Louis Vuitton goes for mass luxury and drives the Chinese crazy

The French giant’s results are growing rapidly thanks to its commitment to bringing expensive brands closer to the general public.

“To have succeeded in making Louis Vuitton, a luggage company in its origin, a global brand, rabidly young and the most successful of the group, as well as desired worldwide, has much merit. There are those who call it the McDonald’s of luxury,” says Abraham de Amézaga, a writer and journalist specializing in fashion and luxury. The growth of Louis Vuitton Moët Hennessy (LVMH) finds no roof over its head. The French giant broke all its records in 2018. Last year it earned 46,826 million euros, 9.8% more than in 2017, and its profit improved by 18.4% to 6,534 million euros. China is the company’s main engine, which has risen 21% in the last year and has a capitalization of 148,000 million. Sales in Asia, excluding Japan, grew by 15% in 2018, twice as fast as in other regions such as Europe or the USA, and despite the economic slowdown in China, it is already the most important geographical area, accounting for 29% of total turnover.

Louis Vuitton is the favourite brand of the first lady of France, Brigitte Macron, who has turned her wardrobe into an international showcase for French haute couture. Singer Lenny Kravitz says he drinks Dom Pérignon – the champagne for which he made a glamorous photographic campaign last year full of movie and show stars – since he was a teenager in the wealthy New York where he grew up. After the Eiffel Tower and perhaps (though only perhaps) the Mona Lisa at the Louvre, the Louis Vuitton or Bvlgari stores on the Champs-Elysées are the most coveted setting for a selfie in Paris. The bags with the iconic LV logo, real or fake, hang from the arms of thousands of women (and men) all over the world. These examples bear witness to the fact that the parent company of all these luxury brands, LVMH, has long since ceased to be just a fashion empire to become a symbol of a way of life dreamed of by millions of people around the world. Although this may have shaken the very concept of luxury, some experts point out.

In any case, its excellent results in 2018 attest to the success of the model driven by LVMH President and CEO Bernard Arnault. A success that has placed him as the fourth richest man on the planet with an estimated fortune of 69.7 billion euros, according to Bloomberg’s calculations.

The fashion and leather goods division – with brands such as Louis Vuitton, Fendi, Givenchy, Kenzo, Loewe, Marc Jacobs and Celine, among others – continues to lead with revenues of 18,455 million euros, 19% more than the previous year. But neither is the 10% increase in its perfumes and cosmetics section negligible, up to 6,092 million euros or the 8% increase in sales of watches and jewellery, for a total value of 4,123 million euros.

In addition to the predicted Chinese (and global) economic slowdown, there is the trade war between Washington and Beijing that threatens to drag Europe along. France itself, the parent of the luxury house, has had to deal with the revolt of the yellow vests, which during their Saturday protests in Paris made shop windows like Louis Vuitton or Bvlgari their main objectives, considering them the symbol of that rich France that forgets its impoverished middle classes. But according to Brand Finance analysts Vinchy Chan and Annabel Brown, LVMH doesn’t have much to worry about, at least in the short term. The company “shows no sign of sagging in its dominance of the global luxury market,” they argue. Proof of this, they add, is that by 2019 “marketing spending will grow 14% year-on-year and its balance sheet remains strong enough to facilitate new mergers or acquisitions.

Chan and Brown believe that the risk of a slowdown in the Chinese market is not imminent, as most of the country’s most exclusive customers work in sectors whose purchasing power “will not be significantly impacted in the short and medium term. However, Isabelle Chaboud, a professor at the Grenoble School of Management, sees it as a necessary diversification to “limit its exposure to Chinese customers.

With the takeover of Belmond, LVMH “will further diversify its portfolio and reduce the exposure to the Chinese market of its current offering (…) will attract another clientele and diversify its geographical risk”, Chaboud analysed in an article for The Conversation. Diversification is not just regional. Many of LVMH’s products are looking for a wider clientele than the luxury industry had just a few decades ago. “Seducing the middle classes is how they have achieved success,” confirms Abraham de Amézaga. “While it is true that in their origins in these houses the clientele were the bourgeoisie and wealthy people, since the late 1990s we see how the strategy of the intelligent Arnault addressed ‘everyone’. A non-exclusive LVMH strategy that, he warns, may carry some risks, such as making luxury a “decaffeinated” concept.

Hotel diversification
Even so, LVMH seems to be preparing alternatives. In December, the French company announced the acquisition of the luxury hotel chain Belmond, as part of its strategy to enter the tourism sector, a path it began in 2006. With this acquisition, LVMH expands its hotel offer to 46 hotels, restaurants, trains and luxury cruises, which will allow it to offer exclusive experiences in a large part of the world, from exclusive hotels in Rio de Janeiro or Mexico to a cruise on the Ayeyarwady River in Myanmar or an experience in the Hercules Poirot on board the luxury train Venice Simplon-Orient-Express.

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