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  • Apr 20, 2014
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LVMH shops for new outfit

French luxury giant could pursue a takeover of upmarket retailers Burberry or Tiffany to bolster revenue as sales growth slows

PUBLISHED : Saturday, 23 February, 2013, 12:00am
UPDATED : Saturday, 23 February, 2013, 4:54am

LVMH Moet Hennessy Louis Vuitton is poised to pursue a takeover as revenue growth, led by sales of its eponymous handbags, slows the most in four years.

The US$87 billion company could go after Burberry Group, Britain's biggest luxury-goods producer, as a way to increase revenue while it worked on repositioning the Louis Vuitton brand, Berenberg Bank said. After LVMH bought Italian jewellery maker Bulgari in 2011, it also could pursue Tiffany & Co, the New York-based jeweller with a market capitalisation of US$8.1 billion, according to Cantor Fitzgerald.

Chief executive Bernard Arnault, who helped to build LVMH into the world's largest luxury-goods maker through acquisitions, "is going to need to buy growth", said John Guy, a London-based analyst at Berenberg. "He's going to need to buy time in order to sort Vuitton out."

Purchasing another blockbuster brand would allow LVMH to reduce its reliance on smaller labels such as Fendi and Celine, while buying it time to burnish Louis Vuitton and develop its other fashion lines, about half of which Guy estimates are not profitable.

LVMH's sales are projected to increase 7.3 per cent this year, the worst annual rate since 2009, according to data compiled by Bloomberg, as the Paris-based company slows expansion of its flagship brand to enhance Louis Vuitton's image and exclusivity.

A spokesman for LVMH did not return requests for comment on whether the company is pursuing an acquisition or would consider a deal.

LVMH, whose luxury offerings include Dom Perignon champagne and Guerlain perfume, had worldwide sales of about €28 billion (HK$287 billion) last year.

The company's fashion and leather-goods division, anchored by Louis Vuitton, was its biggest generator of revenue and operating profit even as its so-called organic sales growth slowed.

Excluding currency swings and acquisitions, revenue from fashion and leather goods climbed 7 per cent last year, the slowest growth since 2009. Louis Vuitton, which accounts for more than three-quarters of the unit's sales, had organic revenue growth of 6 per cent in 2012, down from 12 per cent a year earlier and the smallest gain since at least 2001, according to research from Exane BNP Paribas.

Vuitton "is unquestionably at a delicate juncture", Luca Solca, head of luxury goods research at Exane BNP Paribas in London, wrote in a January report.

After raising prices and including more leather in its handbag collections to increase their appeal, LVMH is focusing on improving existing Louis Vuitton stores and limiting new openings as it seeks to control the label's growth rather than chase sales "at all costs", Arnault said last month. The company would also focus on service and increase the penetration of leather goods while putting fewer "LV"-logoed canvas handbags on the shelves, he said.

Acquiring Burberry now 'strategically for them makes so much sense'

"What we are focusing on for the long term is the brand image and the satisfaction of our customers," Arnault said of the Louis Vuitton strategy. "It's not increasing revenue that we could of course increase far more than it is here. All it would take would be to open far more stores."

Analysts project that LVMH's companywide sales growth will slow to less than 8 per cent a year on average through 2015, according to data compiled by Bloomberg. That compares with average annual growth of more than double that amount during the past three years, the data shows.

Burberry, with annual sales of about US$3 billion, would give LVMH a strong men's clothing line as well as a beauty business that it could distribute through its Sephora retail chain, Guy said. LVMH could strengthen the US$9.2 billion company's leather business and lift profit significantly by centralising sourcing, distribution and other costs, he said.

Acquiring Burberry now "strategically for them makes so much sense", Guy said.

Burberry shares ended yesterday at 1,368 pence.

A spokeswoman for London-based Burberry declined to comment on whether the company had been approached by LVMH or would be open to a sale.

LVMH also could pursue Tiffany to beef up its watch and jewellery division, said Allegra Perry, an analyst at Cantor Fitzgerald in London. LVMH saw more consolidation in the industry even if there was a shortage of companies for sale, Francesco Trapani, head of the company's watch and jewellery unit, said in November. Last month, competitor Swatch Group agreed to buy the Harry Winston brand for about US$1 billion.

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