¶ … LVMH Apart Recessions come and recessions go, but luxury never goes completely out of style, even if sales were subdued in the early 2000's. Some individuals with deep pockets and high ambitions are always willing to spend prodigiously on common items like handbags and watches, provided they get what they want in return: quality, fashion and the envy of their friends. While the past couple of years have been difficult for the luxury category as a whole, LVMH has managed to distinguish itself from its competitors. It posted a 30% jump in profits in 2003 while the company's stock has risen 50% in the past 12 months. This tremendous rate of growth can be explained through brand protection and limiting underperforming stores.

LVMH is all about the power of brand, and its stable is jammed with famous names: Upscale leather goods retailer Louis Vuitton, its largest unit; wine and spirit makers Moet & Chandon and Hennessy cognac; fashion lines Donna Karan, Fendi and Givenchy, and others -- watchmaker TAG Heuer, for example, and shirtmaker Thomas Pink. The company's strength owes a lot to customer loyalty -- especially to Louis Vuitton, which analysts estimate accounts for about 60% of LVMH's earnings. Demand for its products -- from $100 coin purses to the new $5,500 Theda multi-buckled, gilt-trimmed handbags in colors such as turquoise and pink -- is so strong that Vuitton's margin topped 45% last year; its U.S. sales alone grew 38%. To meet the demand, Vuitton is expanding. In February 2003 it opened its largest retail center ever, an opulent 14,000-square-foot, four-story store at Fifth Avenue and East 57th Street in Manhattan. It will open an even larger "global" store in Paris at the end of the year, as well as stores in Shanghai and Tokyo's Ginza district. The company also will enlarge a number of leased departments in Saks and...

Overall the outlook for an expansion of LVMH's fashion brands is positive. In October 2004 it will open stores for three of its fashion lines -- Thomas Pink, Pucci and Celine -- in the expanded Forum Shops at Caesars Palace in Las Vegas, and next year will bring Louis Vuitton stores to Atlantic City and Las Vegas.
LVMH's brands "are very well sought after within shopping centers," says Joe Tagliola, senior executive vice president of Westfield America, which has LVMH retailers in about 10 of its 66 properties. "It helps us get additional tenants in the centers. They are a great complement to any of the majors." John Schroder, Westfield's joint chief operating officer in the U.S., notes that Louis Vuitton operates in its Century City center in Los Angeles, its Valley Fair mall in Santa Clara, Calif. And in several others, and that negotiations are under way for more. Of Westfield's properties, he says, "my guess is that LVMH and its stable of brands is probably appropriate in 10 or 11," adds Tagliola. "We'd love to do more business with them where it's appropriate." Vuitton also is paying careful attention to new and emerging markets. Last year it opened a store in New Delhi, its first in India, and two in China. "China, where the economy is booming, is a market with considerable potential for cognac, fashion and perfumes," LVMH chairman, Bernard Arnault, told stockholders this year.

Beyond Vuitton and other bright spots such as wines and spirits, there have been challenges as LVMH balanced growth with the need to prune underperforming operations. After the luxury category slowed in 2001, Arnault began selling some weaker lines. In the past year, LVMH unloaded Pommery champagne and Ebel watches. Another problem area has been the company's DFS…