LVMH Overview

LVMH

Introduction

Even as more Small and Medium enterprises are starting to come to the limelight in the commercial market, Luxury product companies keep on soaring to even greater heights.

The rich taste for life’s finest luxuries by consumers continues to keep these companies sailing.

According to new data, Companies of French origin dominated the luxury space in 2020. LVMH Moet Hennessy-Louis Vuitton takes the number one spot in the top 10 luxury companies in the world, with $33 billion in luxury sales in 2020 and an 11.1% net profit margin, according to Deloitte.

History

LVMH- Louis Vuitton Moet Hennessey is a French holding multinational corporation and global luxury-leading conglomerate corporation. It engages in the design, manufacture, and sale of luxury products worldwide. It controls over 70 various top-tier designer fashion/beauty brands as subsidiaries including Louis Vuitton, Christian Dior, Givenchy, Celine, Sephora, and many more who create high quality products. These distinguished houses are rooted in six different sectors and each of them creates products that embody unique savoir-faire, a carefully preserved heritage, and a dynamic engagement with modernity.

The Paris fashion group is operating under a very niche market at the top class retail chain, with their only one and biggest competitor- The Kerri Group, which includes Balenciaga, Gucci, Bottega Veneta, Puma, etc.

The company is headquartered in Paris and was founded by Bernard Arnault in 1987 through the merger of iconic fashion house Louis Vuitton with Moet Hennessy, which was established following the 1971 merger between the champagne producer Moet & Chandon and the cognac producer Hennessy. In 2021, with a valuation of $329 billion, LVMH became the most valuable company in Europe.

It has a retail network of over 5,500 stores worldwide, present in over 70 countries worldwide. With 150,000 employees across the world, LVMH is not only an industry leader but also an academy of talents.

Bernard Arnault, the Chief Executive Officer of the LVMH Group is France’s richest man and the 3^rd wealthiest. Over the last three decades, the LVMH group has continued to acquire prominent brands, and Arnault’s move has inspired other big luxury companies to do the same.

Brand Strategy

In a very saturated luxury industry, the LVMH Group has managed to make fashion and leather goods its most profitable branch, with wines and spirits coming in at a close second.

The target audience of this brand consists of people with money, especially women. This target audience demands for exclusivity so they do not care about the price as long as they can get something that isn’t common.

Creativity and innovation are at the heart of the conglomerate’s massive success. The brand is based on four particular points; Fashion Heritage, Exclusive materials, High-end consumers, and expensive patches.

In 2018, LVMH adopted a unique selling proposition that focuses on building a heritage of top-notch products and an influence on culture and customers.

These are some of the things that make up the company’s Luxury strategy:

• Craftsmen who are passionate about their jobs, have unmatched talents, and have been trained in using quality raw materials to produce new collections for LVMH’s brands.
• Quest for excellence in all sectors which stirs up innovation
• Promoting quality handmade items in an era of cheap mass production
• Offering exclusivity as an appeal to stand out from the crowd
• Working with the best talents and A-Listers for promotion

In the case of Louis Vuitton, it has been guided by certain marketing strategies to stay at the top:

• Offering high quality products that can add value to the consumer
• Distribution in physical stores which are decorated to offer a pleasant experience to its customers and invite both luxury and Good design
• Creating well curated ads where you can see the collaboration with celebrities and people who belong to the world of culture.
• Maintaining a well curated and functioning website that caters to its specific audience.
• Maintaining relationships and creating better connections with its target audience through social networks.

Clearly, these strategies have been having positive contributions to the LVMH group as it continues to record an increasing revenue each year.

Sustainability

LVMH, the world’s biggest luxury company, has been slower than the rest of the industry to embrace sustainability. It only released its first comprehensive social and environmental report, including a new sustainability plan, called LIFE 360, in May 2021.

The foundation for LVMH’s environmental responsibilities is its LIFE program (LVMH Initiatives For the Environment), which was designed to better integrate environmental considerations into brand strategy, encourage the development of new steering tools and take account of changes and progress brought about through innovation with the Maisons.

The LVMH group aims to “avoid producing waste with sustainable inventory management”, and “making them very far removed from mass production.”

Highlights of its sustainability efforts include a decline in Group waste production, which fell from 95,620 metric tons in 2019 to 80,690 metric tons in 2020. LVMH’s Fashion and Leather Goods division is the second highest contributor after Wines & Spirits. It is also the fashion division that is responsible for the highest hazardous waste production figures, despite a decline from 2,420 to 1,620 metric tons.

While Louis Vuitton has set an intensity target to reduce greenhouse gas emissions generated from its own operations, there is no evidence it is on track to meet said target. There is no evidence it minimizes textile waste, and uses few eco-friendly materials. Like many other brands, Louis Vuitton also regularly burns unsold stock, contributing even further to the damaging fashion industry that values exclusivity over sustainability at every turn.

The brand Louis Vuitton also received a score of 21-30% in this year’s fashion Transparency index, and its final stage of production is undertaken in medium risk countries for labor abuse. Sadly, the brand discloses inadequate policies of safeguards to protect suppliers and workers. There is also no evidence it ensures payment of a living wage in any part of its supply chain or that it implements practices to support diversity and inclusion also in its supply chain.

Louis Vuitton is also criticized for the use of animal skin even though it has a basic formal policy to protect animal welfare. This is highly criticized due to the fact that it could have been substituted with the introduction of vegan fabric and leather innovations in the industry.

By 2030, LVMH aims for 5 percent of profits to come from circular services. This is at the group level, meaning fashion brands could take on a majority of the work or none at all. Capelli points to Nona Source, the company’s platform for deadstock materials, launched last year, as one example of the kind of work that could grow within the circular services category; repair is another.

“Maisons such as Louis Vuitton, Berluti, and Loewe propose a host of repair services to ensure long lifetimes for their products. We will expand this to other brands, as we believe this is the future of luxury, a way to prolong the life and durability of our products. Sophisticated repair services, upcycling, reuse of precious raw materials, and efforts to find alternative materials all feed into the Group’s circular economy strategy. BY 2030, all new LVMH products will result from eco-design” says Capelli.

He also says upcycling old previous collections is another option, referring to the LV trainer revisited by the late designer Virgil Abloh, which was made by disassembling an older version of the shoe.

People are the backbone of the LVMH Group so they need to do better to provide safe and fair working conditions for all. They also need to do better in reducing waste to better the environment.

Finances & Figures

LVMH has raised a total of 50 Million Euros in a single venture fund, LVMH Luxury Ventures Fund 1. The fund was announced on February 5, 2017.

LVMH has made 11 investments. Their most recent investment was on May 12, 2021, when Lyst raised $85 Million. LVMH has made 6 diversity investments. Their most recent diversity investment was on September 15, 2020, when Pachama raised $5 Million.

The company achieved double-digit revenue growth in all its business groups except Wines & Spirits. It also reported revenue of $19.49 billion for the first quarter of the fiscal year 2022. This represents a 29% increase from the corresponding period of the previous year.

Driven by double-digit revenue growth in all its business groups except Wines & Spirits, LVMH’s organic revenue increased by 23% during the quarter.

As of June 2022, LVMH’s Revenue amounts to 18.36 Billion with Operating expenses being 7.54 Billion. Its net income is at 3.27 BILLION while its Net profit margin is at 17.7 Billion.

As of 2021, its total assets and total equity amounted to 125.311 Billion Euros and 48.909 Billion Euros respectively.

Despite the fact that LVMH hasn’t been immune from lockdowns in China’s damaging luxury sales, it is best positioned among luxury retailers to navigate what may be a bumpy recovery in the region, as well as growing pressures from soaring inflation and gyrating stock markets in the US.

LVMH’S organic sales (excluding currency movements and merger and acquisition activity) rose by 19% in the second quarter, well ahead of the consensus of analysts’ expectations for a 13.5% gain.

The company’s crucial fashion-and-leather- goods division increased organic sales by 19%. This is a slowdown from the 30% climb in the first quarter of 2022 but is still commendable, particularly given the disruption in China and jolts to consumer confidence elsewhere from equity and crypto market declines and the war in Ukraine.

LVMH said that for the time being, it was enjoying a “good ride” in the US. There was no pushback from consumers after the price increases in fashion and leather goods by 3%-7% in the first half.

LVMH also has a strong balance sheet- free cash flow was more than $4.1 Billion in the first half and borrowings have come down since the Tiffany acquisition at the start of last year- and its diversified portfolio- the wines and spirit division, the second most profitable unit, rose 30% in the second quarter. Both will help the luxury giant defend its business if top-end strength tumbles.

The Future of LVMH

Despite the fact that the future looks bright for LVMH, it will have to address three of the biggest problems ahead.

First is the fact that Louis Vuitton’s desirability might be threatened by too much exposure in the current market. Even though its average 8% growth in net sales over the past 5 years is a great sign, it has also stirred up the potential danger that its constant presence might decrease LV’s luxurious social recognition.

Maintaining supply and demand is far easier said than done. A method Louis Vuitton is implementing now is doing collaborations with high tier street brands and possible sports brands where they had a crossover with supreme and off-white.

The increasing volumes of products within the ecosystem is an unavoidable problem and the biggest challenge within the design retail industry and specifically the luxurious ones. LV’s strategy is to keep inventing new products with distinctive features and freshness.

Second, the geographical expansion to China might not be as easy as it seems. Despite the fact that Chinese consumers have taken over 20% of Louis Vuitton’s net sales, the China-US trade relationship stands as a big factor in the Chinese spending habits. LV is also only a portion of LVMH, its subsidiary brands like Sephora and Christin Dior have found it difficult to enter this giant Chinese market.

Third, is the issue of counterfeiting which remains unsolved in most countries. Counterfeiting is a crime but most counties still have a bad execution of counterfeiting goods. As technology arises, most luxurious brands are working on a means to protect their goods. By implementing blockchain technology where each product manufactured would be assigned and coded with a unique code (just like a block), whenever a transaction of its ownership occurs, buyers would code their name within the blockchain system and it ultimately takes record of the lifetime of each transaction and assures it is real.

As long as Louis Vuitton is able to address these issues, it is well paced for the future.