LVMH (OTC:LVMUY), the world's largest luxury goods company, plans to launch a new fashion brand with Rihanna. Fenty, based on the singer's surname, will join LVMH's lineup of 70 fashion brands and sell a wide range of clothing, accessories, and shoes for its core fashion and leather business.

This builds upon LVMH's previous partnership with Rihanna, who launched Fenty Beauty for its perfumes and cosmetics division in September 2017. Fenty Beauty reportedly generated 500 million euros ($562 million) in sales from its launch through the end of 2018. That represented a significant slice of LVMH's perfumes and cosmetics unit, which generated 6.09 billion euros ($6.85 billion) in sales for the full year.

An image of Rihanna applying makeup next to an image of Fenty Beauty cosmetics.

Image source: Fenty Beauty.

LVMH didn't disclose the financial terms of the new deal, but reports indicate that Fenty will mainly be an e-commerce brand supported by a network of pop-up shops and events. Let's see why this new brand could become a major growth engine for LVMH.

Why is Rihanna's Fenty brand so popular?

Rihanna trademarked her surname in 2014. That same year, Puma (ETR:PUM) appointed her as its creative director, which led to the launches of her Creeper shoes in 2015 and the Fenty x Puma apparel collection in 2016.

The Fenty line was a major hit for Puma, reviving the brand's appeal with young female shoppers and helping its footwear business generate double-digit sales growth again.

Fenty's success at Puma can be attributed to the popularity of the Creeper, which was voted "best shoe of the year" of 2016 by Footwear News. Rihanna's massive following on Instagram, where she currently has 70.6 million followers, also played a major role in its promotion -- which was arguably more effective than traditional marketing campaigns. Rihanna also launched Fenty products for apparel makers River Island and Stance.

Rihanna's Fenty Beauty collaboration with LVMH was widely praised because its cosmetics products were designed for a broader palette of skin tones and its inclusive ad campaign featured a wide array of models.

Fenty Beauty now reaches 7.5 million followers on Instagram. That makes it the second most followed brand in LVMH's 12 perfume and cosmetics houses after Benefit, which reaches 9.3 million followers. LVMH didn't disclose Fenty Beauty's exact sales for 2018, but it cited Fenty's growth as a catalyst for the perfume and cosmetics unit's 14% organic sales growth in 2018.

An image of Rihanna in colorful makeup next to an image of Fenty makeup products.

Image source: Fenty Beauty.

Enhancing a powerful core business

LVMH's perfumes and cosmetics business generated just 13% of its sales last year. However, LVMH's new partnership with Rihanna will bring the Fenty brand to the fashion and leather unit, which generated 39% of its sales.

That core unit consists of 15 houses, including Louis Vuitton, Loewe, Christian Dior, Fendi, Givenchy, and Marc Jacobs. It posted 15% organic sales growth in 2018 on the strength of LV, Dior, and Fendi -- and the addition of Fenty to that portfolio could boost its momentum.

Both business units continued growing in the first quarter. Its perfumes and cosmetics revenue rose 9% annually on an organic basis, and its fashion and leather revenue climbed 15%. Simply put, LVMH's situation is very different from Puma's -- it isn't bringing in Rihanna to turn around an ailing business, it's bringing in Fenty to enhance two healthy businesses.

The addition of Fenty to LVMH's portfolio is already generating a lot of buzz on social media. Rihanna's Instagram post announcing the deal has attracted nearly a million likes as of this writing, while the announcement on Twitter has been retweeted thousands of times.

The bottom line

LVMH's decision to launch Rihanna's Fenty brand as a new fashion house speaks volumes about the power of celebrities with massive followings. The deal should attract younger shoppers to LVMH, strengthen its core businesses, and widen its moat against other high-end fashion players like Kering.