| BUSINESSWEEK ONLINE : DECEMBER 11, 2000 ISSUE | ||||||||
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| INTERNATIONAL -- EUROPEAN BUSINESS
Identity Crisis at LVMH? (int'l edition) A retail push may muddy the luxury-goods maker's image For decades, Parisians have shopped for everything from lingerie to hardware at La Samaritaine, a vast department store overlooking the Pont Neuf on the Seine's Right Bank. But the 130-year-old landmark is about to get a makeover. LVMH Moet Hennessy Louis Vuitton has taken a controlling $200 million stake in La Samaritaine and plans to renovate it as a luxury emporium stocked with upscale brands such as Fendi and Christian Dior. Why does the world's biggest luxury- goods maker need a dowdy old department store? Because LVMH is intent on building a retail empire to complement its prowess in luxury goods. Since 1997, the company has opened or acquired more than 500 stores, from the Sephora cosmetics chain to specialty shops selling sunglasses and watches. Such outlets accounted for nearly $2 billion in sales during the first nine months of this year, equaling revenues from longer-established LVMH boutique chains. Last year, LVMH even brought in Myron Ullman, a former CEO of Macy's, as No. 2 to Chairman Bernard Arnault. LVMH contends the push into retailing will only burnish its gold-plated reputation. ''This is not willy-nilly expansion,'' Ullman says. ''It is compatible with our core business.'' Indeed, LVMH has prospered by selling fashion goods almost exclusively through its own outlets, ensuring control over customer service. The La Samaritaine purchase follows LVMH's revival of Bon Marche, another faded Paris department store, where in-store boutiques sell a wide range of designer brands, not just LVMH's. LVMH sales are expected to rise about 30%, to more than $9 billion this year, with earnings up over 20% to $750 million. SLIM MARGINS. But the newer stores don't necessarily play to LVMH's prowess in glitzy products. Sephora, for example, offers a mix of upscale and middle-market brands. And some ventures have yet to make money. LVMH doesn't expect any of the 62 stores it has opened in the U.S. since last year to be profitable before 2002. DFS, the chain of duty-free stores it acquired in 1997 for $2.5 billion, was dependent on Asian sales and hit hard by the region's economic crisis. Margins remain below pre-crisis levels. So to boost profitability, LVMH has steered away from duty-free, while opening central-city stores such as the new DFS Galleria in San Francisco. Yet even Ullman doesn't expect Sephora and DFS to post margins of more than 10%--far below the 40% the company has raked in from star brands such as Louis Vuitton. ''The more they move into selective retailing, the greater the risk they are going to lower the [company's] returns,'' says Claire Kent, a luxury-goods analyst at Morgan Stanley Dean Witter in London. Still, it's a risk LVMH may need to take. Analysts think the 40%-plus growth rate at Vuitton, the group's strongest company, will taper off over the next five years. To grow, LVMH needs new customers. That's where assets such as Sephora come in. A French company acquired in 1998, Sephora's chain of sleek self-service stores in the U.S. is drawing shoppers turned off by traditional department-store counters. With so many new outlets, isn't the company worried about taking business away from long-established LVMH boutiques? Not at all, Arnault asserts. In fact, he says the Louis Vuitton boutique on the Champs Elysees was so crowded one recent Saturday that guards had to close the doors while customers took numbers to be served, deli-style. Say, maybe LVMH does need more retail space after all. By Carol Matlack in Paris _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS Identity Crisis at LVMH? (int'l edition) TABLE: The Quest for Retail Customers ONLINE ORIGINAL: LVMH's Ullman: "This Is Not Willy-Nilly Expansion" (int'l edition) INTERACT E-Mail to Business Week Online | |||
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