All of Arnault’s children hold positions within the group, with the two eldest, Delphine and Antoine, sitting on the board, paving the way for the eventual succession to the next generation. Patriarchs tightened their grip on power in other ways, too. Last year, he restructured Agache, LVMH’s controlling shareholder, the family business, into a partnership with shares held equally by his five children. Agache holds 48% of LVMH’s capital and 63% of voting rights.
In many other groups, such behavior would have sparked outcry from minority shareholders. Yet LVMH’s approach of combining family management with capital market discipline is working. Still, investors must be wary of potential pitfalls.
LVMH’s performance is beyond doubt. The stock hit an all-time high on Thursday, helping the company double its market value from about 200 billion euros ($216.4 billion) to nearly 400 billion euros in the past three years. This makes Arnault overtake Elon Musk as the world’s richest man. It also delivered a 77% total return for LVMH compared with the Stoxx 600 index over the same period.
As a family-owned company, LVMH has an eye on the long-term. That was evident in another element of Wednesday’s announcement: the new leader of the group’s most important brand, Louis Vuitton.
Longtime Louis Vuitton chief executive Michael Burke will take on the new role, reporting directly to Arnault. Pietro Beccari, who has driven Dior since 2018, will succeed Burke. Dior, known for its saddle bags and school bags, has seen sales triple to 6.6 billion euros and operating margin more than double to 38 percent during Beccari’s tenure, analysts at Citigroup estimate.
At Louis Vuitton, the most pressing task now is to appoint a new menswear creative director to succeed the late Virgil Abloh. The hospitality sector is another opportunity following the $2.6 billion acquisition of Belmond Ltd four years ago. The company plans to open its first Louis Vuitton hotel in Paris.
Staying public brings discipline and access to capital markets. LVMH is on track to achieve net cash next year, according to Bloomberg analyst consensus estimates. But being able to mobilize shareholders would be useful if a large acquisition like Chanel’s, worth around 150 billion euros, can be made.
But LVMH faces risks.
The first is inheritance. It’s still a bit far off, as LVMH last year lifted the age limit for chief executives, allowing Arnault, 73, to stay at the helm until he’s 80. Ultimately, however, he will have to choose whether to appoint one of his children to the top job or split the responsibilities among the five.
If Arnault chooses one of his younger sons, Alexander, 30, for a senior job at Tiffany, or Frederick, 28, who runs Swiss watchmaker TAG Heuer, he could follow the example of Prada and appoint a non-family member Caretaker CEO until they are ready to take over. LVMH also has a cadre of senior executives such as Burke, Beccari (if he does well at Louis Vuitton) and group managing director Antonio Belloni who will be safe aides.
Whichever structure is chosen, the process must be handled carefully: splitting the CEO’s responsibilities increases the potential for sibling conflict.
Another danger is complacency, given LVMH’s growing idiosyncrasy. Backgrounds also look more challenging. Investors are betting that Chinese consumers will return with retaliatory spending now that they can travel, but the next few months will be volatile. Meanwhile, the U.S. luxury market is slowing.
LVMH is in the fashion business after all. Not only is it a notoriously fickle industry, but the desire to always be on the cutting edge can create a faux pas that alienates shoppers.
The danger seems remote, but the board, which includes some French corporate heavyweights, must remain vigilant to spot problems and raise them with families. It also doesn’t hurt to strengthen corporate governance with more non-family members. Kering SA appointed former Credit Suisse Group CEO Tidjane Thiam and actress Emma Watson to its board three years ago, though how much that has benefited after a tough time for the owners of Gucci and Balenciaga is debatable.
So far, things have been smooth sailing for LVMH shareholders. But as the luxury market dims, they shouldn’t just be passive travelers — but let their Louis Vuitton monogrammed suitcases do the trick.
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This column does not necessarily reflect the views of the editorial board or Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and retail. Previously, she was a reporter for the Financial Times.
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