This time, LVMH might actually sell Marc Jacobs Joining him are Fenty Beauty and an American winery

When the sea is stormy, the ballast must be thrown overboard. And since in the seas of fashion the storm shows no signs of stopping, even the most imposing ships must get rid of excess weight. This is the case with LVMH which, according to the Financial Times, is reportedly evaluating the sale of Marc Jacobs, as well as Fenty Beauty and Joseph Phelps Vineyards, an American wine producer. While the sale of Fenty Beauty seems to have been on the cards for some time, as has the American vineyard which is part of a rather weak division of the group, the potential sale of Marc Jacobs is a more impactful decision, although understandable.

And apparently, for the sale of the brand, there had been quite advanced negotiations at one point to sell it to Authentic Brands Group (the owners of Barneys, Brooks Brothers and recently GUESS) for about one billion dollars. We use the past tense because the negotiations eventually broke down, for reasons that are not known, although it is reasonable to assume that the price was too high for a brand with extremely high recognition but which is not a sales champion. The important thing, however, is that it was discussed at all: for some time now LVMH has been toying with the idea of getting rid of the weak link in its fashion division, even though the rumours have always been denied, and in general Arnault does not easily relinquish brands from his portfolio. 

We could perhaps hypothesise that, faced with stagnant growth and a geopolitical situation that, thanks to Trump and Putin, seems increasingly unsolvable, even Arnault has decided to scale back operations, remove the excess and the superfluous and obtain valuable liquidity in return. But is that really the case?

LVMH Lightens Its Load with Caution

Marc Jacobs, as mentioned, is the best-known brand among a group of underperforming companies that LVMH intends to offload. The sales of the fashion brand, as well as Fenty Beauty and Joseph Phelps Vineyards, would have the clear objective of raising at least three billion (Fenty is valued by JPMorgan between 1.5 and 2.5 billion euros) to reinvest in a fashion division that increasingly resembles a formidable titan that is starting to show some signs of strain. And indeed, in the last 18 months, LVMH has shed several now burdensome assets, namely the brands Off-White and Stella McCartney and also the chain of DFS stores it owned in China.

It is clear that past and potential future disposals serve the purpose of containing overall operating costs and optimising the portfolio. Over the decades LVMH has built a simply gigantic empire, with 75 brands spread across five or six different market categories, which may have worked perfectly in the past but today, as often happens with mature empires, is difficult to coordinate and manage. The problem is that the lion’s share of revenue comes from the Fashion Division which, between declining spending power and rising prices, has essentially stopped growing.

According to the Financial Times calculations, from 2000 to today LVMH has carried out 206 takeover operations, including the $16 billion acquisition of Tiffany & Co. in 2020 and the €3.7 billion acquisition of Bvlgari in 2011. In the same period it has sold 122 assets, mostly smaller ones, including Donna Karan or minor brands like Thomas Pink. An analyst interviewed by the newspaper said that «it is the first time in LVMH’s history that the group is more oriented towards downsizing than expanding its portfolio».

A Strategy Discussed Internally

Other minor brands that could be up for sale are Make Up For Ever and Fresh in beauty, the rum Eminente in the Wine & Spirits division, and even the newspaper Le Parisien, although this potential move would also involve a political aspect and therefore the group might keep the newspaper until after the next French elections. Obviously LVMH does not have the same debt problems as Kering and has an impressive cash flow of €11 billion last year, so it has all the time to wait for the best buyer and extract the maximum profit from the sale of the various brands.

In the meantime, other strategies discussed internally concern a potential stake in the Armani Group, although this is seen as unlikely both because there are other more “accredited” candidates due to existing relationships with the group, and because it would require a series of heavy investments that would currently be too risky. And the Arnaults are in an economical mood: this year they purchased hundreds of thousands of shares reaching control of about 50% of the capital, making LVMH the largest family business on the planet. But will it remain so for long?