What’s Next for LVMH’s Fashion Group | BoF Professional, News & Analysis
Until recently, you could count the number of notable disposals by LVMH on one hand:
Until recently, you could count the number of notable disposals by LVMH on one hand: Christian Lacroix, Donna Karan, Michael Kors (in which it owned a 33 percent stake) and the Edun ethical fashion label founded with singer Bono were among the few projects the luxury giant had scrapped rather than hoarding them in its stable of 75 brands.
But since the pandemic, changes at the French luxury group’s portfolio of smaller labels have been coming at a clip. The group cut loose shoemaker Nicholas Kirkwood last fall, put its Fenty fashion startup with Rihanna on indefinite pause, and ceased operations at shirtmaker Thomas Pink.
“Many of us spent the last year at home cleaning out their cupboards. I think at LVMH it’s a bit the same,” said Pauline Brown, a former chief executive of LVMH Americas and board member of Neiman Marcus Group.
The group also swapped out designers whose efforts to revamp brands failed to take off quickly. Last April, Clare Waight Keller exited Givenchy after 3 years. This spring, Berluti’s designer Kris Van Assche and Kenzo’s Felipe Oliveira Baptista are both on the way out. (Moynat, a small leather goods brand owned separately by LVMH chairman Bernard Arnault’s family holding company Groupe Arnault, also replaced its designer Ramesh Nair with a new creative director hired from Vuitton, Nicolas Knightly.)
The moves come as customers flock to the most famous and well-funded luxury names following the coronavirus crisis, which has widened the gap between so-called “megabrands” and the small and mid-sized labels which had already been struggling to grow before the pandemic. Sales at LVMH’s Louis Vuitton and Dior flagships surged from 2016 through 2019, along with those of rivals like Hermès and Kering’s Gucci, while smaller competitors like Valentino, Chloé or Tod’s saw their market share slipping.
At LVMH, whose annual sales were €45 billion ($55 billion) last year, even brands with dozens of stores and hundreds of millions in sales can fly under the radar, sheltered from financial scrutiny — but also, at times, starved for management attention — as they ride in the wake of giants like Louis Vuitton and Dior. As the biggest brands bounce back rapidly (LVMH’s first-quarter fashion sales were up 37 percent over pre-pandemic levels), investors are less likely to inquire about the group’s underperforming projects.
LVMH’s fashion strategy is still being decided brand-by-brand
Still, some analysts have questioned whether smaller brands still make sense for huge luxury groups. “Bolt-on” acquisitions are tricky to scale and can be seen as a distraction for management, and a money pit for investment capital that might be better spent on growing the group’s more-profitable core businesses. The scale of LVMH’s recent acquisitions, like American jeweller Tiffany (with $4.4 billion in sales in 2019) or hotel group Belmond (whose 2018 revenues were $550 million) suggest the bar is getting higher for how big and illustrious an asset needs to be to win the group’s attention. LVMH is placing bets on early-stage businesses, but rather than buying them outright has started investing though dedicated vehicles like its Luxury Ventures fund, whose structure might turn out to be a better fit for emerging brands like Gabriella Hearst or Madhappy.
The faster pace of disposals and designer changes also underscores that while Arnault has taken a famously long-term approach to investing in brands, the portfolio is still being constantly reviewed. And Sidney Toledano, the fashion executive who has been overseeing most of LVMH’s smaller brands since 2018, is likely eager to show results in his new role after a knockout tenure of more than 20 years scaling up the Christian Dior Couture label and pushing it upmarket. LVMH tapped an executive from Sephora, Guillaume Motte, to serve as Toledano’s deputy starting May 3.
The changes might seem to suggest a broader shift in how the group views smaller fashion businesses. But LVMH’s fashion strategy is still being decided brand-by-brand, sources familiar with the matter said.
LVMH declined to make a spokesperson available for comment.
Bernard Arnault invests “intensely, but selectively,” Brown said. While some acquisitions, like Emilio Pucci, have languished while the group waits to land on the right formula to revive them, others have continued to receive high degrees of investment and support.
A high-budget effort to reboot Celine under star designer Hedi Slimane initially led to a steep decline in sales, but the business is starting to bounce back as sales of a new monogrammed canvas line take off. Despite the rocky start, LVMH sees potential for Slimane’s more commercial vision to appeal to a broader audience than Phoebe Philo’s more intellectual positioning.
Loewe is also rebounding from the pandemic, LVMH has said. The brand, known for high-priced leather goods made in Spain, has been filling in its offer with more accessible items like sunglasses, straw bags, smartphone covers, and tie-dyed t-shirts from its “Paula’s Ibiza” sub-brand.
Givenchy was one of the only major LVMH brands not to be mentioned during the group’s first-quarter results. Its new designer Matthew Williams joined during the pandemic and has yet to stage a full-blown fashion show with a physical audience and the jury is still out on whether his reboot will resonate.
Givenchy’s perfume business performed well even as the fashion business slipped following designer Riccardo Tisci’s departure in 2018. LVMH’s objectives for the brand are unclear, but its commitment to owning it is unlikely to have been shaken by recent sluggishness.
“When Bernard Arnault really believes in a brand, he’s willing to wait, and they have the financial firepower to do so,” said Isabelle Chaboud, director of the MsC program in fashion and luxury at Grenoble Ecole de Management business school.
LVMH isn’t likely to cut loose smaller luxury labels with a storied heritage and craftsmanship, either, even if today’s competitive landscape has made scaling them a challenge. But its framework for managing those brands seems to have become more malleable, with a few brands now planning to deviate from the group’s somewhat one-size-fits-all playbook of appointing a star ready-to-wear designer, opening dozens of retail stores, and refocusing the business on handbags.
Pucci has been operating without a creative director since 2017. While the brand pokes its head into fashion’s spotlight with occasional designer collaborations, its main focus is on repositioning its products and store network with a clearer focus on resort wear. (The brand’s pastel silk dresses and scarves play better in Miami’s design district or Capri than on Paris’s Avenue Montaigne.)
When Bernard Arnault really believes in a brand, he’s willing to wait.
Berluti, where Bernard Arnault’s son Antoine has been chief executive since 2011, has no immediate plans to hire a new creative director, the sources said. As a prestigious maker of custom shoes which also absorbed a top-end Paris suit-maker, Arnys, Berluti has heritage and potential, to be sure. But it’s unclear if runway collections will continue to be the best way to animate the brand.
The right designer might come along for both of those projects, but LVMH isn’t going to rush it.
Kenzo, on the other hand, is actively seeking a new designer, sources said. Felipe Oliveira Baptista’s effort to go back to the house’s founding codes including colourful, bohemian dresses didn’t quite hit the mark, so the group will likely prioritise candidates with a clear vision for premium apparel that could help revive the brand’s more recent success instead. (A line of $200 tiger sweatshirts launched under former designers Humberto Leon and Carol Lim still sells.)
After selling Donna Karan to G-III apparel in 2016, LVMH’s commitment to more accessibly-priced labels like Kenzo has been unclear. But management feels the brand has visibility and potential in the key Asian market.
Another more accessibly-priced label in its stable, Marc Jacobs, is finally showing signs of a turnaround (though it’s still a long way from where it was in 2013, with almost $1 billion in sales and dreams of a splashy IPO). The brand returned to profitability in 2020 after 5 years of losses, LVMH said in a January investor call.
LVMH’s most successful efforts in fashion have been when it acquired labels like Louis Vuitton, Dior and Fendi that were “a bigger brand than a business” Brown points out.
That’s worked for the likes of Givenchy and Celine, too, at times when their designers’ message was in synch with the fashion zeitgeist. They benefitted from periods of intensive financial support, as well as the from company’s expertise in retail and negotiating clout for real estate.
When a brand needs to be built or rebuilt from the ground up, however — as with start-up projects like Fenty — the roadmap is less clear. A bid to revive defunct fashion brand Patou (an acquisition that was partly motivated by Dior’s interest in taking over Patou’s “Joy” perfume trademark) kicked off with a first show by designer Guillaume Henry in March 2020. Despite the debut’s ill-timed debut, the launch has managed to secure some early interest from e-tailers and department stores. But the project is operating at such a small scale that it could be an uphill climb to hold its owner’s attention.
Even brands that never scale up can be of interest for Arnault, however. Owning such a long list of brands provides negotiating leverage: for marketing rates on Instagram and Facebook, or for securing attractive rents and prime spots in new malls. The brands also allow him to offer a variety of opportunities to keep top creative talent in his employ. Hedi Slimane was lured back to the group after a 3 year hiatus from fashion with the promise of having carte blanche to reboot Celine. Menswear designer Kim Jones bounced from Louis Vuitton to Dior, before adding Fendi womenswear to his purview.
“Being highly diversified is one of the big strengths of LVMH,” Chaboud said. The financial power of the group puts them in a position where they can afford to hold onto assets, waiting for the right moment to push.
Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholders’ documentation guaranteeing BoF’s complete editorial independence.
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