Luxury earnings, behind-the-scenes at Chinese factories, and the unexpected industries that tariffs are hitting hard

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0:49Hello, welcome to the Modern Retail Podcast. I am Gabby Barco, joined by fellow senior reporter, Melissa Daniels. Hello, Melissa. Welcome. Thank you, Gabby. It's great to be here on The Rundown. All right. Well, later on in this episode, Melissa and I are going to be joined by executive editor Anna Hensel to talk about some of the unexpected industries that are going to be impacted by tariffs, including price increases. I think that's going to be a fun segment. But first up, we're going to talk about some of the biggest retail stories of the week in the rundown portion of the episode. So first up, we'll talk about LVMH earnings.

1:32It's a bellwether for the luxury industry. So I think it's very telling what's going on there. We will get into that. And then later on, we're going to talk about Chinese manufacturing has taken over social media feeds, specifically TikTok. It's created a lot of discourse. So we'll delve into the reactions and what that has looked like in the last week or so. But yeah, first up, let's talk about LVMH earnings. So a few weeks back, we discussed the concern of slowing beauty sales, luxury sales, really. And now Sephora's parent company, LVMH, came in with their quarterly earnings. And they're not great, let's just say.

2:18Yeah, what are your thoughts, Melissa? Yeah, I think it was a 3 % sales fell in the US. It's not something you want to see for Q1 even before, you know, we start to hit some of the challenges that businesses are going to face this year around consumer behavior. To me, I'm wondering how much of those sales are siphoning off to other brands, or is it consumers just leaving those luxury categories altogether? Yeah, I mean, we can get into, you know, some of the sore spots. So it looks like the total group sales for the quarter were 20.3 billion euros or 23.08 billion dollars. That currency exchanges continues to be concerning, but that's neither here nor there.

3:05Meanwhile, yeah, in Asia, the region, you know, excludes Japan, but that was down 11%. I thought this was interesting. So, you know, LVMH's wines and spirits, which, of course, includes Moa Hennessy, they saw the sharpest decline, actually, 9 % due to weaker demand in the U.S. and China for cognac. There's been a lot of talk around cognac specifically and tariff concerns, you know, it's just all the percentages popping up. So we don't know what that's going to look like yet. But I think if it's already declining, that can be good, right? Right. Yeah. And I have to wonder how much of that is driven by just some of the overall consumer behavior trends that we're seeing.

3:50You know, when it comes to U.S. sales, how many of those customers are either trading down to cheaper alcohols or are they, you know, abstaining altogether? Yeah, it is hard to tell. And then, And, you know, their core fashion and leather goods division, which accounted for 78 percent of profits in 2024. That is like the biggest chunk of the business that dropped five percent. I thought this was interesting. Watch sales were pretty much flat throughout. So not great, but it just kind of goes to show that LVMH is losing ground. I mean, it is considered by market cap, at least the biggest luxury group in the world.

4:31But just with this news actually was overtaken by Hermes as the most valuable stock, which is interesting because obviously LVMH owns way more brands and has kind of become a powerhouse. But we are going to shift a little bit to talk about what's usually considered a bright spot, at least for the last couple of years for the group, which is Sephora. Sure. And, you know, beauty sales, we just kept hearing like they're so resistant. they're so resistant, you have like the lipstick index that's always cited during recessionary periods and people are still buying skincare and cosmetics. Wait, I don't think I've heard of the lipstick index.

5:12Educate me. Really? Oh my gosh. Okay. So take you back to 2009. I'm not actually sure the history of, you know, the coinage. So don't quote me on this. But basically what it refers to is that when times are tough, people tend to shift towards like smaller luxuries, smaller, you know, little treats. So, you know, maybe you can't afford. Yeah, maybe you can't afford a Louis Vuitton bag, but you might go for like a Dior lipstick, let's say, you know, just to treat yourself. So that's why it's called the Lipstick Index. I love that. With that said, that explains so much of my own personal shopping behavior.

5:54This is great. Well, there you go. So yeah. So with that, I mean, you know, this Sephora just being such a big beauty retailer, obviously, they've been aware of this, right? Like they want to stay competitive and ahead of the pack. So what they've really been focusing on is exclusivity and working with influencers. They have this huge program that they work through. For example, you know, the recent Rare Beauty skincare line that launched in January. That's exclusive to Sephora. If you shop at Sephora, you probably have seen the swarmed section over there. Yeah, what are your thoughts? I mean, they've obviously strengthened their position in premium beauty, which is really where they thrive.

6:38But I think LVMH obviously acknowledged that there are macroeconomic and competitive headwinds that are coming up. That's not even including tariffs yet. Yeah. I mean, I think when you think about some of the competition Sephora is facing right now, you know, you can't count out Amazon. You know, that company has done so much with beauty. And I see so many influencers and creators linking to their Amazon stores and the beauty products there. I also wonder if customers are, you know, starting to do more sort of trade down in beauty and if that's something they'll also have to watch out for. I feel like with Sephora for so long, the lure of that brand is the in-store experience.

7:20So I wonder if e-commerce is going to always sort of be a perennial struggle for them. Yeah. So in the U.S., this was concerning, which is their e-commerce has been a slower channel for the brand. And the LBMH's CFO, Cecile Cabernet, I hope I'm pronouncing that correctly, said that we have a bit less momentum when it comes to e-commerce, especially because Amazon is being very aggressive, she said. And being aggressive is mostly regarding price. We try to avoid this technique. So, yeah, when it comes to competing on price and convenience, obviously Amazon is Amazon. But why don't we talk about actually what Amazon's been doing on this front, which is like not so much trading down.

8:03They're actually maybe causing or they're trying to really expand their prestige beauty actually in the last couple of years to be able to offer some competing brands. Yeah. For Amazon's part, it's been pretty steadily expanding its prestige beauty selection in the past couple of years. It added La Mer in August 2023. It added Dr. Barbara Strum in January 25. It added Augustinus Bader last spring. And all of this is beefing up its premium beauty and luxury stores programs. So this is sort of creating an e-commerce offering for people who might otherwise be shopping at a Sephora for some of these products.

8:42Overall, Amazon grew its U.S. skincare sales by 21 % year over year in 24 and projected to reach a 15 % beauty market share by 2030. So to me, all of this is pointing to people becoming more comfortable shopping for beauty on Amazon, where maybe you wanted to buy your La Mer at Sephora so you could have it wrapped in the tissue paper and get your free gift and things like that. Maybe now you're okay adding it to your Amazon cart because you're already there picking up other things and it becomes more convenient. I'm not a La Mer customer, so I can't speak to that. But I do think there's something to be said for people just overall becoming more comfortable buying skincare on Amazon.

9:27Yeah, but you know, where Sephora has the advantages, of course, physical retail, right? I mean, they kind of highlighted this. People want to go in and try on all the products before they purchase them. Obviously, you can get them in two days on Amazon, but that experience is very hard to mimic. So I think this is what they're going to double down on. Yeah, it's been their stock and trade. I think that's made them so successful and makes them continue to be successful with new generations of shoppers. You know, will Amazon or other players eat in a little bit to what their e-commerce share is?

10:04Probably that might continue to happen. But they're also really good at getting creative. You know, they've done a lot of different things with their Insiders program. They've done a lot to drive traffic to stores and to online with their sales and their insider events. So we shall see. Yeah. And of course, you know, to kind of link it back to LVMH, Sephora is a really, really important business for them. So they I'm sure they're going to continue to invest in this space, whether it's exclusive brands or the discovery or loyalty and whatnot. Yeah, so I think we can now move on to this big trend that's taken over social media feeds, which is Chinese manufacturing.

10:52Like you have people in factories, I think we can say alleged factories. We'll get into why there's some confusion over whether these are indeed real suppliers or not, at least of the brands they claim. But yeah, I don't know if you guys have seen them, but there's been, you know, in light of all the Chinese tariffs going into effect, a lot of suppliers, people, you know, with front facing camera, just talking about what they're producing at their factories there and kind of claiming that like, hey, this is where your Lululemon leggings that cost$98 are made before, you know, they get the little logo stamped on.

11:32There's been some pushback as far as like if that is the case or not. We'll get into that a little bit later. But yeah, have you seen some of these? I feel like they've kind of just been all over my social these days. So nothing has come across my feed organically. I have to say this hasn't been a heavy week of TikTok usage for me. I've been more in the IG realm this week, but it doesn't necessarily surprise me. And I have seen some of the headlines around this. I think what's interesting is that, you know, some of these manufacturers are encouraging Americans to buy identical dupes directly from their factories.

12:11And then this idea that like you as an American shopper could just sort circuit all of the brand and tariff conversation by buying directly from the manufacturer somehow. I don't know. It's interesting to me. What are some of the videos that you've seen? Yeah, so I think the big one that I saw, because I follow some like luxury experts, people, bloggers, whatnot, on social is that, you know, there's this one account that went viral for posting about the way Hermes bags are made, you know, kind of breaking down the prices and saying that we make this bag here. I think he was showcasing a Kelly, I believe.

12:50And it really costs like$1 ,400, including labor. But, you know, if you know anything about Hermes, they are very protective of their brand. And they claim that all of their bags are made specifically in these workshops across France. And they take like 15 to 40 hours. And there's like trained apprentices that make them I think you have to go through like five years of training to make them so this idea that like we use the same leather and the same finishing um and then they get shipped over to france and then hermes puts on the stamp so that you can get you know the sort of made in france label or moniker is you know so people were explaining that's not necessarily true also i think it violates uh eu and u.s laws Like you have to finish or manufacture a bigger percentage of the product if you're going to claim that it's made in France, for example.

13:47So that was one. Obviously, you know, this same Hermes bag costs tens of thousands of dollars and they're notorious for having these wait lists and I don't know, just hoops to jump through. I'm not talking from personal experience, of course, but I just have read a lot about it. And yeah, I think that video specifically got like 10 million views and it has been taken down. So yeah, that's another thing is that these videos have been taken down. And I think the only brand that really addressed it was Lululemon, who told CNN in a statement that it does not work with the manufacturers identified in these online videos.

14:29We urge consumers to be aware of potentially counterfeit products and misinformation. So there's a lot of pull and push between the two. And then, you know, as we know, it's a little bit awkward because these manufacturers are sort of speaking on behalf of brands and, you know, that were making their products. But as we know, like brands have these notorious NDAs when they work with these manufacturers, like you're not allowed to basically name us as a brand. So lots to ponder. There is a lot to ponder. And I feel like it's one of those sort of moments where our social media consumption is laying on top of sort of broader economic and cultural trends, right?

15:18Like we're getting to see things that we wouldn't see otherwise. And then we're also questioning whether or not those are accurate or verifiable or, you know, truth telling in any way. And that's just part of what it means to be someone who's browsing the internet these days. You have to question everything. Yeah, it almost creates like a news cycle against the news cycle. And then it just becomes this like infinite loop of reporting and backlash to the backlash and whatnot. But obviously, there's mixed reactions to it. But like I said, you know, the Lululemon leggings one, I think generated like a million and a half likes on TikTok.

16:04So people are taking notice. Also, I'm not sure if you, Melissa, if you know much about the sort of Chinese marketplaces that sell a lot of, you know, really, really good dupes, I have to say, of luxury goods. um dh gate is the big one they shot up to the number two spot on the uh apple app store in the u.s so clearly people are seeing yeah yeah there's a bump there i don't know what do you think i mean obviously dupe culture is already a thing luxury bag like really good dupes of luxury bags are have already been around and really like taken off in the last few years but really showing us like where how the sausage gets made, so to speak, is kind of like a whole new frontier, I feel like, right?

16:52Because I always I've been saying for the last couple of years, I feel like the American consumers like learned more about the supply chain than ever, like in the last couple of years. So everyone seems very alert to like, the upcharge and the marketing that a lot of brands, quote unquote, charges for. Yeah, I think that's spot on. And I think we have a more discerning consumer in the US than we've ever had before, right? They're scouring ingredients more, they're critical of pricing more, they're critical of brand positioning more and more. And all of that's, you know, frankly, valid. I think you can make a case for people wanting to spend their dollars in ways that they feel is fair and just to them.

17:35You know, and I think that's very important. But at the same time, like if you feel like you've been getting screwed over by luxury brands because of upcharges for years and years, and all of a sudden you see a product that you feel is the same quality, you don't care if it is the same brand anymore. And you know, there's a lot of people who I think don't. Yeah, I'm not really I didn't look into like, how this is going to be fulfilled. Like how are people ordering directly from the men from these manufacturers. We have, you know, we're going to have de minimis soon hitting, you know, cross border shipping from Asia.

18:12So again, I'm just sort of, yeah, I'm sort of spitballing here. But I maybe I don't know how trackable these sales are going to be is what I'm saying. But you know, one thing is for certain, these videos, I think, just highlight furthermore, as the last few weeks or months in our case have, that America's dependence on an international supply chain is just bigger than ever, right? Specifically in China. Yeah, yeah. I think all of this does point to the very interconnected ways of the global supply chain. And while it's something that used to be a really niche topic for certain kinds of experts and certain kinds of economists and certain kinds of business journalists.

18:57Now it's something that every American shopper is kind of coming to know and grapple with. Yeah. Well, speaking of tariffs, we are going to be coming back with some more talk. We have a really fun segment, if I say so myself, very soon coming up where we'll discuss some of the under the radar categories that maybe you hadn't thought of or haven't seen a lot of headlines about that will be impacted price-wise, supply chain-wise. And we'll be joined by our executive editor, Anna Hensel, for that segment.

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20:29All right. Well, as if we haven't heard enough about tariffs, we're hearing even more this week. We have brands talking about price increases. People I'm talking to and interviewing are debating whether to add a surcharge on their Shopify store for the price increases they're seeing. But there still isn't a ton of certainty yet about what is actually going to happen to businesses and to sectors. The uncertainty index is actually at its highest level since the 1980s. And consumer confidence is at the second lowest level it's been since the 1950s, because that's how much this stuff is affecting how we feel about what we buy.

21:08But at Modern Retail, we like to kind of go deep, and we've been looking at some industries that are not as covered by mainstream media and looking at some of the things that maybe are unexpectedly affected by tariffs. You know, people know to upgrade their iPhone. People already see Nintendo Switch sales, you know, delayed because of uncertainty around tariffs. But there's already industries that people aren't talking about that we've been speaking to. So in this conversation, Gabby and I are joined by our executive editor, Ana Hensel. Ana, how are you doing today? I'm good. I'm ready to talk about all things tariffs.

21:48I love it. Anything that's been on your minds as shoppers, not as editors and reporters, but have you been affected by tariffs in any immediate ways yet? I've been thinking a lot about this and my behavior. Of course, I've seen a lot of emails from brands about, you should buy now because our prices are going to go up soon. I haven't done too much stockpiling myself, although I will say one thing came to mind. I bought some Chinese sauces and spices because I think it's very clear that the tariff situation is so in flux. But I think that is the one thing that's very clear is that there will continue to be some tariffs on China going forward.

22:34But actually, no, I haven't done a ton of stockpiling. and thinking about my behavior, I think why that is, is I'm just in kind of a holding pattern right now, as I'm sure a lot of our listeners are. I am wondering how long this is going to last. And also the situation we're in right now is that there are at least 10 % tariffs on pretty much all imports. So if everything is being tariffed, there's kind of nowhere you can turn. It's like, well if everything's gonna go up in price i just don't know what to do and a lot of people don't know what to do yeah yeah gabby do you know what to do i have a lot of things in carts that are abandoned which brands really hate yeah i made one big purchase i think i may have spoken about it off mic but it was one of those items that i had been eyeing for a long time but i bought a Dyson Airwrap, which the YouTube bloggers are saying those are going to go up in price.

23:37I'm like, maybe, maybe not. Who knows? But it's an excuse to doom scroll. Yeah. YouTube and Instagram and all the other platforms. I don't really know anyone who's regretted the Airwrap either. I think that's going to be a good buy. Good to know. Yeah. Yeah. No, we're not doing any promos or anything. I know it's also hard to tell because I haven't styled my herring days right now on video, but we've been very busy with coverage. Yeah, we've been heads down. For my part, we did buy a new microwave. It was on our laundry list of purchases, and Home Depot had a good sale. We live half a mile from a Home Depot, and I got it, and I bought it, and I buy now, pay latered it, actually.

24:19And I'm thrilled to have a new microwave. It's very beautiful, and my kitchen has more counter space. So for this conversation, we're going to be talking about some of the more unexpected conversations we've had around what will be affected by tariffs. We are going to rank these from five, the least unexpected, to one, the most unexpected. And hopefully that'll bring you on a little bit of a journey through supply chains and some of the ways that products come together. I'm going to kick us off right now with number five. And one of the things that I think is a bit unexpected to be affected by tariffs is wine.

24:54And I have seen some headlines about this. You know, Spain and Italy and France are some of the top places that we import wine from. So as any tariffs hit EU imports, those categories could obviously be effective. You know, the Craft Wine Association says that we've actually been importing more wine from these countries than we have in recent years. And so, you know, if you're someone who really loves those Montepulcianos and those French Chardonnays, you know, it's going to be time to either stock up or change your habits. In that event, I talked to Luis Amoroso. He's the president of Full Glass Wines.

25:31They're a direct-to-consumer wine shipment company. And they have multiple sort of like cases you can buy through their different brands. And about 40 % of what they do is international. So when I talked to him, he said that obviously those prices are going to go up and they are going to try to hold on to their prices as long as they can before raising them for customers. But as their inventory runs out, that inevitably might have to change. Now, here's where it gets unexpected. Even California wine companies are going to be affected by tariffs. And it's not because of the product itself, but it's a lot of the packaging.

26:05So Alison Louvera and Lauren De Niro Pfeiffer, they're the co-founders of Juliette Wine, which makes like a really awesome boxed wine that comes in like this funky bag and they have this patent pending on their bag. And they were telling me how oak barrels are sourced in France. So if I'm a Chardonnay producer in California, I'm still going to have price increases because I'm getting my barrels from France. You know, Juliette is right now sourcing a lot of their packaging from the EU and some parts in China. And despite them trying, they've not been able to figure out how to crack it in the U.S.

26:39So I share all that to just sort of say that even if something seems like it's not going to be affected, you know, a California wine is a great alternative to an import. Not necessarily the case. Yes. If that would be the one takeaway I would have for anyone who's trying to wrap their head around tariffs and what this means, it is that even if a product is made in America, it will still be impacted by tariffs because either you have to import the packaging or the raw materials. And so I think this is a great example. Like I personally have seen chatter on social media, especially when I think tariffs around the EU were kind of in the news more, people were like, oh, well, I'll just buy Pinot Noir from Oregon.

27:25And that does not solve the issue. You will still be impacted by tariffs. So there's one thing I could say to the listeners. It is even if you buy something that's made in America, it will still be impacted by tariffs. When you say stock up, are you saying like start a seller? Because like what is stocking up when it comes to wine? It might be a while. So that's really going to vary based on your individual circumstances and desires. Can I personally vouch for finding an extra shelf in my pantry for a few more bottles? Yes, that that conversation and logistics happened in my household about 10 days ago after I got off the phone with Lewis from Full Glass.

28:07Yeah, looking at my kitchen space now, I don't know. I have the ability to add like five more bottles of wine, maybe 10. I do not have room to add a cellar. If you do, must be nice. We live in apartments. It's tough. Yeah. And I will say to some of these companies that are going to be affected, even if it's not their product or their packaging, the ecosystem is still going to change because wine is one of those products where it's like there's distributors, there's wholesalers, you know, it's not all DTC and it's not all just like traditional retail and alcohol laws are funky based on every state.