PARIS — Fresh off another year of record results for LVMH Moët Hennessy Louis Vuitton, Bernard Arnault said Tuesday he plans to step up the battle against the sale of counterfeit goods online, dealing a potential blow to Amazon’s ambitions in the luxury space.
The chairman and chief executive officer of the luxury conglomerate, who in recent weeks has several times briefly surpassed Amazon ceo Jeff Bezos as the world’s wealthiest man on Forbes’ real-time Billionaires List, expressed skepticism about online pure players and accused them of profiting from the sale of fakes.
“They’re all losing money. That’s not a great sign. And the bigger they get, the more money they lose. We’ve been asked several times to participate in these businesses, and I’ve always said no,” Arnault told reporters and analysts at LVMH’s annual results press conference here.
“We created a relatively small [e-commerce] site called 24S, which unfortunately is no exception to the rule. It’s also losing money, but it’s not losing a lot because it’s small. We’re growing it modestly. We hope to find a way to make it profitable, but for the time being, we haven’t. We shall see,” he continued.
Arnault added that online sales at beauty retailer Sephora, on the other hand, were “very profitable.”
But he indicated that LVMH would not allow its products to be carried on Amazon, which, according to industry sources is preparing to launch a luxury proposition in the first half, a digital shopping platform with big-name brands operating concessions similar to those in high-end specialty stores.
Arnault noted that Amazon’s profits are driven by marketplace sellers.
“They use their database to connect customers to sellers and they take a percentage, which leads them — and we’re going to try to fight this on their site and on others — to sell counterfeit products and therefore in a certain way to be linked to organized crime, because the sites that sell counterfeit products are financed by organized crime or even by terrorism,” he said.
“Is it normal for prestigious, highly successful global sites to make money by being associated with organized crime? I don’t know what you think, but it’s a bit shocking, so I think there is a lot to do in this domain if you want to limit the sale of counterfeit products,” Arnault added, without elaborating.
The executive made the comments after LVMH, the world’s biggest luxury group, reported that revenues broke through the symbolic barrier of 50 billion euros in 2019, rising 15 percent to 53.7 billion euros, with healthy growth in all regions, despite violent protests in Hong Kong in the second half of the year.
Profit from recurring operations totaled 11.50 billion euros, up 15 percent, setting a new record for the group. Net profit rose 13 percent to 7.17 billion euros, LVMH said in a statement published after the market close on Tuesday.
After rising 65 percent in 2019, LVMH shares have fallen 6.2 percent since Jan. 17, amid fears the coronavirus outbreak in China will hurt tourism and shopping. Arnault said it was impossible to predict its impact on sales, indicating that his teams in China have suggested the epidemic will peak in the next few weeks.
“If it’s resolved within the next two, two-and-a-half months, it won’t be terrible. If it lasts for two years, that’s another story,” he said.
Overall, he was bullish on prospects for 2020, despite his by-now customary warning that a major global economic crisis will occur within the next few years. “This year should remain positive on the macroeconomic front,” Arnault said. “The month of January got off to a very good start.”
Stock markets worldwide have tumbled on concerns that consumer spending in China will decline as more people stay home over the Lunar New Year due to the coronavirus. Chief financial officer Jean-Jacques Guiony said LVMH had closed its stores in Wuhan, where the outbreak started, and was waiting for further directives.
“The question is not whether it will have an impact, it’s how long it will last. We haven’t the slightest idea, but of course, it will have a bit of an impact in the short term,” he said.
“You’ve seen that a lot of things have been canceled in China. Obviously it’s not very good for the business, although a big chunk of the business we do with Chinese New Year is gifting, so gifting is less affected by the measures that have been implemented in China — but it’s way too early to discuss,” Guiony added.
LVMH reported sales rose 12 percent in the fourth quarter, boosted by another strong performance in its key fashion and leather goods division, despite a 40 percent drop in business in Hong Kong as tourism plummeted in response to eight months of violent antigovernment protests.
Guiony said reports that LVMH planned to shut one of its stores in Hong Kong were incorrect. “It was a negotiation. We threatened to close a store in order to obtain better terms and this leaked out. That’s all, but the intention has never been to close a store,” he said.
He was confident in the long-term prospects for Hong Kong, which he said accounted for 5 percent of LVMH’s overall revenues. “It’s a touristic destination for many people in the area and it will remain so. It is very cyclical for various reasons. We’ve seen worse situations in the past. It will come back,” Guiony said.
Group revenues in the three months ended Dec. 31 totaled 15.27 billion euros, up 8 percent on an organic basis, slightly below the 11 percent growth rate recorded in the third quarter. Analysts polled by Bloomberg had banked on an 8.7 percent increase in like-for-like sales.
LVMH blamed the slight decrease on one-off effects linked to a hike in Japan’s consumption tax, and variations in cognac inventories in the U.S. Stripped of these non-recurring events, organic growth would have been stable at 9.5 percent in the third and fourth quarters, Guiony said.
Sales were driven by the group’s largest business, fashion and leather goods, home to brands including Louis Vuitton, Dior, Fendi and Celine. The division posted revenues of 6.36 billion euros, up 15 percent on an organic basis, slightly below consensus estimates of a 15.5 percent increase.
Fashion and leather goods grew 17 percent in 2019 as a whole, on top of a high comparison base, with profit from recurring operations jumping 24 percent, Guiony noted.
Arnault touted another banner year for Vuitton, which has continued to diversify its product ranges. He pointed to the brand’s acquisition of a 1,758-carat diamond from Botswana as a signal of its ambitions, saying the stone would travel to Taiwan after being unveiled at Vuitton’s flagship on Place Vendôme during Paris Couture Week.
He said Dior had recorded “very substantial” growth, with the opening in July of its new temporary store on the Avenue des Champs-Elysées in Paris while its flagship on Avenue Montaigne undergoes renovations. Arnault also cited “remarkable” growth at Loewe and good performances at Berluti, Loro Piana and Rimowa.
He noted that while Rihanna’s fashion business was still “very small,” it was only just getting started. “She has lots of ideas. I’m sure we’re going to do very interesting things,” he said. Arnault also noted “improvements” at Celine and Marc Jacobs, though he declined to provide further details.
Meanwhile, he indicated LVMH has no plans to get rid of the John Galliano brand, even though it no longer produces collections and has closed its last store, located in the Marais district of Paris. “It’s not losing any money. We’re waiting to see how it evolves,” he said.
LVMH’s perfumes and cosmetics division clocked 12 percent growth on an organic basis to 1.92 billion euros in the fourth quarter. Profitability was hit by a depreciation of stocks at several smaller American brands during the quarter, Guiony said.
Arnault said Dior’s Sauvage was the number-one men’s fragrance worldwide, while Rouge Dior was the top lipstick, with one sold every second. He even promoted the benefits of Dior’s latest Capture serum. “I tried it myself. I can guarantee you that it’s very effective,” he said.
Wines and spirits posted 1.65 billion euros in sales in the fourth quarter, a 3 percent rise. Watches and jewelry, and selective retailing, which includes Sephora and duty-free stores DFS, both registered organic growth of 1 percent, to 1.14 billion euros and 4.23 billion euros, respectively.
Arnault indicated that Bulgari would provide a blueprint for LVMH’s $16.2 billion acquisition of Tiffany & Co., expected to close in the middle of 2020.
“Since we bought Bulgari, we have multiplied revenues by a little more than two and operating profit by a little more than five. So given that we will soon acquire Tiffany, that’s the target we’re setting for our Tiffany teams. It took us 10 years, so this won’t happen overnight. If we can do that, I think we’ll have made a good acquisition,” Arnault said of the deal, the biggest ever in the luxury sector.
The industry bellwether’s quarterly sales figures come before other luxury rivals Kering, due to publish figures on Feb. 12, and Hermès on Feb. 26. Compagnie Financière Richemont reports annual results on May 15.
Piral Dadhania, analyst at RBC Capital Markets, said it remained positive on the stock in the midterm. “We view LVMH as better insulated than other luxury peers given its lower-than-average exposure to the Chinese consumer, more diversified geographical mix and its nonluxury business units,” he said in a research note.