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Put the ‘nepo babies’ in charge of the luxury business

At Louis Vuitton, the most pressing task now is appointing a new creative director for menswear to succeed the late Virgil Abloh. Hospitality is another opportunity, following the $US2.6 billion ($3.7 billion) acquisition of Belmond four years ago. The company is planning to open the first Louis Vuitton hotel in Paris.

Alexandre Arnault has a senior role at Tiffany.

Alexandre Arnault has a senior role at Tiffany.Credit:GC Images

Keeping a listing brings discipline and access to the capital markets. LVMH is expected to have net cash next year, according to the Bloomberg consensus of analysts’ estimates. But being able to tap shareholders would be useful should a big acquisition such as Chanel, which could be worth about 150 billion euros, become available.

But there are risks ahead for LVMH.

The first is succession. That’s a little way off right now, seeing as LVMH lifted the age limit of its CEO last year, enabling Arnault, who is 73, to remain at the helm until he’s 80. Eventually, however, he’ll have to choose whether to appoint one of his children to the top role or split responsibilities among the five children.

If Arnault were to pick one of the younger sons, Alexandre, 30, who has a senior role at Tiffany, or Frederic, 28, who runs Swiss watchmaker Tag Heuer, he could emulate Prada and appoint a non-family member as caretaker CEO until they are ready to take over. LVMH also has a cadre of top executives, such as Burke, Beccari (if he does well at Louis Vuitton), and group managing director Antonio Belloni, who would be safe pairs of hands.

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Whichever structure is chosen, the process must be handled carefully: splitting the CEO’s responsibilities opens up the possibility of conflict between the siblings.

Given that LVMH is increasingly in a league of its own, another danger is complacency. The backdrop is also looking more challenging. Investors are betting on a return of revenge spending by Chinese consumers now that they can travel, but the next few months will be volatile. Meanwhile, the US luxury market is slowing.

And LVMH is in the fashion business after all. Not only is it a notoriously fickle industry, but the desire to always be at the cutting-edge can generate faux pas that alienate shoppers.

Such hazards look far off, but the board, which includes some French corporate heavyweights, must be vigilant in spotting issues and raising them with the family. Strengthening corporate governance with more non-family members wouldn’t hurt either. Three years ago, Kering SA named former Credit Suisse Group CEO Tidjane Thiam and actress Emma Watson to its board, though there is a question mark over how much benefit this delivered as the Gucci and Balenciaga owner has endured a difficult period.

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LVMH shareholders have so far enjoyed a remarkable ride. But as the luxury landscape darkens, they should be more than passive travellers — and put their Louis Vuitton monogrammed luggage to work.

Bloomberg

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