LVMH's Louis Vuitton Is Rising to the Top of the Gen Z Market
LVMH's (OTC: LVMUY) Louis Vuitton is rising to the top of the Gen Z market in the U.S., according to Piper Jaffray's "Taking Stock with Teens" fall survey, which polled 9,500 teens with an average household income of $65,400 about their favorite brands.
14% of teens named Louis Vuitton as their favorite handbag brand, putting it in second place behind Capri Holdings' (NYSE: CPRI) Michael Kors, which had a 27% share. That was a significant improvement for Louis Vuitton, which ranked third with an 11% share in Piper's spring survey, and a slight dip for Kors, which held 28%.
Image souce: Louis Vuitton.
Last fall, Louis Vuitton ranked fourth with just 9% of the market. Let's see how this upscale brand is gaining ground with Gen Z shoppers.
Renewing a 165-year-old brand
Louis Vuitton launched his namesake brand 165 years ago, a rugged luggage brand that gradually evolved into an upscale label. Six years ago LVMH CEO Bernard Arnault appointed his daughter, Delphine Arnault, as the executive VP of Louis Vuitton to lead the brand alongside CEO Michael Burke.
Arnault, who had worked at various positions within LVMH since her teens, was 38 when she took the job. Since then the brand has pivoted toward a younger market with teen-oriented campaigns in Teen Vogue, younger celebrity endorsers like Sophie Turner, and innovative new products like glow-in-the-dark bags and phone cases.
Louis Vuitton also diversified into the streetwear market by collaborating with skateboarding brand Supreme and hiring Off-White founder Virgil Abloh as its artistic director of menswear last March. Both moves attracted the attention of affluent teens, some of whom bought the Malle Courrier 90 -- a Supreme x Louis Vuitton trunk that has a retail price of about $75,000.
Louis Vuitton also launched a teen-oriented "School Teens" campaign for younger shoppers, sponsored esports events, and boosted its social media presence with nearly 35 million followers on Instagram. That's why it wasn't surprising when a recent ForwardPMX study ranked Louis Vuitton as the most searched fashion brand among Gen Z shoppers in the U.S., with a 15% mindshare.
Image source: Louis Vuitton.
How can teen shoppers afford Louis Vuitton bags?
It might seem absurd that American teens can afford to spend $1,500 to $15,000 on an LV bag. However, many of those purchases were likely made by older friends or relatives. This supports one of my core reasons for buying LVMH's stock: Affluent consumers struggle less during economic downturns than middle class consumers who buy "affordable luxury" brands like Michael Kors and Tapestry's (NYSE: TPR) Coach and Kate Spade.
Several years ago, a study by Luxury Society found that affluent consumers become more "discerning" (but not more frugal) during recessions. This means that luxury brands must differentiate themselves with head-turning products -- like Louis Vuitton's latest streetwear and teen-oriented products -- to keep growing through downturns.
Investors shouldn't assume that Piper's survey indicates that all teens are shopping for Louis Vuitton bags. LV's rise could merely mean that the brand is sinking its claws into Gen Z shoppers and conditioning them to buy LV bags once they save enough money as young adults.
What does this mean for LVMH's investors?
LVMH doesn't disclose the sales of its individual brands separately. However, Louis Vuitton is the top brand in the fashion and leather goods group, which includes 17 fashion houses. That group's organic sales rose 18% annually in the first half of 2019 and accounted for 42% of LVMH's top line.
It was the only unit to post double-digit sales growth during that period. By comparison, Capri's revenue rose 14% annually (in constant currency terms) last quarter, while Tapestry's revenue grew just 4% on the same basis.
LVMH attributed the unit's strength to the "remarkable momentum" of Louis Vuitton, the "exceptional growth" of Dior, and the "great success" of Loewe's new collections. Piper's latest survey indicates that Louis Vuitton will keep locking in younger shoppers in the U.S., which generated nearly a quarter of LVMH's global sales in the first half of the year.
Louis Vuitton's rising popularity among Gen Z shoppers also allays some concerns about the Trump Administration's latest tariffs on European goods, which hurts LVMH's wine and spirits business but doesn't impact its fashion and leather goods. In short, it's good news for investors, and indicates that the 165-year-old brand should remain a reliable retail leader for decades to come.
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