LVMH wants leather to improve margins

Worldwide
Published:  01 October, 2013

LVMH (Louis Vuitton Moët Hennessy), the French luxury goods conglomerate part owned by Qatar, is taking its product offerings to the next level by introducing an even more opulent line of handbags and accessories.

According to trade publication Women’s Wear Daily (WWD) it has commissioned designer Darren Spaziani, who had previously worked on accessories at Proenza Schouler.

Spaziani initially worked for LVMH from 2004 to 2006 under Marc Jacobs and they will make sure that he is in no shortage of lush materials and ultra fine leather to work with.

Currently, the company sells $88,000 watches, $4,000 handbags, and $1,000 scarves, and some have questioned how much higher the prices of the new ranges can soar.

The move comes as LVHM reported profit had declined by nearly 4% in their last fiscal year which ended in June.

This is due to the fact that most of its recent growth has come from lower margin areas. The company’s total revenue increased by 10%, which is largely due to its aspirational goods, or what the company calls “selective goods”, such as perfumes that are sold in airports and high end department stores.

These fragrances generate approximately 10% profit, compared to 30% from luxury leather goods, which explains their strategy to drive up these margins even higher by offering the luxurious range of arm candy.

Another example of the new drive upmarket is Louis Vuitton’s recent investment in an Australian crocodile farm to ensure their supply of expensive skins (they also own a number of tanneries). And in July, the company spent $2.6 billion to buy an 80% stake in Loro Piana, an Italian textile producer that specialises in ultra-rare ingredients, such as fibers made from Myanmar lotuses and wool shorn from the vicuna, a llama-like creature that lives high in the Peruvian Andes.

Making careful use of synergies is another key pillar to driving up its margins, and LVMH has made a deal with Jonathan William Anderson last week to do exactly that.

It bought a minority stake in the London fashion label JW Anderson. The 29 year-old fashion designer, who graduated from the London College of Fashion just eight years ago, will become creative director of LVMH's Spanish leather brand Loewe as part of the deal, the terms of which were undisclosed.

LVMH was formed by the 1987 merger of fashion house Louis Vuitton with champagne and liquor maker Moët Hennessy. Sovereign wealth fund Qatar Holding holds a 1.03% interest in the company, which was valued at around €699m ($914m) last year.

Source: ArabianBusiness.com

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