Let them buy handbags in China
Happy Chinese New Year, luxury goods industry. LVMH’s net income for 2010 soared 73 percent. Less than two years after the financial crisis indulgence is back in style. Bernard Arnault, creator of LVMH Louis Vuitton Moët Hennessy, is one of the biggest beneficiaries. Consumers sipped Dom Pérignon Champagne and Hennessy cognac, donned Hublot watches and sported Louis Vuitton handbags in record numbers last year, especially in Asia, driving sales at LVMH, the world’s largest luxury goods company, to new heights and sharply lifting profitability. No wonder, LVMH’s market capitalisation has almost tripled to EUR 60 billion in 2010 from EUR 23 billion in 2008, making it one of the most lucrative investments in the wider consumer goods industry.
On 4 February 2011 Mr Arnault reported that sales in 2010 rose 19 percent to EUR 20.3 billion (USD 28 billion). Operating profit jumped 29 percent to EUR 4.32 billion (USD 5.9 billion), while net income surged 73 percent to EUR 3 billion (USD 4.1 billion).
In 2010, the cognac and spirits business, in which Diageo has a 34 percent stake, generated revenue of EUR 1.6 billion, while profit from recurring operations amounted to EUR 477 million.
Demand from the newly affluent, especially in Asia, is driving much of the rebound in the luxury industry after overall sales slumped around 8 percent in 2009, according to research by Bain & Company.
As China transforms itself into an economic juggernaut, Chinese shoppers are spending as never before on luxury goods.
Like almost every producer of luxury goods these days, LVMH is betting on even greater growth in China, particularly as the Japanese economy remains sluggish.
In the drinks business, which includes the Moët & Chandon, Dom Perignon and Hennessy brands, China cemented its position as the group’s number two market, LVMH said.
Upon releasing LVMH’s 2010 results, Mr Arnault had to respond to a barrage of questions about his intentions concerning Hermès. He had spent EUR 1.5 billion for a 14 percent stake in Hermès in October 2010. Mr Arnault declared that LVMH was “surprised” to find itself a large shareholder in Hermès, a position that he said had been “imposed” on LVMH because of conditions underlying the derivatives contracts.
Since the stake was revealed, the Hermès family has reacted bitterly and called on Mr Arnault to sell, which he said he was not inclined to do.
On 3 February 2011, Hermès, whose USD 10,000 handbags and other top-quality leather goods make it an immensely profitable company, said it would pay an interim dividend of EUR 1.0 (USD 1.37) a share for the first time, after posting a 25.4 percent increase in annual revenue.
The family’s 70 odd shareholders, together with Mr Arnault, will get almost all of that payout.
Ladies, if you don’t want Europe to be left behind by the Chinese, discard the eco-friendly canvas tote bags and get yourselves one of these must-have designer bags.
