Family successions can be fraught. Just look at the Windsors. Over in France, the Arnault family are tackling complexities of their own. Patriarch Bernard has made daughter Delphine chief executive of Dior. This is a key fashion brand of luxury behemoth LVMH, Europe’s largest company.
Criticism of so-called nepo babies may be inspired by envy, egalitarianism, or a bit of both. Pragmatic investors will focus on whether would-be dynasts are good at their jobs or not. The second question is whether their presence crowds out better-qualified non-family managers. The third, broader issue is whether family control reduces or enhances stability.
LVMH is allaying fears, judging from a small increase in the shares to a record high of about €774 for a market worth of €390bn. All Arnault’s children work in the business and are hopping up the ranks. Delphine joined the group in 2000.
LVMH’s heft makes it easier to attract outside talent. The real business news of the day was the promotion of Pietro Beccari — considered a rising star in the sector — to the top job at flagship brand Louis Vuitton.
Succession at LVMH does not appear imminent. Arnault is a sprightly 73 year old. Investors have shiny baubles to distract them. 2023 looks like a good year for luxury sales as Chinese consumer spending — long bottled up — pops like a cork. LVMH should capture more than its fair share of this.
Luxury is as Darwinian as the dynamics within business dynasties. Mega-brands invest heavily in marketing to drown out lesser brands. That gives them pricing power, which LVMH exploits to the hilt. Some 80 per cent of its handbags now cost more than €1,500 — up from just over half in 2014, according to Bernstein analysis. The cost of making the next item is small, meaning profits tend to grow faster than sales.
Indeed, on — admittedly bullish — Bernstein numbers, 2023 should see LVMH sales growth of 15 per cent and net profits up by more than a quarter. This would put the stock on some 20 times 2023 earnings. Growth is expected to moderate in coming years. But that does not look too steep for the market leader in a sector that tends to grow more than twice as fast as gross domestic product. Nepo babies are no reason to shy away from the stock.
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