Op-Ed | LVMH Has Already Won Gold

Whichever sporting heroes carry dwelling the medals on the Paris Olympics later this month, there’ll solely be one true winner: LVMH founder, chairman and chief government officer Bernard Arnault. Regardless of the political turmoil in France – and the affect this has had on Arnault’s wealth after the decline in LVMH shares – his manufacturers can have a starring position within the video games.

LVMH Moet Hennessy Louis Vuitton SE has spent €150 million ($163 million) to be one of many premium sponsors of the Olympic and Paralympic Video games. It’s going to even be the first-ever “inventive accomplice,” with its manufacturers together with Louis Vuitton and Dior intertwined with the competitors, its areas internet hosting cultural occasions and a roster of French athletes as ambassadors.

It’s an unprecedented intermingling of designer labelling and sports, underlining the growing would possibly of the bling behemoth, which enjoys gross sales now 4 instances greater than its nearest rivals and a market capitalisation of about €350 billion. Solely Birkin bag maker Hermès Worldwide comes wherever near its worth.

However Arnault can’t afford something apart from a clear sweep of medals. After three years of blockbuster development, luxurious gross sales have decelerated. The political upheaval in France can’t be ignored; some customers are souring on top-end items, whereas the dominance of the European luxurious manufacturers is being highlighted by Saks Fifth Avenue proprietor Hudson’s Bay Co.’s $2.65 billion acquisition of rival Neiman Marcus in an try and compete with them extra successfully.

Arnault was initially reluctant to write down a examine to sponsor the video games, Bloomberg Businessweek reported. Now, LVMH manufacturers might be nearly synonymous with them, designing medals, dressing French athletes and offering the champagne for VIP occasions. Dior will even be concerned within the opening ceremony, though the main points stay prime secret. Analysts at Bernstein describe the dimensions of the funding as “flabbergasting.”

Such a barrage of publicity is required. Though LVMH is anticipated to generate nearly €90 billion of gross sales this 12 months, up from €54 billion in 2019, even it hasn’t been resistant to the business slowdown.

Chinese language VIPs are nonetheless spending, however the center class is below stress from a deepening property droop. Equally within the US, because the tremendous rich proceed to splash on Hermès purses and Brunello Cucinelli SpA cashmere sweaters, the merely comfy are constrained by excessive borrowing prices and lingering inflation. Earlier this 12 months, the hope had been that the posh market would rebound within the second half of 2024, as demanding comparisons with final 12 months’s Chinese language revenge spending fade. Now a restoration appears to be like unlikely earlier than 2025. That explains why shares in LVMH have misplaced nearly all of their features since January.

And the Olympics would possibly delay the restoration additional. Journey restrictions throughout Paris and luxurious large spenders selecting to go to Milan as an alternative could dampen demand within the French capital. However this short-term ache might be price it.

LVMH’s visibility will beam its manufacturers to viewers across the globe. They might not be out there for a bag or pockets at present, however when they’re, they’ll keep in mind the trays in Louis Vuitton’s iconic Damier examine sample on which medals had been introduced to winners.

What’s extra, the involvement underlines that LVMH is greater than only a vendor of bodily items. Arnault mentioned two years in the past that Louis Vuitton was “not only a style model,” however a “cultural model.”  The Neverfull bag maker’s CEO Pietro Beccari informed the Monetary Instances in Might that there was “no family on the planet that doesn’t have [contact with] Louis Vuitton merchandise.”

This is perhaps hyperbole, however he’s not too far off. Appointing first the late Virgil Abloh, after which Pharrell Williams, as the home’s menswear inventive director related it to music and related subcultures, resembling streetwear. The Olympics will fuse it to sport. A marketing campaign earlier this 12 months for  Louis Vuitton’s Christopher backpack featured tennis rivals Roger Federer and Rafael Nadal scaling the summit of Italy’s Dolomites.

And welcoming the world to Paris performs into one other of Arnault’s methods: transferring additional into hospitality. The speculation is that when Chinese language travellers do return to Europe in vital numbers, they received’t simply be sporting the corporate’s garments, footwear and jewelry, they’ll be capable to vacation in an LVMH-controlled ecosystem, spanning accommodations and eating places. LVMH’s latest buy of old-fashioned Paris bistro Chez l’Ami Louis, in addition to studies that Arnault is among the many bidders for Venice’s Lodge Bauer, underline the intent.

However LVMH’s Olympic sponsorship should run easily. It’s not but clear what flavour of presidency will emerge in France, and consequently what insurance policies affecting luxurious teams would possibly end result. The hope is that given the significance of the video games to Paris, politics will take a again seat to spectacle. However this will’t be assured.

In the meantime, US competitors authorities are eyeing the posh items market, probing Tapestry Inc.’s $8.5 billion takeover bid for rival Capri Holdings Ltd. The deal between Saks Fifth Avenue and Neiman Marcus could put the business below additional scrutiny. This issues as a result of LVMH isn’t accomplished procuring. In addition to hospitality, it has room to develop in watches and jewelry, with Arnault taking a personal equity stake in Cartier proprietor Cie Financiere Richemont SA.

Lastly, some customers have begun to balk at the rising costs of upmarket items, whereas allegations of poor working conditions in factories making Dior baggage in Italy threat a broader backlash.

Regardless of being the third-richest man on the planet, Arnault likes to get his cash’s price, as his haggling over the worth of Tiffany & Co. 4 years in the past demonstrated. That funding has paid off handsomely. He might be hoping for a equally glowing return from going for gold on the first Luxurious Olympics.

By Andrea Felsted

Disclosure: LVMH is a part of a bunch of buyers who, collectively, maintain a minority curiosity in The Enterprise of Vogue. All buyers have signed shareholders’ documentation guaranteeing BoF’s full editorial independence.