Arnault’s comeback capped with La Samaritaine store opening

One of the benefits of being Bernard Arnault is that you can afford to be patient. The tycoon who controls the world’s biggest luxury goods company LVMH spent 15 years and €750m renovating La Samaritaine, an iconic department store in Paris, only to have the Covid-19 pandemic derail its grand opening last spring. 

About one year later, Arnault’s waiting will end on Wednesday, when the first customers are welcomed to the Art Nouveau temple for commerce on the banks of the Seine. 

It is a visible symbol of how LVMH has put Covid behind it much earlier than many had feared given that it was forecast to exceed 2019 revenues this year.

There is also another less visible one — the growing fortune of Arnault and his family, which Forbes estimates has risen about 80 per cent to $194bn since the beginning of 2020. For a few days in May, Arnault even dethroned Amazon founder Jeff Bezos as the richest man in the world. 

LVMH has added more equity value to its shares than any other company in Europe since then — about $175bn — a remarkable achievement even if it pales to $903bn for Apple or the $871bn for Amazon. It now has the highest market capitalisation of any European company.

Investors value the company at a price equivalent to 39 times its forecast earnings, about double its ratio five years ago, and higher than tech luminaries such as Apple at 25, Alphabet at 28 and Microsoft at 32. 

That a pandemic and ensuing economic shock have not dented people’s appetite for €3,000 handbags and €500 scarves might come as a surprise. Essential goods, these are not. 

But the trends that have underpinned the sector’s steady growth, which consultants Bain put at a 6 per cent compound annual growth rate from 1996 to 2019, have not really changed because of Covid.

In China, luxury’s biggest market that accounts for two-thirds of growth, rising middle classes still flock to Cartier or Louis Vuitton to signal their status. Although foreign travel is off-limits for now, they are buying at home instead. 

Luxury brands, of course, are not just selling stuff — they are selling a dream, an idea, a sense of belonging to a certain group or tradition. They sell the creative genius of their designers from Coco Chanel to Karl Lagerfeld. In the social media age, they are also selling consumers a selfie or Tik Tok-worthy moment from unboxing the new dress to wearing it out. 

The typical rules of marketing simply do not apply. Want to expand your market? Raise prices. Want to woo customers? Make it difficult for them to buy by limiting distribution. The waiting is part of the experience, signalling to the buyer they are joining an elite club even if it is one that is actually growing.

Such is the topsy-turvy world of luxury marketing. Another distinction is the central role of physical stores such as La Samaritaine even in the internet era. European maisons like Louis Vuitton, Cartier and Hermès invented and perfected these luxury strategies in a way similar to how Procter & Gamble wrote the book on consumer goods marketing.

Arnault’s great achievement was to industrialise this knowhow and bring together dozens of brands under one roof, backing them with a strong balance sheet, and training up a rotating cast of talented managers.

So how much longer can the luxury expansion last?

Erwan Rambourg, an analyst at HSBC who used to work in marketing at Cartier and Dior, thinks it has a while to run. In his book Future Luxe, he listed the drivers left as surging Chinese wealth, the guilt factor subsiding among American buyers, and the rise of the “selfie generation”. “Demand for luxury is bound to continue to be rock solid over the long term and is entrenched in deep roots,” he wrote. 

Yet Rambourg recently downgraded his rating on LVMH from buy to hold over concerns that the pace of sales growth is likely to slow in the coming quarters, while costs creep up as live events such as fashion shows start again.

Arnault did not seem worried on Monday as he inaugurated La Samaritaine at a ceremony attended by President Emmanuel Macron. The billionaire invited the audience to imagine what the neighbourhood would be like when the store was open, the streets bustling not only with shoppers but also with guests at LVMH’s new luxury hotel nearby. 

“I see in this place a triple symbol of the French genius for art, architecture and business,” he said. “Only a family controlled group can embark on such an investment with no return for so many years.”

leila.abboud@ft.com