Feb 24
The Future of LVMH
Aleyna Baki (’25) | Feb 24, 2023
There will certainly be a “Darwinian Contest” to succeed Bernard Arnault — 73-year-old LVMH chairman and CEO — when he eventually retires. With four sons and one daughter all working in executive positions in the group, there seems to be a lot of speculation in regard to a succession battle. Especially after Arnault overtook Elon Musk’s throne as the world’s richest man thanks to his $178 billion fortune. Thankfully, no one other than the lord of luxury should better know the importance of keeping hold of the family silver.
Bernard recently tightened the family grip on the group by appointing his daughter, Delphine Arnault, 47, to head Christian Dior Couture. She has previously worked as the executive vice president of Louis Vuitton — LVMH’s biggest brand. In his statement, Arnault praised his daughter saying that “under her leadership, the desirability of Louis Vuitton products advanced significantly, enabling the brand to regularly set new sales records. Her keen insights and incomparable experience will be decisive assets in driving the ongoing development of Christian Dior.” The move is certainly symbolic if not a strategic one as it is the first couture house Arnault bought for his empire back in 1984. It is also a strategic one, as proven by LVMH shares climbing 2% after the announcement. The announcement also comes one month after Arnault’s oldest son, Antoine, was named CEO and vice chairman of Christian Dior. His son Alexander, 30, heads products and communication at Tiffany & Co, while Frederic, 28, is the CEO of Tag Heuer. Arnault’s youngest son, Jean, 24, is the head of marketing and product development for Louis Vuitton’s watches division. Yet, the 73-year-old has signaled no intention of stepping down from his role as the company last year raised the maximum age requirement for its CEO from 75 to 80.
The announcement came as China, with its consumers accounting for one-third of global luxury sales, announced it is lifting all Covid restrictions. LVMH’s current success is tied to Arnault’s ability to see and leverage the power of globalization. He was early to spot the Japanese taste for luxury, and then the Chinese one. Now, Asia with more than 2,200 LVMH stores, is LVMH’s biggest market. LVMH had a record year in 2022, with revenue and profit both up by 23%. While the luxury market’s value is expected to increase by 60% and reach €540–580 billion by 2030, 200 million luxury customers are set to grow to 500 million by the end of the decade according to a November 2022 report by Bain & Co. Also, globally there are various demographic, geographical, and economic trends that could help the luxury market. By 2030, India’s luxury market is set to expand by 3.5 times. China’s economic recovery and rising middle class will certainly give another boost to the sale of luxury goods. The luxury market also has the changing generational trends at its advantage. By 2030, Gen Z’s and Gen Alpha’s spending is expected to grow three times faster than other generations, which would make up a third of the market. Moreover, Gen Z consumers are more open to buying luxury goods as they are starting to buy these items 3 to 5 years earlier than Millennials.
Even though there seem to be no clouds in the sky for this luxury empire, succession planning in LVMH is critical to the future success of the group. Firm’s decision to exit Russia following Russia’s invasion of Ukraine highlighted the threat posed by geopolitical headwinds. Considering China’s current relationship with the West, one ultimately wonders what happens if the firm had to pull out of China. Also, the rise of luxury is correlated with the rise of social inequality around the world. When people believe they can join the ranks of the rich, luxury businesses will do well. But if the people start believing that they will never be part of the elite, dissatisfaction and resentment might rise. Who knows? Maybe getting hold of family silver might not be as easy and appealing as it sounds in LVMH.
