Case study: LVMH

LVMH is one of the weirdest and most important brands that you’ve sort of heard of but don’t fully understand. The acronym is based on the combination of Moet Hennessy (which was itself a merger between a champagne producer and a cognac firm) and Louis Vuitton (when written in full the wine and spirits name goes first, but the official company name swaps the order). Louis Vuitton is a French fashion house with origins in luxury travel cases. The traditional form of luggage were wooden or leather trunks that had a sloped lid for rain to run off. This is because they would typically be placed on the back of a horse drawn carriage. Louis Vuitton capitalised on two important trends:

1. Increased wealth and prosperity which meant that travel became available to the super rich, and not just royalty.
2. The expansion of train travel and the need for flat-roofed and stackable cases.

Louis Vuitton’s exceptional quality, based on a process to make leather waterproof and hard wearing, combined with signature monogrammed branding, proved to be an enduring success story. Of course, the luxury industry covers a range of products – wines and spirits, perfumes, travel luggage, fashion, watches, etc – and can be considered distinct from premium.

Don’t forget though, all value is subjective and all products will contains elements of signalling. We should therefore be careful about designating goods or services as either premium or luxury.

The person responsible for turning LVMH into such a global superpower is Bernard Arnault, who studied in America (and learned all about leveraged buyouts and other corporate raider style tactics) before returning to Europe and putting into practice the techniques that he had learnt. LVMH reflects a distinct combination of European tastes and quality control, and American financialisation and commercial success. The core insight that Arnault had was that although luxury companies tend to have high diseconomies of scale by themselves (due to the variable costs of workmanship, managerial complexity and fast changing consumer tastes), a luxury goods holding company has massive economies of scale. In particular:

• Advertising – billboard companies have standard rates for most advertisers but may even want LVMH brands to adorn their real estate.
• Managerial training and retention – in many companies promising employees have to wait for their boss to retire before gaining a promotion. At LVMH managerial talent can rise through the ranks quickly by moving between LVMH companies. This also justified investment in managerial competencies (which are learnable and important!)

Many LVMH companies took control of the brands they brought into the company and utilised effective vertical integration. This quote sums up the benefits of being big:

If you control your factories, you control your quality.
If you control your distribution, you control your image.

attributed to Bernard Arnault

In 2024 Bernard Arnault was the richest man in the world with a personal net wealth of $233 billion (see Forbes). By 2026 his fortune had fallen to just (!) $143.3 billion, still putting him comfortably in the Forbes top 10 and making him the richest non-tech billionaire on the planet.