Louis Vuitton Tries Going Even More Upscale

Louis Vuitton, the luxury-goods maker that has seen its sales growth slowing across the world, is raising its focus somewhat from the affluent to the really, really affluent with a new line of very high-end leather handbags and accessories, according to Women's Wear Daily.

But according to Businessweek, the strategy raises a question: Just how much more opulent can LVMH get, since it already offers $88,000 watches, $4,000 handbags and $1,000 scarves? Answering that question will be designer Darren Spaziani, whom LVMH is bringing back from a competitor. The conglomerate also just paid $2.6 billion to buy an 80 percent stake in Italian textile producer Loro Piana, which specializes in ultra-rare materials such as fibers made from Myanmar lotuses and wool shorn from the vicuna, a llama-like creature that lives high in the Peruvian Andes.

In practice, there's no ceiling for high-end luxury goods prices. But there is a limit to the number of customers.

As a result, for the past several years LVMH's sales have increased but profits haven't. Most recent growth has come from lower-margin areas such as perfume and airport concessions and makeup counters. Margins for those sales are typically 10 percent, compared with 30 percent for LVMH's leather goods and alcohol (the M is for champagne maker Moet).

Another problem for Louis Vuitton is that while it can still attract the very wealthy, its brand cachet is largely gone among younger customers, even if they could afford $1,300 for a handbag. "They don't have any appeal," one 18-year-old art student in Paris told Businessweek earlier this year. Fortunately for LVMH, that student really likes the $18 foundation she buys from Sephora. As long as no one tells her it comes from the same group as those dreadful Louis Vuitton purses, LVMH should be able to work both ends of the wealth spectrum.

For more:

- See this Businessweek story
- See this Women's Wear Daily story (sub. required)

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