Europe’s wealthiest man which also ranks among the top 3 globally, Bernard Arnault (71), owner of the largest luxury conglomerate in the world, LVMH, is seeing his net worth sharply declining by more than US$30 billion,losing more money than any other individual in the world, according to the Bloomberg Billionaires Index. As of May 6, he had lost about as much money as Amazon.com Inc. Chairman Jeff Bezos had gained.
From fashion (Louis Vuitton, Dior etc), jewellery (Chaumet, Fred, Bulgari etc), beauty (fragrances, skincare and retail) to fine wines & spirits (Hennessy, Dom Perignon etc) and watches (Hublot, Zenith or Bulgari), Arnault’s empire has also been expanding further into luxury hotels, adding last year luxury group Belmond (he already owns Bulgari Hotels and Cheval Blanc Hotels).
But as the coronavirus outbreak and lockdown measures to contain it plunge the global economy into its worst crisis since World War II, being the number one beneficiary of discretionary spending suddenly doesn’t look like a priority.
Most of Arnault’s fashion boutiques around the world have shut down for more than a month, leading to major losses in his most profitable division. A lot less champagne, wines and spirits have been sold with most of the world’s airport shut down – and such is the case for beauty and skincare. His travel retail group DFS
In the midst of all that, Arnault has committed to paying US$16 billion for Tiffany & Co. in what was billed as the luxury industry’s biggest-ever acquisition. LVMH has pushed back at any suggestion that it would walk away from the deal or renegotiate the price after the U.S. jeweller’s business similarly stalled.
Nevertheless, LVMH shares have fared better than those of rival luxury groups Kering (Gucci, Balenciaga etc) and Richemont (Cartier, IWC, Panerai) which have fallen 25% and 30%, respectively. Arnault’s brands, their juicy margins, and his cash pile of about 9 billion euros ($9.72 billion) give him the flexibility not just to ride out the crisis but to keep expanding.
“We are very much long-term oriented,” LVMH Chief Financial Officer Jean-Jacques Guiony said in an interview Thursday. “In a crisis a lot of people say things will never be the same, but we are still confident.”
Historically, Arnault has made a career out of investing through downturns when his competitors were too weakened or too skittish to forge ahead. The recession in the early 2000s saw him squeeze Prada Group SpA out of its shareholding at his newly-acquired Fendi brand. It was also when he launched the first luxury e-commerce emporium and built in Tokyo what was then Louis Vuitton’s biggest-ever store.
Advertising spending was also slashed, along with the next season of menswear and haute couture fashion shows that would normally have taken place in June and July. Some of the events are likely to be replaced by online streaming.
LVMH is sticking to its plan to reopen the former La Samaritaine department store in Paris as a duty-free shopping hub and Cheval Blanc luxury hotel. Construction has resumed with the US$1 billion dollar project postpone once more for February. In Paris, he is also moving ahead with the spectacular project of completely renovating DIOR‘s iconic headquarters which include ateliers, Haute Couture and a large store which includes ready-to-wear.
LVMH has recently confirmed plans to open two Cheval Blanc luxury hotels, one in Los Angeles on Rodeo Drive and another one in London off Bond Street. Pending Cheval Blanc luxury resort projects include Los Cabos and Bodrum.
With LVMH set to report its steepest-ever declines – analysts currently expect first-half operating profit to fall by roughly half — Arnault could still make deep cuts. The company plans to cut capital expenditure by 30%-35% this year, delaying some store openings and renovations. Already in the U.S., its brick & mortar beauty & cosmetics retailer Sephora laid off more than 3,000 people, or about 30% of store staff, in early April.
The industry’s fate will largely depend on China, a market that’s made up more than one-third of luxury sales and two-thirds of the sector’s growth in recent years. “In April, in the large brands, we’ve seen very high growth rates in Mainland China,” Guiony said during an April 16 investor call. “It really shows the appetite of Chinese people after two months of lockdown to come back to their previous pattern of consumption.”
Consumer data, however, shows many Chinese plan to spend more cautiously. And even if the pent-up demand that’s been called “revenge spending” there is real, the boost won’t be enough to ease the luxury industry’s woes.
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