Unpacking LVMH’s Acquisition of Luxury Hotel Group Belmond

Everybody wants experiences — and LVMH Moët Hennessy Louis Vuitton wants to make sure it’s ready to provide them.

The luxury giant’s surprise $2.6 billion acquisition of Belmond is aimed at bulking up the group’s hospitality operations globally and position it as much of a leading player in experiential luxury as it is in fashion, leather goods and prestige wines and spirits.

There is plenty to play for. Luxury hospitality is forecast to generate revenues of 190 billion euros ($215 billion) in 2018, up 5 percent at constant exchange, representing 16 percent of the global 1.2-trillion-euro luxury goods market, according to management consulting firm Bain & Co.

Luxury hotels, which accounted for 87 percent of Belmond’s revenues in 2017, are expected to see positive growth, evolving into social venues in sync with the city as travel becomes a “state of mind,” according to the Bain & Co. Luxury Goods Worldwide Market Study, released last month.

Euromonitor International forecasts luxury hotels will generate revenues of $53.5 billion in 2018, up from $39.3 billion in 2013, and the compound annual growth rate is expected to accelerate to 4 percent between 2017 and 2022.

“With the rise of experiential consumption, travel is an industry in which many consumers are willing to trade up. Hotels are clearly benefiting from consumers trading up from midmarket to luxury,” Fflur Roberts, head of research luxury goods at Euromonitor, commented in a recent article.

“Whilst consumer interest in luxury travel shows no sign of slowing down, it will be less about showing off wealth, and more about what consumers find meaningful. Wise luxury travel brands should continue to incorporate a wellness and ethical angle in their products and services to drive consumer interest,” she added.

The acquisition was unexpected, as luxury titan Bernard Arnault said recently he was not interested in snapping up assets while stock markets were riding high. However, analysts said the deal makes sense as millennials increasingly choose to spend on experiences rather than ownership of goods.

Jean-Jacques Guiony, chief financial officer of LVMH, said the deal was motivated not by a lack of available targets but by an underlying industry trend. “The future of luxury will be not only in luxury goods, as it’s been for many, many years, but also in luxury experiences, and we want to be in both segments,” he said.

“We think the so-called experiential luxury is something that will be important in the future, and it’s a great opportunity that we have to participate into that with such high-quality assets as Belmond,” the executive said in a conference call.

To that end, LVMH plans to offer the kind of experiences that are already available in its Cheval-Blanc properties in Courchevel, St. Barths, the Maldives and Saint-Tropez, Guiony said. LVMH also owns the Bulgari hotel properties.

“It’s very clear that there is a lot of cross-fertilization that we can promote between our wines and spirits business and Belmond. Some of the luxury hotels also have boutiques of luxury brands, so that’s another fairly obvious avenue. Client events: both Belmond’s clients or brands’ clients could be [hosted] in each other’s locations,” Guiony said.

This story was reported by WWD and originally appeared on WWD.com.

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