In business it has now become even more important for owners to adapt their ways when it comes to realigning the existing business or by taking on new business.
Over the years, the luxury houses have had to adopt that attitude and it seems that the world’s largest luxury group, LVMH is coming round to a “small is beautiful” mindset.
Reuters reports that the luxury group attained its €94 billion ($AUD131 billion) market capitalisation via an M&A spree a decade ago, but is now changing the way that it will approach new business.
Louis Vuitton Moet Hennessy’s boss Bernard Arnault spent up to €10 billion ($AUD13.9 billion) during an acquisitive streak between 2000 and 2015, according to Bernstein estimates, which took in a €3.7 billion ($AUD5.1 billion) punt on jeweller Bulgari in 2011 and a €2 billion ($AUD2.794 billion) purchase of cashmere manufacturer Loro Piana two years later. But there’s been nothing big since – possibly because of high valuations and fewer tempting targets.
We reported recently that LVMH is setting up LVMH Luxury Ventures, which will invest anything between €2 million ($AUD2.7 million) and €10 million ($AUD13.9 million) on stakes in fast-growing companies.
Buying small and cool brands before they eat your lunch has some logic, but it’s not new. Danone and L’Oreal increasingly buy fast-growing, niche companies before they become formidable competitors, because younger shoppers are less interested in mainstream brands.
Still, the new approach at Louis Vuitton’s owner may also signal the growing influence of Silicon Valley hire Ian Rogers, who joined the group from Apple in September 2015 as Digital Chief. He says trends in the beauty industry are a harbinger of the challenges that all businesses will soon face. Technology and social media are helping niche, internet-based make-up brands win inordinate market share from industry goliaths like Estee Lauder. That threat is now registering on luxury’s horizon.
The good news for LVMH is that it has loads of resources: with store expansions largely over, European luxury brands’ free cashflow should grow by 10 per cent this year, according to Bernstein. It generated almost €4 billion ($AUD5.59 billion) of free cashflow in 2016, an 8 per cent year-on-year increase.
By Cassandra Murnieks
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