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LVMH says it is considering more production in US

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CEO Arnault criticized French tax plans

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Investors cite quality, wages as factors against move to

US

By Mimosa Spencer and Tassilo Hummel

PARIS, Jan 29 (Reuters) - LVMH chief executive

Bernard Arnault has sparked a debate over France's attractivity

for business.

In post-earnings remarks late on Tuesday, the billionaire

said his company - known for its high-end products made in

France and Italy - has been "seriously considering" bulking up

its production capacities in the United States.

Arnault cited a "wind of optimism" in the U.S. that

contrasted with a "cold shower" of potentially higher corporate

taxes in France.

But any move to production on the other side of the Atlantic

would likely be limited in scope, said investors.

European luxury companies are looking to tap into American

wealth, boosted by stock-market highs and a strong dollar at a

time when Chinese appetite for designer fashion remains weakened

amid a property crisis.

Louis Vuitton, LVMH's biggest label, reaps high profit

margins for its mostly European-made fashion and leather

goods. It makes the vast majority of its handbags - famous for

the 'LV' monogram - in France, but already has several sites in

the United States.

Arnault, who attended U.S. President Donald Trump's

inauguration for a second term earlier this month with his

family, opened a factory in Texas in 2019 under the president's

previous tenure.

His luxury conglomerate also has two sites in California,

opened in 1990 and 2011, and acquired jewellery workshops with

LVMH's $16 billion purchase of American label Tiffany & Co. in

2021.

"American clients accept 'made in the U.S.'... so we can

consider the United States," LVMH CFO Jean-Jacques Guiony told

reporters on Tuesday.

"It's clear that we are being strongly pushed by the

American authorities to continue to build out our presence,"

Arnault said. "In the current context, this is something that

we're looking at seriously."

The comments from Arnault, France's richest businessman,

drew a swift reaction from the French government. The

government, under pressure to plug budget gaps, has said it may

levy corporate tax hikes on the country's largest companies.

Spokeswoman Sophie Primas said on Wednesday that the tax hikes

would be temporary and the administration remained pro-business.

"I know Bernard Arnault is attached to his country," she

said, describing LVMH as "the pride of France."

TAKING TIME

The group is already focused on adding European workshops at

Dior, its second-largest label after Vuitton.

Dior's plans to significantly increase in-house production

of its luxury clothing and accessories are "taking time," Guiony

said. The group pledged to bring in-house Dior manufacturing to

levels closer to that of its Louis Vuitton brand, around 60%,

after an investigation by Italian prosecutors turned up alleged

sweatshop-like conditions at subcontractors for the label.

For now, the priority of high-end fashion manufacturers will

likely remain France and Italy.

Rising sales in the United States may spur companies to

consider producing there, but wages are high and quality will

need to be top-notch, said Stefan Bauknecht, portfolio manager

at DWS.

"I can't imagine a Birkin or Kelly bag being produced in the

United States," said Bauknecht, referring to Hermes' most iconic

handbags.

The Hermes-made handbags, which can carry prices upwards of

$10,000, are made in workshops in France by leather workers with

years of training.

"I think ultimately if someone's paying more than a thousand

(dollars), you want that to be made in France," said Markus

Hansen, portfolio manager at Vontobel.