2023-04-21 03:30:00 ET
Summary
- LVMH has been successful at straddling the legacy of its brands with new products and vibrant marketing.
- A key ingredient to LVMH’s success is in its decentralized structure.
- LVMH is an all-weather business that we expect to keep compounding in value for many years to come.
The following segment was excerpted from this fund letter.
LVMH ( OTCPK:LVMHF )
By manufacturing and retailing most of its products directly, LVMH can ensure a high standard for customer experience, product quality and pricing. LVMH is the world’s largest luxury goods company. It owns 75 leading luxury brands across five areas:
- Fashion & Leather Goods make up half of the company’s revenue, across brands such as Louis Vuitton, Christian Dior and Fendi.
- Wines & Spirits, where LVMH is the largest producer globally of champagne and cognac.
- Watches & Jewellery includes the recently acquired jeweller Tiffany, as well as Bulgari and Tag Heuer.
- Perfumes & Cosmetics, where Dior makes the bestselling men’s and women’s fragrances in the world.
- Selective Retailing includes Sephora and the largest global operator of duty-free stores.
The company’s breadth across its many brands, product areas and its global clientele provides valuable balance to the inevitable ups and downs in any one area.
While the LVMH group was formed in 1987 through the merger of Louis Vuitton and Moët Hennessy, most of its brands have very long histories of their own, spanning more than a century in some cases. For instance, Louis Vuitton was founded in 1854 to produce suitcases for the French royal family, in the brand’s trademark canvas material.
The rich histories of LVMH’s luxury brands make them desirable and authentic to their customers. There’s a story behind their products; they stand for something. This heritage and desirability only compounds over time, making it difficult for new brands to succeed in the luxury industry.
LVMH has also been incredibly successful at straddling the legacy of its brands with new products and vibrant marketing that keep them contemporary and relevant. In 2022, the company invested over €30 billion into creating new products, advertising its brands through engaging campaigns, and refurbishing its stores with constantly evolving displays.
LVMH makes most of its products in-house and sells primarily through directly operated stores, which allows it to ensure a high standard for the in-store customer experience, the quality of its products, and how they’re priced.
As is the case with many other companies in the Aoris portfolio, a key ingredient to LVMH’s success is in its decentralised structure. LVMH’s 75 brands operate with a high degree of autonomy, with their own CEO and creative director who are accountable for their own budgeting, product development, marketing and staffing decisions.
This autonomy helps its brands to remain agile and entrepreneurial, which came to the fore during COVID-19 when the brands had to quickly adapt to serving local rather than traveling clientele. It also allows for brands that LVMH acquires to retain their own culture and independence.
The company has also benefited from its family ownership. CEO and chairman, Bernard Arnault, who built LVMH into the luxury powerhouse that it is today, is currently the wealthiest person in the world through his family’s ownership of a 48% stake in LVMH. The family is aligned with our desire for LVMH to compound in value over the long term.
Put together, these attributes have contributed to LVMH’s growing desirability with consumers (and corresponding market share gains), its long track record of growth (averaging 9% p.a. over the last 10 years) and enviable profitability (an operating profit margin of 26%). LVMH is an all-weather business that we expect to keep compounding in value for many years to come.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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Aoris - LVMH: An All-Weather Business That We Expect To Keep Compounding