Cash cows and dead horses: why luxury groups such as LVMH could emerge from pandemic leaner and healthier, by shedding unprofitable brands

Will LVMH still have the resources to fund fashion brands that are struggling – names like Givenchy, Celine, Kenzo and Pucci – as sales plunge in wake of virus?

Analysts back luxury groups’ strategy of adding big brands to their portfolios and showing patience with underperformers, but their hands could be forced

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The Dior store on Avenue Montaigne in Paris. Luxury group LVMH relies on tent-pole brands such as Dior and Louis Vuitton for the bulk of its revenue and profits, while pouring money into turning storied but struggling brands. The depth of the industry crisis triggered by the coronavirus might force a rethink by such groups. Photo: Bloomberg

Published: 2:00am, 10 Jun 2020Updated: 3:05pm, 10 Jun 2020

Pucci, Marc Jacobs, Givenchy, Berluti. These are names with a great pedigree in the fashion world, but unless you’re an industry insider you’re probably not aware that they’re all part of LVMH, the largest luxury group in the world.

The company behind powerhouse brands Louis Vuitton, Dior, Fendi and Bulgari owns a wide range of others – in fashion, beauty, wine, jewellery and retailing.

The crown jewels of the luxury conglomerate, however, are a handful of cash cows, such as the aforementioned Louis Vuitton and Dior, and beauty products retailer Sephora.

According to Luca Solca, senior research analyst, global luxury goods at equity broker Bernstein, Louis Vuitton produced €11.5 billion (US$13 billion) in sales in the first quarter of 2019 and accounted for 70 per cent of the profits of LVMH’s fashion and leather goods division and 45 per cent of group profits as a whole.

In recent years LVMH has shown discipline in its merger and acquisition strategy by focusing on acquisitions of relevant size that can move the needle for the group

Mario Ortelli, luxury adviser

LVMH does not break out sales for each of its brands but, as those numbers suggest, its lower profile labels are not profitable. Yet the group has been investing in them and propping them up for years, using its tried-and-tested formula of reviving moribund brands and giving them a shiny revamp.