Bullish on Luxury

The recent issue of Forbes has a very good profile on French billionaire Bernard Arnmault.  Arnault owns many of the most famous luxury brands in the world through hi LVMH empire, including Hennessy, Moet & Chandon, Louis Vuitton, Fendi, Dior, Givenchy, Tag Heuer, eLuxury, Dom Perignon, and a host of others luxury lifestyle related businesses.

The article outlines Arnault's business strategy for expansion, which includes many developed and wealthy western nations as well as emerging nations, many in Asia. It is an interesting article to read for insight into the major luxury brands.

Forbes reports

Capturing developing countries is just one piece of LVMH's strategy. Arnault sees unexploited possibilities in richer countries, too. That insight is driving new store openings or expansions this year in Paris, London and Dusseldorf, in Santa Monica and New York. "They look at pockets of wealth," says Antoine Belge, who covers LVMH for HSBC ( HBC - news - people ) in Paris. The company is also keeping its eye on the U.S. immigrant population, Belge says, because "people of Hispanic and Chinese origin spend more on luxury goods." So, apparently, does the population at large. During the worst of the downturn last year, he adds, "some American women decided they would spend less on food or travel and buy a Louis Vuitton handbag." Proof : While sales slipped 0.8% from 2008 to 2009, to $23.5 billion, and profits dropped 7.6% to $2.7 billion, net profits and revenue in the first half of 2010 have snapped back 53% and 16%, respectively, as LVMH earned $1.4 billion on sales of $12.6 billion.

Capitalizing on familiar territory, LVMH recently announced it had paid $2 billion for a 17.1% stake in Hermès International, the highly profitable maker of silk scarves, ties and the top-selling Birkin bag--and long a target of Arnault's acquisitive desires. The investment (at a bargain-basement $112.50 per share, thanks to a derivative contract called an equity swap) is a coup for LVMH; as one of the few remaining stand-alone luxury brands not owned by a conglomerate, Hermès would have been the golden fleece for competitors Richemont and Gucci. Though LVMH quickly denied it would try to take control of the 173-year-old Hermès, the stage is clearly set. It may be a long drama: Three-quarters of the company is still in the hands of 200 Hermès family members. Winning them over could take decades.

To read the full article, click HERE.