All of Arnaud’s children play a role within the group, with the two oldest, Delphine and Antoine, joining the board, paving the way for the final succession to the next generation. Patriarchs also strengthen their grip on power in other ways. Last year, he restructured his LVMH controlling shareholder, the family-owned Agash, into a partnership whose share capital would be held equally by his five children. Agache holds his 48% of LVMH’s capital and his 63% of voting rights.
In many other groups, such actions provoke protests among minority shareholders. Still, LVMH’s combination of family business and capital market discipline works. Still, investors should be aware of potential pitfalls.
I have no objection to LVMH’s performance. Shares hit a record high on Thursday, doubling the company’s market value from around €200 billion ($216.4 billion) to nearly €400 billion over the past three years. Arnaud surpassed Elon Musk to become the richest man in the world. He also performs well in LVMH’s total return of 77% compared to the Stox 600 Index over the same period.
As a family-run company, LVMH has been around for a long time. This is evident in another element of Wednesday’s announcement. It is the new leader of Louis Vuitton, the group’s most important brand.
Michael Burke, long-time Chief Executive Officer of Louis Vuitton, assumes a new role and will report directly to Arnault. Burke will be replaced by Pietro Beccari, who has turbocharged Dior since 2018. Dior, best known for its saddlebags and bookbags, tripled its sales to €6.6 billion during Beccari’s tenure, according to Citigroup analyst estimates. to his 38%, more than double his.
The most pressing task at Louis Vuitton right now is to appoint a new creative director for menswear to replace the late Virgil Abloh. Hospitality is another opportunity for him following his $2.6 billion acquisition of Belmond Ltd four years ago. The company plans to open its first Louis Vuitton hotel in Paris.
Staying listed brings discipline and access to the capital markets. LVMH is expected to have net cash next year, according to Bloomberg consensus on analyst estimates. But when a major acquisition like Chanel, worth around €150 billion, becomes possible, having shareholders available is beneficial.
But LVMH faces risks.
The first is inheritance. That’s a bit far for now, considering LVMH last year lifted the CEO age limit, allowing 73-year-old Arnaud to run until he’s 80. Make him one of his children the top role, or divide the responsibilities among the five children.
If Arnault had to choose between Alexandre, 30, who holds a senior position at Tiffany & Co., or Frederick, 28, who runs Swiss watchmaker TAG Heuer, he would buy Prada SpA. You can emulate and appoint someone outside your family as your caretaker. CEO until they are ready to take over. LVMH also has top executives such as Burke, Beccari (if he does well at Louis Vuitton) and group managing director Antonio Belloni who make a safe pairing.
Whichever structure you choose, the process should be handled carefully. Dividing the CEO’s responsibilities creates the potential for conflict between siblings.
Another danger is complacency, given that LVMH is increasingly in a league of its own. Backgrounds also look more challenging. Investors are betting on a resurgence in revenge spending by Chinese consumers who are now able to travel, but the coming months will be volatile. Meanwhile, the US luxury goods market is slowing.
And LVMH is in the fashion business after all. Not only is the industry notoriously fickle, but the desire to always be on the cutting edge can lead to missteps that alienate shoppers.
Such dangers seem far-fetched, but boards, including those of large French companies, need to be vigilant in spotting problems and raising them with their families. It is not a problem to increase it and strengthen corporate governance. Three years ago, Kering SA appointed her former Credit Suisse Group AG CEO Tidjane Thiam and actress Emma Watson to its board of directors, but this is no longer the case as the owners of Gucci and Balenciaga have endured difficult times. There is a question mark as to how much profit it has made.
LVMH’s shareholders have made impressive progress so far. But as the extravagant landscape darkens, they need Louis Vuitton monogrammed luggage to work, not passive travelers.
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This column does not necessarily reflect the opinions of the editorial board or Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer goods and retail industries. Previously, he was a reporter for The Times of Financial.
More articles like this can be found at bloomberg.com/opinion.