French luxury – a tale of two tycoons (and one family)

French luxury – a tale of two tycoons (and one family)

by Pininvest Analysis

French Brands on US exchanges on pininvest.com

  • 12 constituents
  • 1.0% 1y performance
  • 29.4% volatility
Check the investment theme exit_to_app

Luxury fashion brands in France may, in (very) broad strokes, be described by the irresistible rise of two powerbrokers, Bernard Arnault and François Pinault, expanding their sprawling business empires over 3 decades mainly in France and also in Italy

 

The – since 1984 (with the original Boussac acquisition) - expanding brand portfolio of LVMH , chaired by Mr Arnault, with sales of $53bn in 2017 (+13%), has a very strong presence in both countries with multiple highly recognized names in fashion, leather, perfumes, cosmetics, wine and spirits

Riding the premise that luxury brands are mutually supporting on international markets, LVMH has managed to preserve distinct personalities in the portfolio with head-strong designers and local (often separate) production facilities
In April 2017, by integrating Christian Dior which it already controlled, LVMH puts a finish touch to its statement in luxury

 

The decision of Mr Pinault to invest in the luxury and retail sector, selling the wood importing business he had founded, was equally insightful. Under François-Henri Pinault, son of the founder and chairman since 2005, the renamed group Kering (formerly PPR) has successfully focused on luxury  by shedding retail activities and more recently its Puma sports division

Acquired in 2007, after a lengthy, if unforeseen, turnaround and collapsing profitability reaching a low point in 2013, Puma will, according to a January ’18 announcement, be spun-off to the Kering shareholders, subject to shareholder approval in April, completing the strategic shift of the group, becoming a pure play luxury company

The Kering brand portfolio including fashion, jewelry, eyewear and wines – around the Florence based Gucci brand, which was the subject of a heated battle with LVMH in 1999 – performed outstandingly in 2017. Sales of the luxury brands of approx. $ 12bn (+30%) were powered by Gucci and Yves Saint-Laurent and sales of sports and life style (Puma) reached the highest level ever of approx. $ 5bn (+14.5%)
The share price of Puma, independently quoted on Xetra, the German exchange, has held up well, increasing from €318 on the announcement in January to €415 on March 20 ‘18

 

With both LVMH and Kering promoting ‘mass luxury’, the outlier and remaining French luxury powerhouse is family-controlled Hermès , protective of its iconic brand, with long waiting lists a symbol of its exclusivity

Fending off a hostile take-over attempt by LVMH which build-up a 14% stake , announced to the market’s surprise in late 2010, and increased up to 23% by 2013, the Hermès-Dumas family maintained their control by pooling their assets in a private holding. Ultimately, LVMH will withdraw, assigning its Hermès shares to the 2017 buy-out offer of Christian Dior minority shareholders

This battle for control is not meant to highlight the overreach of Mr Arnault but the split within the family ownership, laid bare by the LVMH buy-out option. The resulting uncertainty raises pointed questions about the Hermès group’s future strategy, possibly leaving the high ground of strict exclusivity with an on-line presence and increased production capacity. The future will tell – 2017 has been uneventful but the share price almost doubled since the heady days of 2013

View our theme Luxury at the crossroads for further analysis