LVMH’s best brands continue to gain market share from smaller competitors, by capital segment
Latest quarterly results from LVMH Moet Hennessy Louis Vuitton suggest the specific sales impact of COVID-19 “is fading”, with strength in “many categories from fashion and leather goods to wines and spirits and across continents implying a widespread recovery in demand for luxury goods “despite the striking declines in sales that have hit luxury players in the wake of the pandemic. In its second quarter letter to investors, the management company investment Polen Capital says it continues to bet on the Parisian conglomerate, estimating that the group – which announced at the end of July to have generated 33.7 billion dollars in revenue for the first half of the year (against 21.7 billion of dollars in the first half of 2020) – is “poised to continue growing its total returns to shareholders at a low double-digit rate over the next five years.”
Regarding specifically the most revenue-generating brands of the group led by Bernard Arnault within the Fashion and Leather Goods division, Polen declared that Louis Vuitton and Christian Dior “have maintained their leadership [in the market]Which, according to the firm, “suggests that the biggest luxury brands continue to take market share from smaller competitors,” including private labels, as the luxury market as a whole continues to grow. This is in line with the findings of analysts at Jefferies, who estimated last month that LVMH’s share of the global personal luxury goods market rose from 10% before the pandemic to around 16%, helped, at least in part, through its acquisition of The Growth of Tiffany & Co. LVMH comes as the global personal luxury goods market, as a whole, grew 5% between 2019 and 2021, according to Bain, as reported by the wall street journal.
The success of brands owned by conglomerates in the midst of the pandemic – and the rising costs of their competition in the digital battlefield, where many luxury brands have been slow to adapt – has opened the door to a constant stream of mergers and acquisitions, with Etro, Jil Sander, Pucci, Sergio Rossi, Tod’s and Christian Louboutin, among others, selling stakes since the start of the pandemic. And if the mergers and acquisitions gossip is any indication, more deals are likely to occur as a handful of key brands remain in independent hands.
Addressing the acquisition of Tiffany & Co by LVMH, Polen said the famous jewelry company has shown “a promising start to the year,” but noted that “management has warned that this company’s turnaround recently acquired would take “years, not quarters”.
The rise and role of E-Comm
Another key driver for Polen was LVMH’s increased reliance on e-commerce, which he said “continues to fuel bottom lines during lockdowns.” In its half-year report, LVMH notably underlined the role played by e-commerce within its Perfumes & Cosmetics division, specifying that its brands “benefit from continuous growth in online sales, partially offsetting the impact of suspension of international travel and the closure of numerous points of sale. It also highlighted the “progression” of online sales worldwide in connection with its Selective Retailing business group, to which Sephora reports. The cosmetics chain revealed in June that it would further expand its digital reach by partnering with Berlin-based e-commerce company Zalando to create “an unparalleled prestige online beauty experience for European customers.” This business is expected to launch later this year.
“Despite the recent vigor [in the e-commerce space]“, Polen says that“ LVMH management believes luxury shopping will be an omnichannel experience, with online discoveries but in-store shopping. ”This seems particularly likely for brands like Louis Vuitton, for example, which have significantly strengthened its online offerings, but still does not appear to offer its entire collection for sale online. marked as “available online.” At least some of the items are not listed as available online because they are “out of stock,” but others require consumers to call for availability.
In a similar vein, it will be interesting to see what approach Phoebe Philo takes when she launches her new eponymous label backed by LVMH early next year. Celine’s former Creative Director has been adamantly opposed to social media and e-commerce when it comes to advertising and selling its low-key but expensive offerings. While this approach may have worked in the past, the new demands resulting from the pandemic, both in terms of mandatory closings and corresponding store closures, and the convenience of consumers faltering in their in-store rather than online shopping. , especially in light of the recent release of the Delta variant, have forced once-resistant brands online to embrace digital shopping experiences for fear of missing tens of billions of dollars in sales.
Uncertainty in the Chinese market
What still remains to be seen is how luxury goods groups like LVMH will fare amid the looming crackdown on growing wealth inequalities in China, which has spooked the stock market and luxury brands into a crisis. potentially problematic position, given their large-scale reliance on Chinese consumers for much of their income and growth. While the striking stock drops for LVMH, Kering and Hermès, among others, in the wake of Xi Jinping’s call for wealth redistribution on August 17, have stabilized, uncertainty continues to loom in light of messages from Beijing.
In a note last week, analysts at Jefferies Flavio Cereda and Kathryn Parker said they believe the situation in China “is likely to cause some change in spending habits. [for the fast-growing cohort of high spenders], certainly in terms of visibility, and can also refine the marketing campaign of the brands. In addition to changes in the nature and content of brands’ marketing efforts, the appearance of their products may also be affected by a move towards less conspicuous uses of logos – and even a move away from expensive materials like exotic skins. etc., which have generally been promoted in high-spending markets like China – likely to come into play due to planned crackdowns on excess wealth. This could prove detrimental to brands, which rely heavily on the margins of offers with high logo content, for example.
At the same time, brands will also be impacted, in particular by any additional taxes levied on luxury products. However, it is not clear if this is the route the government plans to take, especially given its massive efforts in recent years to get consumers to shop on the continent. This effort has been greatly aided by the onset and lasting effect of COVID, but it is not a given that once the borders open again, Chinese consumers will not resume their old ways of buying dozens of billion dollars worth of luxury goods beyond China. limits.