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In the luxury business, people speak generally of the big three corporations—LVMH, Kering, and Richemont. Actually, Richemont is similar in size to Estée Lauder and L'Oréal, and similar in size to major wines and spirit companies such as Diageo and Pernod Ricard. However, in this section, we will confine ourselves to these three companies. Other companies will be described at length in the next chapter.

LVMH. In Table 2.6, we took LVMH's sales to be approximately €39 billion because we removed the distribution activities from the total of €53.7 billion in 2019. The total picture is presented in Table 2.7.

Table 2.6 Major Luxury Operators, 2019 (or 2018/2019) (€ million)

Source: Annual reports or authors' estimates.

Luxury Operators	Sales
LVMH	38,989	Total with distribution 53,700
Kering	15,383
Richemont	13,989
Diageo	12,926	Total with Guinness: 15,389
Estée Lauder	12,098
L'Oréal	11,000	Total with mass market, etc.: 29,900
Pernod Ricard	8,448
EssilorLuxottica	8,880	Total: 16,160
Coty	8,646
Chanel	8,400
Hermès	5,960
Ralph Lauren	5,704
Capri	5,566
Tapestry	5,409

Table 2.7 LVMH: Sales and Results, 2009 and 2019

Source: LVMH annual reports.

	2019 Sales (€ million)	2009 Sales (€ million)	2019 Operating Profit (€ million)	Profit On Sales (%)
Wines and spirits	5,576	2,740	1,729	31.0
Fashion and leather goods	22,240	6,302	7,344	33.0
Perfumes and cosmetics	6,835	2,741	683	10.0
Watches and jewelry	4,405	764	736	16.7
Selective distribution	14,711	4,533	1,395	9.5
Miscellaneous	(67)	(27)	(383)
Total	53,700	17,053	11,504	21.4

As we can see, LVMH is a very impressive group, with more than half of its luxury brand business done in the fashion and leather division. It is also striking to note that this fashion business provides 64% of the group's total operating profits.

2019 was clearly a very good year for the group. From 2009 to 2019, the growth was spectacular. This is a result of operational growth, but also company purchases, and the list is long: Celine, Fendi, Loro Piana, Bulgari, and recently.

Table 2.8 Scorecard of LVMH Results (€ million)

Source: LVMH annual reports.

	2019		2014		2009
Sales	53,700	100%	30,638	100%	17,053	100%
Operating profit	11,504	21.4%	5,718	18.7%	3,352	19,6%
Net profit	7,171	13,3%	5,648	18,4%	1,973	11.6%

LVMH's overall performance for 2009, 2014, and 2019 is summarized in Table 2.8.

The net profit of 13.3% of sales is not bad in 2019, but the operating profit of the fashion division (33% of sales) and of wines and spirits (31% of sales) is very impressive and probably one of the highest in the industry. But this percentage is interesting for another reason: Table 2.7 shows that for the perfume business, there were recorded sales of €6,835 billion, with an operating profit of €683 million. We can estimate a net profit of €137 million.¹In other words, the perfumes and cosmetics division is providing a much lower profitability than other business sections and less than is generally expected in the perfume business.

In the luxury sectors, two segments are doing extremely well: the fashion and leather goods division, and the wines and spirits division (with its brands including Krug, Dom Pérignon, Moët and Chandon, Veuve Clicquot, and Hennessy). In the fashion and luxury division, LVMH also has many brands, including Louis Vuitton, Dior, Fendi, and Loro Piana. The question here is to determine which of these should be given priority. It seems that, based on size and potential, Celine is given major resources and development money. But Berluti, the only exclusively masculine fashion brand, seems to have an impressive business plan with the opening of many self-standing monobrand stores. The question still remains: What is the future of the other brands, if they are not profitable or only marginally contributing to the group profit?

In geographical terms, the group is well balanced, as can be seen in Table 2.9.

Table 2.9 LVMH Geographical Split, 2019

Source: LVMH annual reports. Of course, this geographical split varies across divisions and brands.

France	9%
Rest of Europe	19%
America	24%
Japan	7%
Rest of Asia	30%
Other markets	11%
Total	100%

Kering. This group was created in 1999 by the purchase by PPR of a minority interest in Gucci and the immediate purchase of the YSL fashion and YSL beauty group. Since then, the group has purchased many other brands, including Bottega Veneta, Boucheron, and Balenciaga, and is one of the few groups that has grown by purchasing existing brands and by developing its own from scratch. This latter category includes, for example, Alexander McQueen.

The company name was changed to Kering in 2013. Table 2.10 summarizes the existing sales and operating profit data.

Gucci and Saint Laurent have outstanding performances for the past five years. The case of Bottega Veneta is quite interesting: it was at the same sales level as Saint Laurent in 2005 but grew extremely fast until 2013 when Saint Laurent was doing very poorly. Then Saint Laurent woke up and did extremely well, and Bottega Veneta was stuck with decreasing volume and profitability. It may have woken up now, but we still have to wait to find out.

Table 2.10 Kering Historical Sales and Results (€ million)

Source: PPR annual reports.

		Sales	Operating Profit
	2019	2015	2010	2005	2019	2009	2008
Gucci	9,628	3,898	2,266	1,807	3926	618	625
Saint Laurent	2,049	974	237	162	552	–10	0
Bottega Veneta	1,168	1,286	402	160	207	92	101
All others Unallocated	2,537	1,707	484	907	306 (213)	–75	5
Total	15,383	7,865	3,389	3,036	4,778	625	731

Richemont. The Compagnie Financière Richemont, based in Geneva, with sales of €13.9 billion was, for many years, the second major operator in the luxury fashion, jewelry, and watch businesses. But probably because of difficulties in the sales of watches, and little involvement in the fashion business, it has developed slower than its competitors in the past 5 years (see Table 2.11). In 2019, it integrated and consolidated the two online distribution systems: NAP (Net à Porter.com) and Y (now called YNAP).

The company's results by product lines are given in Table 2.12.

Table 2.11 Richemont Historical Sales and Profit (€ million)

Source: Richemont annual reports.

	Sales	Operating Profit	Net Profit
2019 2018 2017 2015 2013	13,989 10,979 10,647 10,410 10,150	1,943 1,844 1,764 1,339 2,426	2,787 1,221 1,210 2,387 2,005

Table 2.12 Richemont Performance by Product Lines, 2005–2019 (€ million)

Source: Richemont annual reports.

	Sales	Operating Profit
	2019	2015	2010	2005	2019
Jewelry houses	7,083	5,168	2,688	844	2,229
Specialty watches	2,980	3,325	1,437	1,750	378
Online distribution	2,105		N.A.		(100)
Writing instruments			551	297
Leather and accessories			584	780
Other businesses	1,881				(264)
Unallocated			46
Total	13,989	10,410	5,176	3,671	1,943

^* Starting in 2010, leather and accessories and other businesses have been merged.

In 2019, the jewelry houses (Cartier and Van Cleef & Arpels) represented 51% of sales and 115% of operating profit, with Cartier probably being the biggest contributor, but the growth performances of Van Cleef & Arpels have certainly been extraordinary in the past 10 or 12 years. Specialty watches (which include Vacheron Constantin, Baume & Mercier, Jaeger-LeCoultre, Lange und Söhne, Officine Panerai, IWC, and Piaget) also performed quite well.

The performance of Montblanc (with Montegrappa first included in the figures then sold out) was certainly quite impressive as well. The only bad news was in the leather-goods category (which now only includes Dunhill), which has probably been losing money. Now that this category is merged with other businesses, it will be more difficult to follow.

Richemont is both a jeweler and a watchmaker. It has two star brands in Cartier and Van Cleef & Arpels. It has a very strong portfolio of watch brands, and after a few difficult years could bounce back and develop. This is what is peculiar in the luxury business.