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The Continued Race to the Top Between Elon Musk and Bernard Arnault as Luxury Empires Thrive Amid Economic Uncertainty

  On June 17, 2023, two of the richest people in the world had lunch in Paris, one was Elon Musk, and the other was the president of French luxury goods giant LVMH (LVMH Group). Arno.
  In the past two years, they have taken the position of the richest man in the world alternately. In the current unstable global situation, the technology and luxury industries occupy the top of the wealth, one claims to change the world, and the other is the ultimate presentation of consumerism.
  The pace of the two is also surprisingly consistent. In early June, as soon as Musk left China, Tesla’s stock price hit a new high in eight months, and surpassed Arnault again to become the world’s richest man. At the end of June, Arnault also came to visit China and started the “store tour mode” in China, going to Beijing, Shanghai, Chengdu and other places. The Chinese market has become an important part of his business map. The chief financial officer of LVMH once revealed that the Chinese market contributed 80% of the revenue in the Asia-Pacific region except Japan.
  According to the “2023 Hurun Global Rich List”, as of January 16, China had a total of 969 billionaires, 278 more than the United States.
  In the era of global economic downturn, LVMH has stabilized its wealth kingdom with super performance in the past two years. When consumption downgrades and the fragility of the middle class becomes key words, there are still long queues in front of some luxury stores. The same is true for the luxury car market. In 2022, Rolls-Royce will deliver a total of 6,021 new cars worldwide, a year-on-year increase of 8%, setting the highest sales record in the 118-year brand history.
  Bernard Arnault, the helm of the world’s largest luxury goods empire is best at this business: creating a dream for the middle class and making money in the hands of the rich.
Luxury sales hit new highs after crazy price hikes

  An obvious change in recent years is that luxury goods continue to increase in price to consolidate core users.
  Vincent, the author of “Luxury Strategy”, once described: “A beautiful gem is only good. It will only become charming when you pay a lot for it, far beyond rational or functional requirements.”
  2023 On June 1, 2019, LV carried out a new round of price adjustments, some of which rose by more than 11%-there was a price adjustment just 4 months ago. This is the third price increase for the brand in half a year. Since 2020, LV has raised prices nearly 10 times.
  The frequent price adjustment of luxury goods has reached an almost crazy level. In March, Chanel launched the first round of global price increases in 2023. Chanel’s classic CF handbag small rose from RMB 61,900 to RMB 71,800, an increase of nearly RMB 10,000. The average increase in this round is 12%-16 %, which is higher than Chanel’s past 5%-6% increase, and this price increase has only been 3 months since the last price increase. In 2019, the price of this bag was 33,700 yuan, and many people on social media ridiculed that “it is better to buy a bag than to buy funds and stocks.”
  Hermes, which has always raised prices relatively modestly, will also raise prices globally in the second half of 2022, with some products increasing by nearly 30%. On the eve of the price increase, there will be queues at the counters. Obviously, the price increase has stimulated consumers’ desire to buy.
  In 2022, a screenshot of the key points of the LVMH Greater China executive conference call was widely circulated, which mentioned: the new crown epidemic has led to changes in the structure of luxury goods customers. In the past two years or so, only the number of ultra-high-net-worth customers and purchases have increased ( After the epidemic, the gap between the rich and the poor has further increased, and the small rich and the middle class have decreased). In the future, LVMH will comply with the preferences of ultra-high-net-worth individuals, continue to make efforts in high-end product lines, and increase the price of entry-level products to eliminate the dwindling “no-income customer group” .
  The definition of “no-income customer group” has stimulated public sentiment. In this screenshot, LVMH divides the customer group into three categories: ultra-high net worth (personal annual income of more than 10 million yuan or family annual income of more than 30 million yuan), high net worth (individual Annual income of 3 million to 10 million or family annual income of 10 million to 30 million), no income (lower than the above two categories, are classified as no income, including students and ordinary white-collar workers).
  Although the meeting minutes have not been officially confirmed, LVMH’s subsequent price increases are indeed eliminating the declining “no-income” group.
  Of course, the price increase has a certain relationship with inflation, but the more important reason is to demonstrate brand value, scarcity and uniqueness through high prices, screen core users through prices, and maintain and consolidate real high-income groups.
  Why is 2020 a watershed for price increases? The new crown epidemic is the fuse. Under the influence of the global epidemic, sales of luxury goods have dropped sharply, and brands have closed factories due to the impact of the epidemic. Hermes announced the closure of 42 production bases in France, Gucci closed 6 factories and all stores in Italy, and Chanel also announced the closure of many factories in Europe. LVMH Group’s revenue in 2020 was RMB 350.94 billion, a year-on-year decrease of 17%.

  After the epidemic, the global economy is sluggish, the situation is turbulent, and social classes are further divided. It is indeed a good way to seize the core group and increase the unit price of customers. LVMH has also become the first batch of luxury groups in the industry to increase prices on a large scale.
  After frequent price increases, the sales of luxury goods are even more eye-catching. LVMH has made great strides all the way. The 2022 financial report shows that the LVMH Group has set a new high in historical performance, with sales revenue of 79.2 billion euros and operating profit of 21.1 billion euros, both an increase of 23%.
  In the first quarter of 2023, LVMH’s global sales will be 21 billion euros (about 22.4 billion US dollars), a year-on-year increase of 17%; in the first quarter, European sales will increase by 24%, US sales will increase by 8%, and Japanese sales will increase by 34% , sales in Asia excluding Japan rose 14%.
  The 2022 financial report released by Chanel also shows that annual sales rose by 17% year-on-year to US$17.2 billion at a constant exchange rate, a record high. Chanel said that half of the revenue growth in 2022 should be attributed to price increases, operating profit increased by 5.8% to US$5.8 billion, and profit after tax increased by 14.2% to US$4.6 billion. In the Asia-Pacific market where China is located, sales increased by 14.3% year-on-year to US$8.65 billion, accounting for more than half of Chanel’s annual revenue.
  During the period of rapid development, China has created a rapidly growing number of wealthy people and has become one of the most important markets for global luxury goods. According to data released by Bain Consulting, sales of personal luxury goods in mainland China will increase by 36% year-on-year to 471 billion yuan in 2021, more than double the sales in 2019 before the outbreak of the new crown epidemic.

  Hurun Research Institute’s “High Net Worth Individual Values ​​and Lifestyle Research Report 2022” pointed out that having assets of 6 million RMB has been regarded as a wealthy family common in the world. In 2020, the number of wealthy households in China with assets of RMB 6 million will reach 5.01 million, of which the number of wealthy households with investable assets of RMB 6 million will reach 1.8 million.
  In 2022, China’s “rich families” with a total wealth of 6 million yuan will increase by 1.3% from the previous year to 5.08 million, and the “high-net-worth families” with a total wealth of 10 million yuan will increase by 2% from the previous year to 2.06 million, with a total wealth of 100 million yuan The number of “ultra-high-net-worth households” in RMB increased by 2.5% from the previous year to 133,000.
  There is no doubt that Arnault attaches great importance to the Chinese market. The wealth-making machine he is in charge of is still rolling forward. LV expects to open more than one store in every provincial capital of China by 2025 to further expand the scale of the Chinese market.
Arno’s Kingdom of Fortune

  Bernard Arnault is a total businessman.
  In his early years, Arnault worked in his father’s construction company, and later transformed into a real estate businessman. In 1984, relying on his family wealth and $80 million from investment bank Lazard & Co., he bought long-losing textile companies Boussac Group and Dior (Dior).
  When Dior was forced to sell to the W Group, it suffered the bankruptcy of the W Group. In the crisis, Arnault appeared. After taking control of Dior, he carried out drastic reforms. Under the new business strategy, Dior began to revitalize, which also gave Arnault a place in the luxury industry.
  During Arnault’s revival of Dior, LV and MH (Moet Hennessy) reached a cooperation after three years of negotiations. On June 30, 1987, Lacamier, the leader of LV, signed a contract with Chevalier, the controller of MH, and the LVMH luxury goods group was born.
  Until now, LVMH still has nothing to do with Arnault.
  The variable is that the two controlling shareholders of LVMH started an infighting, and Lacamier invited Arnault to join the struggle. He thought that Arnault could help him, but he didn’t think that he would lead the wolf into the house. On the one hand, Arnault promised to defend Lacamier’s position in the company, and on the other hand, he cooperated with Chevalier to increase the company’s stock holdings.

  In October 1987, the Wall Street stock market crash broke out, implicating the French stock market. The stock price of the LVMH Group plummeted by more than 70%. At this time, Arnault carried out bottom-hunting, and with the previously secretly increased stock holdings, he became the largest shareholder of the group. In 1989, Arnault was elected chairman of the group’s board of directors, and both Lacamier and Chevalier were forced to leave LVMH.
  After the ruthless and ambitious businessman took charge of LVMH, he continued to follow his path of success and started the road of “buying, buying, buying” in the field of luxury goods. It can be said that he is a “bloodthirsty” hunter who is good at sneaking in when his opponents are in crisis, and established the present luxury kingdom through crazy mergers and acquisitions.
  In 1993, LVMH acquired Kenzo for US$80 million, Guerlain in 1994, Celine and Loewe in 1996, Fendi in 2001, Bulgari in 2011… In 2008, Arnault also bought
  the 4.9% of Hermès stock. On December 24, 2010, the three stock betting agreements expired, and Arnault bought the shares of Hermes from the investment bank. His shares reached about 22%, and he suddenly became the largest shareholder of Hermes. But the Hermès family stopped Arnault’s hostile takeover, and after many lawsuits, Arnault reduced its stake from 22% to 8%.
  In 2020, although the acquisition of Tiffany was tortuous, LVMH finally successfully acquired Tiffany. In the public statement, Arnault’s attitude is very firm, “We have no doubts about the great potential of the Tiffany brand, and believe that in this exciting new chapter, LVMH is the right place for Tiffany and its employees.” Roger Farah, chairman of Tiffany’s board of directors He said, “We are happy to reach an agreement with LVMH at an attractive price and to promote the merger.”
  After the acquisition is completed, Arnault usually undergoes a major management change, and this acquisition of Tiffany is no exception. After the transaction was completed, LV CEO and chairman Michael Burke was appointed as the chairman of Tiffany, and Alexandre Arnault, the son of LVMH chairman and CEO Bernard Arnault, was appointed as the executive vice president, responsible for products and communications. LVMH has also hired Nathalie Verdeille, who has been creative director of Cartier jewelry since 2005, as artistic director of Tiffany jewelry and fine jewelry. Completely change the team from all aspects such as product and marketing.
  In the early years, after he got Celine, he even put aside the brand founder and appointed others as art director. Although the means are cruel, it is undeniable that these brands reopened the road to modernization in his hands, and also created the brand classics of that era.
  Perfume, clothing, high-end wine, luggage, beauty makeup… LVMH has a wide range of categories. It also acquired Sephora in 1997 and is currently the largest boutique retail store under LVMH.
  In the past 34 years, Arnault has acquired nearly 80 major luxury brands, and LVMH has gradually grown into the world’s largest luxury goods group. The so-called “wolf wearing cashmere” is still continuing his expansion.
Consumer society and the future of the luxury family

  What kind of development path China’s luxury industry will experience is usually reminiscent of Japan. In 1995, the Japanese luxury goods market reached US$97.8 billion, accounting for 68% of the global market share, and the consumption of luxury goods by the affluent class showed explosive growth.
  The “Fourth Consumption Era” written by the Japanese writer Miura Zhan once described that the period from 1974 to 1995 was the third consumption era in Japan. After the oil crisis broke out, the Japanese economy entered a stage of medium-speed development, and the number of working women increased and the proportion of singles increased. , Convenience stores are expanding faster than department stores and supermarkets. Consumer psychology has changed from pursuing the same consumption as others in the past to pursuing consumption as one likes, from quantity to quality, from goods to services, from mass consumption to individual consumption, and presents a trend of personalization, diversification, high-end, and branding . Individuals have a strong desire to consume, conspicuous consumption and expressing a unique self are the main features of this stage. Late marriage and single people are increasing, with strong consumption ability and willingness, and they prefer high-end and high-quality products.
  But in the fourth consumption era, that is, from 1996 to the present, with the bursting of the Japanese real estate bubble in 1990 and the Asian financial turmoil in 1997, the Japanese economy fell into a long-term stagnation and entered the “lost 20 years”. The problem of aging is serious, and the proportion of the working population is declining. The consumer psychology at this stage is more chasing simplicity, comfort, simplicity, environmental protection and appreciation of beautiful things. Muji and Uniqlo also emerged during this period.
  In addition to the important impact of the economic situation on consumer psychology, luxury goods are also facing social controversy brought about by the widening gap between the rich and the poor and excessive consumerism. extreme. Therefore, there is no shortage of young people who take out loans to buy luxury goods and pay in installments for their dream bags. Sometimes, even young people may find it difficult to say whether they love the design of the brand or the sense of honor brought by scarcity. When buying a luxury item becomes the best compliment to yourself, it is difficult to judge the correct decision or not. What is certain is that in this uncertain era, people need the comfort brought by the dreams woven by a brand.

  In addition, blindly relying on the support of old products, whether it can always catch young people in the future, become a brand recognized by the new generation, and whether it can give new value to the brand is also a challenge for the luxury industry.
  Now, Arnault, the 74-year-old head of the luxury kingdom, is about to retire, and who will take over his family business has attracted much attention. This battle of succession may determine the future direction of LVMH. In April 2022, Arnault took the lead in changing the group’s regulations on the upper age limit of the president, raising it from 75 to 80 years old.
  Arnault has 5 children, all of whom now work for the LVMH group. In early 2023, he appointed his own daughter, Delphine Arnault, as head of Dior. In December 2022, Arnault’s eldest son, Antoine Arnault, has just been appointed as the head of the family holding company. In June 2023, when Arnault came to China to visit the store, he brought his eldest daughter and youngest son Jean Arnault, who served as the market development director of the LV watch department.
  At that lunch in Paris, Arnault’s son Antoine took a photo of the two world’s richest men on the roof of the White Horse Manor, with the title “Heavy Group Photo”. Yes, the collision between the distant future of technology and the reality of the consumer world is also a reflection of the current era.

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