By Matthew Dalton
PARIS -- Selling handbags, cognac and designer fashion, LVMH Moët Hennessy Louis Vuitton SE has become one of the most valuable companies in Europe.
Its shares are worth more than Europe's biggest auto maker, Volkswagen AG, and biggest bank, HSBC Holdings PLC. This week, LVMH's market capitalization topped EUR200 billion ($222 billion) for the first time, making it almost as valuable as Europe's biggest oil producer, Royal Dutch Shell PLC.
LVMH isn't the only stock-market star in the luxury business: The share prices of two of LVMH's smaller rivals, Kering SA and Hermès International SA, have also soared over the past two years.
The shift in stock-market fortunes is a sign of how the luxury business is eclipsing sectors that were once at the core of the European economy. Banks are struggling to adapt to new post-financial-crisis regulations. Auto makers face declining car sales. Big oil companies are subject to the whims of turbulent oil and natural-gas markets.
But LVMH, Kering and Hermès are enjoying a strong tailwind: steady growth in the number of customers around the world who want to own a piece of European heritage. The growth has been strongest among the Chinese, whose fast-rising incomes have made them the luxury industry's most important customers. But the three companies are selling strongly to Americans and Europeans as well.
LVMH, which owns 75 brands, has created a mass market for luxury by selling goods with a wide range of prices that can attract consumers who vary in age and income. Louis Vuitton, which by some estimates accounts for one-quarter of LVMH's sales and half of its operating profit, sells leather goods starting at a few hundred dollars in more than 450 stores world-wide. A bottle of Hennessy Cognac sells for as little as $25. Sephora cosmetics boutiques are in malls across the U.S.
Now the conglomerate aims to add engagement rings in blue boxes to its offering. This month it decided to use some of the cash it accumulated during the luxury boom to make a bid for Tiffany & Co., the American jeweler. At $14.5 billion, it would be the biggest acquisition yet by Bernard Arnault, the French billionaire who is the chief executive and controlling shareholder of LVMH. Tiffany has said it is reviewing the offer and that no discussions have taken place.
"As long as global market conditions support a larger and larger audience of consumers who are interested in and capable of buying luxury goods, LVMH is in a great position," said Luca Solca, an analyst at Bernstein & Co.
Kering has been powered by Gucci, one of the hottest brands in fashion over the past three years. Hermès relies almost exclusively on its lines of handbags, which can retail for more than $10,000 each. LVMH, Kering and Hermès occupy three of the top seven spots by market cap on the CAC-40, France's main stock index, ahead of BNP Paribas, France's largest bank, and AXA SA, the country's largest insurer.
The industry's good fortunes have been far from evenly distributed. Outside those three, high-end fashion companies such as Prada SpA and Burberry Group PLC have struggled to rejuvenate their brands. The fashion conglomerates appear to have gained an advantage compared with single-brand houses because their labels can share know-how and pool costs in areas such as marketing, logistics and real estate.
LVMH has been by far the luxury industry's best performer this year, with its shares up nearly 60%. Revenue rose 16% in the first nine months of the year, as LVMH brushed aside threats from protests in Hong Kong and trade tensions between Beijing and Washington. The share-price increase has put LVMH's market cap on par with Coca-Cola Co. and Boeing Co.
Write to Matthew Dalton at Matthew.Dalton@wsj.com
Corrections & Amplifications LVMH, Kering and Hermès occupy three of the top seven spots by market cap on the CAC-40, France's main stock index. An earlier version of this article incorrectly identified the three companies as LVMH, Kering and Gucci. (Nov. 7, 2019)