LATEST ARNAULT MOVE: LVMH BUYS SEPHORA, TOP PERFUMERY CHAIN
Byline: Sarah Raper / with contributions from Jennifer Weil
Paris — LVMH Moet Hennessy Louis Vuitton has snapped up Sephora, France’s premier perfumery chain, for some $262 million, confirming its strategy to control the distribution of its own luxury brands — as well as those of competitors like Chanel, Estee Lauder and L’Oreal.
With the Sephora buyout and the January acquisition of the duty-free giant DFS, “LVMH becomes the world’s leading distributor of perfumes and beauty products,” a statement from the luxury conglomerate boasted. While Sephora offers neither the size nor global reach of the $2.74 billion DFS business — last year its 54 doors rang up sales of $225 million (FF 1.37 billion), representing 8 percent of the French prestige fragrance and beauty market — its importance should not be underestimated.
Sephora is the country’s biggest perfumery chain in terms of volume — although another chain, Marie-Jeanne Godard, has more doors — and has proved to be among the world’s most innovative beauty retailers.
The 14,000 square-foot flagship store that opened in December on the Champs-Elysees features one of the widest ranges of fragrance and beauty products and an array of merchandising systems to encourage customers to test the products.
It is also long on fun gimmicks: For example, a gigantic flashing digital display hung stock-exchange style compares prices on items at the store to those at leading airports. The store is chockablock with shoppers seven days a week from morning until it closes at midnight, and reportedly Sephora is ahead of its $32 million sales plan for 1997.
Although Sephora is focused on France, the LVMH statement noted that “its prospects are outstanding, notably with the planned opening of 30 additional outlets in France over the next four years, as well as about 20 stores in other European markets and thanks to its development in Asia.”
Sephora president and founder Dominique Mandonnaud was on vacation, according to the company, and could not be reached for comment. In his absence, a Sephora executive telephoned the chain’s biggest vendors with the news on Wednesday shortly before a press release was faxed out.
Sephora had been expected to change hands. Mandonnaud has said for more than a year that he planned to step down in the fall when he turned 50, and he had talked about listing the company on the Paris Bourse.
In June, there were reports that Sephora’s owners were talking to a variety of potential buyers, including LVMH, the German perfumery giant Douglas and the diversified retail conglomerate Pinault Printemps Redoute.
However, Sephora officials continued to insist that a public offering was the most likely outcome. In the end, LVMH bought out all the owners: Mandonnaud, with a 20 percent stake and majority voting rights, the banks Suez Industrie and Apax Partners with 32 percent each. The remaining 16 percent share was owned by the bank Eurosuez.
A spokeswoman for LVMH declined to specify who would be running the chain. Sephora counts nearly 1,500 employees. The perfumery buyout is good news for the LVMH cosmetics brands — Parfums Christian Dior, Guerlain, Parfums Givenchy, Parfums Kenzo — but the group’s competitors are unclear what the change in ownership means for them.
Paco Rabanne president Mariano Puig said that, altogether, LVMH’s retail activities — in addition to DFS, the Paris department stores Bon Marche and Franck & Fils are part of the group of companies controlled by LVMH chairman Bernard Arnault — were cause for concern. “As manager of a company that has LVMH as a competitor, my concern is to know what is their motivation and what is their strategy. They are going very rapidly in retailing,” he said.
However, he noted that “until now, nothing has happened to change the old way that DFS dealt with suppliers.
“From a consumer’s point of view, this is gorgeous,” he continued. “How my products are presented, how well my idea is communicated, is very dependent on the retailer. Look what they have done with Vuitton. The follow-through from the development to the way it is presented to the consumer is incredibly consistent.
“Last — do I want to buy LVMH stock right now? DFS, Grand Met, Sephora — does [Arnault] have enough money to carry out all of this at the same time? That’s another question,” Puig said.
Puig wasn’t the only one asking that question: The timing of the acquisition took financial analysts by surprise. Arnault is in the midst of a major battle with Guinness PLC and Grand Metropolitan over how their respective drinks businesses should evolve. Arnault opposes a plan to merge Guinness’s and Grand Met’s drinks businesses and instead has proposed an alternative plan that would fuse all three companies’ brands.
Today, Arnault is scheduled to hold informal meetings in London with institutional investors. On Monday, he resigned from the board of Guinness, and throughout the week LVMH continued to sell Guinness shares and buy up Grand Met stock following the rejection by those companies of his plan. LVMH confirmed Wednesday that it now holds an 11.05 percent stake in Grand Met and 12.46 percent of Guinness.
“The sale of Sephora is overshadowed by what is going on with Guinness and Grand Met,” observed one analyst in Paris.