LVMH in crisis in China: the lawsuit against Molly Tea triggers the boycott

The luxury giant LVMH is put into crisis in China by a local tea producer. Or rather, from the patriotic reaction that an apparently easily resolved legal matter was able to unleash thanks to the online buzz. A sort of new David against Goliath in the times of social media.

The challenge began with Louis Vuitton's lawsuit against Chinese bubble tea chain Molly Tea for trademark infringement. The accusation leveled against the tea shops was that of having copied the famous four-petaled flower, symbol of French luxury products, shown together with the LV logo on practically all Louis Vuitton-branded bags and accessories.

Last July, LVMH won the case, obtaining official recognition of the counterfeiting by Molly Tea, but for Chinese consumers it was not enough. Social media outrage against the French giant grew as a wave drove customers away.

The court victory exacerbated tempers, sparking anger and a passionate defense from Molly Tea's supporters, ready to swear that the monogram was 100% Chinese, similar to a floral motif from the Tang Dynasty. And the effect has also reached the shops, even the cruise ship-shaped megastore inaugurated with great fanfare last year in the exclusive Jing'an district of Shanghai.

According to research firm JL Warren Capital, the negative repercussions have started to be reflected in the brand's sales. “We continued to see double-digit sales declines in the summer, around 30% in July and 20-25% in August,” said Junheng Li, managing director and head of research at JL Warren.

At the beginning of August, Li had already explained that "the July lawsuit had triggered a growing controversy over cultural appropriation, which appears to have significantly affected the brand's performance".

For several years, China has been the main driver of luxury goods sales: growing wealth and disposable income have pushed consumers to buy everything from Louis Vuitton bags to Hermes scarves to Gucci shoes. Local demand helped drive LVMH's sales and shares to record levels in 2023. But today the landscape is different. The Chinese economy is slowing down and consumption is suffering compared to the boom that the big brands had been accustomed to.

The situation for Louis Vuitton — as well as other giants such as Kering and Hermes — was not rosy even before the controversy. JL Warren estimates that Gucci's sales in China fell 20% in July and 10% in August, while Hermes' sales fell about 5% in July and about 13% last month. Amid a broader luxury sector downturn, LVMH shares have lost more than 36% this year, returning to Covid-era levels.