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LVMH Moet Hennessy L.V. (LVMUY) |
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WIKI ANALYSIS
Moët Hennessy Louis Vuitton sells luxury goods such as wine, clothing, jewelry, and cosmetics. Its namesake brands - including Dom Pérignon, Fendi and Marc Jacobs - are famous worldwide.
In addition to its luxury brand positioning, international diversity also helps it sustain growth regardless of economic headwinds. LVMH is vigilantly protective of its brands and has reacted aggressively to knockoffs and counterfeits of its goods around the world, especially in China. [1] LVMUY also recently expressed interest in acquiring Hermes. Hermes performed well in the past year with a 44% increase in operating profit, which beat Bloomberg analysts’ estimates. However, Hermes is not interested in collaborating with LVMUY and wants LVMUY to sell more than half of its stake. LVMUY does not plan to sell the shares.[2]
Business Overview
LVMH was created in 1987 by the merger of Louis Vuitton and Moet Hennessy, creating a company with a wide and deep luxury product portfolio. LVMH is based in Paris, France, and owns world-class brands such as Hennessy, Dom Pérignon, Louis Vuitton, Fendi, Marc Jacobs, Christian Dior, Tag Heuer and De Beers.
Business Growth
Fiscal 2010 Performance:
- Revenue increased 19% to €20.32 billion from 2009.
- Net income increased 29% to €4.32 billion from 2009.[3]
Business Segments
As an organization, LVMH is divided into five distinct divisions with some brands operating in more than one: Wines and Spirits, Fashion and Leather Goods, Perfumes and Cosmetics, Watches and Jewelry, and Selective Retailing. Each division operates semi-autonomously resulting in a separate CEO at the head of each division that reports to a central Executive Officer that also serves as the chairman of the board of directors.
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- Wines and Spirits (16% of fiscal 2010 Revenue)
This division can be further two sub categories titled Champagne and Wines and Cognac and Spirits with brands such as Dom Perignon, Moet & Chandon, and Hennessy.[4]
- Fashion and Leather Goods (37.3%)
The major brands that comprise this division are: Louis Vuitton, Fendi, Donna Karan, Loewe, Marc Jacobs, Celine, Kenzo, Givenchy, Thomas Pink, Pucci, Berluti, Stefanobi, Rossimoda, and eLuxury.
- Perfumes and Cosmetics (15.4%)
The brands that comprise LMVH's Perfumes and Cosmetics portfolio include Christian Dior, Guerlain, and Givenchy. Many brands based in the Fashion and Leather goods division have also started product lines that have become managed within this division.
- Watches and Jewelry (4.8%)
The majority of sales in this segment come from the Tag Heuer and De Beers brands.
- Selective Retailing (26.5%)
The main stores that operate within this division are DFS, Miami Cruiseline, Sephora, and Le Bon Marche.
- Using average euro/dollar exchange rate for that year. [5]
Key Trends and Forces
LVMH's luxury status and ultra-wealthy clientele leads to constant sales.
LVMH's brands target customers in the wealthiest ranks of the globe who buy luxury goods. Super-affluent (yearly income between $150,000 and $249,000) and ultra-affluent (yearly income greater than $250,000) made up 6 and 1.9 percent of the population respectively.[6] LVMH's brands cater to an affluent consumer who, despite a recession, still have more disposable income than middle-to-lower income individuals. This level of stability in sales is seen only in the top tier luxury retail market, and distinguishes LVMH from near luxury brands and retailers such as Abercrombie & Fitch Company (ANF) and Nordstrom, which count on sales to aspirational customers from the middle class. This advantage has proven valuable as the U.S. and European economies slid into a recession. In addition, due to its luxury image the prices for LVMH's goods are higher than those of retailers such as ANF and Nordstrom. This means they make a higher margin per item sold, leading to higher profits.
International diversification protects LVMH from regional downturns.
LVMH's revenue is derived from operations spanning the globe, with the U.S. as its largest single contributor of revenue. This has proven important as the U.S. economy went into a recession in 2008.[7] These sales decreases were more than compensated for by revenue increases in LVMH's other regions, namely Europe, Asia (excluding Japan) and Australia. Higher sales in those regions have resulted in overall increased sales for the company.
Competition
LVMH competes in the luxury market with an array of small private and publicly held companies that make designer clothing, wine, watches, and other luxury goods. Unlike LVMH, most of these companies usually have only one brand in their portfolios. The most direct competitors to LVMH are Pinault-Printemps-Redoute (PPR), a French luxury holdings company that includes such brands as Yves Saint Laurent and Gucci, and Compagnie Financière Richemont, a Swiss luxury company that includes such brands as Cartier and Montblanc.
- PPR is a French retailer and luxury goods company. It is very similar to LVMH in both size and earnings. One distinct advantage LVMH holds over PPR is international diversification. Though a majority of PPR's brands are luxury, it also owns Puma, a sportswear line for men and women that is more affordable and as a broader consumer base, thereby increasing its market. The luxury brands that directly compete with LVMH fall under Gucci Group and are: Alexander McQueen, Bottega Veneta, Balenciaga, Yves Saint Laurent, Stella McCartney, Gucci, Boucheron and Sergio Rossi.
- Compagnie Financière Richemont is much smaller than LVMH in terms of revenue, but earned a similar operating margin on its revenue. Richemont is primarily focused on watches and jewelry. Therefore, in its main business Richemont does not face stiff competition from either company. The most competition comes from the fashion and leather goods divisions, namely Dunhill, Azzedine Alaïa, Shanghai Tang, Chloé and the leather goods brand Lancel. All are luxury brands and compete directly with LVMH. [8]
- Valentino Fashion Group S.p.A is an international luxury goods conglomerate. It owns the prestigious brand Valentino as well as luxury brand Hugo Boss. It also has licenses for Marlboro Classics and M Missoni (a lower-priced line inspired by the designs of privately-owned Missoni). Valentino Fashion Group also has its own brands: Lebole, Oxon and Portrait. In addition, Valentino Fashion Group owns 45% of the luxury American brand Proenza Schouler. Like LVMH, Valentino owns a number of other luxury brands including Valentino and Hugo Boss produce apparel, accessories and fragrances for both men and women. Both conglomerates sell their goods side-by-side in luxury department stores as well as freestanding boutiques.
- Christian Dior is a luxury goods company designing men's and women's fashion and accessories. It operates over 235 boutiques worldwide. Its range of goods includes fashion and leather, watches and jewelry, perfumes and cosmetics, wines and spirits, and Dior couture. It owns a 42% stake in LVMH and LVMH CEO Bernard Arnault and family control Christian Dior. Therefore a major part of their revenue comes from LVMH brands.
References
- ↑ Vogue, "LVMH wins eBay Case"
- ↑ http://www.bloomberg.com/news/2011-03-04/hermes-profit-trails-estimates-says-it-will-maintain-control.html
- ↑ http://www.lvmh.com/comfi/pop_communique.asp?str_id_article=210
- ↑ LVMH 2009 Annual Report
- ↑ Exchange Rates
- ↑ Luxury Consumer Tracking Survey
- ↑ Translation of LVMH Financial Documents.
- ↑ PPR 2009 Annual Report
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