LESSONS IN LUXURY Understanding LVMH LVMH: WHY NO OTHER COMPANY COMPARES Luxury industry expert DANIEL LANGER explores the behemoth that is Moët Hennessy Louis Vuitton, and what every luxury business can learn from its success. Louis Vuitton <strong>2021</strong> 'Bravery' High <strong>Jeweller</strong>y Campaign
Tiffany & Co LESSONS IN LUXURY | Understanding LVMH TABLE 1: LVMH VS KERING & RICHEMONT Revenue of Europe's largest luxury groups, as at FY2020. REVENUE (€M) # of Brands Dior LVMH 44,651 74* Richemont ** 13,144 25 Kering *** 13,100 12 by DANIEL LANGER KEY FIGURES Luxury By The Numbers * Excludes Tiffany & Co. which was acquired in January <strong>2021</strong>. ** Richemont does not have a Wines & Spirits, Cosmetics & Perfume, or Selective Retailing division; however, it does have an Online Retail division *** Kering does not have a Wines & Spirits, Cosmetics & Perfume, or Selective Retailing division | <strong>Jeweller</strong> Research Most people are astonished by the size and dynamics of the luxury market. Intuitively, they assume luxury is a niche business – even people who work for luxury brands share this outlook. But what many underestimate is a luxury brand’s enormous value creation potential. This year, <strong>2021</strong>, marks a historic moment for the luxury industry. All brands are hoping for better performances than last year and a speedy recovery for the European and North American luxury markets. Both regions fared poorly during the pandemic, with some categories losing 50 per cent or more of their market in these geographic regions, which many of the world’s mostadmired luxury brands call home. However, with the pandemic still raging across the first quarter of <strong>2021</strong>, and most key European markets in strict lockdowns, the news that Moët Hennessy Louis Vuitton (LVMH) became Europe’s most valuable company might have come as a surprise. According to data analyzed by Finaria, the French luxury conglomerate reached a staggering $US319.4 billion (€264.6 billion) as of February 26, <strong>2021</strong>, surpassing Nestlé, the Swiss food giant. What’s driving this all-time-high valuation is how the luxury group used 2020 better than other luxury houses and put itself in the pole position for when the markets returned to – relatively – normal trading. In short, their strategy execution is a masterpiece of extreme value creation from which other brands can learn. The value of luxury What many businesses don’t fully understand is that consumers don’t buy luxury for the product itself, but for the brand’s exclusive value – which I describe using the term ‘Added Luxury Value’ (ALV). €264.4b LVMH valuation, 26 February <strong>2021</strong> Source: Finaria €196.8b Personal fortune of LVMH CEO Bernard Arnault, June <strong>2021</strong> Source: Forbes 41% Revenue from the Asian market Source: LVMH Annual Report 2020 75 Number of luxury brands – ‘maisons’ – owned by LVMH €4.02b Revenue from LVMH’s Watches & <strong>Jeweller</strong>y division in the first half of <strong>2021</strong> ALV is fascinating yet at the same time tricky. It is a value that results from psychological effects that make our brains attribute positive aspects – such as higher attractiveness, more expertise, a better life, and more self-esteem – to a person who buys or showcases a luxury item or brand. In other words, a luxury handbag or luxury watch ensures you are perceived as smarter, more attractive, and more fun to be with, according to my research. Brands with powerful stories that create desire can add significant premiums due to the rare value they produce; it is not only the raw materials, but what the branded product represents, that the consumer purchases" It is an automatic, archaic response in our brains that we cannot deny. Studies in Europe, China, Japan, and North America confirmed that the ALV effect is universal – regardless of how much we like luxury and independent of age or other variables. Even the product is mostly irrelevant, as this desire is driven primarily by the perceived story about the brand. Hence, brands with powerful stories that create desire can add significant premiums due to the rare value they produce; it is not only the raw materials, but what the branded product represents, that the consumer purchases. If your business’ brand creates high perceived consumer value, you can price for it and achieve profitability far beyond other categories; conversely, if brands cannot develop powerful stories, offer consistent experiences, or price their products correctly, ALV either does not develop or collapses completely. <strong>August</strong> <strong>2021</strong> | 55
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