LVMH Moët Hennessy Louis Vuitton SA

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LVMH Moët Hennessy Louis Vuitton SA

30 avenue Hoche
755008 Paris
France
Telephone: (33) 1 44 13 22 22
Fax: (33) 1 44 13 21 19
Web site: http://www.lvmh.com

Public Company
Incorporated: 1854 as Louis Vuitton SA and 1971 as Moët-Hennessy
Employees: 33,000
Sales: FFr 56 billion ($9.51 billion) (1999)
Stock Exchanges: NASDAQ Paris
Ticker Symbol: LVMHY
NAIC: 551112 Offices of Other Holding Companies; 31213 Wineries; 31214 Distilleries; 316991 Luggage Manufacturing; 316992 Women’s Handbag and Purse Manufacturing; 44819 Other Clothing Stores; 44815 Clothing Accessories Store; 44612 Cosmetics, Beauty Supplies, and Perfume Stores

LVMH Moët Hennessy Louis Vuitton SA, created through a $4 billion merger in 1987, is the world’s leading luxury goods vendor, providing products ranging from champagne to perfumes to designer handbags. Its fashion and leather goods division includes such prominent brands as Louis Vuitton, Kenzo, Givenchy, and Celine, while its fragrance and cosmetics group distributes brands including Christian Dior, Givenchy, and Guerlain. LVMH’s wine and spirits group includes such premium brands as Dom Pérignon, Hennessy, Krug, and Moét Chandon. The company also owns luxury retailers, including a majority stake in DPS Group Ltd., a group of duty-free stores, and Sephora, a cosmetics and perfume chain. The company sought to expand and diversify in the late 1990s through a number of acquisitions.

The History of Louis Vuitton

Historically a supplier of luggage to the wealthy and powerful, Louis Vuitton is known for combining quality fabrication with innovative designs to reflect the needs of customers and the ever-changing modes of world travel. Louis Vuitton left Anchay, his birthplace in the Jura, for Paris in 1835 at age 14. After one year of traveling on foot, he reached the capital and soon became an apprentice packer and trunkmaker. The son of a carpenter, Vuitton mastered the skill of woodworking and designing trunks and, within ten years, had become an expert. During his apprenticeship, Vuitton gained experience in packing by traveling to the homes of wealthy women, where he was employed to pack their clothes before they embarked on long voyages. With his master, Monsieur Maréchal, Vuitton went regularly to the Tuileries Palace as the exclusive packers to the Empress Eugenie and her ladies-in-waiting.

In 1854, Vuitton opened his own business at 4 rue Neuve des Capucines, very close to the couture houses around Place Vendôme. Due to his familiarity with wood, silk, and satin, he became well respected by the couturiers, who hired him to pack their creations. His invention of flat-topped trunks, which were more easily stacked for travel than the traditional domed trunks, established his reputation as a master luggage-maker. Vuitton began covering his trunks in grey Trianon canvas, which was both elegant and waterproof when varnished.

As the business grew increasingly successful, Vuitton built workshops outside Paris in Asnières, where transportation of wood from the south was convenient. When his original store became too small, business was transferred to 1 Rue Scribe, and Vuitton began focusing on trunk-making rather than packing. Vuitton became the supplier of luggage to many of the most famous people of the era, from King Alfonso XII of Spain to the future Czar Nicholas II of Russia. He created special trunks for Ismail Pacha, the viceroy of Egypt, for the inauguration of the Suez Canal as well as a trunk-bed for Savorgnan de Brazza, who discovered the source of the Congo in 1876. The quality of the materials, the arrangement of interiors, and the finishings made Vuitton’s deluxe trunks far superior to anything that had previously been produced.

In an attempt to discourage copying of the Trianon grey canvas in 1876, Vuitton introduced new designs featuring red and beige stripes and brown and beige stripes to cover his trunks. By 1888, these striped canvases were imitated, and a patented checkered material was implemented. A large part of the company’s success was its ability to respond to the changing modes of travel which emerged at an astonishing rate in the second half of the 19th century. Vuitton designed classic wardrobe trunks for sleeping cars and lighter versions of the suitcase traditionally used by the English aristocracy. His son Georges played an important role in the managing of the business, opening the first Vuitton branch abroad in London in 1885.

In 1890, Georges invented the theft-proof five tumbler lock, which provided each customer with a personal combination to secure all his luggage. Two years later, the company’s first catalog presented a wide range of products, from very specialized trunks for transporting particular objects to simple bags with the typical traveler in mind. Four years after the death of Louis Vuitton in 1892, Georges introduced a new canvas design in another attempt to thwart counterfeiters. In memory of his father, Georges’ new design featured Louis Vuitton’s initials against a background of stars and flowers; it was patented and became an immediate success.

Traveling to America for the Chicago Exposition of 1893, Georges became convinced of the importance of a sales network abroad. By the end of the century, John Wanamaker began representing Louis Vuitton in New York and Philadelphia, and the London store was transferred to New Bond Street, in the heart of London’s luxury commerce. The company also expanded its distribution to Boston, Chicago, San Francisco, Brussels, Buenos Aires, Nice, Bangkok, and Montreal in the early 20th century.

Georges also foresaw the importance of the automobile as a form of transport and began designing automobile trunks, which imitated the lines of the car, to protect travelers’ effects from rain and dust. Contending that one should be able to take in a car what one could take on a boat or train, he created iceboxes, canteens, and light and flexible steamer bags. Other efforts to adapt to the changes in the travel industry included the manufacture of airplane and hot air balloon trunks and cases for spare tires. In 1914, the company erected a new building on the Champs-Elysées as the center for its growing network of distribution; this store became the world’s largest retailer of travel goods.

During World War I, production was modified to the needs of the war effort, as simple and solid military trunks replaced delicate and luxurious models. Part of the factory in Asnières produced folding stretchers which were loaded directly into ambulances leaving for the front. With the 1918 German offensive 60 kilometers from Paris, Georges had difficulty supplying his factory with materials and assuring the safety of his workers. After the war, the Vuittons struggled to supply their stores with what remained of the factory. Although the company supplied Prince Youssoupov with a jewel case to transport precious stones to America before the Bolshevik revolution, such personal orders were less common after the war, and the factory devoted more time to producing showcases for traveling salesmen.

As economic times improved, and Louis Vuitton regained its stylish clientele, special orders increased. The workshop at Asnières worked to produce orders for Coco Chanel, the Aga Khan, Mary Pickford, the Vanderbilts, and the president of the French Republic, among others. Charles Lindbergh ordered two suitcases from Vuitton for his return trip to America after his famous flight to France. During this time, the company provided some packing services for foreigners who came to buy garments from the Paris couture collections. In the early 1930s, exoticism was in vogue, and Vuitton used tortoise shell, lizard skin, ebony, and unusual woods in its fabrications.

As economic conditions deteriorated worldwide, however, the Vuittons realized the necessity of increasing the company’s profitability. Georges’s son, Gaston, worked with his father to increase efficiency. An advertising agency was set up and a design office was created to make detailed sketches of products to show customers before fabrication. By the time Georges Vuitton died in 1936, special orders had dramatically declined, and the company’s sales depended more than ever upon its catalog offerings, which were expanded to include trunks for typewriters, radios, books, rifles, and wine bottles.

During World War II, when delivery of Vuitton products was curtailed, overseas contracts were terminated, and the Vuitton factory and stores closed. The post-war period involved resupplying the stores, rebuilding business to pre-war levels, and restructuring operations. Three of Gaston’s sons played important roles, Henry in commercial management, Jacques in financial administration, and Claude in factory management. The first important postwar order at the company was for the President of the Republic, Vincent Auriol, who made an official visit to the United States.

In 1954, the company’s 100th anniversary, Louis Vuitton moved from the Champs-Elysées to Avenue Marceau. As travel times were cut with the development of trains, cars, and airplanes, the company created and improved its soft-sided luggage. In 1959, Gaston perfected a system of coating his motif canvases, making them more durable, waterproof, and suitable for shorter journeys. These lightweight, practical bags signified a new standard in luggage. Gaston invited well known artists to take part in the design of accessories. From 1959 to 1965, an average of 25 new models of Vuitton luggage were created each year.

Company Perspectives:

The mission of the LVMH group is to represent around the world the most refined qualities of Western ‘Art de Vivre.’ LVMH must continue to be synonymous with both elegance and creativity. Our products, and the cultural values they embody, blend tradition and innovation, and kindle dream and fantasy. In view of this mission, five priorities reflect the fundamental values shared by all Group shareholders.

LVMH values: Be creative and innovate; Aim for product excellence; Bolster the image of our brands with passionate determination; Act as entrepreneurs; Strive to be the best in all we do.

With the company’s success and reputation for luxury came a vast wave of counterfeit Louis Vuitton products. One year before his death in 1970, Gaston Vuitton decided to take action against the counterfeiters by opening a store in Tokyo; by offering the real Vuitton product in the Asian market, he hoped to better inform customers and discourage the purchase and manufacture of imitations. The company also undertook a successful advertising campaign to battle the increase in counterfeiting.

Henry Racamier, the husband of Gaston Vuitton’s daughter Odile, took over management of the company in 1977. Racamier had founded Stinox, a steel manufacturing business, after the Second World War and had sold it at a huge profit before coming to Louis Vuitton. Under Racamier, the company’s sales soared from $20 million in 1977 to nearly $1 billion in 1987. Racamier recognized that the major profits were in retail and that to succeed on an international level, Louis Vuitton had to expand its presence in stores and distributors in France. As a result, Louis Vuitton stores were opened all over the world between 1977 and 1987, and Asia became the company’s principal export market. Moreover, product diversification ensued, and in 1984, at the urging of financial director Joseph Lafont, the company sold stock to the public through exchanges in Paris and New York.

The 1980s were profitable years for Louis Vuitton, as the Vuitton name was prodigiously promoted. In 1983, Louis Vuitton became the sponsor of the America’s Cup preliminaries. Three years later, the company created the Louis Vuitton Foundation for opera and music. Also in 1986, the central Paris store moved from avenue Marceau to the posh avenue Montaigne. Production at the factory at Asnières incorporated the use of lasers and other modern technology during this time, and a distribution center was opened at Cergy-Pontoise, north of Paris. The company allocated two percent of annual sales revenue to the unending battle against counterfeiters.

Under Racamier, Louis Vuitton began to acquire companies with a reputation for high quality, purchasing interests in the couturier Givenchy and the champagne house Veuve Cliquot. Louis Vuitton’s takeover philosophy was personal, courteous, and discreet, rather than systematically aggressive.

The History of Moet-Hennessy

Moët-Hennessy, whose product lines include Christian Dior perfume, Dom Pérignon champagne, and Hennessy X.O. cognac, is a well-established and extremely successful French enterprise. What began as the business of a talented French vintner around 250 years ago became a world leader in the production of wines, spirits, cosmetics, and perfumes.

Claude Moët considered the Champagne region east of Paris, in the Marne River valley, to be an ideal location for wine production. He established a vineyard near Epernay but became frustrated dealing with the courtiers en vin, or distributors, who took his wine to market. Instead of depending on them to sell his wine, Moët decided to buy one of the offices of courtiers en vin and sell the wine himself.

In 1743 Moët et Cie (Moët and Company) was formed. Joined by his son Claude-Louis, Moët quickly established customer accounts which included a number of landed gentry and nobles. In 1750 father and son established an account with Madame du Pompadour, who regularly ordered Moët champagne for the royal court at Compiègne. That same year Moët began selling champagne in Germany, Spain, Eastern Europe, and America.

Claude Moët died in 1792, leaving the company to his grandson Jean-Rémy, who laid the groundwork for the later success of Moët et Cie. He expanded the base of operations at Epernay by purchasing the vineyards of the Abbey of Hautvillers, where a century earlier the Benedictine monk Dom Pérignon perfected the double fermentation of wine to create champagne. However, it was Jean-Rémy’s friendship with Napoleon that helped the company attract a loyal international following.

Jean-Rémy became mayor of Epernay in 1802 and first met Napoleon two years later. Napoleon and his entourage were lavishly wined and dined by Jean-Rémy in newly built guest houses at the firm’s address, 20 avenue de Champagne. Champagne historian Patrick Forbes wrote of the period: “everybody who was anybody in Europe was passing through the Champagne district en route from Paris to the Congress of Vienna and they all wanted to visit the celebrated champagne maker.… His 10 years in the Napoleonic limelight had made him the most famous wine-maker in the world and orders for his champagne began pouring in with such profusion that he hardly knew how to fill them.” Later, before abdicating, Napoleon rewarded Jean-Rémy for his generosity by giving him his own Officer’s cross of the Legion of Honor. Moët later dedicated its Brut Imperial in Napoleon’s honor.

Jean-Rémy’s customer list in the early 19th century had grown to include such famous people as Czar Alexander of Russia, Emperor Francis II of Austria (Napoleon’s father-in-law), the Duke of Wellington, Madame de Staël, Queen Victoria, and the Prince Royal of Russia (later to become emperor of Germany). In 1832 Jean-Rémy retired and relinquished direction of the company to his son Victor and son-in-law Pierre-Gabriel Chandon de Briailles. To reflect the new partnership, the company’s name was changed to Moët et Chandon.

Key Dates:

1743:: Claude Moët and his son, Claude-Louis, open Moët et Cie to sell wine.
1792:: Claude Moët dies and leaves company to grandson Jean-Rémy.
1832:: Jean-Rémy hands over control of the company to his son and son-in-law; business is renamed Moët et Chandon.
1854:: Louis Vuitton opens his own packing and trunk-making business in Paris.
1885:: Louis Vuitton expands internationally by opening a store in London.
1969:: Louis Vuitton enters the Asian market with a store in Tokyo.
1971:: Moët et Chandon merges with Jas. Hennessy & Company, the largest cognac producer in France, and is renamed Moët-Hennessy.
1984:: Louis Vuitton goes public.
1987:: Louis Vuitton and Moët-Hennessy merge in a $4 billion deal.

Victor and Pierre expanded the firm’s operations, and by 1879 Moët et Chandon dominated the Marne Valley with its introduction of more flavorful grapes from Cramant, Le Mesnil, Bouzy, Ay, and Verzenay. At this time Moët et Chandon employed close to 2000 people working as cellarmen, cork cutters, clerks, vineyard farmers, tinsmiths, needlewomen, basketmarkers, firemen, packers, wheelwrights, and stableboys. The company had even established a social security system for employees, which included free medical attention, housing assistance, pensions, maternity benefits, sick pay, and free legal aid.

Moët’s average annual sales were believed to have been about 20,000 bottles during the 1820s. By 1872 that figure had risen to two million, and by 1880 it had reached 2.5 million. At the turn of the 20th century, Moët et Chandon’s clientele remained primarily within the upper echelons of society.

During World War I, bombs demolished the offices and guesthouses where Napoleon had dined. Despite the destruction, Moët et Chandon reaffirmed its place in the market in the late 1920s by creating the Dom Pérignon brand of vintage champagne. Described by connoisseurs as the most perfect champagne available, Dom Pérignon also became the most expensive. The introduction of Dom Pérignon initiated a trend other champagne houses later followed: that of creating a premium brand, which placed other regular vintages second in status. Dom Pérignon, however, emerged as the most successful premium champagne.

Despite interruptions in its business during World War II, Moët et Chandon recovered quickly after the war, as a result of its prompt modernization of facilities. From the installation of new wine presses to a comprehensive system of work incentives, the goals of fairness and efficiency were emphasized in all aspects of production. Count Robert-Jean de Vogue, one of France’s most important wine buyers in the mid-1950s, led the company to even greater success. Under de Vogüé, Moët et Chandon experienced its most rapid period of growth to date, marked by its transformation from a family-owned venture into a Société Anonyme, or corporation. A series of acquisitions, mergers, and diversifications expanded the company’s product line.

Moët et Chandon gained control of Ruinart Père et Fils (France’s oldest champagne house and Moët’s chief competitor) in 1962. The company acquired Mercier, another rival champagne house, in 1970, and soon thereafter purchased an interest in Parfums Christian Dior, marking the company’s first undertaking outside the champagne business. Moët et Chandon later completed its takeover of Dior, whose perfume products include Miss Dior, Dioressence, and Eau Savage.

Moët et Chandon merged with Jas. Hennessy & Company, France’s second largest cognac producer, in 1971. The new company, called Moët-Hennessy, enjoyed a broader financial base and was better able to stimulate the growth of its interests abroad. The merger of Moët and Hennessy was brought about mainly as a result of a 1927 statute which limited the Champagne growing region to 34,000 hectares. (The statute was intended to protect the quality of French champagne by discouraging price competition). While less than 25,000 hectares were under cultivation in 1970, Robert-Jean de Vogüé believed that growing demand for champagne would exhaust the supply of land by the year 2000. Until other regions suitable for champagne production could be found, de Vogüé decided that diversification through a merger with Hennessy would insure a stable future for Moët.

Moët-Hennessy established a firmer presence in the United States in 1973 when it opened the Domaine Chandon winery in Napa Valley, California, a location which proved ideal for the production of sparkling wines. The production of sparkling wines at Domaine Chandon grew dramatically and enabled Moët-Hennessy to expand in one of its most important foreign markets. The winery also reduced, somewhat, demand in North America for French champagne, whose production was still restricted by law.

Alain Chevalier, a protege of de Vogüé, was chiefly responsible for the success of Domaine Chandon. He was named chief executive officer in the mid-1970s and began transforming Moët-Hennessy into a less conservative company with more aggressive marketing strategies. After de Vogue’s death in 1976, Chevalier continued the diversification program started by his predecessor.

In 1977 Moët-Hennessy purchased the Rozes companies in Portugal and France in an effort to raise demand for champagne. The following year, the company purchased Roc, a French cosmetics firm specializing in hypoallergenic make-up. The company also acquired Delbard, a French rose company, which was unable to continue financing the development of special new rose hybrids. The company also purchased Armstrong Nurseries of Ontario, California, the largest farmer of rosebushes in America. Moët-Hennessy was trying to apply rosebush cloning techniques to grape vines in order to produce better hybrids. As a result of these acquisitions, Moët-Hennessy became the world’s leading producer of roses. Chevalier, who became president of Moët-Hennessy in 1982, told Business Week, “Roses are a commodity. We can make them a brand name like champagne.” Losses incurred by both Roc and Armstrong, however, depressed Moët-Hennessy’s earnings. The introduction of a popular new perfume from Dior called Poison, however, helped offset those losses.

Continuing its expansion in the United States, Moët Hennessy acquired its American sales agent, Schieffelin & Company, one of the oldest wine and spirit distributors in North America. Moët-Hennessy was one of the first French companies to use European Currency Units (or ECUs), more stable in value against the dollar and therefore preferable for funding investments in the United States. By the late 1980s, Moët-Hennessy had yet to realize fully an $11.7 million investment in research and development made during 1983 and 1984.

The 1987 Merger

In June 1987, a $4 billion merger was effected between Louis Vuitton with Moet-Hennessy, which allowed Louis Vuitton to expand its investments in the luxury business, while saving Möet-Hennessy from the threat of takeover. Moreover, the merger respected the autonomy of each company over its own management and subsidiaries. As Moet-Hennessy was three times the size of Louis Vuitton, its president, Alain Chevalier, was named chairperson of the new holding company, Moet-Hennessy Louis Vuitton (LVMH), and Racamier became executive vice-president. Massive disagreements and feuding followed, however, as management at Louis Vuitton believed that Moet-Hennessy was trying to absorb its operations. The 60 percent ownership that Racamier and the Vuitton family had held in Louis Vuitton became a mere 17 percent share of LVMH.

After several disputes and legal battles between Racamier and Chevalier over the running of the conglomerate, Racamier invited the young property developer and financial engineer Bernard Arnault to acquire stock in the company. Hoping to consolidate his position within LVMH with the help of Arnault, Racamier soon saw, however, that Arnault had ambitions of his own. With the help of the French investment bank Lazard Frères and the British liquor giant Guinness plc, Arnault secured a 45 percent controlling interest of LVMH stock for himself.

An 18-month legal battle ensued between Racamier and Arnault, after Chevalier had stepped down. Despite Louis Vuitton’s strong performance, accounting for 32 percent of LVMH sales, Racamier could not hold onto his stake in LVMH against Arnault, who had the support of the Möet and Hennessy families. The courts eventually favored Arnault, and Racamier stepped down to create another luxury goods conglomerate, Orcofi, with the backing of such French investors as Paribas and L’Oréal. Arnault weeded out Vuitton’s top executives and began to bring together his fragmented luxury empire.

Guinness plc had originally been brought into LVMH by Alain Chevalier, who had hoped to find an ally in his feuding with Racamier, in a deal to exchange one-fifth of the two companies’ equity capital. Guinness then united with Arnault to control LVMH. In 1990, when Racamier left, Arnault increased his interest in Guinness from 12 to 24 percent, fueling rumors that Guinness would be his next target. Takeover speculation was also encouraged by the fact that Guinness directors had little power in LVMH, while Arnault had by far the largest shareholder vote in Guinness. However, Arnault’s percentage in Guinness was proportionately equal to the 24 percent Guinness controlled of LVMH. In the early 1990s, Arnault controlled the world’s largest luxury empire, with about $5 billion in worldwide sales. His holdings were structured as a pyramid of interconnected companies with control of LVMH central to his power, as it had a market capitalization of $10 billion in 1990.

The ubiquity of the Louis Vuitton monogram in the mid-1980s had damaged its reputation as a status symbol, and both profits and sales declined in the early 1990s. However, demand for luxury goods was expected to rise again, especially in Japan, Korea, and China, where buying power was growing rapidly. Still, the American market, which accounted for 17 percent of LVMH sales, was not expected to remain strong as an upheaval in upscale retail outlets was hurting sales. Arnault planned to create data processing and advertising sharing among his luxury retailers, including Louis Vuitton, Dior, Givenchy, Lacroix, and Loewe. Also in the early 1990s, Yves Carcelle, a former textile executive, became president of Louis Vuitton and broadened the range of products distributed to the company’s 150 stores in an attempt to increase sales. Rampant counterfeiting, a difficult world economy, and its own flagging image were Louis Vuitton’s nemeses in the early 1990s.

Ups and Downs in the Late 1990s

LVMH focused on growth and expansion in the mid-1990s and spent more than $3 billion during 1996 and 1997 on acquisitions. In 1996 Arnault invested $2.6 billion for a 61 percent interest in DPS Group Ltd., a specialty retailer that catered to international travelers. The purchase included 180 boutiques in Asia, DFS’s largest market. LVMH also invested in winery Chateau D’Yquem and purchased the fashion companies Celine and Loewe. The following year LVMH acquired Sephora, the French retailer of perfumes and beauty products, for $267 million, and invested in Douglas International, a German retailer of cosmetics and beauty goods.

Though LVMH diversified and grew its operations, many challenges arose in 1997 and 1998, and the company suffered from sagging sales. LVMH was hit hard by the economic crisis in Asia, a market that accounted for about half of LVMH’s total sales. The company’s investment in DPS was initially a disappointment; during the first half of 1997, DPS profits declined 50 percent, and during the first nine months of 1998, group sales for the retailing division that included DPS and Sephora declined 22 percent. In addition, several markets in which LVMH operated experienced difficulties. Increased competition and shrinking margins in the perfume industry, for example, posed a threat to LVMH’s perfume operations. In 1998, sales of LVMH’s fragrance and cosmetics division declined three percent. The wine and spirits segment was a slow-growing business, and LVMH’s sales of cognac had the most trouble, primarily due to a poor market in Japan, which accounted for about 20 percent of cognac sales. Cognac shipments to Japan fell from 6.2 million bottles in 1996 to 5.0 million in 1997. In 1998, shipments fell even further, to 4.3 million bottles, and total LVMH cognac sales fell 13 percent. LVMH also spent much time and money attempting to thwart the merger of drink rivals Guinness plc and Grand Metropolitan plc, and this, coupled with the financial situation in Asia, led to a 38 percent drop in LVMH’s share price between July and November. For the year ended December 31, 1998, LVMH reported total net income of FFr 3.45 billion, down from Ffr 4.87 billion in 1997.

Despite LVMH’s struggles in the late 1990s, the company remained confident that what was being experienced was only a temporary slump. In LVMH’s 1998 annual report, in fact, Arnault stated that “1998 was a year of consolidation and restructuring, aimed at laying strong foundations for resumed growth in 1999.” Many industry analysts appeared to agree. Merrill Lynch Global Securities analyst Edouard de Boisgelin predicted in Business Week in late 1997, “Asia will come back. It will be a phenomenal source of growth for years to come.” To prepare for the renewal in growth, LVMH continued to seek acquisitions. In 1998 the company purchased Le Bon Marché, an exclusive specialty retailer in Paris. LVMH also bought Marie-Jeanne Godard, a leading distributor of fragrances and cosmetics in France. Marie-Jeanne Godard offered 77 shops in mostly medium-sized cities in France, and six stores in other European nations. LVMH felt the Marie-Jeanne Godard acquisition was a perfect supplement to its Sephora stores, and during 1998 LVMH managed to convert 18 Marie-Jeanne Godard stores to the Sephora format. LVMH added to its champagne division in 1998 by acquiring the premium champagne brand Krug from Rémy Cointreau. The firm also upped its interest in Gucci, from 4.8 percent to 34.4 percent in early 1999, with the hopes of acquiring the company. French retailer Pinault Prin-temps Redoute SA beat out LVMH in mid-1999, however, by gaining a majority stake in Gucci.

A return to success came quickly, and 1999 was a strong year for LVMH. Asian economies were on the mend, helping to boost LVMH’s sales activity. Between January and August, the company’s share price rose 77 percent. For the first half of 1999, LVMH reported sales of EURO 3.59 billion, a 16 percent increase over the first half of 1998. Though DPS continued to rack up losses, the amounts were shrinking, and the company felt strongly that DPS had hit a turning point. Though cognac and spirits also continued to struggle, other divisions made up for the loss—operating profits in champagnes and wines rose 39 percent, perfumes and cosmetics increased 45 percent, and fashion and leather goods climbed 15 percent.

As sales increased, so did LVMH’s acquisitions. The year 1999, in fact, marked the company’s busiest year in terms of acquisitions. To expand its fragrance and cosmetics holdings, particularly in the United States, the company invested in four American beauty products companies: Hard Candy, which targeted female youths, Bliss Spa, BeneFit Cosmetics, and Make Up For Ever. LVMH also established a new watch and jewelry division, which included Tag Heuer AG, a Swiss watch maker in which LVMH gained a majority interest in September 1999. LVMH also acquired luxury watch makers Zenith, Ebel, and Chaumet.

LVMH also entered into some strategic partnerships to remain competitive in the marketplace. In October LVMH partnered with Italian fashion company Prada, usually a competitor, to acquire a majority stake in fashion design house Fendi, an Italian company operated by five sisters. Among LVMH’s other 1999 acquisitions were a majority interest in Thomas Pink, a British shirt maker, and the purchase of Phillips Auctioneers. The company also increased its stake in Inter Parfums Inc., a perfume manufacturer, from 6.3 percent to 20 percent.

LVMH sales in 1999 reached a record Ffr 56 billion, up 23 percent over the previous year. The company appeared to have recovered indisputably and solidified its position as the leader of the luxury goods market. Champagne sales rose by more than 21 percent, and cognac sales fared better for the full year, with sales up by seven percent. By the end of 1999, the fashion and leather goods division consisted of 261 boutiques and 15 global stores. Louis Vuitton sales, which had suffered during 1998, did much better in 1999, particularly in the fourth quarter, during which sales increased 45 percent. Fragrance and cosmetics sales rose 24 percent, and sales in the selective retailing division increased 21 percent, indicating a more positive situation with DPS. Sephora stores expanded aggressively during 1999, and 127 new stores were opened that year. By year’s end, there were 253 Sephora stores in Europe and 50 in the United States. Sephora enjoyed its first store opening in Tokyo and began selling products via its Web site as well. LVMH opened its U.S. headquarters in New York City in December 1999 and seemed poised to enter the 21st century full steam ahead.

Principal Subsidiaries

Möet-Hennessy; Louis Vuitton; Champagne Moet & Chandon; Champagne Mercier; Krug, Vins fins de Champagne S.A.; JA Hennessy & Co.; Thomas Hiñe & Cie; Edward Dillon & Co. Ltd. (Ireland); Louis Vuitton Malletier; Belle Jardiniere; Loe we SA (Spain); Berluti; Celine; Parfums Celine SNC; Kenzo; Givenchy SA; Christian Lacroix SNC; Parfums Christian Dior; Guerlain SA; Parfums Givenchy S.A.; DPS Group Ltd. (U.S.A.); Sephora Holding; Sephora France; Le Bon Marche Rive Gauche; Franck & Fils.