Business Strategy and Outlook| Jelena Sokolova, CFA |
We believe that a portfolio of strong leading brands in several luxury niches grants LVMH Moet Hennessy Louis Vuitton a wide moat and should allow it to generate economic profits well into the future. In fashion and leather goods (over half of the company’s profits), LVMH’s brand intangible assets are backed by the 100-plus-year-old globally recognized Louis Vuitton brand, with long product cycles and fully controlled distribution, as well as several smaller but still iconic brands, including Fendi and Loro Piana. In wines and spirits (17% of profits), LVMH benefits from strong market share and brand recognition in conspicuous market niches. LVMH’s brands are entrenched in distributors’ supply chains and enjoy bargaining power with suppliers thanks to their size. Long production cycles and high need for inventory in Champagnes and cognacs, as well as supply limitation due to land availability, create barriers for new entrants. In the rest of the business, LVMH Group has a smaller presence, but still has several strong brands, such as Dior and Guerlain in perfumes and Bulgari and Tiffany in branded jewelry.