Editor’s Note
This overview provides a snapshot of LVMH, the Paris-based global leader in luxury goods. The company’s structure, brand portfolio, and controlling ownership by Bernard Arnault are key to understanding its market dominance.
LVMH is a French luxury goods manufacturer headquartered in Paris.
The group distributes approximately 75 brands across 5 different sectors in about 5,000 retail stores and is the world market leader in luxury goods.
The company in its current form was created through the merger of Louis Vuitton and Moët Hennessy (hence the name “LVMH Moët Hennessy – Louis Vuitton”).
Bernard Arnault – the richest European – holds more than 50% of the voting shares, thus having full control over LVMH’s goals and strategy. He clearly states his strategy for LVMH:
Arnault fully bets on exclusivity with LVMH. For him, it is clear: exclusivity is the core driver that fuels almost all other business functions:
– Higher margins
– Greater bargaining power
– Scarcity increases demand
And the strategy works: For years, LVMH has been growing impressively fast while achieving excellent profit margins of around 25%.
LVMH covers almost the entire luxury goods industry: from clothing and jewelry to luxury yachts – LVMH’s portfolio breadth is remarkable. The group divides its business into five areas:
It shows: LVMH’s revenue is primarily driven by Fashion and Retail. 70% of group sales are generated in these two segments.
The largest segment at LVMH primarily produces leather goods and high-quality clothing. Well-known brands include Louis Vuitton, Christian Dior, Givenchy, and Fendi.
LVMH operates numerous selective retail chains for luxury goods. This includes, for example, the classic Parisian department store “Le Bon Marché”.
Luxury shopping in duty-free areas or on cruise ships is also organized within this department.
Under “other activities,” LVMH distributes, for example, the financial newspaper “Les Echos” or high-end yachts under the brand name “Feadship”.
In this segment, LVMH sells perfumes and cosmetic products. Well-known brands include Christian Dior, Givenchy, and Kenzo.
LVMH produces and sells high-quality (sparkling) wines and spirits from brands such as Moët & Chandon, Dom Pérignon, Hennessy, or Krug.
The smallest division of the group sells luxury watches and jewelry pieces. The most well-known brands include Bvlgari, Hublot, or Bvlgari.
According to a market study by McKinsey, the luxury goods market is expected to grow annually by 4.6% until 2025. The greatest growth is expected in the emerging Chinese market.
LVMH has actually been growing even faster for decades and is the undisputed number 1 in the luxury goods market.
The market is dominated by a few large players. Because when it comes to luxury, no one wants to buy the fourth-best sweater if they can have the “world’s best, most exclusive, and most luxurious” sweater.
2020 was a difficult year for the entire retail sector. Although LVMH also operates online shops for many brands, traditional retail is dominant in the luxury market. It is not surprising, therefore, that due to lockdowns and forced closures in 2020, less revenue was achieved in all segments. The retail sector was hit hardest with a minus of 30%.
But it quickly became apparent: Even though luxury, according to Maslow, belongs to growth needs, the luxury market is not truly crisis-prone. Demand recovered rapidly, and after the first easing of restrictions, LVMH was able to present strong figures again. A certain “pent-up demand” for luxury, excess, and consumption became evident.
On average over the last decade, LVMH has been able to increase both revenue and operating profit by around 10% per year. A classic growth company.
LVMH’s main target group is also continuing to grow: there are more and more millionaires worldwide.
Coupled with the focus on high-quality products with the highest exclusivity, LVMH’s growth trajectory seems secure for the near future.
LVMH’s balance sheet is consistently solid. A net debt of €17.5 billion is contrasted with an operating profit of €8 billion in the weak year 2020. Despite the unusually low operating profit, this results in a net debt ratio of 2.1 – comfortably away from the critical value of approximately 4.
LVMH also pays an attractive dividend. This grew by almost 16% per year over the last 5 years. Currently, the dividend yield is only 1% due to the good share price performance.
The payout ratio is at a very comfortable level of 37%.
In the AlleAktien Quality Score, LVMH achieves the full 10 points and is thus a clear quality company. Intact growth, comfortable debt levels, and good future prospects make the luxury group an interesting investment.
