LVMH’s secret weapon in the brand wars: Sephora
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LVMH’s secret weapon in the brand wars: Sephora

The rise of Ecommerce and social media has transformed the luxury world. Today, consumers are drawn to niche brands that operate within tightly defined segments, as subcultures online are drawn together and curate visual collections on platforms like Instagram and Facebook. The huge brands that have dominated the luxury market since the inception of mass broadcast media, are witnessing the market evolve in new ways.

LVMH’s share price has risen 36% so far this year

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SOURCE: Yahoo Finance

Luca Solca, head of luxury goods at BNP Exane Paribas, writes in The Business of Fashion: “With much digital media bought and sold through blind auctions, the raw procurement advantage enjoyed by big brands in traditional media is less clear-cut. Add e-commerce with its limitless shelf space, absence of listing fees and direct-to-consumer business models, and we have a recipe for market fragmentation.”

Solca notes that brands like L’Oreal have started buying up niche brands and taking them global. LVMH, however, has thus far remained relatively aloof. He thinks this might be about to change – and if it does, the conglomerate might have a secret weapon ready to deploy:

“However, the group’s success with the Fenty Beauty by Rihanna line, developed with Kendo, an incubator for beauty brands, may encourage LVMH to take the plunge with a full brand rollout model. If so, the conglomerate would have a significant advantage: Sephora.”

Sephora is a multi-brand, Ecommerce-friendly, cosmetics and fragrance business with “enviable retail expertise” and “a good track record when it comes to the commercial development of niche brands.” It offers LVMH the perfect area in which to experiment with new brands, tweaking them and repositioning them before rolling them out over other channels.

Solca concludes: “For LVMH, there are also two indirect, but no less important, benefits. First, a more powerful beauty and cosmetics presence would bring greater stability to the group’s business portfolio. Secondly, it could open up an even more profitable entry point to the middle class whose ranks are growing across the globe. In short, LVMH looks poised to become a more meaningful player in beauty.”

Disclosure

Dominion holds LVMH in its Global Trends Luxury Fund.


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