Op-Ed | LVMH Has Already Won Gold

Whichever sporting heroes bring home the medals at the Paris Olympics later this month, there will only be one true winner: LVMH founder, chairman and chief executive officer Bernard Arnault. Despite the political turmoil in France – and the impact this has had on Arnault’s wealth after the decline in LVMH shares – his brands will have a starring role in the games.

LVMH Moet Hennessy Louis Vuitton SE has spent €150 million ($163 million) to be one of the premium sponsors of the Olympic and Paralympic Games. It will also be the first-ever “creative partner,” with its brands including Louis Vuitton and Dior intertwined with the competition, its locations hosting cultural events and a roster of French athletes as ambassadors.

It’s an unprecedented intermingling of designer labelling and sports, underlining the increasing might of the bling behemoth, which enjoys sales now four times bigger than its nearest rivals and a market capitalisation of about €350 billion. Only Birkin bag maker Hermès International comes anywhere close to its value.

But Arnault can’t afford anything other than a clean sweep of medals. After three years of blockbuster growth, luxury sales have decelerated. The political upheaval in France can’t be ignored; some consumers are souring on top-end goods, while the dominance of the European luxury brands is being highlighted by Saks Fifth Avenue owner Hudson’s Bay Co.’s $2.65 billion acquisition of rival Neiman Marcus in an attempt to compete with them more effectively.

Arnault was initially reluctant to write a check to sponsor the games, Bloomberg Businessweek reported. Now, LVMH brands will be almost synonymous with them, designing medals, dressing French athletes and providing the champagne for VIP events. Dior will even be involved in the opening ceremony, although the details remain top secret. Analysts at Bernstein describe the scale of the investment as “flabbergasting.”

Such a barrage of publicity is needed. Although LVMH is expected to generate almost €90 billion of sales this year, up from €54 billion in 2019, even it hasn’t been immune to the industry slowdown.

Chinese VIPs are still spending, but the middle class is under pressure from a deepening property slump. Similarly in the US, as the super wealthy continue to splash on Hermès handbags and Brunello Cucinelli SpA cashmere sweaters, the simply comfortable are constrained by high borrowing costs and lingering inflation. Earlier this year, the hope had been that the luxury market would rebound in the second half of 2024, as demanding comparisons with last year’s Chinese revenge spending fade. Now a recovery looks unlikely before 2025. That explains why shares in LVMH have lost almost all of their gains since January.

And the Olympics might delay the recovery further. Travel restrictions across Paris and luxury big spenders choosing to visit Milan instead may dampen demand in the French capital. But this short-term pain will be worth it.

LVMH’s visibility will beam its brands to viewers around the globe. They may not be in the market for a bag or wallet today, but when they are, they’ll remember the trays in Louis Vuitton’s iconic Damier check pattern on which medals were presented to winners.

What’s more, the involvement underlines that LVMH is more than just a seller of physical goods. Arnault said two years ago that Louis Vuitton was “not just a fashion brand,” but a “cultural brand.”  The Neverfull bag maker’s CEO Pietro Beccari told the Financial Times in May that there was “no household in the world that doesn’t have [contact with] Louis Vuitton products.”

This might be hyperbole, but he’s not too far off. Appointing first the late Virgil Abloh, and then Pharrell Williams, as the house’s menswear creative director connected it to music and associated subcultures, such as streetwear. The Olympics will fuse it to sport. A campaign earlier this year for  Louis Vuitton’s Christopher backpack featured tennis rivals Roger Federer and Rafael Nadal scaling the summit of Italy’s Dolomites.

And welcoming the world to Paris plays into another of Arnault’s strategies: moving further into hospitality. The theory is that when Chinese travellers do return to Europe in significant numbers, they won’t just be wearing the company’s clothes, shoes and jewellery, they’ll be able to vacation in an LVMH-controlled ecosystem, spanning hotels and restaurants. LVMH’s recent purchase of old school Paris bistro Chez l’Ami Louis, as well as reports that Arnault is among the bidders for Venice’s Hotel Bauer, underline the intent.

But LVMH’s Olympic sponsorship must run smoothly. It’s not yet clear what flavour of government will emerge in France, and consequently what policies affecting luxury groups might result. The hope is that given the importance of the games to Paris, politics will take a back seat to spectacle. But this can’t be guaranteed.

Meanwhile, US competition authorities are eyeing the luxury goods market, probing Tapestry Inc.’s $8.5 billion takeover bid for rival Capri Holdings Ltd. The deal between Saks Fifth Avenue and Neiman Marcus may put the industry under further scrutiny. This matters because LVMH isn’t done shopping. As well as hospitality, it has room to expand in watches and jewellery, with Arnault taking a personal equity stake in Cartier owner Cie Financiere Richemont SA.

Finally, some consumers have begun to balk at the rising costs of upmarket items, while allegations of poor working conditions in factories making Dior bags in Italy risk a broader backlash.

Despite being the third-richest man in the world, Arnault likes to get his money’s worth, as his haggling over the price of Tiffany & Co. four years ago demonstrated. That investment has paid off handsomely. He will be hoping for a similarly sparkling return from going for gold at the first Luxury Olympics.

By Andrea Felsted

Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholders’ documentation guaranteeing BoF’s complete editorial independence.