THE SLIMMER LVMH: POMMERY IS GOING, WILL LOEWE BE NEXT?
Byline: Miles Socha
PARIS — Minimalism is coming back.
Bernard Arnault, fashion’s premier and most extravagant empire builder, is definitely in a mood to pare down. On Tuesday, the once-acquisition-hungry chairman of LVMH Moet Hennessy Louis Vuitton announced that he is “studying a potential sale” of the Pommery champagne brand and certain other assets to the Vranken Monopole Champagne group.
Also, WWD has learned that the French luxury giant might also be willing to prune its large fashion and leather goods division. According to sources, LVMH has been quietly shopping around Loewe, the Spanish fashion and leather goods firm it acquired in 1996 as part of a years-long spending spree that included such brands as Donna Karan, Fendi, Pucci, Tag Heuer, Ebel, Hard Candy and Bliss.
An LVMH spokesman declined to comment on the mounting speculation around Loewe. But sources said it might be a tough sell, since LVMH used the leveraging power of its cash cow, Louis Vuitton, to help bolster Loewe’s presence in key markets like Japan by piggybacking Loewe concessions on Vuitton’s distribution. The sources said Loewe’s value goes down once separated from Louis Vuitton.
But investors are likely to smile on any weeding out of underperforming brands at LVMH.
Sagra Maceira de Rosen, a luxury analyst at J.P. Morgan in London, said some of LVMH’s medium-sized fashion brands “don’t really make a difference” and she would consider it positively if the luxury group shed, say, Givenchy, Celine or Loewe. “They might be better off at another place, where the brands are more visible and management is under more pressure,” she said. “[LVMH] would be better off focusing their efforts on Fendi.” That seems to be Arnault’s intention. At a press conference last month to announce 2001 financial results, he said Fendi has the potential to generate sales of $900 million and operating margins approaching 20 percent within the next four years.
“We’re focused mainly on cash generation, which is very important to our long-term strategy,” he said at the time. “Our investments will be based on the potential of brands to develop profits. We’d rather slow down the activity than take risks.”
Meanwhile, the Pommery sale, which could be completed in a few weeks, underlines Arnault’s new focus on the core business and improving profitability. In February, LVMH reduced its stake in the auction house Phillips to 27.5 percent after a failed — and very expensive — attempt to make it a contender against the giants Sotheby’s and Christie’s.
Eager to see the French luxury group get out of money-losing businesses like DFS and Sephora, investors applauded the move and goosed LVMH’s stock. Losses at Phillips and its “selective retailing” division almost wiped out profits last year at LVMH. Net profits were a slim $8.7 million on sales of $10.7 billion.
Arnault has not ruled out shedding DFS and Sephora, preferring to get them profitable before considering selling them.
“They need to be restructured, and it’s going to take some time,” he said. “And then we’ll see how we should react.”
This is a far cry from Arnault’s sentiment just a few years ago, in the late Nineties, when he seemed determined to build a massive luxury empire by adding label upon label. Analysts said at the time, in fact, that Arnault realized there was limited growth potential for his luxury products, because there is a limited audience that can buy them. So the way for his company to grow was to acquire more properties to sell to that consumer base.
The move to sell off labels is becoming somewhat of a trend among high-end houses, like Prada and Holding di Partecipazioni Industriali. After years of buying sprees, the debt is piling up and retail sales, particularly among the luxury crowd, are less than robust. Conglomerates are either on the sidelines, waiting for business conditions to improve before buying again, or trying to shed labels that are not part of their core business. HdP last week sold Valentino to Marzotto, as reported, to concentrate on its publishing unit, and Prada sold its Fendi stake last November to LVMH.
Tuesday’s news on Pommery was announced after the market closed. Shares of LVMH closed down 0.8 percent to close at $51 on the Paris Bourse.
The Pommery deal, currently being evaluated by unionized employees, was characterized by LVMH as consistent with its “strategy to focus on its star brands and those with great potential. Pommery is an autonomous brand within the group’s champagne activities, with its own distribution network.”
LVMH said the sale of Pommery SA would include its landmark buildings in Reims, its 11 kilometers of cellars, Champagne stocks and supply contracts. It is believed the sale would be valued at around $130 million.
Under the deal, LVMH would retain what it called “strategic” portions of the Pommery vineyard, which produces some of the finest grapes in the region. It is presumed that LVMH would harvest these crops for its stable of other champagne brands, led by Moet & Chandon, Dom Perignon, Veuve Clicquot, Krug, Ruinart, Mercier and Canard-Duchene.
Analysts said the sale of Pommery makes sense, given LVMH’s stated desire to focus on luxury and its most profitable brands. Pommery is ranked seventh worldwide, and its positioning is not as upscale as other LVMH brands.