How LVMH Thrives on Selling Frenchness to Americans

By Stephen Wilmot 

Few brands are as exposed to European tourism as Louis Vuitton. Given the recent slew of terrorist outbursts on the continent, which have made wealthy Asians and Americans more reluctant to travel there, parent group LVMH Moët Hennessy Louis Vuitton is showing surprising resilience.

Two reasons stand out. First, Louis Vuitton accounts for only half of LVMH's operating profit, and other brands are booming. Hennessy cognac volumes rose 13% year over year in the first half, as U.S. consumers remained thirsty for brown spirits and the Chinese market stabilized. Cosmetics retailer Sephora is also growing at a double-digit clip.

Second, luxury consumers on their own turf, particularly Americans, are still spending on LVMH's flagship brand. Strip out tourists and Louis Vuitton's U.S. growth was in the high single digits, said Chief Financial Officer Jean-Jacques Guiony. That is all the more impressive because the country's embattled department stores are cutting inventory, weighing on growth for rivals such as Burberry.

Louis Vuitton's strength helped offset the weakness of the group's American labels. Both Marc Jacobs and Donna Karan shrank and lost money in the first half. The company finally admitted defeat on the latter, agreeing Monday to sell it to G-III for $650 million. Mr. Guiony insisted Marc Jacobs was different and wasn't for sale.

With spending among Chinese customers at best flat, and deteriorating conditions in Europe, the strength of the U.S. business--up 7% like for like in the first half--is keeping LVMH going. The company is much better at selling Frenchness to Americans than nurturing American brands.

Write to Stephen Wilmot at [e-mail]

(END) Dow Jones Newswires

July 27, 2016 08:40 ET (12:40 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.