The Economist - USA (2019-11-30)

TheEconomistNovember 30th 2019 57

1

W

hat do youbuy the luxury group that
has everything? More diamonds, ap-
parently. On November 25th lvmh, already
the biggest beast in global luxury, an-
nounced it was taking over Tiffany & Co,
where Wall Street bond traders sink a few
bucks to improve their chances of turning
girlfriends into fiancées. The American
marque will become the 76th maisonof the
Parisian group, joining Louis Vuitton, Dior
and Veuve Clicquot champagne. How
many more can fit under the corporate um-
brella of Bernard Arnault, lvmh’s boss and
biggest shareholder?
The deal is as richly priced as a flawless
gem. lvmhwill pay $16.9bn including net
debt, equivalent to nearly four years’ sales
at Tiffany. Nonetheless, the takeover was
greeted with the enthusiasm befitting a
suitable engagement. Luxury, once little
more than a cottage industry dominated by
family firms in Europe, has become the
preserve of a few giant conglomerates. In
recent decades there has been a sense of in-
evitability when another well-known com-

pany has fallen into the clutches of lvmhor

its rivals, Kering (home of Gucci and Balen-

ciaga among others) and Richemont

(which owns Cartier and Montblanc).

The acquisition cements the place of

lvmhat the peak of the luxury world. Its

rise has been nothing short of dazzling

since Mr Arnault took it over three decades

ago. Its shares have risen threefold in the

past five years, including a 60% run since

January. Worth around €206bn ($227bn),

lvmhnow vies with Royal Dutch Shell as

the most valuable firm based in the eu.

Mr Arnault, whose family owns nearly

half of lvmh(and a solid majority of voting

rights), is said to be Europe’s richest man.

From the gritty town of Roubaix in north-

ern France, he turned a family construction

firm to property, then luxury. He snapped

up Dior as part of a package of distressed

textile assets in the 1980s, then seized con-

trol at lvmh. The “wolf in cashmere” has all

the trappings of a $100bn fortune, from a

public art collection housed in a Parisian

museum designed by Frank Gehry to his

impeccably tailored Christian Dior suits

and a couple of newspapers.

“lvmh dominates a structurally fa-

voured sector, buoyed by globalisation and

income inequality,” says Luca Solca of

Bernstein, a research firm. Its success is the

result of being the right size—big—in the

right business at the right time.

Start with the industry. Sales of luxury

goods, such as handbags, posh watches

and Hermès scarves, have grown by about

6% a year since 1996 according to Bain, a

consultancy. It estimates the industry will

be worth €281bn this year. Chinese shop-

pers, who barely featured in 2000 but now

account for a third of all sales, have added

much of the fizz.

Size has brought more rewards. In an in-

dustry with high fixed costs—spent on

marketing, but also on eye-watering rents

for shops on flashy thoroughfares—selling

more translates into better margins. lvmh

has achieved nearly double the industry’s

growth rate in the past two decades, and

last year sold over €46bn-worth of extrava-

gance (see chart on next page). That is more

than three times the figure for Kering and

Richemont, its nearest rivals.

Mr Arnault emerged as the most obvi-

ous buyer for Tiffany in part because scale

begets advantages not available to smaller

bauble-peddlers. That might seem odd at

first. Compared with lesser industries,

mergers in the luxury world kick up few op-

portunities for cost-cutting or synergies.

LVM H

The everything-that-shines store

PARIS
Bernard Arnault, Europe’s richest man, tests the limits of the
luxury-conglomerate model

Business

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