LVMH: The Wolf in Cashmere’s Conglomerate - [Business Breakdowns, EP. 68]

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Aug 3, 2022

Christian Billinger, chairman of Billinger Förvaltnings, dives into the intricacies of LVMH, the world's largest luxury conglomerate. He discusses Bernard Arnault’s visionary impact on the luxury industry and the challenge of maintaining scarcity while achieving scalability. Key acquisitions like Bulgari and Tiffany are examined, showcasing LVMH's strategic growth. The podcast also highlights the increasingly influential role of Chinese consumers in shaping global luxury trends and the importance of balancing long-term vision with short-term management in an evolving market.

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ANECDOTE

Arnault's Dior Inspiration

Bernard Arnault's interest in Dior stemmed from his mother's fascination with the brand.
He recognized Dior's strength while working in the US, after a cab driver recognized the brand but not the French president.

INSIGHT

LVMH and Berkshire Hathaway

LVMH's structure and acquisition strategy mirror Berkshire Hathaway's.
Both prioritize fiscal conservatism, counter-cyclical investing, and long-term value creation.

INSIGHT

LVMH's Diversification

LVMH achieved scale in the luxury market through diversification and strategic acquisitions.
This contrasts with brands like Caring and Richemont who rely heavily on a few core brands.

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This is Zack Fuss, an investor at Irenic Capital Management. Today we’re breaking down the world’s largest luxury business, LVMH. The LVMH story is deeply reflective of the vision of its 73 year-old founder and architect, Bernard Arnault. Today, the business generates €75 billion in sales across its 75 brands and 3 sector focuses. With a market cap of €350 billion, LVMH is not only the largest luxury business in the world but one of the largest businesses in the entire world.

To break down LVMH, I’m joined by Christian Billinger, the chairman of Billinger Förvaltnings. We discuss the paradox between scarcity and scale in the luxury industry, analyze some of the company’s high profile acquisitions, and delve into the history of this conglomerate’s famous founder. Please enjoy this breakdown of LVMH.

For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.

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Show Notes

[00:03:30] - [First question] - How LVMH came to be and Bernard Arnault’s history

[00:08:56] - Spread of revenue and margins across their various brands

[00:13:38] - What it is about their business that has allowed them to achieve such tremendous scale given the scarcity of luxury goods

[00:16:06] - Examples of Arnault reinvesting in the business for the long-term

[00:17:04] - Ways all of their brands and different verticals work together to create value

[00:18:56] - What the general view on success is after Arnault steps down

[00:21:19] - Key factors that allow luxury houses to enjoy handsome returns on capital historically

[00:23:17] - What he’s noticed about luxury brands and their ability to redeploy capital

[00:26:25] - How their capital allocation strategy manifests in their financial profile

[00:28:24] - The Arnault family’s control over LVMH

[00:31:48] - The evolution of the industry in Europe and the strong getting stronger

[00:33:58] - Cultural differences internationally that allow some countries to thrive in luxury brands compared to others like the US

[00:36:17] - Thoughts on the influence of the Chinese consumer on European luxury houses

[00:40:30] - What has characterized their M&A strategy historically

[00:44:08] - Overview of their recent acquisitions and what it means for LVMH going forward

[00:47:46] - Their go-to-market strategy to acquire customers and build the brand

[00:48:11] - Some of LVMH’s vulnerabilities and risks

[00:50:44] - Key takeaways for investors and operators when studying LVMH’s story