic) [ 2022 ]. Now to give some highlights of happenings at other brands. At Fendi, Kim Jones' first collections were very well received, notably the Fendi First bag and the Celine 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. And we were also very pleased to announce the exciting appointments of 2 new artistic directors, Nigo at Maison Kenzo and Camille Miceli at Maison Pucci. Now next up is our Personal Cosmetics business group, turning to Slide 17. Organic revenue was slightly down just 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 EUR 4.7 billion compared to EUR 3.7 billion in last year's first 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 are 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 Privee and the beloved Prestige and Capture Totale skin care 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 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. Guerlain also performed quite well, where products like the, Aqua Allegoria or the skincare products Abeille Royale and Orchidée Impériale have made great progress. The brand also brought to market the new Guerlain Haute Parfumerie line L'Art & La Matière. Parfum Givenchy saw continued success of its L’Interdit fragrance and Prisme Libre makeup. While Fresh's Crème Ancienne premium skincare line drove fantastic results. New ventures included Maison Francois 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 4 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 9-month period versus 2019, 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 6.2 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 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 is 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. And more recently, Kyle 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 refurbished Place Vendôme flagship store. People flocked to the Serpenti Metamorphosis 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 them on our brands and talent. Bvlgari 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 and Ryan Gosling who have just joined the brand as ambassador. Hublot chose tennis player Novak Djokovic as its newest ambassador. Popularity of Fred's Pretty Women collection continued in the third quarter as well. And 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 cut in English. Now looking at the Selective Retailing group, Slide 25. Organic revenue was down 23% for the first 9 months of '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% currency effect. This brings us to a reported revenue of EUR 7.8 billion for the first 9 months compared to EUR 7.2 billion in the prior year period. For the third quarter, specifically, starting with this year versus start 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. And despite this, I would like to note the warm reception of La Samaritaine Paris Pont-Neuf, a beacon of hope for the return of travel and tourism and for 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 remains on the cutting edge of creativity and inspiration, with playful animations in its marketing campaigns and the success of its Porte-Bonheurs 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 first 9 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 Selective Retailing. Among the factors contributing to this growth are the growth to 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 network 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 Cecille.

[Operator]

[Operator Instructions] We have one first question from Madame Zuzanna Pusz from UBS.

[Zuzanna Pusz, Head of European Luxury Equity Research]

I have 3 questions, please, if possible. So the first question is on the recent trends. I know you're usually quite reluctant to comment on exit rates or current trends unless the situation is about 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 expect commentary on a weekly basis, but just 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 & Jewelry. The division came a bit weaker than expected. 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 & Leather Goods division. Basically if we look at the average organic growth over the past 5 years, you've delivered, on average, mid-teens growth, which is significantly above the, let's say, prior 15-year average, which was, I think, high single digit. So in this context, I mean, what is the best way to really think of the normalized organic growth in that division in the mid- to long term? I mean, if I look at consensus and again, I know you won't comment on consensus, but it's roughly, I think, 9% for next year. So is it fair to assume that the sort of double-digit growth with the 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?

[Jean-Jacques Guiony]

Well, thank you, Zuzanna. Well, as you pointed out, we are particularly reluctant to comment on intra-quarter trends, as I'm not so sure it is, as you said, unless there are specific circumstances, particularly when there are specific circumstances. And actually, there are always particular circumstances. So 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 global -- the numbers we published, they 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 experienced a little bit of volatility, particularly in Asia due to the fact that there were COVID containment measures being implemented here and there. So the month of August was a little bit under pressure, but that's all I would mention. On your second question, Watches & 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 of Tiffany in perimeter, in scope adjustments. So it's outside Tiffany so it's mostly related to Bvlgari. Your third question on long-term fashion and leather trends is obviously awfully 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 past. I think you can draw your own conclusions, which are probably no better, no worse than ours because in the real life, I mean, unexpected circumstances can create unexpected results, good or bad.

[Zuzanna Pusz, Head of European Luxury Equity Research]

Perfect. That was very helpful. Just one, sorry, 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 22%. And I know that obviously, the region is quite exposed to Wines & 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 that makes perfect sense. But in the U.S., I mean, just maybe is there any additional color you could give on the U.S. and the sequential deceleration?

[Jean-Jacques Guiony]

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 Wines & Spirits 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.

[Operator]

Our next question is from Mr. Edouard Aubin from Morgan Stanley.

[Edouard Aubin, Head of Luxury Goods]

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 could comment maybe on the performance of Fashion & Leather Goods and Wines & Spirits there? And then 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. So any reason to believe that your view has changed since then on the margin trajectory?

[Jean-Jacques Guiony]

Thank you, Edouard. So on the common prosperity comments by the Mainland China, because 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. So we were not particularly worried or concerned with the recent announcement. 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 22%. I mean, that'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 Wines & Spirit. Maybe some other divisions have been more volatile but all in all, I mean, we really cannot complain about the business. And as I answered to Zuzanna previously, I mean, we are 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. 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 have no reason not to confirm what I said or what I expected in -- when I commented H1 results so I have no further comments to make.

[Edouard Aubin, Head of Luxury Goods]

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...

[Jean-Jacques Guiony]

No, you have not missed it and -- 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. 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 I will not comment on precise numbers.

[Operator]

Our next question is from Mr. Antoine Belge from Exane.

[Antoine Belge, Research Analyst]

It's Antoine at Exane BNP Paribas with 3 questions. And first of all, I think you seem to indicate that there's not much changes in Fashion & Leather in Q3. Could you confirm that it's also the case in terms of the sort of new trends by brands and also maybe comment if there have 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 growing too quickly? Or what are the measures that you are taking to make sure that nothing happens in terms of the desirability of the brand? And third question relates to Wines & Spirits. Maybe first of all, you give us the specific organic growth rate for Champagne and Cognac in Q3 and maybe elaborate a bit on the dynamics of these 2 divisions and especially versus like end demand versus the Celine and also what could be the outlook of -- regarding Q4. I think you mentioned, especially in Cognac, sort of stocking ahead of the mid-autumn festival and then there is always the dynamics about Chinese New Year next year. Any help on this would be helpful.

[Jean-Jacques Guiony]

Thank you, Antoine, for your 3 questions. First of all, your first question on Q3 Fashion & Leather 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. 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. And so this gives us some headroom, I would say. And also bear in mind that Dior is a fairly diversified brand from a product viewpoint. And the share of [indiscernible] is higher than it is for Vuitton, for instance. It's a 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 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 and 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 overexposure. And I think we have some clear waters ahead of us. On Wines & Spirits 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 Wines 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, of volumes. It's very true for Cognac and particularly in the U.S. where we have sold quite a lot of 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 2 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 had the highest constraints. So 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 but maybe not as good as we anticipated in terms of sell-in 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 fell into place in January. So the month of December 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 worried that we don't build up excessive inventories there for that. But that's the only point was to report on Cognac.

[Antoine Belge, Research Analyst]

Maybe a follow-up on pricing. You commented about Wines & Spirits. At Louis Vuitton, is it fair to say that apart from a few very sort of targeted price increases on certain [indiscernible] there was no sort of overall price increase being taken in the third quarter?

[Jean-Jacques Guiony]

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. And 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. So in order to have coherent prices, we adjusted some prices but that's about it.

[Operator]

Our next question is from Mr. Oliver Chen from Cowen.

[Oliver Chen, MD & Senior Equity Research Analyst]

Regarding the supply chain, the global supply chain has been under pressure for a lot of reasons, including transport costs, inflation and others. How has supply been relative to demand as you think about Fashion & Leather and Watches & Jewelry 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 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?

[Jean-Jacques Guiony]

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. 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 craftmanship viewpoint, I would say, or fair 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 is something we should be doing across the board for all the brands. So we have a very limited participation to that business model. We try to develop [indiscernible] which was 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 a 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 Sephora execution there?

[Oliver Chen, MD & Senior Equity Research Analyst]

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 Kohl's relative to your mainline Sephora stores.

[Jean-Jacques Guiony]

Well, 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 is of key importance to us. With regards to Kohl's, 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 -- in a Sephora store, the main constraint being the 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 winning formula for inventory and merchandising in the different formats. So we are very much on a learning curve course with Kohl's.

[Oliver Chen, MD & Senior Equity Research Analyst]

Okay. And lastly, at 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?

[Jean-Jacques Guiony]

I think you have already a good response with the shift in marketing that we have implemented. We want the brand to 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 emphasis on in the future. So progressively, we will design what we think is the real product and 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.

[Operator]

Our next question is from Mr. Erwan Rambourg from HSBC.

[Erwan Rambourg, Global Co]

Congratulations on the figures and the slide. Three follow-ups, please, from my side. I think you were calling out Watches & 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 & 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 Vuitton. Are you doing anything for other brands within Fashion & Leather, and I'm thinking [indiscernible]

[Jean-Jacques Guiony]

Thank you, Erwan. Watches & Jewelry in Asia is -- I mean, it's not entirely specific to Bvlgari. And 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 hasty 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 conclusion. So 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. So 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., it'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 normally. 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 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. But for many of the brands, you have less existing goods and more novelties. And therefore, the price question is being more on the table than it is for some of the 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 Vuitton. So 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 time.

[Erwan Rambourg, Global Co]

If I can just slip a follow-up. Oliver was talking about logistics issues, supply chain being under a certain amount of strain. Are there any -- 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?

[Jean-Jacques Guiony]

No, I don't think so. As I said, I mean, manufacturing product is not so much of an issue with regards to what you just 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, capacities, not price, because prices would go up anyway. But if capacities were to go down for some reason, we don't anticipate that so we are not particularly worried for the year-end season.

[Operator]

Our next question is from Mr. Thomas Chauvet from Citi.

[Thomas Vincent Chauvet, Research Analyst]

I have 3 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, the economy may impact consumer sentiment. I would think it's quite different from the gifting crackdown of 2013-'14 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-comm penetration, perhaps slower 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. And finally, on beauty, you've acquired this niche brand of Feelunique. I thought I would ask a broader question about beauty in the past. You said that 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 reinforce 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 a quick word on that would be great.

[Jean-Jacques Guiony]

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 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 and really changing the behavior of customers. So 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 and the consequences of that on digital behavior is frankly a hard question. So I wish I could answer and have a report off the shelf to really give you the extract of it. But unfortunately, it's not the case so 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 really all I can say. The third question on beauty and skin care. 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 needs, 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 -- is 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, 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, 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 and we are experiencing very, 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.

[Operator]

Our next question is from Mr. Luca Solca from Bernstein.

[Luca Giuseppe Solca, Research Analyst]

Three very different questions. One is on domestic consumer trends. You normally give us an aid on how different nationalities are performing, especially looking at Vuitton. Can we continue to draw the assumption that the geographic and nationality trends [indiscernible] 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 [indiscernible] from overseas tourists coming and shopping in Europe. Second question from trends [indiscernible] if I understood correctly, there's a very different situation in [ DBS ] and in the high-end cognac, a small [indiscernible] in China on this latter portion of the business. I wonder if you [indiscernible]

[Jean-Jacques Guiony]

Luca, maybe I will -- sorry, I will interrupt you because I think understood the first question, but the second one, the line is extremely bad. You're being scattered so I don't really get it. So maybe you should try another line but I don't think anyone can hear your question correctly.

[Luca Giuseppe Solca, Research Analyst]

Well, why don't you maybe want to start with the first one and hopefully probably better.

[Jean-Jacques Guiony]

So the question was on domestic consumer trends. If we look at them on a 2-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. 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 bases 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 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. 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 VS trend versus VSOP. I mean, the only thing I would say about that is that, VS, the demand is very much on fire. I mean, we've seen in the U.S., which is the main VS area, having a very, very strong growth. And we could -- had we the bottle -- 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 VSOP, I mean, the situation is more diverse. The Chinese business is doing fine but it's not brilliant. It's, from a sell-out 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 is obviously much more flattering. The VSOP business is doing well in China but the VS business is not great. I mean, it could be better and hopefully 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.

[Operator]

Our next question is from Madame Caroline Madjo from Barclays.

[Carole Gladys Madjo, Research Analyst]

Carole Madjo here from Barclays. Two quick follow-up questions from me, if possible. The first one on Tiffany's transformation. As the brand is a bit less exposed than some of its peer to consumers, so to the millennials, could you share some insight here on Tiffany's customer 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 in China and also overall?

[Jean-Jacques Guiony]

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, 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. 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 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. It 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. 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.

[Operator]

Our next question is from Mr. Rogerio Fujimori from Stifel.

[Rogerio Fujimori, Director & Analyst]

I have 2 questions. The first one is on Fashion & 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 30, if there is any meaningful difference on 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 hear from your people on the ground relative to competition. And then 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 Hainan to 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 with [ comparable ] trading, but I was just wondering if your performance in Perfumes & Cosmetics in Asia could have been even better.

[Jean-Jacques Guiony]

Thank you, Rogerio. Well, there are meaningful differences. I mean, to start with, in 2 years' growth in Fashion & Leather 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 & Leather 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 Perfumes & Cosmetics. The question is on Hainan, if I understood you well?

[Rogerio Fujimori, Director & Analyst]

That's correct.

[Jean-Jacques Guiony]

In travel retail, yes. So well, Hainan is currently being developed. Some licenses have been granted. The business is developing, particularly in Perfumes & Cosmetics, and as far as we are concerned, only in Perfumes & Cosmetics 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 a regular business, in other words, we are talking to real clients, end clients and not to [indiscernible] to be clear, we are okay with doing business in Hainan. If Hainan becomes a hub for [indiscernible] that will be a different story, which basically leads to your -- 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 whether 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 [indiscernible] way.

[Rogerio Fujimori, Director & Analyst]

And Jean-Jacques, sorry, I wasn't very clear on my first question. I was just wondering, the sequential trend in, particularly, for example, in the U.S. and Asia and ex Japan in Q3 versus H1, i.e., 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 & Leather as well.

[Jean-Jacques Guiony]

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 & 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.

[Operator]

Our next question is from Madame Louise Singlehurst from Goldman Sachs.

[Louise Susan Singlehurst, Managing Director]

I will keep them brief. In the -- 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 regard to the local consumption point, particularly in Western Europe, Obviously, a very nice uptick quarter-on-quarter in terms of the dynamic. And if 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 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 so that's a big help.

[Jean-Jacques Guiony]

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. 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 also 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 it comes more or less -- I mean, we are still negative in Europe on a 2-years basis in Q3, but 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 in -- is with Sephora. I mean, Sephora has seen a big improvement, 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. So Q3 has been much more favorable in this respect. But 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 towards the level of business we were doing in 2019. We are not there yet, but hopefully, we'll get there soon.

[Operator]

Our next question is from Mr. Thierry Cota from Societe Generale.

[Thierry Cota, Equity Analyst]

I will have 2 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 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 -- even though you said it's good news, naturally, the 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 naturally not without having the revenues from VSOP 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, as 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.

[Jean-Jacques Guiony]

Thank you, Thierry. So on cognac, what is the solution was ideally would be to have more VS bottles. But 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. So 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 as 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 either think about it but it's not always that. Your 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 -- 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 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. 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.

[Thierry Cota, Equity Analyst]

And would you say that Tiffany is gaining share now in the U.S. market with all the initiatives taken or is it difficult to measure for you?

[Jean-Jacques Guiony]

Well, I would say that it is 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 a 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 back view and hindsight.

[Operator]

Our next question is from Mr. Omar Saad from Evercore.

[Omar Regis Saad]

I have 2 questions. My first 1 is on Fashion & Leather. The business obviously has 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, there'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 now 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 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 from the lens of the younger consumers here and how they're interacting with luxury products and luxury goods and services.

[Jean-Jacques Guiony]

Thank you, Omar. 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. It's the case in the U.S. as well. And the 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 worry about that. I mean, all the policies, 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. I mean, 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 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. But 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.

[Omar Regis Saad]

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?

[Jean-Jacques Guiony]

Yes, it is. Definitely. I mean, the growth, it's not something that changed yesterday. I mean, it's been -- it's a move that has been going on for a long time. But the growth on average in the U.S. is 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 MH have been able to develop exclusive 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. is 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 and penetration is increasing, no doubt.

[Operator]

Next question is from Madame Dana Telsey from Telsey Advisory Group.

[Dana Lauren Telsey, CEO & Chief Research Officer]

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 have 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?

[Jean-Jacques Guiony]

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 there will be -- that 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 doubt about the platforms, 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. So basically, what we are doing is developing our own websites and refining the strategies there because we think it's an ideal complement to the -- to our business. Not all the people can go into a physical store. 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 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 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 conversion rates been 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 food for thought 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 conveniency, particularly from a parking lot viewpoint. So we are working on that. But the main directions are definitely high street presence and suburbans malls that we are trying to develop. And therefore, from a pure capital spending viewpoint, remodeling not at a great speed. But nevertheless, the bulk of the investments are aimed at remodeling the network into these 2 directions. I will take the last question.

[Operator]

The last question is from Mr. Piral Dadhania from RBC Capital Markets.

[Piral Dadhania, Director of Premium Brands]

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 2-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 LV.com website that you pulled some products, perhaps with a view to driving traffic back into your store network. So 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.

[Jean-Jacques Guiony]

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 have to do both. And if you're too exclusive, I mean, nobody buys you. If you are too accessible, nobody buys you because you are too accessible. So it's really striking a balance between the 2. When you look at this equation from a growth viewpoint, it's basically striking a balance between volume growth and mix growth. There are 3 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 a 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 Louis Vuitton, although canvas is progressing. I mean, leather is progressing faster. So 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 out the brands, I mean, there is a better balance or another balance. I'm 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 really balance 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 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, and have a great evening.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.