Louis Vuitton’s playbook: more products, fewer stores

However, LVMH CEO Bernard Arnault stressed that Louis Vuitton was the standout top performer, citing its high growth, “excellent creative momentum” and “exceptional profitability.”

Arnault pointed to milestone events for the brand that attributed to its growth: Buzzy collaborative designs with the artist Jeff Koons and the streetwear brand Supreme drove sales, as did the reception of its Kyoto Cruise Collection. But boosting profits for the brand came to down to increasing the number of products it launched throughout the first half of the year, while closing underperforming retail stores.

“Based on our momentum of product innovation, that’s where we’re seeing growth,” said Arnault during a conference call with investors. “The emphasis is on product, while the store network we’re expanding cautiously. We simply don’t need as many stores for our brands.”

As part of a “strategic restructuring” of its retail network, LVMH has closed several Louis Vuitton retail stores in underperforming locations, particularly in China, where eight stores have shuttered. Earlier this month, however, the brand quietly opened its first e-commerce store in the region, in order to draw counterfeit purchases away from local marketplaces like Tmall. It reinforced Louis Vuitton’s e-commerce presence along with the launch of 24 Sèvres, the LVMH-owned multi-brand luxury marketplace. Louis Vuitton doesn’t distribute to other online marketplaces, Net-a-Porter and Farfetch included.

According to Robert Burke, CEO of retail insight firm Robert Burke Associates, LVMH is wise to bring its top-performing brand’s online presence to the forefront, while capitalizing on momentum with in-season product launches (like its Cruise Collection) and limited-time collaborations, like its Supreme launch.

“When an individual brand is strong and continues to perform, attention needs to be paid to a robust online presence,” said Burke. “Look at how Kering pushes Gucci — when you know people are seeking out a brand and searching for it online, you have to get in front of that.”

Kering, in comparison to LVMH, has dug deeper into digital investments for its individual brands over the years, having fleshed out e-commerce sites for its brands like Gucci and Saint Laurent in the early 2000s. But with Arnault’s admission that physical stores should come second to product innovation, it’s positioning its top brand in front of a new generation of luxury shoppers. Arnault also pointed to a distinct in-season pricing strategy — one similarly adopted by Burberry — that has helped drive sales by selling more affordable items alongside the launch of an attention-catching runway show.

“LVMH has struggled, like a lot of luxury companies, to cater to younger customers,” said Burke. “But Louis Vuitton is the most relevant brand they have at the moment. It’s creating a new conversation around the younger, more digitally savvy generation.”

The June launch of 24 Sèvres also exemplifies the company’s shift in attention from physical to online retail (the marketplace is the online counterpart to the company’s one department-store format location, Le Bon Marché). Arnault acknowledged the marketplace’s advantage is its ability to sell brands like Louis Vuitton and Dior, which have limited wholesale distribution. But it’s not just an LVMH play: Brands sold through the site outside of the group include Maison Margiela and Prada.

“We’ve been surprised by the answers we got from most players,” said Arnault. “That shows us that we’re going in the right direction. It’s not a five-minute conversation to get them up and running, but that’s because we want it to be a premier experience.”

In the second half of this year, LVMH will officially launch Louis Vuitton’s first smartwatch, as well as open one new retail store: a Paris flagship.