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Less Is More for Louis Vuitton as It Pulls Expansion

Friday, 1 Feb 2013 | 2:05 AM ET
The grand opening Louis Vuitton shop in Hong Kong.
Phillippe Lopez | AFP | Getty Images
The grand opening Louis Vuitton shop in Hong Kong.

Louis Vuitton, the world's biggest luxury brand in terms of sales, is planning to dampen its expansion worldwide and focus on high-end products to preserve its exclusive image, said Bernard Arnault, chief executive of parent LVMH.

Arnault said publicly for the first time that the brand's wide footprint risked making it too commonplace, and analysts said the decision explained the recent drop in sales growth at Louis Vuitton in recent quarters.

Louis Vuitton, which generates more than half of LVMH's operating profit, has been opening shops in the past decade in places as remote as Mongolia. It is now in 50 countries with more than 460 shops and generates more than 7 billion euros in annual sales.

"The group's strategy now is to limit store openings," Arnault said at the group's annual results presentation. "We want to focus on leather products with high value added."

Louis Vuitton, which is known for its LV-embossed handbags, has started offering customers made-to-order bags in exotic skins and created invitation-only spaces in its shops.

Instead of opening new boutiques, he said, Louis Vuitton will expand existing ones, as well as offer customers a more personal relationship.

Arnault said Louis Vuitton, which recently launched a major television ad campaign, was not planning to open boutiques in second and third-tier cities in China to "avoid becoming too commonplace."

Analysts said Arnault's comments mean Louis Vuitton would probably not open shops for some time, a strategy that helped boost revenues in the past.

"This means that short-term growth should be more moderate, as we have started to experience for a few quarters," said luxury analyst at Exane BNP Paribas Luca Solca.

"But the good news is that their expectations on China are good, and that the fourth quarter has started to show an acceleration on the third quarter, albeit a modest one."

Mixed Picture Ahead

Arnault warned that an appreciation of the euro in 2013 could hurt the group's business and implied Louis Vuitton could raise prices. Louis Vuitton increased its prices in Europe in October. Arnault said he was confident LVMH would increase its turnover despite Europe's uncertain economic environment.

He said the outlook for the global economy in 2013 was good, helped by expectations of 2 percent GDP growth in the United States and 8 percent growth in China.

The group's results follow concerns raised earlier this month by No. 2 luxury goods maker Richemont about the pace of growth in China, the industry's biggest engine of growth.

The luxury goods sector suffered from a slowdown in demand in China in the second half of the 2012 due to the leadership change and a crackdown on gifts to officials, but industry executives said market trends had improved in recent weeks.

British luxury brand Burberry, which was one of the first major brands to warn about worsening trading conditions in China in September, said earlier this month consumer sentiment there had improved.

China's New Year falls this year in February as opposed to January last year, affecting year-end demand and results in 2012, luxury brands have said.

In 2012, LVMH made a profit from recurring operations of 5.921 billion euros ($8.04 billion) on revenue of 28.1 billion euros, broadly in line with market forecasts.

The French group said sales rose 8 percent in the last three months of the year on a like-for-like basis, after the previous quarter's 6 percent expansion.

Like-for-like growth at the group's fashion and leather unit, which includes Louis Vuitton, came in at 5 percent in the fourth quarter, as during the preceding three months.

LVMH did not publish growth figures for Louis Vuitton, saying said the brand enjoyed "double digit growth" in 2012.

Celine and Berluti

Referring to Celine, much smaller in size than Louis Vuitton, Arnault said that the work of creative director Phoebe Philo appealed to customers worldwide and that the French luxury brand produced "exceptional results."

Shoe brand Berluti, which last year launched its first ready-to-wear men's collection by former Zegna designer Alessandro Sartori, will invest in widening its network of shops, Arnault said.

Arnault said the loss-making brand, which is headed by his son, Antoine, had the potential to generate several hundred thousands of euros in sales and become profitable in three years.

LVMH is stepping up investment in menswear, as is its rival PPR, with its acquisition of Italian tailor Brioni to tap demand in Asia and position itself for future growth in emerging markets.

The group's wines and spirit division, which makes Hennessy cognac, also improved in the fourth quarter with like-for-like sales up 9 percent against 6 percent in the third quarter.

The group proposed an increase of 12 percent of its annual dividend to 2.9 euros a share.

LVMH, which is controlled by separately listed Christian Dior through a 41 percent holding, has no plans to change its shareholder structure, Arnault said.

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