LVMH and Hermès: Handbagging Each Other!

Louis Vuitton Moët Hennessy (LVMH) and Hermès are like two old French grannies hand-bagging each other in some secluded (but, of course, exclusive) Parisian street and they have been fighting it out until the bitter end, gritting their false teeth until they lose the dentures and end up gumless. The feud has been raging for three years now in France, but in the next few weeks the French authorities will take a decision on the case and determine whether or not LVMH actually tried to take over Hermès secretly buying up the latter’s shares using cash-settlement equity swaps as well as acting through subsidiaries. The feud is almost a crime passionnel motivated it would seem by jealousy, perpetrated out of rage and heartbreak. After all, it’s the French that invented that sort of crime isn’t it? The only difference being that a crime of passion is usually one that is carried out on the spur of the moment, an impulsive act of violence motivated by passionate, and yet cruel, ire. If we are to believe the accusations of Hermès, it was all planned, long ago.

LVMH might face fines if they are found guilty of something in the region of €10m, but honestly that’s hardly anything for either firm these days. The recession might be on and hitting others hard, but there are some out there in the world that have the money still to buy luxury goods from both LVMH and Hermès. It’s a buoyant market, luxury.

Hermès had a staggering profit of €740m last year and its turnover stood at €3.48bn. Where’s the recession for them?

But, Hermès is nothing in comparison with the hated rival. LVMH had an increase in its turnover of +19% in 2012, now standing at €28.1bn and net profits of €3.1bn in 2011, rising to €3.424bn in 2012. That’s a +12%-rise in just one year.

The luxury market has no idea there is a crisis on at the moment. The world’s wealthy might not be spending as much as they used to in the western world, but the Chinese luxury market is increasing up to +30% per year. China became the 2nd largest luxury market in the world after Japan and ahead of the USA (and that was right from 2008). The country has 18, 000-odd billionaires. They are like kids in a candy store right now. Held back for decades, now they have the economic power and the financial freedom to buy what they want. They aren’t holding back any more. It’s private wealth and conspicuous consumption that are the order of the Chinese day today.

Hermès has never liked its rival LVMH. The latter is bling-bling, get-all-you-can-and-throw-it-in-the others’-faces (so they know just how rich you actually are) attitude. LVMH has to brand its name almost in red lights across its products in the hope that it will be recognized. Hermès is quieter, reliant on the name and age. Anyone that gives themselves a name of the Greek God that was the divine messenger and known for being quick and cunning must have a high opinion of themselves, mustn’t they?

But, it’s flash, brash, bling-blingy ostentatiousness that is favored by the nouveau-riche it seems as LVMH has taken over the luxury-product market around the world. Now, it looks like LVMH has been trying to buy itself a piece of history and buy up Hermès.  According to a report that was leaked in Le Monde, LVMH now holds a 22.6%-stake in Hermès and has increased that percentage slowly and insidiously since 2001 (using a subsidiary to buy up the shares, always investing small enough amounts so as not to attract attention). Hermès has now lodged an official complaint against ‘unknown persons’ for insider dealing. LVMH belted back with a handbag, denying that they were guilty of unfair competition and also filed a lawsuit against Hermès on 4th June.

The outcome will be known in just a few weeks. Until then, sit back and watch them. A good old slanging match, even if they are old ladies, is still fun to watch. A bun fight is always good.

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