France's luxury group LVMH is considering selling key brands as it moves to restructure its business. After 40 years of aggressive mergers and acquisitions (M&A) that expanded its size, LVMH is unusually shifting toward a "contraction strategy," according to assessments. As the luxury market slowdown drags on, the move is seen as an attempt to shed low-margin businesses and focus on core profit sources.
According to the Financial Times (FT) in the U.K., LVMH is reviewing the sale of the fashion brand Marc Jacobs, equity in Fenty Beauty, which singer Rihanna is involved in, and the U.S. winery Joseph Phelps. In the alcoholic beverages institutional sector, there is also talk of trimming some operations, including the rum brand Eminente.
The latest move follows a series of recent restructurings. LVMH has accelerated the disposal of noncore asset by offloading Off-White, its DFS China business, and equity in Stella McCartney.
Behind Chairman Bernard Arnault's decision to wield the knife is a structural shift in the luxury market. During the COVID-19 pandemic, "entry-level luxury consumers" who propped up the market with revenge spending have closed their wallets under the weight of high interest rates and high inflation, causing demand to cool quickly. Even flagship brands such as Louis Vuitton and Dior have seen growth slow.
The Moët Hennessy alcoholic beverages division, which had generated stable revenue, has also recently turned in weak results, becoming a drag. Luca Solca, an analyst at the research firm Bernstein, said, "LVMH is at a stage where it is coldly identifying brands that erode profitability," adding, "It is a strategy to concentrate resources on mega brands like Louis Vuitton and Dior."
Differences of opinion have also emerged within the Arnault family during the restructuring. On the sale of the loss-making French daily Le Parisien, second son Frédéric and third son Alexandre are reportedly in favor, while eldest daughter Delphine and eldest son Antoine oppose it over concerns about political fallout.
LVMH is not financially cornered. It still boasts strong cash generation, having secured about €11 billion (about 19 trillion won) in free cash flow last year. However, with the market landscape changed, the group intends to focus on strengthening fundamentals rather than getting bigger. Even so, it plans to continue selective investments, leaving the door open to a possible acquisition of Italian luxury house Armani. Arnault recently bought a large amount of the company's own shares, emphasizing, "We believe in what we do."