Champagne. Watches. Handbags. Perfume. What else is there, really? LVMH sells them all, giving investors access to the whole spread of the emerging markets-luxury goods growth story in one glittering package. Results this week showed how well the company is doing. Operating profits rose 11 per cent, pushing the shares up despite lower margins in clothing, which accounts for half of profits.
The shares have risen 10 per cent in the past year. But imagine that instead of buying the LVMH package, you had built a portfolio of companies that between them offer similar goods and services. It might include Diageo for wines and spirits, Prada for clothes and handbags, Richemont for watches and jewellery, L'Oréal for cosmetics, and Dufry for travel retail business. Such a portfolio, with its constituents roughly weighted to reflect the relative size of each segment at LVMH, would have risen 60 per cent during the year.
Much of that outperformance is down to Prada, but even replacing that with a more modest performer (say, Salvatore Ferragamo) would still have produced a superior result. Part of the reason is size – LVMH is one of the largest companies in the sector by revenues and so growth is a bigger challenge. And although it is growing faster than the competition in many areas of its business, that is not the case in clothing and leather goods. Its revenues from that area were up 14 per cent in 2012. Prada's are expected to have risen almost a third; Ferragamo's 17 per cent.
Of course, scale has its advantages. LVMH's spread of businesses provides some protection against peaks and troughs in any particular market, and it has the resources to invest in growing markets. But such relative safety and convenience, like much of what LVMH sells, has a hefty price tag attached.