Excellent piece. One of the best things about owning LVMH shares a few years back was receiving a small number of Hermes shares as a result of a settlement between Mr. Arnault and Hermes which followed LVMH’s scuttled attempt at buying them.
Hi James. This post is extremely timely and hits on the main areas of concern currently - N.B. I'm ignoring cyclical concerns as these come and go. The structural concerns: 1) Have luxury companies squeezed their brands to a point that they're no longer exclusive but ubiquitous and cheapening the brand with some of their products? 2) succession plans and the whether it should be family that runs the company.
On the first point I think the jury is out. I'm referring specifically to LVMH. Post Covid they raised prices too much and there hasn't been enough innovation (LV & Dior). So we're seeing a slowdown in leather goods and the carry-over products. I think that LVMH has been excellent over the years at brand management - it's been inorganic (the organic launches have failed) but they've done very well at giving brands time, investment and autonomy. I think that recipe still works, but I think that when you grow your client base and have more aspirational customers then it means you need to raise your game to retain them when there is a slowdown. I could be wrong, maybe it is structural, but I think they've proven themselves over time at handling cycles, changes in trends, ability to innovate etc. I expect they'll rectify this by innovation. They have huge scale advantages that enable them to invest and I hope they use this financial muscle to reinvigorate areas that have become tired. I can't speak about Kering as I don't know it as well.
On the point about handing over to the next generation, it's extremely fair. You want the best people running a company, ownership and management don't have to be the same and being the child of the founder doesn't mean you're ideally suited. I agree on all of these points. We don't yet know who will be running things at LVMH. But Hermes is family controlled and run and I'd argue it allows them to do things that other public companies can't - having that owner mentality and making long-term plans (you know this argument inside out and don't need me to explain it). With LVMH you've got c75 brands and part of the lure of working there was the autonomy you could have as head of one of these. So you have an interesting dynamic where you may have one of the family members representing the owners but letting the respective head of each maison/brand etc. to run their operation. I don't think that's a bad outcome because the family members will be aligned with the other shareholders - they'll want to do what's best for their business. An external CEO coming in may have different incentives that don't necessarily work in the interests of shareholders (make themselves rich, make a name for themselves etc. all with a short-term mindset). I can't remember the book but I read one about certain types of businesses having a propensity to be family owned / controlled (e.g. banks, luxury, autos etc). The impression, and it's just that, is that LVMH will be run by the talent they hire throughout the organisation and the family members are there as owners overseeing. I think that can be a very powerful outcome as you can ensure that the culture / founding principles are handed down over time & this is what makes the company special and valuable. There are good arguments on both sides.
One final thing. I found it very interesting what you said about Balenciaga etc. and it being slightly disingenuous as the founder is no longer and putting his/her name to something that isn't theirs or in-sync with the original founding principles is wrong. If you have strong family involvement do you not ensure that the core principles are there over time and that innovation and adaptation can occur so that businesses remain relevant? For me it's a strong argument for family involvement. The quote "if we want things to stay as they are, things will have to change" is applicable here. That's much harder to achieve if the baton passes with external hires. Enzo Ferrari doesn't make cars anymore but his family own part the business and the Agnellis are there too as a guiding hand to ensure that principles are still there. Perhaps the ideal is family ownership and oversight, with external managers on day-to-day. Arnault's children having board control etc. but not being CEO of anything (unless they're good enough e.g. John Elkann)....
I really enjoyed reading the post and thinking through the points you raised. Thank you.
There were many companies I could have covered, Richemont being one of them.
The object of the piece was to focus on the way in which Kering seems to be exploiting the former glory of great brands. This I contrast to the approach of Hermes. I then comment on the shift in approach of LVMH, which seems to be moving towards the Kering approach.
I also speak about the valuation and the fact that Hermes has now grown to be worth more than LVMH.
Adding Compagnie Financière Richemont to the story wouldn't have really added anything to the narrative. I see it more on the Hermes side of the spectrum - it stays true to its brands including Cartier, IWC Schaffhausen and my favourite, Jaeger-LeCoultre.
Richemont is also heavily skewed towards jewellery and watches - so the comparison would not have been as good. Had I been discussing Rolex, Patek Philippe and other luxury watch brands, Richemont would have almost certainly featured in the narrative.
Thanks for sharing. We both seem to have been thinking along similar lines.
One thing is certain the grand era under Bernard Arnault is a chapter nearing its end. The next chapter will likely be disappointing by comparison. He was a visionary, a man on a mission. The company has lost something, it had a certain je ne sais quoi, which now seems to have gone.
Let’s be honest, this post barely scratched the surface. We looked at one theme: how legacy brands can get milked long after their prime. But there’s another elephant in the room that’s just as fascinating, and far more uncomfortable.
Let’s talk about nepotism at LVMH.
There’s no denying Bernard Arnault is a visionary. He built LVMH into a luxury powerhouse and deserves enormous credit. But he’s in his late 70s, and won't be around forever. The current plan? Hand the reins to his children.
Now, here’s the thing: inheriting ownership is one thing. Inheriting the ability to run a global luxury empire is quite another. LVMH employs over 213,000 people. What are the odds that five of those employees - Arnault’s own children - just happen to be the best candidates to run major divisions of the company?
Let’s break it down. Statistically, the chance that one of them is the best fit is slim. The odds that all five are the absolute best people for their roles is around 320 quadrillion to one. That’s 320 trillion-trillions, or 320 followed by 24-zeros!
This raises a serious concern: LVMH looks like a company that prioritizes the interests of the Arnault family over those of its shareholders and other employess. That can get messy. If you need a cautionary tale, just revisit the fall of the Gucci family empire. Power struggles, internal drama, and yes - murder. Maurizio Gucci was gunned down, and Patrizia Gucci was later convicted of orchestrating the killing. Today, no Gucci family member has a stake in the brand bearing their name. Nepotism was their downfall.
Brunello Cucinelli once had a discussion with his daughter. He told her that just because she would inherit the ‘ownership’ of the business, it did not mean that she would inherit the ability to run the business. This is right, not only for the father but also for the daughter. If she were to be given control and mismanage the business, it is her inheritance on the line.
The rise and fall of Dunkin' Donuts is a tale of grit, ambition and ultimately, misplaced loyalty. William Rosenberg, raised in poverty and hardened by life’s challenges, built a global empire from a modest coffee and donut van through sheer drive and streetwise instinct. Lacking formal education, he believed in learning by doing and built his success on that ethos. His son Bob, however, raised in comfort and educated at Harvard, lacked the fire that fueled his father. Rosenberg, driven more by paternal love than sound business judgment, handed his son the reins of a billion-dollar company.
Bob's leadership proved catastrophic. Dismissing experienced voices and indulging in reckless expansion, he rapidly eroded the company’s value. Franchisee relations deteriorated into legal battles, poor site choices drained finances, and a failed pivot into the Chili’s franchise further destabilized the business. As the share price collapsed from $66 to under $2, Rosenberg, still majority shareholder, ignored repeated calls to replace his son. In 1989, stripped of its former strength, Dunkin’ Donuts was sold in a hostile takeover for a fraction of its worth. Rosenberg’s attempt to secure his son’s future instead destroyed the legacy he spent decades building.
Contrast that with how Warren Buffett handles succession at Berkshire Hathaway. He picks based on talent, not bloodline. There's a powerful lesson to be learned here.
I explore this and many other intriguing topics in my book, 'Fabric of Success' which is available on Amazon if anyone is interested.
With respect to Kering’s more mercenary approach, I remember having read a comment about Gucci’s fashion choices along the lines of “why would anybody care to buy anything in a shop with a selection that targets a rapper or a gangster’s girlfriend.”
Indeed. Richemont is more interesting, but still not as pure as Hermes. Richemont still collects brands. I think a better analogy for Hermes in the market that Richemont plays in would be Patek Phillipe, or perhaps Rolex.
Excellent piece. One of the best things about owning LVMH shares a few years back was receiving a small number of Hermes shares as a result of a settlement between Mr. Arnault and Hermes which followed LVMH’s scuttled attempt at buying them.
I didn't know about this Hermes situation. Thanks for sharing.
Arnault has been an exceptional CEO, but he is only human and makes mistakes.
One of the biggest was letting Gucci be acquired by Kering when it could have had that outstanding brand for a steal itself.
C'est la vie!
Hi James. This post is extremely timely and hits on the main areas of concern currently - N.B. I'm ignoring cyclical concerns as these come and go. The structural concerns: 1) Have luxury companies squeezed their brands to a point that they're no longer exclusive but ubiquitous and cheapening the brand with some of their products? 2) succession plans and the whether it should be family that runs the company.
On the first point I think the jury is out. I'm referring specifically to LVMH. Post Covid they raised prices too much and there hasn't been enough innovation (LV & Dior). So we're seeing a slowdown in leather goods and the carry-over products. I think that LVMH has been excellent over the years at brand management - it's been inorganic (the organic launches have failed) but they've done very well at giving brands time, investment and autonomy. I think that recipe still works, but I think that when you grow your client base and have more aspirational customers then it means you need to raise your game to retain them when there is a slowdown. I could be wrong, maybe it is structural, but I think they've proven themselves over time at handling cycles, changes in trends, ability to innovate etc. I expect they'll rectify this by innovation. They have huge scale advantages that enable them to invest and I hope they use this financial muscle to reinvigorate areas that have become tired. I can't speak about Kering as I don't know it as well.
On the point about handing over to the next generation, it's extremely fair. You want the best people running a company, ownership and management don't have to be the same and being the child of the founder doesn't mean you're ideally suited. I agree on all of these points. We don't yet know who will be running things at LVMH. But Hermes is family controlled and run and I'd argue it allows them to do things that other public companies can't - having that owner mentality and making long-term plans (you know this argument inside out and don't need me to explain it). With LVMH you've got c75 brands and part of the lure of working there was the autonomy you could have as head of one of these. So you have an interesting dynamic where you may have one of the family members representing the owners but letting the respective head of each maison/brand etc. to run their operation. I don't think that's a bad outcome because the family members will be aligned with the other shareholders - they'll want to do what's best for their business. An external CEO coming in may have different incentives that don't necessarily work in the interests of shareholders (make themselves rich, make a name for themselves etc. all with a short-term mindset). I can't remember the book but I read one about certain types of businesses having a propensity to be family owned / controlled (e.g. banks, luxury, autos etc). The impression, and it's just that, is that LVMH will be run by the talent they hire throughout the organisation and the family members are there as owners overseeing. I think that can be a very powerful outcome as you can ensure that the culture / founding principles are handed down over time & this is what makes the company special and valuable. There are good arguments on both sides.
One final thing. I found it very interesting what you said about Balenciaga etc. and it being slightly disingenuous as the founder is no longer and putting his/her name to something that isn't theirs or in-sync with the original founding principles is wrong. If you have strong family involvement do you not ensure that the core principles are there over time and that innovation and adaptation can occur so that businesses remain relevant? For me it's a strong argument for family involvement. The quote "if we want things to stay as they are, things will have to change" is applicable here. That's much harder to achieve if the baton passes with external hires. Enzo Ferrari doesn't make cars anymore but his family own part the business and the Agnellis are there too as a guiding hand to ensure that principles are still there. Perhaps the ideal is family ownership and oversight, with external managers on day-to-day. Arnault's children having board control etc. but not being CEO of anything (unless they're good enough e.g. John Elkann)....
I really enjoyed reading the post and thinking through the points you raised. Thank you.
Thank you for your well thought out arguments. It seems we are well aligned in our thinking.
Why didn’t you cover richemont?
There were many companies I could have covered, Richemont being one of them.
The object of the piece was to focus on the way in which Kering seems to be exploiting the former glory of great brands. This I contrast to the approach of Hermes. I then comment on the shift in approach of LVMH, which seems to be moving towards the Kering approach.
I also speak about the valuation and the fact that Hermes has now grown to be worth more than LVMH.
Adding Compagnie Financière Richemont to the story wouldn't have really added anything to the narrative. I see it more on the Hermes side of the spectrum - it stays true to its brands including Cartier, IWC Schaffhausen and my favourite, Jaeger-LeCoultre.
Richemont is also heavily skewed towards jewellery and watches - so the comparison would not have been as good. Had I been discussing Rolex, Patek Philippe and other luxury watch brands, Richemont would have almost certainly featured in the narrative.
This is an excellent article and analysis. I recently wrote about the same topic, check it out! https://marcinparis.substack.com/p/when-the-discreet-overtakes-the-grand-4f9?r=5ib925
Thanks for sharing. We both seem to have been thinking along similar lines.
One thing is certain the grand era under Bernard Arnault is a chapter nearing its end. The next chapter will likely be disappointing by comparison. He was a visionary, a man on a mission. The company has lost something, it had a certain je ne sais quoi, which now seems to have gone.
WOW!
This one was fantastic.
cant agree more.
Let’s be honest, this post barely scratched the surface. We looked at one theme: how legacy brands can get milked long after their prime. But there’s another elephant in the room that’s just as fascinating, and far more uncomfortable.
Let’s talk about nepotism at LVMH.
There’s no denying Bernard Arnault is a visionary. He built LVMH into a luxury powerhouse and deserves enormous credit. But he’s in his late 70s, and won't be around forever. The current plan? Hand the reins to his children.
Now, here’s the thing: inheriting ownership is one thing. Inheriting the ability to run a global luxury empire is quite another. LVMH employs over 213,000 people. What are the odds that five of those employees - Arnault’s own children - just happen to be the best candidates to run major divisions of the company?
Let’s break it down. Statistically, the chance that one of them is the best fit is slim. The odds that all five are the absolute best people for their roles is around 320 quadrillion to one. That’s 320 trillion-trillions, or 320 followed by 24-zeros!
This raises a serious concern: LVMH looks like a company that prioritizes the interests of the Arnault family over those of its shareholders and other employess. That can get messy. If you need a cautionary tale, just revisit the fall of the Gucci family empire. Power struggles, internal drama, and yes - murder. Maurizio Gucci was gunned down, and Patrizia Gucci was later convicted of orchestrating the killing. Today, no Gucci family member has a stake in the brand bearing their name. Nepotism was their downfall.
Brunello Cucinelli once had a discussion with his daughter. He told her that just because she would inherit the ‘ownership’ of the business, it did not mean that she would inherit the ability to run the business. This is right, not only for the father but also for the daughter. If she were to be given control and mismanage the business, it is her inheritance on the line.
The rise and fall of Dunkin' Donuts is a tale of grit, ambition and ultimately, misplaced loyalty. William Rosenberg, raised in poverty and hardened by life’s challenges, built a global empire from a modest coffee and donut van through sheer drive and streetwise instinct. Lacking formal education, he believed in learning by doing and built his success on that ethos. His son Bob, however, raised in comfort and educated at Harvard, lacked the fire that fueled his father. Rosenberg, driven more by paternal love than sound business judgment, handed his son the reins of a billion-dollar company.
Bob's leadership proved catastrophic. Dismissing experienced voices and indulging in reckless expansion, he rapidly eroded the company’s value. Franchisee relations deteriorated into legal battles, poor site choices drained finances, and a failed pivot into the Chili’s franchise further destabilized the business. As the share price collapsed from $66 to under $2, Rosenberg, still majority shareholder, ignored repeated calls to replace his son. In 1989, stripped of its former strength, Dunkin’ Donuts was sold in a hostile takeover for a fraction of its worth. Rosenberg’s attempt to secure his son’s future instead destroyed the legacy he spent decades building.
Contrast that with how Warren Buffett handles succession at Berkshire Hathaway. He picks based on talent, not bloodline. There's a powerful lesson to be learned here.
I explore this and many other intriguing topics in my book, 'Fabric of Success' which is available on Amazon if anyone is interested.
Thank you very much!
Definitely interesting points to think about, and this point also distinguishes Hermes from LVMH
Fantastic work, thanks!
With respect to Kering’s more mercenary approach, I remember having read a comment about Gucci’s fashion choices along the lines of “why would anybody care to buy anything in a shop with a selection that targets a rapper or a gangster’s girlfriend.”
Great article - completely agree with your views. LVMH and Kering seem to be losing brand power.
Hermes is clearly the luxury king now. I think Richemont embodies some of the same qualities and also trades reasonably.
Indeed. Richemont is more interesting, but still not as pure as Hermes. Richemont still collects brands. I think a better analogy for Hermes in the market that Richemont plays in would be Patek Phillipe, or perhaps Rolex.
Excellent writeup