How to value luxury
May 10, 2023
There’s something pleasing that it’s not only technology companies that can be worth an awful lot of money.
Luxury multinational LVMH is now valued at $500bn with its shares having risen 30% this year.
LVMH’s chair and chief executive, Bernard Arnault, is worth $212bn, making him the world’s wealthiest man. He has built that fortune in his lifetime from when he co-founded LVMH.
Luxury goods markets are growing relentlessly at the moment.
So yes, you can definitely put value on luxury!
When valuing a luxury goods company, calculating the intangible value is of course important and may require using sources such as Interbrand can come into play as part of our desk research.
We would argue that Apple is a luxury brand as well as being a technology company. No wonder it is the most valuable company in the world at £2.3trn.
There are other reasons as why luxury brands can command such high valuations – high margins, loyal customers and the power of viral marketing all matter and need to be considered.
Context is all when it comes to a brand…
We recently valued a restaurant chain which has a strong brand in its niche: it’s margins are healthy compared to its peers thanks to clever purchasing and good stock control and it has a good understanding of its audience.
Risks still remain especially in the restaurant sector.
Location is all and as we hopefully bypass a recession, for this business they are not high.
We might take a very different view of a restaurant chain with a tired brand with sites in more financially stressed local customers.
Even luxury brands when they are attempting significant growth in a short space of time face big risks around the business plan. And the higher the stakes will tend to mean needing to take a good look at the strength of the management team and its experience at delivering a scale-up.
Luxury means quality and quality means excellence in production.
If we are valuing a branded goods company, we will ask a lot of questions about the manufacturing process. Shop security will also be a major issue as will GDPR and cyber-security issues. You do not want a luxury brand’s customer list ending up on the dark web. Manufacturing in China will raise some questions.
The looming presence of the CMA is attracting our attention.
If a business plan includes a ‘buy and build’, checks will have to be done on the target acquisition list.
Whilst we love the challenges of valuing technology companies of all types (we’ve valued fintech, AI, metaverse and bio tech services companies in the last few weeks alone), we always enjoy valuing businesses that do or make something beautiful.
