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.
