Fashion Business: Hermès vs. LVMH stock options
Hermès Stock Growth and LVMH Stock Stagnation
When evaluating the luxury sector for long-term investment opportunities, two names inevitably rise to the top: Hermès and LVMH. As two of the oldest and most influential publicly traded French companies, both boast impressive track records and global brand dominance. However, for investors seeking consistent returns, the question remains—which stock offers stronger future performance? In this analysis, we’ll examine each company’s financial trajectory, strategic positioning, and exposure to market forces to assess their potential as recession-resilient investments in the evolving global economy.
Why Luxury Companies are a recession proof stock
In the world of luxury—particularly luxury fashion—what truly defines a product as “luxury” comes down to three pillars: craftsmanship, heritage, and demand. Among these, generating and sustaining demand is especially nuanced, as it relies on a deliberate creation of scarcity. Scarcity in luxury markets hinges on three key levers. The first is price—setting it beyond the reach of the average consumer instantly limits access. The second is limited supply—ensuring even those who can afford the product struggle to obtain it, reinforcing exclusivity. The third, and perhaps most abstract, is brand image. The product must not only be attractive but perceived as desirable and elite. This intangible value elevates a product from simply being expensive to being irreplaceable in the eyes of its target market.
From an investment standpoint, this engineered scarcity and perceived value play a crucial role in making a luxury brand's stock more resilient during economic downturns. By maintaining strong margins and consumer loyalty even amid broader market volatility, luxury houses like Hermès and LVMH demonstrate why their equities often outperform in recessionary cycles.
When valuing a stock, there are several methodologies available, most of which revolve around analyzing earnings and earnings per share (EPS). For companies whose target market consists of ultra-high-net-worth individuals, factors like marginal inflation, standard economic cycles, or even recessions have little to no impact on purchasing behavior. When average consumers are cutting back on essentials—whether eggs cost 1 euro or 10—the clientele purchasing €10,000 handbags remain largely unaffected. They have the disposable income to continue buying luxury items such as bags, dresses, and jewelry without hesitation.
As a result, the company’s earnings and EPS remain remarkably stable, offering a level of consistency that most firms can’t match. This earnings stability makes the stock resilient to typical market downturns. Barring a full-scale economic depression, the fundamental performance of the business—and by extension, its stock—remains largely unshaken, reinforcing its appeal as a defensive asset in a diversified portfolio.
This dynamic is highly favorable in a general sense; however, the equation begins to shift when luxury groups start to diversify beyond their core high-end offerings. Diversification introduces another layer of complexity in stock evaluation, particularly for conglomerates that begin integrating brands or segments aimed at broader consumer markets. As these companies expand into areas more closely tied to the general economy, their performance becomes increasingly correlated with broader macroeconomic trends.
During periods of economic growth, such diversification can drive the company to outperform general index funds, benefiting from increased consumer spending across multiple tiers. Conversely, this wider market exposure introduces greater volatility during recessions, as lower and middle-income segments become more vulnerable to economic downturns. For investors, this means weighing the trade-off between high-growth potential during economic booms and increased earnings sensitivity in periods of contraction.
LVMH diversified but Vulnerable
Under Bernard Arnault’s leadership, LVMH has experienced a meteoric rise, becoming the first publicly traded European company to surpass the $500 billion valuation mark. Rather than functioning solely as a collection of fashion houses, LVMH represents the luxury market in its entirety—spanning luxury hotels, media, cosmetics, jewelry, and high-end spirits. This diversification creates a fundamentally different return profile for LVMH compared to Hermès, and as an equity holder, it directly impacts how your returns are generated. When analyzing the post-COVID economic landscape in Europe, particularly the recessionary pressures that intensified through mid-2024, it’s notable that LVMH has posted negative growth during this period. This performance is important to monitor, as LVMH is far more integrated into the broader economy. In contrast, Hermès remains tightly focused on high-margin leather goods, making it less exposed to fluctuations in middle-market consumer behavior.
This correlation becomes evident when examining LVMH’s recent performance alongside France’s broader economic data. With the French economy contracting by 0.1% in the fourth quarter, LVMH’s slowed and negative growth reflects the group's sensitivity to macroeconomic shifts. Additionally, with Bernard Arnault expected to step down in the coming years, the company may experience transitional volatility. Until a clear successor emerges and the strategic direction is reaffirmed, investors should anticipate short-term fluctuations in the stock’s performance.
From a shareholder’s perspective, LVMH occupies an interesting position. While its diversified portfolio—spanning fashion, cosmetics, hospitality, and more—offers multiple revenue streams, this same integration into the broader economy exposes the stock to greater macroeconomic volatility. In contrast, Hermès, as a more narrowly focused leather goods and fashion house, is less susceptible to these broader economic shifts, resulting in a comparatively more stable performance during periods of market turbulence.
Hermès strong earnings... strong future
Hermès operates quite differently from LVMH. While Bernard Arnault has overseen the acquisition of over 70 companies, Hermès has focused its acquisitions solely on securing its leather and craftsmanship. This strategic approach exemplifies a luxury company that remains concentrated on its core business, making it a recession-resistant stock. Although Hermès holds an 18% market share in luxury bags, compared to Louis Vuitton’s 22%, it has demonstrated more consistent growth. Hermès boasts some of the most predictable and stable growth rates in the luxury sector, along with a profit margin of approximately 40%, making it one of the most profitable bag producers globally.
While Hermès is not as diversified as LVMH, it has made strategic acquisitions to strengthen its core business. In 1999, Hermès acquired a 35% stake in Jean Paul Gaultier, but it soon halted further brand expansion. The company then focused on consolidating its leather supply chain, acquiring Tannerie d'Annonay in 2013 to secure high-quality leather, and later purchasing Tanneries du Puy-en-Velay from J.M. Weston in 2015, further enhancing its leather sourcing. Although Hermès is a smaller company compared to LVMH, it has consistently outpaced the market, showing steady year-on-year growth for the past 20 years. To evaluate the long-term stability of these investments, it’s important to analyze how each company performed during the COVID-19 pandemic. This will provide a clearer picture of the relative safety of investing in each stock.
Performance during economic downturn
As discussed, Hermès and LVMH have very different organizational structures, which will influence their performance and their interaction with both the broader French and global economies. When comparing the two companies, it's essential to consider the performance of the broader French economy during the COVID-19 pandemic. According to the World Bank, France’s GDP fell by 7.4%. During this period, Hermès saw a 7.18% decrease in revenue, while LVMH experienced a more significant decline of 17%, according to Statista. Although both companies rebounded in 2021, with Hermès showing a 40.6% recovery and LVMH seeing a 43.7% increase, these figures underscore the broader integration of LVMH into the global economy, beyond just the luxury sector.
However, Hermès has consistently outperformed LVMH in terms of earnings per share and overall stock growth. Given LVMH's deeper integration into the broader French economy, it is unlikely that LVMH will surpass Hermès in earnings performance in the near future. As of April 6th, Hermès has delivered an average annual return of 20.74%, while LVMH has seen an average annual return of 11.89%. (Stock return percentages are updated monthly to ensure the data remains relevant.)
The outlook
While Hermès is poised to become the largest publicly traded French company and, subsequently, the largest luxury brand globally, there remains potential for LVMH to adapt alongside changes in the French economy. Notably, France's energy sector, particularly its reliance on nuclear energy, helps keep energy costs lower than those of other major EU nations, such as Italy, Germany, and the UK. With advancements in nuclear fusion, this advantage could become even more pronounced. As disposable income rises, the resulting multiplier effect will likely benefit LVMH beyond its core offerings of bags and apparel, particularly impacting its alcohol and hospitality sales.
These changes in energy are speculative, unless there are major breakthroughs in nuclear power or disruptions to Russian energy reliance in other countries, we can reasonably predict Hermès to become the largest luxury brand within 1-3 years.
Comsumer strength
Consumer strength in both brands is exceptionally high. However, with Hermès, there is more than just consumer culture—there is an almost god-like reverence for the Birkin, Kelly, and Mini Kelly bags. While brand image isn't everything, it certainly plays a significant role in influencing stock prices and the company’s overall earnings. Although not officially confirmed by Hermès, there are reports of thresholds amounting to tens of thousands of dollars required to even be eligible to purchase a Birkin bag. This adds an additional layer of "pot-committed" psychology for the consumer.
Regardless of whether they ultimately secure the bag, they must be deeply committed to the brand just to have the opportunity. Given that the price of a Birkin ranges from $20,000 to $100,000+, it’s reasonable to estimate that most Hermès customers who purchase one of these bags have spent between $70,000 and $200,000+ at Hermès. No such threshold exists for Louis Vuitton products. This almost cult-like devotion to Hermès products, coupled with the “pot-committed” pay-to-play mentality it fosters, results in an average client worth approximately $50,000—an amount Louis Vuitton struggles to match without significant brand changes.
All of this contributes to the future success of Hermès, especially as Asian markets continue to grow and the promising African markets begin to experience rapid growth by the end of 2030, mirroring the growth of Asia in the 1970s and 1980s. This dynamic benefits both Hermès and LVMH, but given the consumer strength behind Hermès, we can expect the consistent, robust growth that has long been a hallmark of the brand.
The Key take aways
In evaluating the luxury sector's future prospects, Hermès clearly stands out as the more resilient and promising investment. With its unwavering focus on high-margin leather goods and a consumer base deeply committed to the brand, Hermès has cultivated a near-religious following that has proven recession-proof. This brand loyalty, coupled with its consistently strong earnings and impressive stock growth, positions Hermès for continued dominance in the luxury market. As global markets, particularly in Asia and Africa, continue to expand, Hermès is poised for even greater success, potentially becoming the largest luxury brand worldwide within the next few years.
On the other hand, while LVMH has been a powerhouse in the luxury sector, its broader diversification into industries beyond fashion makes it more susceptible to economic fluctuations. The company’s exposure to industries like hospitality, spirits, and cosmetics introduces greater volatility, particularly in recessionary periods. Although LVMH’s size and scope offer significant growth potential, its recent stagnation in stock performance and weaker earnings growth compared to Hermès suggest that it may struggle to maintain its lead in the long term.
Ultimately, for investors seeking stability and strong growth in the luxury sector, Hermès stands as the more favorable choice, with its focused strategy, exceptional brand strength, and remarkable resilience in the face of market turbulence.