Many things can be highlighted about globalization and the internationalization of capitalism, but in the fashion sector, the multiplication of fortunes in emerging countries stands out, as well as its consolidation in Western countries. According to Oxfam, Billionaires have seen extraordinary increases in their wealth. During the pandemic and cost-of-living crisis years since 2020, $26 trillion (63 percent) of all new wealth was captured by the richest 1 percent, while $16 trillion (37 percent) went to the rest of the world put together. A billionaire gained roughly $1.7 million for every $1 of new global wealth earned by a person in the bottom 90 percent. Billionaire fortunes have increased by $2.7 billion a day. This comes on top of a decade of historic gains —the number and wealth of billionaires having doubled over the last ten years.
The last 20 years have allowed large and medium-sized luxury companies, many of which are family-owned and predominantly European, to extend their reach into markets eager to buy exclusive goods. In this way, luxury brands have established flagship stores in countries that were previously exporters of customers (shopping tourism): the Middle East, Asia Pacific, or Mexico, to mention a few. In recent years, we have witnessed IPOs and M&A of major luxury companies, expanding leading conglomerates such as LVMH, Kering, and Richemont.
In some cases, the dependence or the orientation of a brand to the “whims” of a designer has led to them dying from success. Fashion brands often have a reliance on their creative minds despite the interests of large luxury brands in maintaining values and criteria to make their brand a timeless asset. In some cases, when a brand has played too much with creativity or has become too linked to fleeting trends, its long-term impact has been affected. Both Gucci and Prada serve as examples of how creative strategies, leadership changes, and adaptations to market trends can influence cycles of success and transformation in the luxury fashion industry. In Spanish, we would call it “bread for today, hunger for tomorrow,” meaning a short-term vision, something the luxury sector does not usually focus on, and if it does, it would be a mistake.
DESIRABILITY – A long-term vision
LVMH reported a 10 percent increase in fourth-quarter sales on Thursday (Jan 2024), driven by resilient demand for its high-end fashion products during the end-of-year trading period. I was not surprised when Mr. Arnault commented that he was very pleased and did not want to grow faster or with higher rates. Luxury, he reiterated, is about “desirability,” and that is a very different business from other companies.
These are a few key metrics from LVMH Full Year Results 2023:
See Mr. Arnault’s presentation here.
Fashion companies, especially those which focus their business model on volume and high turnover, need to invest in their supply chains to seek efficiencies and speed. Luxury invests in “slowness,” in controlling its capacity, talent, and fabrics. If you control the supply, you will control the level of demand, meaning desirability and maintaining or increasing prices (no black friday; no ciber mondays; no special prices; no promotions; no sales period, …). Therefore, LVMH, like other companies in the sector, continues to bet on vertical integration, acquiring workshops, training new artisans, and ensuring control of the value chain (eg. acquiring couture houses, fabric poducers, manufacturers, etc).
*Its selective retailing branch, which includes Sephora, reached €17.9 billion in revenue, a +25% organic growth from last year
Other Ratios from LVMH Annual Results 2023:
- Gross Margin: 69%**
- Profit from recurring operations: 26,5%
- Net Profit / Revenues: 18,5%
- Gearing: 17%
** Keep in mind that Inditex’s results at the end of the third quarter were as follows: 59.4% Gross Margin, 29% EBITDA, and 16% Net Income Margin. As I have often mentioned, Inditex is the example of excellence when it comes to manage the entire value chain, and its ratios are even better than several companies in the luxury sector.
Luxury sector companies specialize in creating icons, symbols of psychosocial positioning. In other words, they produce products that make you feel special and present yourself to your environment in a specific way. If we use the terminology of BCG, the strategic consulting firm, we would talk about “star products” (These products, in the growth stage, are in high-growth markets with high market shares, favoring their good positioning and the sale of many units) and “cash cows” (It is a product that is no longer in its prime but is essential for the company, especially because it does not require a large investment for its development and is a well-accepted product in the market). LVMH focuses on stable products with loyal customers and eternal status, such as Dior perfumes or iconic bags like the Neverfull, Alma, or Speedy.
In an environment that is becoming more volatile every day, even though it may seem difficult and where managing based on a “just in case” model is recommended, especially in terms of procurement, luxury can continue at its own pace. Luxury dominates its value chain and remains a safe haven.
En Español
Muchas cosas pueden destacarse de la globalización y de la internacionalización del capitalismo, pero en el sector moda destaca la multiplicación de fortunas en países emergentes, también su solidificación en los países occidentales. Según Oxfam, los multimillonarios han experimentado aumentos extraordinarios en su riqueza. Durante la pandemia y los años de crisis económica desde 2020, el 63 por ciento de toda la nueva riqueza, equivalente a $26 billones, fue capturado por el 1 por ciento más rico, mientras que el resto del mundo recibió el 37 por ciento, es decir, $16 billones en conjunto. Un multimillonario ganó aproximadamente $1.7 millones por cada $1 de nueva riqueza global obtenida por una persona en el 90 por ciento inferior. Las fortunas de los multimillonarios han aumentado en $2.7 mil millones al día. Esto se suma a una década de ganancias históricas, ya que el número y la riqueza de los multimillonarios se han duplicado en los últimos diez años.
Los 20 últimos años han permitido a las grandes y medianas empresas del lujo, gran parte familiares y principalmente europeas, extender sus tentáculos a mercados ansiosos por comprar bienes exclusivos. De esta forma, las marcas de lujo han establecido flagship stores en países anteriormente exportadores de clientes: Middle-East, Asia Pacific o México. En estos últimos años hemos visto salidas a bolsa y adquisiciones de grandes empresas del lujo, agrandando los conglomerados líderes como LVMH, Kering y Richemont.
En algunos casos, la dependencia o la orientación de alguna marca a los “caprichos” de un diseñador han provocado que mueran de éxito. Las marcas de moda suelen tener una dependencia en sus creativos pese a los intereses de las grandes marcas de lujo por mantener unos valores y criterios para hacer de su marca un activo eterno. En algunos casos, cuando la marca ha jugado demasiado con la creatividad o se ha vinculado mucho con tendencias efímeras, ha visto afectada su repercusión a largo plazo. En español, lo llamaríamos “bread for today, hunger for tomorrow”, es decir, visión corto placista, algo que el sector lujo no suele fijarse, y en caso de hacerlo, se equivocaría. Ser muy cool tiene un riesgo alto.
LVMH registró un aumento del 10 por ciento en las ventas del cuarto trimestre el jueves, impulsado por una demanda resistente de sus productos de moda de alta gama durante el período comercial de fin de año.. No me sorprendió cuando Mr. Arnault comentó que estaba muy contento y que no quería crecer más rápido, o con tasas mayores. El lujo, repitió en su discurso, vive de la “deseabilidad” y ese es un negocio muy diferente al de otras empresas.
Puedes ver la presentación de Mr. Arnault aquí.
Las empresas de moda, sobre todo las de volumen y alta rotación, necesitan invertir en su cadena de suministro para buscar eficiencias y rapidez. El lujo invierte en “lentitud”, en controlar su capacidad, talento y tejidos. Si controlas la oferta, controlarás el nivel de demanda, es decir, la deseabilidad. Por ello, LVMH, como otras empresas del sector siguen apostando por integrarse verticalmente, adquirir talleres, formar a nuevos artesanos y asegurarse el control de la cadena de valor.
Las empresas del sector lujo son especialistas en crear iconos, símbolos de posicionamiento psicosocial. Es decir, productos que te hacen sentir de una manera especial y te presentan a tu entorno de una manera específica. Si utilizamos la terminología de BCG, la consultora estratégica, hablaríamos de productos “vaca lechera” (Es un producto que ya no está en su mejor momento pero que es imprescindible para la empresa, sobre todo porque no requiere una gran inversión para su desarrollo y es un producto aceptado en el mercado). LVMH se centra en productos estables, con clientes fieles y estatus eterno como podrían ser los perfumes Dior o bolsos como el Nerverfull, Alma o Speedy.
En un entorno, cada día, más volátil y en el que se recomienda gestionar en base a un modelo “just in case”, el lujo puede seguir a su ritmo. El lujo domina su cadena de valor y sigue siendo un valor refugio.