Louis Vuitton. Christian Dior.
Tiffany Some of the most popular luxury brands in the world are
housed under one roof: Louis Vuitton, Moet Hennessy or LVMH.
Founded in 1854, Louis Vuitton is one of the most storied and iconic
luxury brands.
The singular brand has since grown into a powerhouse of 75 brands, or
Maisons, as they are formally called.
You can think long term like Louis Vuitton, for instance.
I'm not that much interested by the number of the next six months.
What I am interested in is that the desire for the brand will be
the same in ten years as it is today.
The company is notorious for posting record year after record
year, and 2022 was no different.
It drew $86.3 billion in revenue, which is up a healthy 23% from
2021. The company recorded revenue of $22.9 billion in the first
quarter of 2023, up 17% compared to the same period in 2022 and
reached a stock price of $191.99 on May 11th, 2023.
Its store count more than quintupled between 1999 and 2022,
with stores across 81 countries and more than 196,000 employees
worldwide, making it a true leader in luxury by multiple measures.
I would argue that next Apple, no other company on the planet
dominates their industry as completely as LVMH.
At the helm of the massive ship is the world's richest man, Bernard
Arnault. Pre-pandemic, the luxury segment had already been
outperforming other categories in the global apparel market, and the
trend has only accelerated in 2021 and onwards.
The luxury and premium segments delivered shareholder returns of
33.2% and 18% during the pandemic.
Bernard Arnault is very clear vision in terms of the overall
strategy of what he sees as the purpose of the group.
This idea of creating brands that can be eternal.
LVMH's storied history begins in 1837.
It was founded by a craftsman's apprentice Louis Vuitton, who had a
start in master trunk making.
At the time, the popular modes of transportation were horse drawn
carriages, boats and trains, which made craftsmen valuable to the
working class.
Eventually, Louis Vuitton founded his house in Paris in 1854.
In 1886, George Vuitton revolutionized luggage locks by
developing a closing system that turned travel trunks into real
treasure chests.
In 1987, Louis Vuitton merged with Moet Hennessy giving birth to its
current moniker, LVMH.
Louis Vuitton's CEO between 1988 and 1995, Vincent Bastien brought a
different strategy to the brand.
My basic idea was if luxury is focused only on very rich people,
you have no market.
You need to become democratic, democratic, but not vulgar.
If you try to implement the usual business strategy you will learn in
any business group to a luxury group, it's just a disaster.
In collaboration with Bernard Arnault, Bastien witnessed an early
master in luxury.
Each time he bought a brand he kept the team in place.
He's extremely intelligent for this.
You know that each one has to have his own personality.
Bernard Arnault has a real sense of luxury.
He understands fashion.
He understands art.
Each time I had a new line of product, I presented it to him and
he found the right problems immediately.
He has very strong intuition and he's very courageous.
He takes risks.
LVMH's aggressive acquisition strategy, an exceptionally wide
portfolio, lends itself to Arnault's watchfulness as a
businessman.
He started looking for gems for things that were undervalued even
outside of what his company had done previously.
The Arnault family's supremacy is internally well cemented.
All five of Arnault's children hold key management roles.
An executive at Christian Dior, an EVP at Tiffany, a chairman and CEO
of LVMH's holding company, Christian Dior SE, among other
roles. A CEO of TAG Heuer and a director of marketing and
development.
The family business, especially in the luxury area, is key for
success.
Luxury, by definition, has heritage.
It has legacy.
And that's what you find in the consistency of a family.
Arnault's leadership is described as ruthless.
LVMH's growth was so rapid, net income surpassed the $1 billion
mark in 2004.
By comparison, Kering, then known as Pinault-printemps-redoute and
owner of brands such as Gucci, YSL and Balenciaga, reached $1.1
billion the same year.
Between 2009 and 2011, the company saw an enormous 75% increase in net
income. It's international reach in Asia, a market it originally
entered via Hong Kong in 1992, and its international presence was
strengthening dramatically between 2003, the earliest available
earnings report from LVMH records and 2022, the company has posted
record revenue year after year.
Anish Melwani, the LVMH North America chairman and CEO since
2016, says the company's focus on storytelling and brand building
have been key to the company's success.
Luxury is connected to the human emotion of accomplishment, and so
people buy luxury, whether it's handbags or jewelry or prestige
makeup, because they have gotten to a place where they can afford
the superior quality and they want to participate in the storytelling
that is behind those brands.
There's a broad array of price points, so you have a very
expensive bag such as a capucine at thousands of dollars or more,
and then you have small leather goods at price points of 2 to $600.
The broad array of price points also enables a broader appeal to.
Over the years, LVMH has made several billion dollar acquisitions
Bulgari in 2011.
80% stake in Rimowa in 2016.
Dior in 2017 for $13 billion.
And its biggest and most recent Tiffany for $15.8 billion in 2021.
Arnault is a brutal negotiator, grinds people down to the last
penny. They had a deal right before the pandemic.
After the pandemic started, he wanted a price cut, Tiffany said.
No. He took them to court.
Even uglier negotiation all in.
He ended up buying it for $16 billion.
This is a brand that many people thought, look, Tiffany owns a
color. They are everywhere.
How could you improve Tiffany?
And yet three years after they bought Tiffany, they have doubled
their profits. They are now earning over $1 billion a year.
And that is the magic and the aggression of Bernard Arnault.
The world shut down in the midst of those negotiations.
When you have terms that are agreed before, before the beginning
of a global pandemic, it only seems prudent to take some pause
and reevaluate. And I think that's what we did.
I think the the board of Tiffany and company did the same.
And ultimately we came to an agreement that worked for everyone.
While most associate LVMH with luxury handbags and fashion LVMH'S
current portfolio spans across multiple categories, namely perfume
and cosmetics, selective retailing and wine and spirits.
It owns Sephora, Starboard Cruise Services and even Royal Van Lent, a
high quality yacht maker.
Between 2005 and 2022, Revenue jumped from $16.9 billion to $86
billion. That's about a five.
Hundred percent increase.
And in 2023, it's staggering growth and supremacy in luxury
lives on.
While hitting its stride as the largest in luxury.
The hard part is keeping that status alive, and staying alive
means staying relevant.
For LVMH, that means creating desire even in challenging times.
While many other companies struggle throughout the pandemic,
LVMH stock rose steadily from March 2020 onward after a sharp but
brief decline.
So far, the LVMH consumer seems almost totally immune to inflation.
Yes, Louis Vuitton and many of the brands have raised prices somewhere
in the sort of mid single digits, around 5 to 7%.
They haven't raised them nearly as much as some of the competitors.
You look at a Chanel bag, which now is priced more than twice what
it was pre-pandemic, which has really frustrated consumers.
That's one reason they haven't lost a lot of business.
But the more important reason is the Louis Vuitton.
The LVMH consumer is a very wealthy consumer and they have so
much savings during the pandemic and still a lot of income that
they're just not affected.
Mckinsey and Company noted consumers participated in what it
calls revenge spending in 2021 and 2022 as restrictions were lifted.
Ironically, during stressful moments, consumers will go to large
brands such as a Louis Vuitton or a Chanel or Hermes or Cartier, and
those are dynamics that happen there.
There's some safety and luxury goods and purchase behaviors that
do happen.
LVMH prides itself in what Arnault describes as a culture company.
Recently, it has invested heavily in the expansion of its store
network production facilities and employment.
Operating investments totaled $5.4 billion in 2022, with $234 million
poured into employee training alone.
This, the company argues, is another factor.
Why prices remain high even during the pandemic.
The savoir faire, the the knowhow of the artisans who make our thing
is is not what's priced in, but it's something that's incredibly
valuable and that needs to be maintained.
So we have programs like Métier D'art, where we are investing in
apprenticeships at high school students to get them into our
factories and to be apprentices in the trades so that we can continue
to make these products.
Its focus in expanding its store footprint echoes its desire to be a
vertically integrated company where each brand controls
everything between production and manufacture to consumer facing
point of sale in its brick and mortar stores.
Coming out of the pandemic, during which we saw extraordinary growth
in e-commerce and our digital channels, we're now seeing a
rebalancing back towards brick and mortar.
Basically, people are out in the world and they want to come into a
luxury boutique and maybe have a glass of champagne and touch the
product for themselves.
Stores for luxury goods are much like churches, almost churches to
the brand, and they're experiences that are extremely important to the
emotional experience and also making the consumer forget about
price.
Even at the top of the chain, hiring diverse talent is central to
curating desirable collections to be brought to stores.
LVMH nurtures its designers, along with giving them autonomy in
curating collections and developing their creative visions.
In an interview with Harvard Business Review in 2001, Arnault
said he doesn't have alarm bells when it comes to creativity.
In former CEO Vincent Bastian's eyes.
Lvmh as competitors are hardly competition.
He has no competitors.
They are just too small.
They cannot compete. And that's the beauty of the game.
Plus the fact that Bernard Arnault controls group with his money and
that he understood my strategy.
It's a very big protection.
Every competitor is trying to imitate.
I think they are not successful, but they try.
By comparison, Richemont, the next largest luxury conglomerate who
owns Cartier Van Cleef and Arpels and Piaget, among others, had
revenue of $20.8 billion in 2022.
That's a whopping $16.5 billion less than LVMH.
Lvmh is. Designers are, of course, some of the world's most laudable
fashion icons and visionaries.
Kim Jones, Marc Jacobs, the late Karl Lagerfeld, RAF Simmons.
The list goes on and on and on.
Bernard Arnault is smart, agile, and in many ways he's an asset
manager in terms of acquiring brands and fostering brands and
also acquiring and fostering talent and creative talent.
So what we've really seen is a keen attention to the long term
cultural relevance and reinventing brands.
How do you think about a brand and a.
Franchise for hundreds of years in terms of keeping to the history,
but also looking to the future.
More recently, the late Virgil Abloh was Louis Vuitton's men's
designer between 2017 and 2022 and introduced a new streetwear focused
audience to the brand.
Virgil Abloh was a really important turning point in terms of the Louis
Vuitton brand, in terms of bringing in a new audience,
approaching creativity differently, and also embracing
streetwear. That's been a leadership move in terms of LVMH
making big impact and also bringing in new generations into
LVMH as well.
Nobody ever expected Louis Vuitton to do a collaboration with Supreme.
That's the kind of example of where an entire group of young
people who never thought that a brand like Louis Vuitton paid
attention to them, cared that they existed.
All of a sudden realized that they did.
It was the launch of a series of things after that that transformed
the brand in many ways.
The name of the game in creating a sustainable fashion brand with a
lasting legacy, is bringing in the younger consumer.
LVMH is notorious for collaborating with celebrities,
fashion icons and influencers in order to stay relevant for the
younger luxury crowd.
Its social media efforts have seen a dramatic transformation in the
last several years.
When you look at what drives luxury sales, it's what's cool.
And what's cool is usually decided by youth and youth culture.
And LVMH brands have this almost innate ability as part of LVMH to
tap into the nuclear core of youth culture.
Well, LVMH is success is wholly apparent and celebrated.
It has had challenges with the China market.
In 2021, after President Xi Jinping delivered a speech
indicative of a more socialist China, $120 billion was eliminated
from the luxury sector in 2022, Partial COVID lockdowns in China
caused Asia's revenue contribution to fall by five points to 30%.
The only geographic region that did not see growth.
But in 2023 first quarter, LVMH reported a 14% increase in revenue
in Asia. That's compared to an 8% decline in 2020 two's fourth
quarter. While economic challenges persist, a portfolio of 75 brands
means constant upkeep.
How can the brand continue to be very exclusive, yet so large and
execute in new categories?
Also, fashion is a very tough industry where you have to stay
relevant at every moment.
That means creative execution and creative partnerships and working
with the merchants and innovating new products.
That's exciting and captivates the customer.
What our leaders use to create desirability is the incredible
heritage that each of our maisons has.
And that heritage is really a it's a competitive moat.
It's a real source of competitive advantage because you cannot create
heritage overnight.
It can only be created over decades, if not centuries.
So remaining relevant is key to longevity in luxury and paramount
to LVMH as forward looking business is innovation, which is at
the heart of its long term strategy.
According to industry experts, much of the future of the luxury
segment is in experiences.
Lvmh has invested handsomely in the categories which allow it to
curate just that.
It acquired Belmond in 2019, which includes the Cheval Blanc, Maisons
and Bulgari Hotels.
Lvmh is no stranger to the hospitality industry.
Its efforts in the sector date back to 2000, so expansion and
refinement of these properties is more top of mind.
Starboard Cruise Services, which LVMH has owned since 2000,
struggled at the beginning of 2022 but has since rebounded along with
experiences luxury consumers have also leaned into sustainability,
coupled with the long term value of its products.
The resale market for luxury goods has peaked shoppers interest in
recent years.
Innovative companies in the resale and consignment space like the
Realreal and Fashionphile have seen tremendous growth.
And consumers now more than ever have visibility and more awareness
of the value of their bag after purchase and how much they can
resell that for.
Resale values really indicate brand equity in a way in terms of
what's how much somebody wants to purchase this bag for.
While the luxury market expands, its poignant desirability and
exclusivity have opened a door to a rapidly growing problem the
counterfeit market.
The trade is worth half $1 trillion, according to the
Organization of Economic Cooperation and Development.
In response to bolster efforts in authenticity, LVMH partnered with
Prada and Cartier to develop the Aura Block Consortium, which is an
RFID and blockchain based technology that allows customers to
trace a luxury product through its life cycle.
In its 2022 earnings, LVMH noted its strategic priorities lie in
store expansion and evolving its digital presence, which will be
backed by selective investments and cost management.
Touting a legendary iconography intrinsic to the company's overall
business model is longevity fueled by the concept of legacy?
The company doesn't just look forward to the next couple of
years, but the next hundred.
You know, I was walking down the street in Manhattan the other day
on 57th and fifth, and right in front of me was the Bulgari store.
On the corner was the new Tiffany headquarters.
And on the next corner was the Louis Vuitton store with the Kusama
robot and the giant dots all over the building.
And I looked up on this corner in the center of Manhattan's premier
retail district and realized it's Bernard Arnault's luxury world and
we're just shopping at it.