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Decoding LVMHs success: Growing through acquisitions

Publication Date: 06 Jan 2020 - By Manika Premsingh By Manika P.

Equity Fundamental Equity Global EU Consumer Discretionary


Despite hits to global growth, trade tensions and geo-political conflicts, the luxury goods market has contradicted any expectations of slowing down. Or at least some companies in this segment have. The biggest of these is the French LVMH Moet Hennessy Louis Vuitton, the parent company of Louis Vuitton and over 70 other brands, which recently made its biggest acquisition ever when it paid $16.2bn for the much recognized jewellery brand Tiffany & Co. Audacious as it sounds, the fact is that LVMH towers over all other luxury brands, which means that if anyone could have pulled it off, it is this group.

Staying ahead

Its revenues have been rising steadily over the past years and have shown 16% increase in the first nine months of 2019. If it continues at this rate for the remainder of the year, its top-line will cross EUR 50bn this year. LVMH reported good progress across geographies, including Asia, which it notes is despite “the difficult context in Hong Kong”. Hong Kong is an important market in so far as it is a hub for tourists, which includes shoppers, accounting for 5-10% of global luxury sales.

That it continues to make solid progress is worth highlighting considering that it is also the biggest luxury company according to research by Deloitte, and by a margin. The next biggest company, Estee Lauder, is less than 30% the size of LVMH. But Estee Lauder grew by a far less impressive 8.6% in 2019, suggesting that LVMH is not just being carried by a fortunate tide, it is being driven by conscious decisions that enable it.  

Source: LVMH Annual Report

One of these could well be to expand its Watches & Jewelry segment, considering the Tiffany purchase, which comes close to the heels of it acquiring a controlling stake in the Italian jeweller Repossi earlier this year. The segment has the smallest share in revenue among all segments of 8.5% as per the latest numbers for the first 9 months of 2019, with the others being Fashion & Leather goods, Perfumes & Cosmetics, Wines & Spirits and Selective Retailing. Moreover, it has also seen the smallest growth in reported terms of 8%, far outstripped by the fastest growing segment, Fashion & Leather goods, which grew by 22%.

Opportunity in jewellery

Added to this, is the fact that there is much room for growth in the segment. According to Bain & Co, the jewellery market is expected to see 7% growth in 2019, which is faster than that for the luxury goods industry as a whole. Further, it is likely that demand for branded jewellery will see a significant increase in market share over the next few years. 

To that extent, it sounds like just the right move for LVMH to acquire a well-known brand like Tiffany, which has 300 stores across the world, has EUR 4bn in revenue at the current exchange rate and has been in business for much of the last two centuries. If indeed branded jewellery will become far more coveted in the future, Tiffany can have an advantage over newer brands in terms of widespread recognition, which according to rankings by Interbrand, a New York based marketing consultancy, is the only jewellery brand that features in the list of top 100 global brands, along with Cartier. A niche couture brand like Repossi, is at the other end of the jewellery market with a far smaller revenue reported to be around $ 28mn according to Crunchbase. 

Together with these two acquisitions, the revenue from the Watches & Jewelry business immediately becomes bigger, exceeding both its Wines & Spirits as well as Perfumes & Cosmetics revenues. Prior to the acquisition, LVMH’s total revenue from the Watches & Jewelry segment was at EUR 3.3bn, 18% lesser than Tiffany’s. That Tiffany saw a marginal decline in revenue recently could be seen as a red flag. But this is not the first time that LVMH has spotted opportunity in a prized brand, which has hit upon troubled times.

A case in point is its acquisition of Italian brand Bulgari in 2011, which at the time was showing muted growth and was even speculated to be a buy-out target for Swiss watch brand, Swatch. While LVMH does not report numbers specifically for Bulgari, in its latest financial update, LVMH notes that it’s doing well. It says “Bulgari enjoyed an excellent performance, especially in its own stores. Its iconic lines Serpenti, B.Zero1, Diva and Fiorever, as well as the new Serpenti Seduttori watch collection contributed to this performance.” In its outlook earlier this year, LVMH also said that expansion of the Bulgari store network will continue, which is further indication that it is in a good place.

Growth through acquisitions

Growth through acquisitions has long been LVMH’s expansion strategy.  It has made a number of acquisitions in the past as well, and not just in the Watches & Jewelry segment. The most recent ones include the French couture fashion brand, Jean Patou, which first became known for its fragrances but evolved much over the decades. It was acquired last year and re-launched it a few days ago with a new name which is simply called Patou.

Source: Public filings

Earlier in 2016, it acquired the German luggage maker, Rimowa, which along with other brands in the Fashion & Leather Goods segment has “enjoyed good progress” according to the company’s latest update. Alexandre Arnault, the 25 year old son of Bernard Arnault, the Chairman and CEO of LVMH, was appointed the CEO of the company at the time of the takeover. He is in the process of changing how the business works, including developing its retail networks and collaborating with other brands.

The group has also bought brands like Christian Dior, which incidentally, is now the holding company for LVMH, with Arnault as the Chairman and CEO for both. Others in its stable include Fendi, Tag Heuer, Thomas Pink, Sephora, Marc Jacobs, Loewe, Celine and Kenzo among others. It has also been entering into joint ventures, like one with musician Rihanna, for the launch of a new luxury label, following the success of Fenty Beauty which is also a JV between the two.  Similarly, it also entered into a JV with British fashion designer Stella McCartney, after her partnership with Kering came to a close.

Competing with Kering and quitting when need to

This isn’t the first time that Kering and LVMH have been in competition for a brand. A big example of this is Gucci, in which LVMH made attempts to acquire back in 1999 but in what turned into an unsavoury scenario, Gucci instead ended up doing a deal with the rival Pinault-Printemps-Redoute (PPR), which is now called Kering. Kering is far smaller than LVMH, with revenues of EUR 13.7bn in 2018, which is around 30% its size. It is, however, growing fast with 26% increase during the year and its net income doubled to EUR 3.7bn during the year. It continued to show fairly robust growth, with 14% increase in the third quarter of 2019 as well, to which the biggest contributors are Gucci, Yyes Saint Laurent and Bottega Veneta in that order.

Even among LVMH’s more successful acquisition bids, the takeover hasn’t always been successful. One of these is Hermes, which it tried to increase its stake in but the owners challenged it in court and ultimately LVMH had to give up on a large part of its share in the company.  Then there’s the case of in American fashion brand DKNY, which it acquired in 2001 but considered it prudent to sell off the loss-making company in 2016. It was bought by G-III, which has licenses for designers like Calvin Klein, Tommy Hilfiger, Karl Lagerfeld, Kenneth Cole for $650mn.

Increasing geographical footprint

Yet, despite the failed acquisition of DKNY, the US market remains an important one for LVMH as the latest Tiffany purchase shows. In fact, it is one of LVMH’s biggest markets, though its proportion in LVMH’s total revenue has been declining. From 27% in 2016, it is down to 23% for the first half of 2019, indicating that it is growing slower than other markets like Asia ex-Japan.

However, there is now tapering off of Chinese growth and the ongoing challenges in Hong Kong. Further, there could also be some correction in demand in China after it recently raised its prices there to bring them in alignment with other markets. Louis Vuitton, LVMH’s in house brand, is never one to go on a sale in any case, so some softening can be reasonably expected.

It follows that it market can continue to be a safer bet in the near future. Focusing on the US market, especially with the Tiffany purchase increases its footprint there but also expands its presence in the jewellery market ties, achieving two goals together. It is interesting to note that while the US accounts for a 17% share in LVMH’s Fashion & Leather Goods, and an even more dominant 36% in the Wines & Spirits; it accounts for a mere 8% in the Watches & Jewelry segment.


Source: Reuters

Overall though, there is more going in favour of LVMH than not, and that appears to be enabled by its consistent acquisition drive which at least off late appears to be targeting some of its smaller segments and with a view to expand its geographical reach. It remains to be seen how some of its latest acquisitions will turn out, especially that of Rimowa, which has a lot riding on it in terms of being testing ground for the next generation of Arnaults and also to see how the deep changes to the business play out. With regards to the Tiffany purchase too, there could be some doubts in investors’ minds. While initially share prices rose after the announcement, they were uncertain soon after before inching up later in December. But if LVMH’s past share price trends and its overall performance is any indication of the future, the luxury giant will continue to grow.





I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Manika P.


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