The world’s largest luxury brand conglomerate… DFS and Korean entertainment agencies, as well as investment in the redevelopment of Shibuya
Louis Vuitton, Dior, Celine, Fendi, Tiffany, Bulgari, Hublot, Limore, Dom Perignon, Hennessy, etc., are very popular among Japanese.
In fact, all of these global luxury brands are owned and operated by LVMH (Moët Hennessy Louis Vuitton), a huge company. Many consumers purchase LVMH’s various brand products without being aware that they are affiliated with the same company.
LVMH, a giant conglomerate based in Paris, France, was established in 1987 through the merger of Louis Vuitton, known for its world-class luxury brands, and Moët Hennessy, famous for its champagne and cognac. Since then, LVMH has acquired various luxury brands, and currently owns 75 luxury brands, including Tiffany & Co. which joined in 2021.
Diversification of business and geographic diversification is in effect.
LVMH’s greatest feature is the diversification of both its business sectors and sales regions: its 75 brands are well balanced across six sectors: (1) Fashion & Leather Goods, (2) Wine & Spirits, (3) Perfumes & Cosmetics, (4) Watches & Jewelry, (5) Selective Retailing, and (6) Other Activities. Sales in all of these areas are increasing.
In terms of sales by region, Europe, including its home base of France, accounts for 24% of total sales, the United States for 27%, Japan for 7%, and Asia excluding Japan for 30%, showing a perfect regional balance.
Even with COVID-19 crisis and inflation, sales are 11 trillion yen.
In fact, LVMH’s full-year financial results for the end of 2022 show that sales increased 23% year-on-year to 79.184 billion euros (approximately 11.857 trillion yen/€1 = 140 yen) and net income increased 17% to 14.084 billion euros (approximately 1.9717 trillion yen), despite the headwinds from Corona and inflation. Net sales and income increased 17% to 14,084 million euros (about 1,971.7 billion yen).
By division, the mainstay “Fashion & Leather Goods” business increased 25% to 38.648 billion euros (approximately 5,410.7 billion yen), with the sales of “Louis Vuitton” alone topping 20 billion euros (approximately 2.8 trillion yen). In addition, sales in all six divisions, including “Watches & Jewelry” and “Wines & Spirits,” increased.
In terms of sales by region, France posted a 47.6% increase, Europe (excluding France) a 28.9% increase, the U.S. a 29.8% increase, and Japan a 24.0% increase, all of which were significant increases.
The richest man in the world, surpassing Elon Musk
With such strong business performance and solid stock prices, LVMH’s top executive, Chairman and CEO Bernard Arnault, according to Bloomberg of the United States, has gone from being the richest man in Europe to the richest man in the world, surpassing US entrepreneur Elon Musk, who is also the CEO of Tesla, at the end of last year. His total assets are said to exceed 23 trillion Japanese yen.
In addition to its well-known luxury brands, LVMH also operates investment and development operations that primarily target wealthy individuals around the world. For example, it operates DFS, which has stores in more than 400 locations worldwide and is well known for its airport duty-free sales, as well as five-star hotels and three-star restaurants in France.
In the investment and development business, in August 2014, the LVMH Group invested in YG Entertainment, a major South Korean entertainment company, through an LVMH Group investment company, and an LVMH Group investment fund acquired the company that operates the well-known Chinese restaurant Crystal Jade in Singapore. In Japan, the LVMH Group has been investing in the real estate business of the LVMH Group.
In Japan, the LVMH Group’s real estate development and investment company, together with Tokyu Corporation and Tokyu Department Stores, plans to build a complex (36 floors above ground, 4 floors below ground) on the former site of the main store of Tokyu Department Stores in Shibuya, Tokyo, which will include a luxury boutique, hotel, and residences to be completed in FY2027. The House Collective, a foreign luxury brand hotel, is scheduled to open its first hotel in Japan.
The number of affluent people will continue to grow, and LVMH LVMH to grow further
LVMH’s success is partly due to the “global money glut. The Corona Shock triggered the largest-ever monetary easing measures in Japan, the U.S., and Europe, LVMH’s main markets, and money flowed into the markets around the world, causing stock and real estate markets to soar. The people who benefited the most from this money glut were the wealthy, both at home and abroad, who already had ample assets and funds and were able to invest and spend more with these assets and funds, which are LVMH’s main clients.
Following the US and Europe, where the Bank of Japan has tightened monetary policy by raising interest rates, the BOJ has finally “revised” its previous monetary easing policy (in December 2022), but considering the domestic situation where prices remain high without wage increases, it will be difficult to immediately make major changes in monetary policy even after the new BOJ governor Ueda takes office. It is likely that the money glut will continue for some time.
Japan’s wealthy are 336 million million
In fact, the number of HNWIs around the world, including Japan, has been increasing due in part to the rising value of their stock and real estate holdings, as well as profits from new investments.
According to Credit Suisse’s Global Wealth Report 2022, the number of Japanese HNWIs (number of adults with assets of $1 million or more) has reached 3,366,000 (in 2021). Furthermore, by 2026, the number is expected to reach 4.79 million, a whopping 42% increase from 2021.
The number of HNWIs is also increasing in the U.S., the world’s largest HNW country, with 24.48 million in 2021 and is expected to increase by 13% to 27.66 million in 2026.
The number of HNWIs worldwide reached 62.48 million at the end of 2021, mainly due to the increase of HNWIs in emerging countries in addition to Japan and the U.S. By 2026, the number will increase by 40% to 87.56 million, an increase of approximately 25 million over the next five years. In step with the increase in the number of wealthy people, LVMH, which owns many luxury brands, is likely to maintain its strong performance.
LVMH s business model
LVMH is the world’s largest luxury brand conglomerate, headed by the world’s richest man. LVMH’s strength lies in its diversification and cross-selling of businesses and regions, and its individual luxury brands are so independent that consumers are not aware that they are affiliated with the same company.
As the money glut continues, the number of affluent consumers is likely to continue to increase. Luxury brands do not need to sell at a discount, nor do they need to mass produce and mass open stores; rather, they are basically raising prices every year. LVMH’s share price is expected to rise and its earnings to be high in the future.
There is no Japanese company that has established a business model that (1) focuses on the wealthy, (2) has a global brand, (3) diversifies its business, and (4) increases sales and profits by raising prices. Japanese companies that continue to be stuck in the old ways are often derided overseas as JTC (Japanese Traditional Companies), but LVMH seems to have much to learn.
Text： Katsuhide Takahashi
Financial consultant and president of Malibu Japan Co. After working for Mitsubishi Bank, Citigroup Securities, and Citibank, he established the company in 2013. He has visited more than 60 countries around the world. He is an expert on resorts in Japan and abroad, including the Bahamas, Maldives, Palau, Malibu, Los Cabos, Dubai, Hawaii, Niseko, Kyoto, and Okinawa. He graduated from Keio University in 1993 with a bachelor's degree in economics and received a master's degree in economics from Aoyama Gakuin University in 2000. His many publications include "Bank Zero Era" (Asahi Shimbun Publications), "Why Niseko Only Became a World Resort" (Kodansha + Alpha Shinsho), and "Jibin Nissei" (The Extinction of Regional Banks) (Heibonsha).