After Heavy Losses, How Did Europe'S Richest Man And LVMH Boss Conspire To Make A Comeback?

In the office on the nine floor of Montaigne Avenue, Paris, Bernard Arnault, Europe's richest man, is spending a lot of time planning for the future of her own luxury Empire LVMH. The 71 year old billionaire has gone through several crises, but not once, like this epidemic, his more than 70 brands, from Dior to Fendi, have been hit in every way.

Arnault's wealth has shrunk dramatically. This year, LVMH's share price fell by 19%, and its net assets shrank by more than $30 billion. According to Peng Bo's billionaire index, he lost more money than anyone else in the world. As of May 6th, his loss was equivalent to the money earned by Amazon's chairman, Jeff Bezos.

But Arnault is not discouraged. He goes to his own war room every day, striving to maintain a shock industry acquisition, and carry out several heavyweight real estate projects normally. At the same time, he has video conversations with delegates. They are preparing to resume work and restart boutique stores in a virus ravaged world.

"Once the market returns to growth, he will be in a position to seize market share," said Mario Ortelli, founder and partner of Ortelli & Co., a luxury consulting firm in London.

Since the late 80s of last century, with its amazing talent, Arnault has transformed the creativity and craftsmanship of Europe's oldest brand into an ever increasing profit. He has become famous overnight in the French business world, and sometimes even caused a great stir.

Analysts estimate that the profit margin of his flagship brand Louis Vuitton is as high as 45%. The premium of the brand's old leather suitcase and handbag, as well as other quality products such as Hennessy Hennessy (Cognac Cognac) and Dom Perignon, helped Arnault expand its influence on most consumer goods in the rich class: whether it is buying Fendi handbags, Bvlgari (Bulgari) watches, or staying at the Cipriani hotel in Venice, they are increasing wealth for Arnault.

But with the outbreak of the outbreak and the blockade, the global economy has plunged into the most serious crisis since World War II. The number one beneficiary of the growth of discretionary spending suddenly looked down.

Arnault has been closed for more than a month in most fashion boutiques around the world, causing its most profitable sector to lose billions of dollars in revenue. Thanks to the cancellation of parties and concerts, nightclubs and restaurants are closed, the champagne sales of the world's 1/5 champagne producer are also dropping sharply. For people wearing masks all over the world, Dior true perfume is not their first choice.

In all of this, Arnault is preparing to buy Tiffany Co. for $16 billion, which is known as the largest acquisition in the history of luxury goods. After the business of the American jeweler was also stagnated, LVMH denied any claim that the company would withdraw from the transaction or renegotiate the price.

Ortelli said: "everything caused by the new crown virus pneumonia is a perfect storm for luxury goods. GDP is shrinking, and uncertainty is increasing. "

Nevertheless, investors are willing to take risks for Arnault. LVMH's share price performance is better than that of Gucci's parent company Kering and Richemont, which focuses on watches and clocks. The share price of the latter two fell by 25% and 30% respectively. Arnault's brand has a huge profit margin, and he has 9 billion euros in cash reserves, so that he can not only survive the crisis, but also continue to expand.

"We pay great attention to long-term interests," LVMH chief financial officer Jean-Jacques Guiony said in an interview on Thursday. In the crisis, many people said that the situation will no longer be the same as before, but we still have confidence. "

Historically, Arnault's career was to invest in a downturn when his competitors were too weak or too excited to move forward. In the recession of the beginning of this century, he squeezed out the shares of the newly acquired Fendi brand Prada Group SpA in. At that time, he opened the first luxury electric business center, and opened the largest store in the history of Louis Vuitton in Tokyo.

Pauline Brown, former chairman of LVMH Americas, said: "you can divide the world's top billionaires into very successful risk managers and very successful adventurers; Arnault is a very successful risk takers. When he feels the power and long-term potential, he will use his resources to actively pursue.

LVMH's strategy is to spend a lot of money on big money. In recent years, the company has launched some form of publicity competition with brands such as Chanel and Gucci. Every spring, the company will invite hundreds of guests to the world's fashion show to live in luxury hotels, such as the Cap-Eden-Roc liquor store in Vieira, France. This extravagance and waste has greatly enhanced the prestige of all the big brands of Arnault.

This year, these activities and most of the budgets for the development of related series have been shelved. Advertising spending has also been slashed. The next season's budget for men's clothing and advanced customization will be cut in June and July, some of which may be replaced by cheaper online displays.

What is more unusual is some investment that Arnault still intends to maintain. In the face of the uncertainty of international tourism, LVMH insists on its plan, saying that Paris's Samaritaine will reopen in the future. The $1 billion project has been rebuilt, including duty free shopping centers and luxury hotels. The group's goal is to open in February next year. LVMH also plans to build a luxurious White Horse Hotel (Cheval Blanc) in Losangeles's Rodeo Drive.

Guiony, chief financial officer, said: "big projects like Ssha Mary Dan's" once you get involved, it will be more meaningful to finish things in the beginning than to stop and start again. "

In addition, Givenchy is pushing ahead with the plan to recruit new designers, and timely adjust the aesthetics of the brand in the fashion show in September - although the epidemic restrictions may prevent new designers from making their first appearance to attract large audiences.

In contrast, Italy shoe manufacturer Ferragamo (Salvatore Ferragamo SpA) said that a series of non basic investments were suspended or cancelled in March.

Given that LVMH will announce the biggest decline in history, analysts now expect the company's operating profit to drop by about half in the first half of the year - Arnault's wealth may still be slashed. The company plans to cut capital expenditure by 30% to 35% this year, and postpone the opening and renovation of some shops. In the US, its Sephora chain has laid off more than 3000 people in early April, accounting for about 30% of the total.

Although the company suffered from a purely economic crisis, "this is a psychological crisis that may last for a generation," Brown said. "I think this will require a very different approach to the whole portfolio." She said that the core assets of LVMH were "very strict in management, but the smaller long tail brands did not get the same scrutiny".

However, with the increase in cash reserves and sales showing that the Chinese market has rebounded, the LVMH group's investment scale during the crisis may also be doubled. Highly specialized suppliers, top real estate and top talent can compete for Arnault. Although Arnault is not a man who is known for his bargaining, he does not want to give up the opportunity to add unique assets to himself.

The fate of the luxury industry and the fate of Arnault will largely depend on the Chinese market. In recent years, the Chinese market accounts for more than 1/3 of luxury goods sales, accounting for 2/3 of the growth of the luxury goods industry.

"In April this year, we saw a very high growth rate in China's major brands," Guiony said at a conference call on April 16th. "It does show that after two months of blockade, the Chinese want to restore their old consumption patterns."

However, consumer data show that many Chinese consumers plan to spend more carefully. Even if the demand for "retaliatory consumption" is real, this stimulus is not enough to alleviate the plight of the luxury goods industry.

On Monday, as France's embargo measures begin to loosen, the first major test of LVMH's reopening of business in other parts of the world will begin on its own. Since March, the company has transformed the French factory, producing masks and disinfectant hand gel products, up to 60 tonnes per week, and its famous accessories production has been restored.

Most shops including Dior, Louis and Vuitton, and Bon Marche department store will be reopened. A spokeswoman for a company said that the company is increasing the option of "online shopping and offline shopping". French stores can now complete orders within two hours and install plexiglass guardrails at the cashier.

A few steps away from the Arnault combat room, Christian Dior can hear the hiss of the hydraulic hoist and the boom of the hammer after the scaffolding parcel window was built at Montaigne Boulevard. With the support of Arnault, the historic fashion house is promoting a large-scale renovation plan, which will expand its size by two times: This is another bet for Arnault to re emerge the luxury industry.