In a crowded, competitive world where time is an ever-scarcer resource, people desire filters that can help them quickly identify high-value collaborators. By creating belief networks that connect their brands to certain characteristics, luxury goods companies provide consumers with valuable filtering tools. LVMH has created the largest collection of luxury goods belief networks ever. Through savvy marketing, impressive craftsmanship, a storied heritage, and brilliant acquisitions, LVMH has assembled and cultivated a collection of brands that many consumers believe are synonymous with wealth, culture, and status. This stable of iconic brands, which literally numbers in the dozens, includes industry powerhouses such as Louis Vuitton, Moet & Chandon, Bulgari, and Christian Dior. The strength of LVMH’s brands is evidenced by both their size and scope. The company’s brands are globally recognized and span a variety of disparate product areas, everything from fashion and leather goods to wines and spirits to watches and jewelry, each of which is a large and rapidly growing revenue generator for the company. Moreover, the company has a storied heritage connected to celebrities, royalty, and centers of culture going back, in some cases, for hundreds of years. This heritage aspect is particularly important since new brands can’t go back in time and create a heritage, putting them at a huge disadvantage versus incumbent brands such as those in LVMH’s portfolio. As a result of the social signaling value of the company’s brands, we believe LVMH is likely to grow both its volume and pricing over time, particularly as billions more people are added to the global middle class and the value of their belief network likely grows even stronger. In fact, we believe its pricing outlook is among the most favorable in our whole portfolio. Even if competitors create virtually identical products, for the aforementioned reasons, we believe LVMH will be able to continue to sell its products at a premium. Furthermore, because signals of loyalty to a group and status with a group are only reliable so long as they are costly to send, LVMH has to raise its prices as wealth increases in order to maintain its brands’ value propositions.
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