One of the advantages of being Bernard Arnault is that you can afford to be patient. U tycoon which controls the world’s largest luxury goods company LVMH has spent 15 years and 750 million euros to renew The Samaritan, an iconic store in Paris, only to have the Covid-19 pandemic derail its grand opening last spring.
About a year later, Arnault’s wait will end Wednesday, when the first customers are welcomed into the Art Nouveau temple to trade on the banks of the Seine.
There’s also another less visible one – the growing fortunes of Arnault and his family, which Forbes estimates have increased about 80 percent to $ 194 billion since early 2020. a few days in May, Arnault also dethroned Amazon founder Jeff Bezos as the richest man in the world.
LVMH has added more equity value to its shares than any other company in Europe since – about $ 175 billion – a remarkable achievement even if it stands at $ 903 billion for Apple or $ 871 billion for Amazon. It now has the highest market capitalization of any European company.
Investors value the company at a price equivalent to 39 times its projected earnings, about double its ratio five years ago, and higher than tech companies like Apple at 25, Alphabet at 28 and Microsoft at 32 years old.
That a pandemic and the ensuing economic upheaval would not dampen people’s appetite for € 3,000 bags and € 500 scarves might come as a surprise. Essential goods, they are not.
But the trends that have supported the steady growth of the sector, which Bain consultants have put at a 6 percent annual compound growth rate from 1996 to 2019, have not really changed because of Covid.
In China, the largest luxury market that accounts for two-thirds of growth, the rising middle classes still turn to Cartier or Louis Vuitton to signal their status. Although foreign travel is out of bounds for now, they are buy at at home instead.
Luxury brands, of course, don’t just sell clothes – they sell a dream, an idea, a sense of belonging to a certain group or tradition. They sell the creative genius of their designers from Coco Chanel to Karl Lagerfeld. In the age of social media, they also sell consumers a selfie or a moment worthy of Tik Tok by unveiling the new dress until they wear it.
Typical marketing rules don’t just apply. Do you want to expand your market? Increase prices. Do you want to take care of your customers? It makes it difficult for them to buy by limiting distribution. Expectation is part of the experience, signaling to the buyer that they are joining an elite club even if it is the one who is actually growing.
Such is the topsy-turvy world of luxury marketing. Another distinction is the central role of physical magazines such as La Samaritaine even in the age of the Internet. European houses as Louis Vuitton, Cartier and Hermès have invented and perfected these luxury strategies in a similar way to how Procter & Gamble wrote the book on consumer goods marketing.
Arnault’s great success has been to industrialize this know-how and to bring together dozens of brands under one roof, supporting them with a strong balance sheet, and forming a rotating cast of talented managers.
So how long can luxury expansion last?
Erwan Rambourg, an HSBC analyst who worked in marketing at Cartier and Dior, thinks he has some time to run. In his book Future Luxe, listed the drivers left as a growing Chinese wealth, the diminished guilt factor among American shoppers and the rise of the “selfie generation”. “The demand for luxury is bound to continue to be solid in the long run and is rooted in deep roots,” he wrote.
However, Rambourg recently lowered its rating of LVMH from purchases to address concerns that the pace of sales growth is likely to slow in the coming quarters, while costs will rise when live events such as fashion shows fashion begins again.
Arnault did not appear worried Monday that he inaugurated La Samaritaine in a ceremony attended by President Emmanuel Macron. The billionaire invited the public to imagine what the neighborhood will be like when the store was open, the streets animated not only with shoppers but also with guests at the nearby new LVMH luxury hotel.
“I see in this place a triple symbol of French genius for art, architecture and business,” Arnault said. “Only a family-controlled group can embark on such an investment without a return for so many years.”