Unpacking LVMH’s Donald Trump Moment | News & Analysis, BoF Professional

JOHNSON COUNTY, United States — LVMH has entered the political war zone that surrounds President Donald Trump, perhaps the most polarising figure in the world’s largest consumer market.

On Thursday, LVMH Chairman and Chief Executive Bernard Arnault and Trump marked the opening of a new Louis Vuitton handbag factory about 50 miles southwest of Dallas near the towns of Keene and Alvarado, which comes with a commitment by the French luxury group to create 1,000 jobs over the next five years. (The initial investment is $50 million.)

“We are pleased to be able to contribute to the American economy and bring jobs to the retail manufacturing sector,” Arnault said in a statement following a lunch and ribbon-cutting ceremony at the 100,000 square-foot “workshop,” dubbed Rochambeau Ranch. He was accompanied by his son, Alexandre Arnault, Louis Vuitton Chief Executive Michael Burke, Trump and Ivanka Trump.

“Today we continue the extraordinary revival of American manufacturing,” Trump said at the live-streamed press conference, Lee Greenwood’s “God Bless the USA” playing in the background as he took to the podium. (While domestic manufacturing was on the uptick during Trump’s first two years in office, it has actually contracted as of late, due to a combination of a slowdown in the global economy, trade tensions and the decrease in automobile manufacturing.)

Louis Vuitton has manufactured products in the US for decades. Its workshop inside a nondescript suburban office park in San Dimas, Calif., about 40 minutes east of Los Angeles, makes handbags and does repairs. These factories don’t necessarily produce large volumes of goods compared to some of the brand’s manufacturing sites in Europe. (Rochambeau will produce six styles, including the “Palm Springs” backpack and “Iena” shoulder tote made from leather sourced elsewhere.) But they do carry the “Made in the USA” stamp, a designation at the centre of a passionate debate on lost manufacturing jobs in the United States, a central pillar of Trump’s “America First” movement.

While Louis Vuitton regularly grants journalists and clients tours of its showcase workshops in France, it has remained guarded about its manufacturing operation in the US — until now.

The Texas outfit is the subject of greater fanfare, with US and French media outlets joining Arnault and Trump to document the festivities. Named after Marshal Jean-Baptiste Donatien de Vimeur, Comte de Rochambeau — the French general who supported the 13 colonies in the American Revolutionary War — the kernel for Rochambeau Ranch was planted long before a January 2017 meeting between Trump, Arnault and Arnault’s son, Alexandre. That meeting, however, cemented LVMH’s plans to open more US factories, which it said was needed in order to keep pace with growing demand.

But the decision to open in Keene is more complicated than that. The question is, why would Louis Vuitton, a brand that leans heavily on old-world European craftsmanship to market its goods feel the need to make a big push into the US, potentially in a politically charged way?

For one, additional manufacturing in the US allows LVMH to further protect itself in case Trump places further tariffs on European products. (Handbags, thus far, have not been included.) Last year, Louis Vuitton signed the administration’s Pledge to America’s Workers. The initiative, signed by hundreds of companies, including Amazon, Google and Ford, is meant to support training and development for “high-demand occupations and the industries of the future.”

While automation and advanced technologies have transformed manufacturing, the production of luxury goods continues to require handwork and special skills that can take months, if not years to learn. A good percentage of the 1,000 workers that the company says will eventually populate the Rochambeau workshop will need training in leatherworking and other skills. The factory currently employs 150 people, but has the capacity to operate with 500. The plan is to build another factory on the premises that will require 500 more workers.

Finding workers to occupy those positions when the unemployment rate is currently under 4 percent — and in a culture that does not socially reward physical labour — will be challenging.

“There are great, great opportunities in these facilities, but as a concept, [people] don’t want their kids to grow up and sit behind a sewing machine; they want them to be a data engineer or another white collar position,” said Stephen Lamar, executive vice president of the American Apparel & Footwear Association (AAFA), a trade group. “But the bigger problem is attracting workers in a full-employment economy.”

However, the company is taking a risk in using this pledge to engage with Trump, who is facing an impeachment inquiry and whose immigration policies and trade war with China make it more complicated than ever for corporations to appear publicly aligned with his administration.

Since he entered office in January 2017, many major brands, including Gucci — owned by LVMH-rival Kering — and Levi’s have done just the opposite, backing movements that directly oppose his rhetoric on gun control and immigration in particular. As early as two weeks into Trump’s tenure, senior executives from the likes of Starbucks, Nike and Apple spoke out against his executive order banning all people from seven Muslim-majority countries from entering the US for 90 days.

More recently, companies associated with Trump — inadvertently or not — have experienced a backlash. SoulCycle, for instance, saw a decrease in signups for its indoor cycling classes after it emerged that one of its backers, real estate developer Stephen Ross, held a Trump fundraiser at his home in the Hamptons. In 2018, Ivanka Trump shuttered her fashion label, which was under significant scrutiny from the time her father took office.

The departure from corporate neutrality reflects the changing ways in which consumers interact with the brands behind the products that they buy. In a survey by Boston-based communications agency Cone conducted in 2017, 87 percent of Americans said they will buy something if the brand stood behind an issue they cared about, while 76 percent said they wouldn’t make a purchase if they disagreed with the brand’s stance.

“Companies must now share not only what they stand for, but what they stand up for,” the study underscored.

Meeting with Trump in Texas carries additional political weight. A border state with an estimated 1.6 million undocumented immigrants — second only to California — Texas is at the centre of the immigration fight underway since Trump took office.

LVMH, however, seems to be compartmentalising the work it is doing on the Pledge to American Workers. LVMH’s intention to further localise manufacturing reflects a wider industry shift in the way product is brought to market, with an increased focus on transparency, as well as storytelling. Also on Thursday, the group announced the opening of a new Celine leather goods workshop in Tuscany. In September, it said Louis Vuitton would create 1,500 more manufacturing jobs in France.

“While storytelling is not the real reason why luxury brands are important to consumers, the reputational risk associated with storytelling is increasing,” Bernstein analyst Luca Solca wrote in a recent note. “We see a specific risk in the luxury goods industry sourcing practices.” Being honest about how and where things are made can mitigate this risk.

There are also clear financial benefits to expanding in North America. LVMH has expressed that the main reason for opening another factory in North America is to keep up with demand for Louis Vuitton product in the region, both in stores and online. Arnault has said that the brand, which is estimated to generate around €12 billion in sales a year, could have grown even more in 2018 if manufacturing capacity had been increased.

“It seems to be a reflection of a broader trend of companies wanting to be closer to the consumer,” Lamar said. “Producing in the US allows you to turn quickly.”

The volume of apparel and footwear made in the US, although tiny, has increased steadily over the past few years. In 2017, over 44 million pairs of shoes were made in the country, up from 26 million in 2009, while more than 635 million garments were produced here, up from 381 million, according to the AAFA. (Whether that number continues to rise as tariffs increase remains to be seen. Domestic production shields brands from some, but a good deal of materials and supplies are still imported.)

Regardless, close-to-market manufacturing allows for more reactionary production, protecting against bloated inventory levels.

“We used to forecast — now we react,” Burke told Bloomberg in September 2019. “We have the highest sell-through of any brand in the world. We destroy less than anyone.”

In order to convince Louis Vuitton to break ground in Texas, Johnson County approved a 10-year, 75 percent tax abatement — the maximum allowed — mostly likely in the hopes that the brand would bring stable, decent-paying jobs to the area. (The $91,900-per year abatement is based on projected annual revenues of $29 million, according to a 2017 report in the Cleburne Times Review.) In Keene, which has a population of just over 6,500 people, the median household income is $41,869, compared to $61,937 nationwide.

It’s also important to remember that Dallas and Houston are epicentres of luxury spending, and that Texas, despite its streaks of blue here and there, is a red state. Trump-voting Rockwell and Collin counties — where the median household income is $92,150 and $86,823 — rank Louis Vuitton as a top-five luxury brand, according to 2017 data from The RealReal.

So off to Texas they went.

Whether the Rochambeau event benefits Louis Vuitton or backfires, especially among young Millennial fans against Trump, may be difficult to determine. LVMH does not break out sales for Louis Vuitton, typically folding the brand’s results into a wider fashion and accessories category. But the bigger challenge for Louis Vuitton may be around training skilled workers, and navigating the increase in tariffs associated with importing certain materials and supplies. “Tariffs make it hard to do business,” Lamar said. “That cost is absorbed into the supply chain.” Of course, Louis Vuitton is not just any business.

Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholders’ documentation guaranteeing BoF’s complete editorial independence.

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