Monday, June 26, 2017

Valuing LVMH Group Through 'The Cult of the Luxury Brand', Pt. 1

In my most recent article, I described how The Cult of the Luxury Brand, Radha Chadha and Paul Husband’s book on the luxury industry’s growth in Asia, could be used to predict the industry’s growth on that continent.

Their book contains a model for the development of luxury consumption in Asia, the “Spread of Luxury” model. In that model, countries advance through several stages. Each stage corresponds to not only a different economic development level, but also a different level of luxury goods consumption. Those stages range from “Start of Money,” in which few consumers purchase luxury goods, to “Way of Life,” in which a country’s luxury market is fully saturated. According to Chadha and Husband, the “Way of Life” stage is the end stage for Asian markets as they become fully developed.

In using the “Spread of Luxury” model to estimate luxury goods conglomerates’ future growth, I will start with LVMH group (LVMHF) (LVMHY). LVMH owns brands such as Louis Vuitton, Bulgari, and Marc Jacobs. It is the world’s largest luxury company, with about three times the sales of its biggest rival.

To apply the “Spread of Luxury” model to LVMH’s operations, we first need to see what its sales in Japan and Asia outside Japan are. This is actually a surprisingly difficult question. (Read More)

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