- Probably Nothing
- Posts
- LVMH - Making Luxury
LVMH - Making Luxury
Happy Weekend! Welcome to Probably Nothing.Every week we do dives into companies defining culture & consumer.
The wolf in Cashmere, The Pope of Fashion, The Machiavelli of Luxury. The richest man in the world. All titles that have been used to describe Bernard Arnault the CEO of LVMH (Louis Vuitton, Moët, Hennessy).
The world's richest man sells handbags. So how does the Maison keep recreating itself year after year while maintaining its rich cultural history?
This week we talk about LVMH and its formula for success. Its storied history of acquisitions and its cultural influence in Asia.
Let's dive in.
Early Years
In France, all roads lead to Arnault. The emblematic entrepreneur owns most brands associated with luxury fashion today. How did everything start? Bernard's father was a construction magnate, and the socialist movement started to take over France. He needed to innovate. Expansion as you will see is always on the mind of The Lord of Luxury.
It's 1971 and Bernard is travelling in one of New York's famous yellow cabs. Making small talk he asks the driver if he knows who the current president of France is, the driver replies, "No, but I know Christian Dior".
The conversation stuck in the mind of the then 22-year-old. His chance came over a decade later.
Christian Dior's holding company was on the verge of filing for bankruptcy. Bernard scooped up the burdened textile company in a joint deal with the Lazard. So began the rise of the world's largest luxury empire. Less than 3 years later, he became the largest shareholder in LVMH.
Probably Nothing only gets better the more people read and provide feedback. Send probably nothing to someone you know that would enjoy our content.
Empire
The influence of brands that Arnault collects isn't to be underestimated. He isn't a founder, instead taking a brash approach to acquiring the best names in high fashion. He's also a patient man. It's said he spent over a decade courting the founder of Bulgari before acquiring the jewellery brand, fighting ruthlessly, against rivals Richemont and PPR.
It's important to understand why LVMH makes decisions. Iconic names, make the game. Bernard looks for brands he can acquire that have built up a reputation across more than 1 generation and multiple markets. A great-grandma in Seoul is as likely to want to buy a Louis Vuitton handbag as a 16-year-old in California.
Once you establish a generational foothold that defines a brand as luxurious you can move your promotional activities to capture the next market. This concept of keeping a brand "Forever Young" has helped keep LVMH brands relevant. However, keeping a modern brand should never be put in front of heritage and class.
Mergers & Acquisitions
It's historic how Arnault has built up LVMH's catalogue. His eye for understanding french culture and bringing it to an international stage is a masterpiece in itself.
For a full overview, I highly recommend checking out Fashion Law.
1988: Givenchy - LVMH's first acquisition after forming the conglomerate a year before.
1993: Kenzo - Louis Vuitton owes a lot of its success to the Japanese market so when the french Japanese-inspired brand Kenzo came up for sale LVMH bought it for $80m.
1996: Céline - A great example of Arnault's patience, LVMH bought into Céline in 1987 but it wasn't until 1996 that they fully acquired the brand for $540m.
1997: Sephora - LVMH took this from a local beauty shop to the largest beauty retailer in the world. When the industry was running on a consultant sales model, Sephora bought customers behind the counter allowing them to sample and test products by themselves. They also launched their first online e-commerce store in 1999.
1999: Gucci Group - LVMH acquired a 5% stake in Gucci in 1999 by the end of the year they owned 34.4%. While the ultimate control of Gucci was won by a competitor PPR (Now Kering Group). It's still one of the best stories in fashion and business. Hostile Takeovers, ESOPs and Poison Pills. The end result LVMH walked away with a $700m profit but competitor Kering won the war.
2001: Hermès - Another failed acquisition from LVMH. They currently own less than 10% of the brand after being taken to court by the french government for secretly trying to acquire a controlling share in the company
2002-2019 Multiple Brands
2020: Tiffany & Co - Acquired for $15.8b the largest acquisition in luxury.
2021: Ace - Armand de Brignac or ACE is a champagne brand started by artist JayZ he sold a 50% stake for $315m. LVMH isn't a newcomer to scaling and starting creator-led businesses, also helping Rihanna launch Fenty a joint venture in 2019.
Forever Young
Arnault acquired the luxury trunk company Rimowa in 2016. Established in 1898 it's a brand almost as old and prestigious as LV. Its first order of business was to bring the brand to the current market. How? Collaborating with one of the most established streetwear names in the market, Supreme.
A collaboration should always elevate both brands. 1 + 1 = 3. The collaboration with Supreme brought Rimowa back into the spotlight of the younger market whose travel spending was increasing YoY.
Market Awareness
Who are your biggest competitors? What markets are driving adopters? For over 40 years since Bernard Arnault took over the helm this was Japan.
We can see the breakdown of the Luxury Market in Japan, one of the world's largest per capita. Since the early 2000s, LVMH has acquired Bulgari (2011) and Tiffany (2021). It also failed at acquiring Gucci.
Suppose you continue to drive creativity and innovation in an established brand. Historical performance is an indication of future performance.
This future sight as a company has kept LVMH well ahead of its peers from a market's point of view.
For a global business that spans brands that are centuries old, how does their current revenue break down?
LVMH features 75 brands across 5,500 stores worldwide. No surprise their largest market is Fashion & Leather goods.
Family Affair
Each house under LVMH largely operates independently. However, it's very much a family affair for the Arnaults.
LVMH's major labels are run independently by Arnault's family estate.
In order of age;
Antoine Arnault (45) - Head of LVMH holding company
Delphine Arnault (45) - Head of Dior
Alexandre Arnault (30) - Head of Products and Comms at Tiffany
Frederic Arnault (28) - CEO of TAG Heur
Jean Arnault (24) - Head of Marketing and Product Louis Vuitton Watches
Bernard (73) however doesn't plan to retire anytime soon. The company increasing its maximum age of a CEO in 2022 from 75 to 80 years old.
This trust has helped steer the Maisons' houses through each generation of success.
Asia
It's not to be underestimated how Louis Vuitton was forged in Asia, specifically in Japan. It was the first luxury brand to enter the market in 1971 the same year Bernard first visited NYC. By the Japanese economic boom in the 1980s, ~34% of all women in the country owned an LV bag. Vuittonmania had taken hold. At one point in time, Japan made up half of all Louis Vuitton sales globally.
Influence
LVMH always understood that virality is often a myth. Virality most often isn't caused by one-to-one referral but by a major gravitational pull of influence and attention promoting the product at a point in time.
In the early 2000s, this was Jennifer Lopez and Madonna. A new rise of influence has emerged. That of Asian artists and their global impact across markets.
These artists represent a new generation of youth that is driven by the opportunity to create content, share their lives online and express their own creativity.
The list;
BTS for Louis Vuitton
EXO Kai for Gucci
IU for Gucci
Blackpink's Jennie for Channel
Blackpink's Rose for Saint Laurent & Tiffany
Blackpink's Lisa for Celine & Bulgari
Blackpink's Jisoo for Dior
Jackson Wang for Fendi, Cartier & Armani
Aespa for Givenchy
G-Dragon for Chanel
Red Velvet's Seulgi for Salvator Ferragamo
It's no surprise with the rise of South Korean representation in its campaigns that the fastest-growing region per capita for luxury fashion is South Korea.
This operates well from a societal point of view as well. South Koreans view luxury purchases as socially acceptable by a large majority over other large markets like China and Japan.
If you've gotten to this point, its probably something. Share it with someone so have something to discuss over coffee!
Resale
When you create luxury goods people expect a lifetime purchase. Something that is classic and forever. This can create problems in markets which largely operate from a supply and demand graph. When a generational shift occurs these goods often re-enter the used luxury market. Japan once the pinnacle of luxury has a supply problem. Which is caused by its success.
Combined with its strict laws and prosecution around the selling of fake goods. Japan has become a cultural mecca for second-hand goods selling.
I experienced this first-hand. My mum became consumed by the process of purchasing goods from second-hand sellers from Facebook live sellers last year.
I couldn't complain. Occasionally I'd get a perfectly conditioned 30-year-old Burberry coat for less than $100.
As companies like Shein have quickly become the number 1 known brand among Gen Alpha and Z. Millennials and Boomers are becoming more self-conscious of their purchasing decisions and thrifting is on the rise.
Research from Luxe shows the second-hand luxury market is growing at 4x the rate of the overall market.
This is driven by 4 main factors.
Digital Access
It's never been easier to purchase second-hand fashion online. Gone are the days of needing to go to speciality stores and hoping for stock or scouring eBay listings. Despite the increase in online spending during covid, the second-hand online market has suffered. The real real is down 94.7% from its all-time high, however, it is up 40% YTD.
Korean search and messaging company Naver officially closed its acquisition of Poshmark this month for $1.2b in an all-cash deal. A far stretch from its peak of $7b.
Affordability
As markets downturn, people are looking to get more for their money. Reselling used goods and thinking more consciously of the value of their purchases.
Collectability
Collaborations are huge in modern-day culture. When there is so much noise in content consumption, limited-edition goods are key. It allows you to break through recommendations and cross-pollinate a brand's influence.
The secret here is also a key to the resale quality of luxury. Bernard describe luxury as timelessness + modernity. This means that even goods that are 50 years old still remain modern and don't go out of style.
Generational Shift
Vintage and nostalgia are at an all-time high. Reboots are a common theme and with LVMH rooted in timelessness and modern influence, luxury is the new black.
Summary
The best companies don't try to recreate what made them great. It's important when your brand is built on its name, quality and trust you keep those foundational elements at the core of what you create.
Forever Young. Understand what creates virality, and who drives purchasing decisions in the market you're trying to enter.
Cultural Arbitrage. Accessible global shipping routes, increase in supply and changes in consumer thinking are driving a thriving second-hand luxury goods market.
Ruthless Acquisition. LVMH is historically patient, once they acquire a brand they rarely sell. However, when they want something they move quickly and decisively. Despite a portfolio of 75 brands LVMH hasn't always won the war when it came to building its empire. Missing out on Gucci and Hermes. However, it always walks away with a profit regardless.