All of Arnault’s children have roles within the group, with the two eldest, Delphine and Antoine, on the board, paving the way for the next generation’s eventual legacy. The patriarch holds power in other ways as well. Last year, he restructured the Agache family, the controlling shareholder in LVMH, into a partnership, whose share capital is held equally by his five children. Agache holds 48% of LVMH’s capital and 63% of its voting rights.
In many other groups, such behavior would cause resentment among minority shareholders. Still, LVMH’s combination of family management and capital market discipline is working. However, investors must be on the lookout for potential pitfalls.
There is no arguing with the performance of LVMH. Shares hit a record high on Thursday, helping the company’s market value double from about 200 billion euros ($216.4 billion) to nearly 400 billion euros in the past three years. This pushed Arnault past Elon Musk as the richest man in the world. It also outperformed LVMH’s total return of 77% compared to the Stoxx 600 index over the same period.
As a family-controlled company, LVMH manages for the long term. This is evident in another element of Wednesday’s announcement: a new leader at Louis Vuitton, the group’s most important brand.
Louis Vuitton’s longtime chief executive, Michael Burke, will take on the new role, reporting directly to Arnault. Pietro Beccari, who has been turbocharged at Dior since 2018, will succeed Burke. Dior, best known for its Saddle and Book bags, tripled sales to 6.6 billion euros and more than doubled its operating margin to 38% under Beccari’s tenure, according to Citigroup Inc. analyst estimates.
At Louis Vuitton, the most pressing task now is the appointment of a new menswear creative director to succeed the late Virgil Abloh. Hospitality is another opportunity, following the $2.6 billion acquisition of Belmond Ltd four years ago. The company plans to open the first Louis Vuitton hotel in Paris.
Maintaining a listing brings discipline and access to capital markets. LVMH is expected to have net cash next year, according to the Bloomberg consensus of analyst estimates. But the ability to attract shareholders would be useful if a large acquisition like Chanel, which could be worth around 150 billion euros, becomes available.
But there are risks facing LVMH.
The first is succession. That’s a long shot at the moment, given that LVMH lifted the age limit on its chief executive last year, allowing Arnault, who is 73, to stay at the helm until he’s 80. However, in the end, he will have to decide whether to appoint one of his children for the lead role or divide the responsibilities among the five children.
If Arnault chose one of the younger sons, Alexandre, 30, who has a senior role at Tiffany, or Frederic, 28, who runs Swiss watchmaker Tag Heuer, then he could emulate Prada SpA and appoint a non-family member as caretaker CEO until not be ready to take office. LVMH also has a cadre of top executives, such as Burke, Beccari (if he does well at Louis Vuitton) and group CEO Antonio Belloni, who would be a safe pair of hands.
Whichever structure you choose, the process must be handled carefully: dividing the CEO’s responsibilities opens up the possibility of sibling conflict.
With LVMH increasingly in a league of its own, another danger is complacency. The background also looks more challenging. Investors are betting on a rebound in revenge spending by Chinese consumers now that they can travel, but the next few months will be volatile. Meanwhile, the US luxury market is slowing.
And LVMH is still in the fashion business. Not only is it a notoriously fickle industry, but the desire to always be on top can create slip-ups that alienate customers.
Such dangers seem remote, but the board of directors, which includes some French corporate heavyweights, must be careful to spot problems and raise them with the family. Strengthening corporate governance with more non-family members wouldn’t hurt either. Three years ago, Kering SA appointed former Credit Suisse Group AG chief executive Tidjane Thiam and actress Emma Watson to its board of directors, although there is a question mark as to how much benefit this has brought as the owner of Gucci and Balenciaga has hit a rough patch.
LVMH shareholders have enjoyed a remarkable ride so far. But as the luxury landscape darkens, they should be more than passive travelers — and put their Louis Vuitton monogrammed luggage to work.
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This column does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer goods and retail industry. She was previously a journalist for the Financial Times.
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