Will High Net Worths save LVMH’s share price?
LVMH’s share price has taken a battering as nervous investors shy away from luxury companies amid a global downturn in the market.
Its share price has fallen by more than 35 per cent since the end of January; it now trades at its lowest forward earnings multiple in seven years – roughly half that of peers.
“We have seen luxury sector slowdowns many times before, but this time LVMH’s valuation has been unfairly hit,” Jelena Sokolova, senior equity analyst at Morningstar, said.
Hermes surpassed LVMH as the world’s biggest luxury brand in April this year, a title LVMH had held since 1987.
The luxury market has struggled since the post-pandemic cost of living crisis hit revenue from aspirational customers in Europe, and a downturn in China’s economy combined with a move to quiet luxury hit revenue on the other side of the world.
Aspirational customers made up 70 per cent of the luxury market in 2013; last year they accounted for less than 15 per cent.
LVMH, as the owner of 75 differently-sized and focused brands, is more susceptible to the loss of aspirational customers than a brand like Hermes, which has specifically marketed itself to a tiny group of wealthy people to maintain exclusivity.
The world’s elite is muscling up their spending power
Financial constraints may have pushed aspirational customers away, but the world’s elite is growing in size and wealth, leading analysts to look to the group to revitalise the sector.
The growth of High Net-Worth Individuals (HNWIs) continues to outperform expectations, and is projected to grow at a seven per cent growth rate by 2030.
LVMH is starting to shift towards HNWIs and experiences: a huge marketing campaign with Formula 1, for example, is a push to create new touchpoints with the ultra wealthy.
It increasingly offers digital experiences – both personalised and not. Louis Vuitton’s latest Shanghai store is a 30-metre-high, ship-shaped experience called ‘The Louis.’
“The most successful brands today are those that focus on the ultra-wealthy,” a recent BCG report said.
“The way forward is to cater specifically to these clients and focus on the core elements of luxury that appeal to them, like high-quality, exclusive products, and personalised service… Brands are expected to shift their focus back to top-tier luxury clients to maintain profitability, offering more personalised experiences and prioritising craftsmanship.”
The amount of wealth controlled by ultra-rich families with family offices is expected to reach £7.99 trillion by 2030, a substantial increase from £2.43 trillion in 2019.
HNWIs are also more likely to value exclusivity and experience over just the tangible good, something the sector is firmly shifting towards.
Experiential goods now “lead the field” a Bain report found, “notably outpac[ing] its tangible counterpart.” This trend is worldwide, occurring everywhere from Europe to China and America, and across age groups.
Bain analyst Claudia D’Arpizio said that “customer-centric experiences” is crucial to luxury’s growth.
“Brands must anchor themselves in their core strengths – prioritizing quality, creativity, and authenticity… deepening consumer relationships is essential.”