The rich are different, and there are potentially enormous profits for those who invest in companies catering to them. One example is LVMH Moët Hennessey – Louis Vuitton, Société Européenne (LVMUY), writes Tony Sagami, editor of Disruptors & Dominators.
I was raised on a 24-acre vegetable farm in western Washington. It was a lot of hard work for myself and my family. However, that hard labor never translated into material riches because farming is not a high-paying profession. No matter how hard my father worked, our family seldom had any money for luxuries.
But one thing my father scrimped and saved for was airfare, so my mother could return to Japan every few years to see her family that she left behind when we moved to America in 1957. Airline tickets were very expensive in the 1960s and ‘70s, but what cost just as much, if not more, was the “omiyage” my mother would bring for all her friends and family back in Japan. Omiyage translates to “souvenir” in English, and in Japanese culture — like most Asian cultures — there is an affinity for gift giving.
Every time my mother flew to Japan, she always brought a second suitcase that would be filled with omiyage from Levi’s jeans and Converse sneakers to G.I. Joe and Barbie dolls, Wrigley gum, Coca-Cola (KO) T-shirts, Marlboro cigarettes and Marvel comic books. Those were the big “labels” at the time – and that label consciousness is even more powerful today.
The only difference is that Levi’s and Converse have been replaced with designer brands like Gucci, Prada (PRDSF), Hermès (HESAY) and Bulgari. This brings me to LVMH, the largest luxury products company in the world.
In 2022, LVMH pulled in $86 billion in revenue and generated $22.9 billion in profit. Both figures were up 23% from the prior year. That’s a HUGE chunk of change – but no surprise given the company’s broad reach (which goes well beyond just Louis Vuitton handbags).
LVMH also owns 60 other luxury brands that are sold at exclusive boutiques in upscale locations in wealthy cities. That includes fashion brands like Givenchy, Fendi, Celine, and Berluti...wines and spirits like Moët & Chandon, Dom Pérignon, and Hennessy...perfumes and cosmetics like Christian Dior, Guerlain of Paris, and Kenzo...and watches and jewelry like TAG Heuer, De Beers, Zenith, and Chaumet.
I may not dream of dropping $500 on a bottle of Dom Pérignon or $2,000 on a handbag. But all my status-conscious friends and successful women in Asia are loyal LVMH customers. Meanwhile, it should be no surprise that profit margins on luxury goods are out of this world. Profit margin on the leather and fashion division is over 30%.
LVMH is listed on the Paris Stock Exchange and is one of the CAC 40, the French equivalent of the Dow Jones Industrial Average. But for U.S. investors, it is more convenient to buy it on the over-the-counter market, where each American depositary receipt equals 0.2 shares of the Paris shares.
Recommended Action: Buy LVMUY.