2014
CLASS 1 – GROUP 1 1.
Phan Nguyen Phuong Anh
295918
2.
Nguyen Thu Oanh
295910
3.
Tran Thai Dan Thanh
295925
Prof. Thomas Bradley 8/31/2014
EXECUTIVE SUMMARY Louis Vuitton Louis Vuitton Malletier, often referred as Louis Vuitton or LV, is the leather production house originated in France. Founded in 1854 by Louis Vuitton, with the heritages and values compounded throughout one and a half century, Louis Vuitton is often considered to take the lead in the world luxury fashion industry. Louis Vuitton also was listed in the world’s most valuable luxury brand for seven consecutive years, with the value of 25.9 billion USD (Roberts, 2012). The brand is currently owned by the French group Moet Hennessy Louis Vuitton (LVMH), the luxury good group with more than 60 brands from Bvlgary to Hennessy cognac, and “value amounts to about a third of LVMH’s market capitalization of 61.05 billion euros ($78 billion).” (Roberts, 2012). Moët Hennessy • Louis Vuitton (LVMH) LVMH Moët Hennessy • Louis Vuitton, better known as LVMH, is a French multinational group, which owns more than 60 prestigious brands around the globe. The group has its headquarters in Paris, and it is chaired by Bernard Arnault, the tenth wealthiest man in the world. The activity of LVMH is mainly focused in luxury industry and its spectrum of products is divided into five generic fields, which are Wines & Spirits, Fashion & Leather Goods, Perfumes & Cosmetics, Watches & Jewelry, and Selective retailing. Thanks to its brand development strategy, and the expansion of its international retail network (more than 3,000 stores worldwide), LVMH has had a strong growth dynamic since its creation in 1987. Corporate Strategy In general terms it could be said that LVMH is following a diversification strategy with its entire portfolio. The firm’s aim is to maintain its premium quality and brand image of all its products, so the way to achieve this objective is to innovate and generate new technologies and projects. The LVMH group has a strong history in mergers and acquisitions; the last one has been the Bulgari one in 2011. Nowadays the world leading luxury group is planning to acquire Jimmy Choo and Hermes; in fact there is an opened conflict between the Hermes Family and the LVMH group.
Another important point to take into account when analyzing LVMH strategy is the synergies that the group can create.
Technology transfer among firms of the same division.
Make aggregate operations planning between firms, such as in logistics and procurement activities.
Create mixed marketing actions to increase the sales as a whole.
Product and Services High quality raw materials putting through the very strict testing processes in order to make industry’s top design and creative talent, and the process of manufacturing the products is called the combination of sophistication and expertise. Another characteristic make LV be outstanding is that all of its products have the lifetime repair guarantee. The products of Louis Vuitton includes:
Leather goods – The heart of the business.
Accessories
Footwear
Ready-to-wear
Watches
Major Competitions Along with Louis Vuitton, Hermes International SA and Gucci together are the top 3 luxury fashion brands of the list Top 100 Global Brands in 2010. Thus, Hermes and Gucci are identified to be the main competitor of Louis Vuitton. Hermes: The company prides itself on manufacturing exclusive high-quality products which were made by experienced craftsmen using the best available raw materials. Throughout its history, Hermes produced several of the most expensive handbags all over the world, such as a US$2 million handbag released in 2012. Gucci: Basing on the high quality, craftsmanship, heritage, and innovation, Gucci’s mission is to provide its customers the excellent products and experience by using the company’s products. In 2011, the company achieved 18% growth (€3.14 million) in its revenue comparing to the previous years.
Although the three brands have the same target customer segmentation, each brand different themselves by many means. Unlike other two brands, Louis Vuitton seek for their image and identity protection by selling most of their products through the authentic stores, only a few are sold online. Moreover, Louis Vuitton do not put their products on sales in order to assure that the value of their product can be maintained as close to the market value as possible. On top of that, Louis Vuitton always seek for the exclusiveness of each product to meet their customer’s satisfaction. Market Conditions Despite maintaining as the market leader in luxury fashions and leather goods industry with hundreds of stores worldwide, there is still room for the growth of Louis Vuitton. As a report from PwC, the global luxury market anticipates the expansion rate of 10% with the total value of 191 billion EUR, exceeding the previous record before the financial market collapsed in 2009. And in that strong growth, Asia seems to take the lead with the growth rate of 16% due to the fast-growing middle class in China and other Asian countries. In specific, the China market is anticipated to overthrown US as the world biggest luxury market in the near future (PwC, 2012).
Figure 1: Worldwide Luxury Goods Market trend by geography (PwC)
Proposed Recommendations The proposed strategy category for Louis Vuitton is Product Development, which can be implemented through taking the advantage of the moving trend in the customer’s buying behaviors in China, the suggested strategy from the group is to have a new product that adapted to the taste of consumers in emerging market, especially the Chinese market. One suggestion is that the bags of Louis Vuitton can now go logo-free, i.e neither the brand’s monogram nor its logo will be included in the products, which will bring a new breeze to the oversaturated market of luxury goods. Another mean that the brand can apply is to slow down in their store expansion to protect their images. Because Louis Vuitton Is becoming so popular that their product can be seen almost at every corner, which can either be authentic or counterfeited, the consumers are now “fed-up” with their logo and monogram. Slowing down in their store expansion, decreasing the displayed products in store, as well as bringing up their price can be considered as an alternative to protect their brand image.
TABLE OF CONTENT 1
INTRODUCTION ............................................................................................................................... 1
2
CASE SUMMARY .............................................................................................................................. 2
3
PROBLEM STATEMENT ..................................................................... Error! Bookmark not defined.
4
THE PERSONAL LUXURY GOODS INDUSTRY .................................................................................... 3 4.1
Market overview ..................................................................................................................... 3
4.2
Important Factors and Considerations in the Luxury Retail Industry ..................................... 3
4.3
Customer Segments ................................................................................................................ 5
4.4
Porter’s Five Force Analysis .................................................................................................... 7
5
LOUIS VUITTON – COMPANY ANALYSIS ........................................................................................ 10 5.1
Business Description ............................................................................................................. 10
5.2
Company Strategy ................................................................................................................. 13
5.3
Marketing Mix Analysis ......................................................................................................... 14
5.4
Competitors Analysis ............................................................................................................ 16
5.5
Financial Analysis .................................................................................................................. 21
6
ANALYTICAL TOOLS FOR STRATEGIC DIRECTION-SETTING ........................................................... 27 6.1
Strengths, Weaknesses, Opportunities, Threats (SWOT) Analysis ....................................... 27
6.2
Competitive Profile Matrix (CPM) ......................................................................................... 36
6.3
External Factor Evaluation (EFE) Matrix ............................................................................... 39
6.4
Internal Factor Evaluation (IFE) Matrix ................................................................................. 41
6.5
Internal – External (IE) Matrix ............................................................................................... 43
6.6
Strategic Position and Action Evaluation (SPACE) Matrix ..................................................... 45
6.7
Grand Strategy Matrix........................................................................................................... 47
6.8
Strategies Summary .............................................................................................................. 49
6.9
Quantitative Strategic Planning Matrix (QSPM) ................................................................... 50
7
STRATEGIC ALTERNATIVES ............................................................................................................ 51
8
BUSINESS STRATEGY RECOMMENDATION FOR IMPLEMENTATION ............................................ 54
9
CONCLUSION ................................................................................................................................. 55
10
REFERENCES .............................................................................................................................. 56
1
INTRODUCTION
LVMH Moët Hennessy Ÿ Louis Vuitton S.A. is a luxury goods conglomerate worth investing in. Founded in 1987 with a merger between Louis Vuitton and Moët Hennessy, the company has sustained several years of high growth and profitability. As of 2011, the company had a store network of 2,423 stores across the US, Europe, Asia and other markets. The company employs more than 75,000 people and is headquartered in Paris, France. Its portfolio boasts over 60 prestigious brands in the following categories: fashion and leather goods, watches and jewelry, wines and spirits, perfumes and cosmetics, and selective retailing. Some of the brands include: Donna Karan and Marc Jacobs, Louis Vuitton, Bvlgari, Moët and Chandon, Veuve Cliquot, Hennessy, Parfums Christian Dior, and Sephora. All of the products sold under the LVMH brand are high quality goods that represent status, elegance, and wealth. Therefore, the target audience is comprised of well to do individuals with high disposable incomes. Demographics of this target audience have some variability based on cultural differences in different geographical locations. The target audience is relatively focused because certain individuals can afford and are attracted to the premium priced items. LVMH is differentiated from the competition for several reasons. Some of these include strong leadership, a well-developed and strong brand, and a focus on both tradition and innovation. The company’s goals are to continue to diversify its source of revenue and to ensure each individual brand falls in line with the overriding corporate brand personality. These are ongoing goals that have been designed by CEO and Chairman Bernard Arnault. The broad nature of the goals gives the company much leeway in how it achieves them. LVMH’s sales have continued to increase. The brands show resilience to the economic climate of the world, as sales and profit have not faltered. In 2011, the brand’s value was €18.4 billion and had increased by 23 percent from 2010. Half-year reports and forecasts from analysts indicate LVMH will surpass projections for the 2012 fiscal year. Investment in LVMH is highly recommended. The company proves to be sustainable and highly profitable over extended periods of time, is the global leader in its industry, maintains stability in the wake of constant innovation, and has secured a loyal customer base that continues to grow.
2
CASE SUMMARY & PROBLEM STATEMENT
Moet Hennessy Louis Vuitton (LVMH) enjoyed double digit growth and healthy profitability in 2010 and 2011. A large part of this growth has been driven by its flagship group, Louis Vuitton. In 2011, LVMH announced that long-time CEO Yves Carcelle would be replaced at the end of 2012 by Jordi Constants, an executive from the French food product multinational Danone SA. However, after serving less than a month, Constant was replaced in 2012 by Michael Burke, an LVMH insider who had been with the company for more than 30 years. While LV had enjoyed rapid growth in the last two years, the question was whether such a growth rate was sustainable, and how can Michael Burke balance the value and the heritage of Louis Vuitton, the seeds of which has been laid over 150 years ago, with the pressures to grow the business. In emerging countries, the luxury sector's expansion has reached double digits. However, as luxury products continue to penetrate global markets, the prestige of brands like Louis Vuitton has not declined at all. This seems at odds with the concept of luxury being tied to rarity and exclusivity. The fact has put a question mark on the sustainability in the growth of Louis Vuitton, for how long it will maintained. On the other side, the growth in revenue due to more goods are sold is not really a positive sign for the brands, as it will become more ubiquitous and cannot convey the message of exclusivity that the consumers expect. Thus, balancing between maintaining the profitability of the brand and protecting the values developed over more than one and a half century of Louis Vuitton is the challenge the Board of Director has to face.
3
THE PERSONAL LUXURY GOODS INDUSTRY
3.1
Market overview
The luxury goods industry is a most important and fascinating industry. This industry has seen steady growth for the past 15 years and has turned out to be one of the most attractive and profitable industries. 2012 marks the third year of double digit growth post-recession (PwC, 2012). Bain forecasts that the total worldwide luxury good category will reach €750 billion in 2012, a 9 percent increase from 2011 and estimates that this figure will approach €1 trillion within the next five years (Luxury Goods Worldwide Market Study, 2012). Even so, with the recently enacted 2 percent payroll tax increase, consumers may spend less on luxury items, perhaps specifically on luxury apparel. Similar to the recession, this tax increase will affect a few of the segments in the industry more than others. Others will continue to outperform the industry and the rest of the market as well, for example leather goods and accessories have become the dominating category of luxury consumption for 2012 with leather goods and shoes revenues increasing by 14 percent. On the other hand, high ticket categories like cars, yachts, and design are struggling to grow or even stabilized. (Bain, Luxury Goods Worldwide Market Study, 2012). 3.2 3.2.1
Important Factors and Considerations in the Luxury Retail Industry China – A promising market
With the rapid growth in the last decade, even when the country’s growth being slowed down into onedigit figure, China luxury market is still the most promising market for prestigious luxury brands. China has recently replaced Japan as the largest market for luxury consumption in Asia, and expected to surpass US as the world’s largest market in the near future, 2015. However, these figures only measures the size of the luxury goods market domestically. According to the recent study of Bain and Company, the top consultant firm for the luxury market, Chinese shoppers are now become the “core segment” of the market, when represent a quarter of all purchases worldwide. With a decreased value of Euro, Chinese consumers make 60 percent of their purchases abroad, a 37 percent increase in 2012, while the domestic market experience a significant lower rate (Bain, Chinese shoppers world's top luxury goods spenders, while China luxury market cools to seven percent growth in 2012, 2012).
It is becoming increasingly important that luxury retailers consider the rapidly changing Chinese preferences knowing the large impact they have on this industry. Visible logos, in the past, were the key selling points of luxury products for Chinese consumers but now their tastes are shifting to unique and high quality items. The demographics of luxury consumers are also changing in China. Many luxury products in the past were purchased as business gifts and now less than 25 percent are because the custom is slowing disappearing but allows the possibility of new consumption patterns to younger shopper sand those power women who wish to assert their own spending power and are attracted to edgier fashion (Bain, Chinese shoppers world's top luxury goods spenders, while China luxury market cools to seven percent growth in 2012, 2012). China’s demand for luxury products is crucial to luxury companies, especially since many of which have expansion plans that consist of expanding internationally with a specific focus on China and the rest of Asia. 3.2.2
Other emerging Economies
Even with China as the dominant powerhouse economy, there are also many other emerging economies that offer high growth opportunities as well. Increasing growth rates of the wealthy class in countries like BRIC, offer large untapped markets for the luxury industry. BRIC today account for approximately one-fifth of the world’s luxury market. The luxury market is growing at 20-30 per cent in these countries and it is estimated that BRIC will contribute approximately one-third of the global luxury market by 2015 and is predicted to have the largest base of luxury consumers (Som, 2011). Within the past few years, industry leaders like Louis Vuitton Moet Hennessey (LVMH) have opened more operations overseas in these emerging economies in order to reap the benefits. Furthermore, other than BRIC, countries like South Africa, Colombia, Indonesia, Vietnam, Egypt, and Turkey need to be recognized and carefully monitored as they are likely to offer extreme growth opportunities in the near future (Kapferer, 2012). Although the backbone of the global economic recovery process, emerging economies do not come without their own set of unique hurdles and challenges, such as education and knowledge level, the overwhelming population in these countries, and distribution challenges. There is also the possibility
that too much expansion may dilute the brand name because it is more accessible and lessens the exclusivity of the products. 3.2.3
Current Industry Trends
Long term growth and sustainability for companies in this industry will be determined by their ability to detect and adapt to the rapid changes in the market and the consumer: “Luxury 2.0� as Bain calls it (Bain, 2012). Just because a company has been successful in the past does not mean that it will continue to find that same level of success unless it quickly adapts to these changes. In order to be profitable in the next 10-15 years in the luxury goods industry, the company must offer competitive pricing while using creative marketing to ensure an appealing customer experience whether online or in the store using Omni channel strategies, and lastly focusing on entertaining the consumer by having a retail culture and an experience that will impress Generation Z. Bain also cites major structural shifts which are occurring in the global personal luxury goods market such as: (1) after having bypassed Japan, Greater China is now the sector’s second largest market, behind the United States; (2) expectations are that sales at off-price (discount) outlets and ecommerce will experience 30% and 25% growth per year, respectively; (3) an emerging generational shift, in which young consumers are seeking significantly different experiences from luxury consumption, opting for uniqueness over heritage, 24/7 access over exclusivity and with a greater penchant for entertainment over mere shopping; (4) the core category is now accessories, with leather goods and shoes at 27% of sales, becoming, for the first time, the largest piece of the market; (5) tourism and luxury spending have become more tightly intertwined with tourists now accounting for 40% of total luxury spending (Bain, 2012)
3.3
Customer Segments
The industry was split between three customers segment: absolute, aspirational, and accessible.
ABSOLUTE SEGMENT High and ultra-high net worth Prefer brands based on heritage and tradition Excellent craftsmentship, high-end materials, excellent buying experience
ASPIRATIONAL SEGMENT 10 percent of income earners Prefer brands that can communicate the high quality of their purchases
ACCESSIBLE SEGMENT Having a feeling of being a member of the elite group through their puchases Focus on brands thet can convey exclusitivity
Figure 2: Luxury Industry Customer Segmentation
At the top of the pyramid was the absolute segment that consisted of individual with high and ultra-high net worth. These customer look for true luxury and desire exclusive products backed by brands that ware based on heritage and tradition. They generally bought the highest end of the product line in ready-to wear product or bought made-to measure products. These customers looked for excellent in craftsmanship, the use of high-end materials, and an excellent buying experience. They value their privacy; thus vendors would set-up private fitting areas, which could be salons or private apartments, for these customers to select their designs and to get measures and fitted. The second segment was the aspirational customers. These included the top 10 percent of income earners such as celebrities, professionals and business men and women with high disposable income. High quality, an exclusive buying experience and brands based on traditions, heritage and that communicated the high quality of their purchases are important attributed for this group. The final segment was the accessible customers who through the purchase of a luxury product experienced the feeling of having a membership in an elite group. They got the taste of the world of the rich and famous. While these customers are more price conscious, the product they bought needed to convey a high level of quality and be backed by a brand that conveyed exclusivity. In all three segment, customers valued product that are made in France and in other part of Europe, more than those are made in Asia or even the United States. The highest growth between 2012 and
2014 are expected to come from the top two segment of the markets. By 2011, the absolute luxury segment made up 21 percent of the overall market and expected to growth by 8 to 10 percent by the end of 2014, aspirational segment was expected to grow close to overall market rates, while the accessible segment was expected to growth below the market rate (PwC, 2012). 3.4
Porter’s Five Force Analysis
Porter’s Five Forces identify five forces of competition to analyze an industry and can be used as a tool to assess a company’s position in its industry. These five forces include potential entrants, suppliers, buyers, substitutes, and industry competition (rivalry).
Threats of new entrance Low
Bargaining power of suppliers Moverate
Intensity of Rivalry Low
Bargaining power of buyers Low
Threats of substitutes Low
Figure 3: Porter's Five Force
Threats of new entrances For a company in the luxury goods sector, there are four high barriers to entry: economies of scale, differentiation, unrecoverable expenses, and access to unique factors. Other mentionable barriers to entry into the industry include patents, total capital requirements, patents, and learning curves.
Old players in this industry have the advantage as they have access to cumulative knowledge and volume over time, have identified a niche and sustained brand loyalty within their target market, have a cost advantage over old players, and have specialized and sophisticated research and development and marketing. Much of these advantages yield to high expenses that are unique to the industry, if a company is not successful in this industry they will lose a significant amount of money in research and development and advertising, let alone all of the other expenses incurred. Large sums of capital must be invested in order to be successful in this industry. Bargaining power of buyers In the industry, several stores own flagship stores or adopt the store in store strategy effectively reducing the need for retailers, or the buyer. Because of this vertical integration, buyer power is low. In this industry, companies also have power to be selective in where they sell their goods. Bargaining power of suppliers It is more difficult to evaluate the negotiating power that suppliers have since this industry has a very high differentiation in product type. Securing high quality raw materials is essential and goes give some power to the supplier. Threats of substitutes There are an infinite amount of substitutes for these goods outside of the luxury goods sector. Consumers can sacrifice quality and status for price and availability. However, since luxury goods are so highly differential, they do not experience price ceilings and consumers with high disposable incomes are willing to make the investment. Intensity of rivalry among competitors in the industry While the barrier of entry is high, barriers to exit are low to moderate in the industry. Specialized assets can be sold to competitors, there are no fixed costs of exit, and contractual commitment is relative to the company. Management commitments are relatively high as many luxury brands are family owned and run. This combination of high entry barriers and low exit barriers yields high stable returns (Cook). While the industry does continue to show high stable returns, LVMH continues to outperform its competitors significantly. Rivalry, the degree of competition in an industry, is relatively low. There is high
concentration in the industry meaning there are just a few players. Differentiation and growth rate are high, and diverse competitors are diplomatic. All of these factors signify a low rivalry industry.
Porter’s five shows that the luxury goods industry is very distinctive sector with global capabilities. As an old player with a highly differentiated product line, LVMH is able to capitalize on the industry’s strategic position, further analysis of its corporate and business level strategy reveals the company’s competitive advantages and core competencies that sets it apart from the competition.
4
LOUIS VUITTON – COMPANY ANALYSIS
4.1 4.1.1
Business Description Louis Vuitton
Louis Vuitton, one of the most renowned brand under LVMH is a company with humble beginnings which was set up by its founder Louis Vuitton Malletier in 1854 as a suitcase making business. Most fashion enthusiasts globally just adore the works of Vuitton because of the original design that has entered the world of fashion. In 1896, with business picking up, Louis Vuitton introduced its logo, a Japanese-inspired flower motif. The original intention of this synonymous monogram was to prevent counterfeiting of its designer luggage which made it the very first recorded “designer label” in history. Ever since establishment, Louis Vuitton records steady and robust growth year after year. Once again in 2011, the brand saw double-digit revenue growth from EU $7,581 million to EU$8,712 million, thus continuing to be the market leader in the luxury goods sector. Paired with its consistently high profitability, Louis Vuitton’s performance demonstrates the ever greater attractiveness and visibility of the brand as well as its organization’s exceptional ability to adapt quickly to changing circumstances. In today’s world, Louis Vuitton conjures thoughts of the posh, extravagant lifestyle of the celebrities and socialites who, with cult-like zeal, carry purses and bags emblazoned with the Vuitton logo. It also conjures up thoughts of street vendors selling counterfeit merchandise to the consumers who covet the image the brand represents. Behind it all is the history of a company built by a single man who had a vision of blending timeless elegance with innovative functionality. Louis Vuitton, a brand that brings you to a world of elegance, inspiration and innovations. 4.1.2
The LVMH Group
The Group’s History “An unprecedented cocktail of talent, audacity, and thoroughness in the quest for excellence” was the way in which the company described itself in a recent annual report. Louis Vuitton Möet Hennessy was largely a reflection of its charismatic CEO, Mr. Arnault, who not only engineered the creation of the group through a series of acquisitions, but also defined the fundamental strategic direction that the company would take in its evolution to become a global player (Thunderbird). In 1984, he saw an opportunity to enter the branded textiles and clothing business by buying the bankrupt textile company Boussac for $80 million. The purchase included Christian Dior, the haute couture house that was in decline at the time. In July 1988, in collaboration with British brewer
Guinness, he acquired 24% of LVMH, a group that had already been formed through a merger between Louis Vuitton and MĂśet Hennessy. By 1990 he became the CEO of the LVMH group. In less than a decade, he had transformed the company through a spree of acquisitions and opportunistic expansion into overseas markets. By early 2001, the company had been reorganized around five divisions spanning wines and spirits, fashion and leather goods, perfumes and cosmetics, watches and jewelry, and selective retailing (Thunderbird). Operating over 3,400 stores worldwide, there are six main areas that produce a significant amount of revenue for LVMUY in 2012: 28 percent of revenues from Asia (excluding Japan), 23 percent from the United States, 20 percent from Europe (excluding France), 11 percent from France, 10 percent from smaller markets, and 8 percent from Japan (LVMH, LVMH, n.d.).
LVMH Portfolio LVMH controlled more than 50 luxury brands across its product lines, spanning prestigious luxury names such as Louis Vuitton, a brand dating back to 1854, Chateau d’Yquem (1593), Veuve Clicquot (1772), and Guerlain (1828); sophisticated, upscale brands such as Givenchy and Kenzo; to the younger edgier
LVMH Group
names such as Marc Jacobs.
Wine and Spirits
Moet & Chandon, Hennessy, Chateau d'Yquem, Mercier, Cheval des Andes,...
Fashion and Leather goods
Louis Vuitton, Loew, Kenzo, Givenchy, Marc Jacobs, Donna Karan New York, Fendi,..
Perfumes and Cosmetics
Parfums Christian Dior, Guerlain, Parfums Givenchy, Kenzo Parfums, Benefit Cosmetics, MAKE UP FOR EVER,...
Watches and Jewelry
TAG Heuer, Zenith, Hublot, Dior Watches, FRED, Chaumet, De Beers
Selective Retailing
DFS, Miami Cruiseline, Sephora, Le Bon Marche Rive Gauche, Samaritaine
Figure 4: LVMH and its Business Group
In an interview published in the Harvard Business Review, Mr. Arnault observed that a “star brand is timeless, modern, fast growing, and highly profitable.” By those yardsticks, he had been able to gather quite a few star brands for his company. It was brand power that had propelled the company to leadership positions in almost every segment it served. LVMH was ranked number one in champagne and cognac, fashion and leather goods, and selective retailing. It was ranked number three in watches and jewelry and perfumes and cosmetics.
Figure 5: LVMH BCG Matrix
Through the BCG Matrix, we can see that LVMH has a good balanced portfolio.
The poor dogs products does not fit in the LVMH global portfolio, so the group should divest on it, actually it is what it have been doing since 2002.
The portfolio of starts within the company is reasonably diversified and well positioned to capitalize on potential industry growth.
The cows are unlikely to become poor dogs, because of the timelessness of LVMH’s products.
4.1.3
The Fashion and Leather Goods Group
LVMH had a very-well-established stable of brands in this segment accounting for 35% of group sales in 2012. Much of the sales of this flagship division were concentrated in the Asia-Pacific region, particularly Japan (LVMH, Annual Report, 2013). The company had made important cross-border acquisitions in this area to fortify its presence and heritage. It had acquired controlling interests in Fendi, the Italian leather designer; Donna Karan, a leading US designer; and had entered into a joint venture with Prada, another well-known Italian company in leather products and ready-to-wear apparel. Much of the sales in this segment were directly attributable to the Louis Vuitton brand that specialized in leather goods. This label had grown by leaps and bounds under the leadership of its legendary designer, Marc Jacobs. Demand for Louis Vuitton products often exceeded supply, requiring customers to go on a waiting list that often took several months to clear. A case in point was the introduction of the Graffiti line, which became an instant success, generating a waiting list that took over a year to fulfill. The company was able to leverage synergies across its fashion brands. For example, its Kenzo production facility had been transformed into a logistics platform for men’s ready-to-wear products serving other brands such as Givenchy and Christian Lacroix. Given the historically lower profit margins in the ready-to-wear market, synergies resulting in cost savings could boost profitability. The Louis Vuitton label, combined with the strength of the LVMH group, afforded opportunities for expanding into new brands and products. Using this launching pad, the company engaged in significant brand expansion efforts to reach a wider audience. 4.2
Company Strategy
LVMH’s Vision, Values Executed by LVMH, the brand Louis Vuitton also inherits the mission and core values of the whole group, which includes: “The mission of the LVMH group is to represent the most refined qualities of Western ‘Art de Vivre’ around the world. LVMH must continue to be synonymous with both elegance and creativity. Our products, and the cultural values they embody, blend tradition and innovation, and kindle dream and fantasy” (LVMH, LVMH, n.d.) In view of this mission, five priorities reflect the fundamental values shared by all Group stakeholders:
Be creative and innovate
Aim for product excellence
Bolster the image of our brands with passionate determination
Act as entrepreneurs
Strive to be the best in all we do”
As described in the first line of the LVMH’s mission statement, the long-term goals of Louis Vuitton can be said to deliver the value of Western “Art de Vivre”, which means “the art of living”, all over the world; and by that, the brand can maintain as the world’s leading luxury brand. Strategies and Objectives The main strategic priorities for the whole group as states in their annual report are:
Priority of internal growth, sustained by innovation, quality and controlled distribution.
Guarantee brands’ autonomy in accordance with their own identity.
Share skills and experiences of each brand and implement synergies.
Set up and develop teams of excellence.
In order to do that, Louis Vuitton sets out its own strategies in order to maintain the position of the brands as the most luxurious brand in the world, by (1) maintain its strong innovative momentum in, thus further heightening its appeal across all its product categories; (2) special initiatives will be focused on the leather lines and its “Haute Maroquinerie” collection; (3) qualitative development of the brand’s retail network will remain a key priority, in line with Louis Vuitton’s relentless quest to offer its customers a unique experience; (4) further optimize its organization in order to accompany its revenue growth and strengthen the various centers of expertise that constitute its universe (LVMH, Annual Report, 2012)
4.3
Marketing Mix Analysis
The current rise and domination of the Louis Vuitton Moët Hennessy Empire in the luxury brands is not merely a coincidence or luck but rather something achieved through its unique strategy that set Louis Vuitton apart from other brands. Louis Vuitton’s core principles highlight the elements of uncompromising quality, exceptional craftsmanship, the value of art and the protection of heritage.
These elements are strongly incorporated in its’ long term sustainable strategy and can be seen in its marketing mix 4Ps, i.e. product, price, place, promotion. Product Unlike other brands whose marketing seeks for adequate product quality as excess quality might come with high cost, Louis Vuitton offers something totally different, a product of distinguished quality and attention to detail. Since its foundation in the 19th century, manufacture of Louis Vuitton goods has always strived for perfection: Products like luggage, shoes are hand made by expert craftsmen, high class fabrics and materials are used in their products to ensure quality as well as durability. The concept of absolute quality is placed at heart of Louis Vuitton’s marketing strategy which prompts consumers to insist on Louis Vuitton or nothing. Going beyond the quality of a luxury product, Louis Vuitton also emphasizes strongly on both tradition and innovation at the same time. Every products of LV come with a story behind it. By doing this, it has been able to maintain the loyal customers who expect its traditional quality products and the new younger generation of customers who always search for the latest fashion trends. Price LV consistently pursued a luxury pricing strategy where there are high mark-ups and limited availability. All set of activities like bargaining, sale in value sets or odd prices in order to attract more customers are strictly prohibited in Louis Vuitton. The company does not believe in cutting cost or off shoring production to China or any other countries where the labor cost is cheaper. In essence, Louis Vuitton places its emphasis on the absolute value of the products, not price. This is further supported and developed by Kyojiro Hata, the president of Louis Vuitton Japan whose principle of philosophy is “Every products of LV are Money”. All these elements drive up the brand cachet and make Louis Vuitton the well-known luxury brand of the earth. Place Louis Vuitton sold most of its merchandise through its own store. Louis Vuitton bags are only offered through limited distribution channels, its own stores, a series of high end departmental stores throughout the world, which allow the control over product quality and pricing. With the total retail network of more than 450 located at prime venues in major cities by the
end of the first quarter 2011, Louis Vuitton has the absolute control over their distribution channel, which can assure the perfect buying experience delivered to customers, and along with that, can prevent counterfeit products. Up to date, LV has opened its stores in more than 60 countries including USA, UK, Japan, Singapore, Kuwait, etc. (LVMH, Annual Report, 2011) Promotion Louis Vuitton has a well-known reputation as it is the company of Louis Vuitton Moet Hennessy group, the largest luxury goods advertiser in the world. Regardless of the economic situation, budget for marketing campaigns keeps increasing non-stop in order to maintain the prestige image of the brand. Unlike other luxury brands, Louis Vuitton deploys a marketing strategy which controls its product to make it appear to be premium quality but attainable. Thus, it continues expanding its broad consumer base without losing its image. However, Louis Vuitton has never believe in doing sales or giving discounts. This serves to protect its brand image and maintain the value of its products in the long run. Louis Vuitton uses high quality print advertising in high fashion magazines including Vogue, on billboard in major cities, on television and in the cinema. In its advertising campaign, LV carefully cultivates a celebrity following and has used both famous models, actresses and other recognizable figures such as the former USSR leader Mikhail Gorbachev along with Madonna or Catherine Deneuve. In 2011, Louis Vuitton (LV) unveiled a new advertising campaign featuring Godfrey Gao, a TaiwaneseCanadian actor and model — the first time the company has used an Asian man to showcase its products. This move to feature an Asian male in their advertisements is a clear acknowledgement of Asia’s growing spending on luxury goods, particularly the Chinese men (The Wall Street Journal, 2011). Lastly, with its long history of arts patronage, Louis Vuitton has successfully associate the brand with art by having sponsored several exhibitions, including its own Louis Vuitton Art Talk Series discussion and many CSR activities with arts are the main driver. 4.4
Competitors Analysis
As in the report from Digital Luxury Group in 2012, Louis Vuitton has the largest market share in the luxury handbags industry, almost a third of the consumed handbags in the market are made by Louis Vuitton. The following leading brands are Channel, Gucci and Hermes respectively (The World Handbags Report, 2012).
Figure 6: Handbag Brand Market Share (Digital Luxury Group)
The products Louis Vuitton are praised by their perfect craftsmanship and the hi-end material used. However, in the luxury context, the performance of their product are still considered as goes along with the average in the industry, as all of the brands acknowledges the importance of the exclusive quality that their products have to convey. Through the research, we identified the competitors of Louis Vuitton to be Hermès International SA and Gucci. The reason for this selection is because according to the Top 100 Global Brands in 2010, both Hermès and Gucci along with Louis Vuitton was listed as the top 3 luxury fashion brands. Hence, we felt that it is best to compare these 3 brands.
Figure 7: Comparison between Louis Vuitton, Gucci and Hermes
Hermes Hermès International SA is a fashion brand renowned for its upscale luggage, apparel, and accessories. Initially starting as a manufacturer of premium leather harnesses for horse-drawn carriages, Hermès has now evolved into a luxury goods manufacturer with nearly 15 categories of products, including scarves, ties, watches, stationery, gloves, tableware, jewelry, perfume, men’s and women’s apparel, footwear, textiles, and home goods. Steeped with more than 170 years of history, the company operates 315 stores worldwide and is still majority owned by descendants of its founder, Thierry Hermès. The
company’s emphasis on family ownership and superb craftsmanship and uncompromising quality is the hallmark of all Hermès products.
Competitive Advantages Over the years, Hermès has earned a reputation for creating high quality designer fashion products to cater to the super rich and the premium luxury segment of the market. On top of that, Hermès is also renowned for its creation of unique customized products. Urging its customers to “faites nous rêver” (make us dream), Hermès skilled designers and craftsmen will put in their utmost to fulfil special and unusual customer requests. Though these orders carry a large price tag, customers who are willing to pay will get a limited edition product that is unique and bears the hallmark of Hermès.
Target Market Major firms such as Hermès in the luxury fashion industry target a significantly different set of consumer, as compared to other players in the industry. The bulk of their target market is men and women, ranging from young adults to seniors with a net income of about $5,500 or above per month, as well as “high net-worth individuals (HNWI)”, or quantitatively, individuals with up to $1 million worth of liquid assets. The typical target consumer of Hermès, who has a keen eye for fashion and trends, will not flinch at paying a USD$10,000 (S$12,200) premium for a customized Hermès suitcase or any luxury good for that matter. In short, this particular customer is able and willing to pay a premium for something which exudes class and quality; and is unique, rare and customizable to his/her needs at the same time.
Gucci The House of Gucci, better known as Gucci is one of the world’s leading luxury fashion brands. Founded by Guccio Gucci in 1921, now it is part of the Gucci Group, which is owned by French company, PPR. The brand is recognizable by its icons of heritage; the green and red stripe. Focusing on its quality, Gucci has been growing for the past nine decades and continues to see growth in 2012 with a 30% jump in online sales and a 15% increase in China — signs that the luxury brand is in a good place despite continued economic uncertainty.
Competitive Advantages
As quoted by Aldo Gucci, “Quality is remembered long after price is forgotten”, it shows Gucci’s emphasis on quality of its products and how it tried to convince customers a handbag isn’t just an accessory but an investment. Furthermore, Gucci has over 370 directly operated stores (DOS) as a strategy to control its distribution processes as well as to ensure the consistency of value of the brand. All Gucci’s products are made in Italy and this iconic Made in Italy style has become a symbol of elegance, sophistication and desirability which has enabled Gucci to become one of the world’s most desirable luxury fashion brands. Another unique selling proposition of Gucci is its ability for personalization of its products which allow customers to differentiate themselves from the rest.
Target Market Similar to both Louis Vuitton and Hermès, Gucci target men and women of the upper class. The brand also cater to individuals that seek for status and quality products. One that long for personalization and differentiation will be a possible target of Gucci as well since the brand does offer personalization and made-to-measure services. Unlike other brands, Gucci put great emphasis on the kids’ product line. It targets parents or parents-to-be who want to be fashionable and seen carrying a Gucci product even with their new-born or young child. Such products include the Gucci’s Diaper Bag and Baby Carrier. This product line will also meet the needs of parents who want their child to be seen with a Gucci brand in their young ages.
4.5 4.5.1
Financial Analysis Balance Sheet
Asset The fixed assets of the company are about 70% of the economic structure. That proportion of fixed assets is quiet high regarding other companies. Is important to notice that this amount is because of Brands and Goodwill of the firm that are valued too high. Both signify the 55% of Non-current assets and 39% of total assets. It seems that the valuation (taking into account the difficultness of value an intangible asset) is realistic and faces the real value of the brand and the company, which is the first in the sector.
Figure 8: LVMH Group's Asset as in 2012 Balance Sheet
Looking back the balance sheet we also see “Non-current available for sale financial assets� with a high weight in Non-current assets. It must be deeply analyzed that investments and its risk: that amount is mainly shares of Hermes owned by LVMH (concretely 23,6M shares), which are traded in the stock exchange of Paris and its value not seems to be a risk. Current Assets are about 30% of economic structure. The most interesting risk analyses that can be taken from current assets are the Cash Conversion Cycle and the liquidity of the company (and its temporary evolution), which will be analyzed in the ratio parts.
Liabilities and Equities
Figure 9: LVMH Group's Liability and Equity as in 2012 Balance Sheet
Non-current liabilities are about 32% of financial structure, and current liabilities about 20%. As a big company, its debt emission will be studied in another point because its given interests are a clear indicator of the risk of the company marked by the markets. The proportion of debts of the company is not so high compared to equity, as we will see in ratios and equity part, so it’s not a danger for the company. Neither Non-current nor current liabilities shows any doubtful point, but contrary; there are two items referred to provisions, which says that the company is prepared to risk and it is included in the results of each year. “Provisions for contingencies and losses correspond to the estimate of the impact on assets and liabilities of risks, disputes, or actual or probable litigation arising from the Group’s activities; such activities are carried out worldwide, within what is often an imprecise regulatory framework that is different for each country, changes over time, and applies to areas ranging from product composition to the tax computation.” (LVMH, Annual Report, 2011)
Equity of LVMH is a high part of the total financial structure. Items susceptible – indicators of risk in equity are variations in Share capital, Reserves, Net profits and treasury. In 2011 has been the last ten years share capital increase. It is because the acquisition of Bulgari family, which resources where distributed among the LVMH structure. Because of the acquisition increase hugely the Reserves (more than 2 billions), and the Share Capital where Bulgari family takes a little part of control of LVMH. Total equity amounted to 23.5 billion euros at year-end 2011, representing an increase of 29%. This significant rise is mainly attributable to the following factors: the reserved capital increase by LVMH SA, in the amount of 2.2 billion euros, intended as consideration for the contribution of Bulgari shares by the company’s family shareholders; the sharp increase in the value of some assets held by the Group, in particular its investment in Hermès, whose market value rose during the year by 1.7 billion euros; and finally, the strong earnings achieved by companies across the Group, only a portion of which have been distributed. 4.5.2
Income Statement
Figure 10: LVMH Consolidated Income Statement in 2012
The trends in LVMH’s financial statements indicate the company has seen growth in the past three years. With these promising numbers, investors can anticipate the upward trends will continue. LVMH’s total current assets, revenues, and net income are increasing, as is shareholder equity. The company continues to make substantial investments contributing to its constant growth. From 2010 to 2011, the company’s net income increased by 75% to €3 billion ($4.1 billion) and brand value increased by 23 percent to €18.4 billion ($24.3 billion). This consistent growth makes LVMH a standout competitor in its industry. Long-term profitability is inevitable for the LVMH group. While many conglomerates that used to see high profit margins have since seen a decrease in profitability, LVMH continues to perform at high levels. Because LVMH owns or has stake in so many top brand companies, in 2011 it had a stake in five of the industry’s 10 most valuable brands (Roberts, 2011). This shows how wide the company’s market share extends. By maintaining an extremely high brand value, the company’s ability to price products at a premium is also maintained. The market for luxury goods has sustained despite economic downturns and has not seen oversaturation. For example, the emerging markets in the BRIC companies (Britain, Russia, India, and China) open the company to a new customer base looking to establish and showcase their wealth and status, as demand increases so does LVMH’s profits. These are just some of the factors that display channels in which LVMH will be able to sustain the long-term profitability reflected in their financials. For 2013, based on half-year reports and forecasts by analysts, LVMH is expected to continue to exceed expectations
4.5.3
Financial Ratios
LVMH Moet Hennessy Louis Vuitton SA Financial Ratios 2012
2011
2010
Short term insolvency ratios Current Ratio
1.505
1.383
1.586
Quick Ratio
0.653
0.600
0.738
Cash Ratio
0.232
0.240
0.325
Long-term solvency ratios Total Debt Ratio
0.490
0.503
0.510
Debt/Equity Ratio
0.604
0.631
0.630
Equity Multiplier (Leverage Ratio)
1.960
2.011
2.042
Times interest earned ratio
36.104
27.847
25.720
Cash Coverage Ratio
41.799
32.101
30.036
212.64
215.77
Operational Ratios Cash Conversion Cycle (days)
199.99 Profitability Ratios
Profit Margin
0.122
0.130
0.149
Return on Assets (ROA)
0.068
0.065
0.082
Return on Equity (ROE)
0.134
0.131
0.167
22.466
26.132
Market Value Ratios Price earnings Ratio
27.052
Figure 11: LVMH computed financial ratios
We can see all ratios are so good and give a good image of the company. Furthermore, the variation is always positive so its expected value is to increase the value of the company. In this point we will assess the evolution of the ROE of the last four years. To understand better the fluctuations that it is suffering, we will look at the three rates that define the ROE: margin ratio, turnover ratio, and leverage ratio. The following table and chart show the evolution of the three rates and the
ROE itself. What we can see in this data is that the ROE of LVMH, is quite constant around a 17%, however the leverage ratio has decreased significantly. Therefore the constant behavior of ROE, is explained by the fact that margin and turnover ratios has increased, thus the combined effect of this increase with the leverage decrease balances and gives a quite constant ROE. It is important to highlight that a very good task is being performed in LVMH board because they have been capable to reduce the leverage effect and maintain the profitability for the shareholders.
5
ANALYTICAL TOOLS FOR STRATEGIC DIRECTION-SETTING
5.1
Strengths, Weaknesses, Opportunities, Threats (SWOT) Analysis
The following SWOT analysis that evaluates all the strengths, weaknesses, opportunities and threats of Louis Vuitton shall allow us to have a better view about the top luxury brand in the world.
STRENGTHS
WEAKNESSES
Values built over a long time High level of brand awareness Extremely diversified brand portfolio Strong global presence Diversified source of revenue High control over the supply chain and value chain 7. Source of global talents
1. Limited customers’ segment 2. A few brands are responsible for most of LVMH revenue 3. Increase in debt burden 4. Products only available in its exclusive stores 5. Recent changes in the leader position of the group
OPPORTUNITIES
THREATS
1. 2. 3. 4. 5. 6.
1. Market Expansion (especially in BRIC countries) 2. Synergies between brands 3. Increasing in the disposable income 4. Expanding in the concept of luxury 5. Adapting local and new trends for the local market
1. 2. 3. 4. 5.
Counterfeiting Grey market Over-saturation of the luxury goods industry High competition in the market Changes in the customers’ buying behavior in Asia 6. Economic slowdown
Figure 12: LVMH SWOT Matrix
5.1.1
STRENGTHS
Rich history of over 150 year old brand: The Company was founded in 1854 by Louis Vuitton first located in London, England and somehow was the world’s huge source of premium handbags, luggage, and diverse accessories. After 33 years, Louis Vuitton together with Moet Hennessey established the largest and most prestigious conglomerate in the world’s luxury market which is LVMH (Louis Vuitton Moet Hennessey Group). Demonstrating briefly about Louis Vuitton long history, some major points are:
Later than its birth in 1854, LV soon became the popular brand of Empress Eugenie, and the luggage turned into a type of symbol for the choice of being wealthy. In 1867, LV won a bronze medal at Paris’s World Exposition event and its influence began to broadly spread outside of France. Eighteen years later, the company decided to open its very first foreign flagship store in London. After the death of George Vuitton’s father in 1892, he started the campaign to expand his company into a worldwide scale corporation. Then, LV entered the U.S market in 1893 and launched its signature Monogram Canvas three years later, and secured worldwide patents for the company which has turned out to be the classic symbol of the Louis Vuitton brand since that period (Senft, 2011) High brand awareness with special monogram canvas on products: By performing the manufacturing processes with sophistication, meticulousness, and exquisite raw materials, the high-end goods have brings Louis Vuitton the outstanding competitive priorities for the long-term operation. On account of the company’s logo and its exclusive monogram canvas appearing on most of the products, LV is unquestionably easy to be recognized by the customers. Possessing superior craftsmanship: It can be said that LV is one of a small number of brands that leading the luxury market without affecting the traditional craftsmanship. Owing hand-crafted products using exquisite materials, many customers were not fear to mention craftsmanship as an importance associated with LV. Therefore, this is also be seen as a characteristic that help LV differentiates itself from other luxury brand within the market. Diversified brand portfolio: Though the most well-known product line of LVMH is still handbags, the brand has been widely diversified since its creative director Marc Jacobs led the business with many other categories including ready-to-wear, timepieces, jewelry, etc. Being one of the most influential players within the target market, the corporation purpose of diversifying is ensure its growth in revenue. Even when one of its product lines seems to be at the maturity or decline stages, the others division can help remaining the level of the company’s total revenue. Thanks to that, it also leads to the revenue’s sources diversification. Strong global presence and strong brand positioning with premium luxury products, exclusivity in official stores, and international celebrities' credibility:
LVMH has recently had its presence at nearly 60 countries across US, Europe, Asia as well as other regions with 3,204 stores worldwide (LVMH, Annual Report, 2012). By means of hand stitched bags and very little modern production method, LV has become obviously appealing to luxury market’s customers. Additionally, it is the single luxury brand in the world which sells through its own retail outlets only, offering LV the chance of having the largest possible sales and profits as double-digit sale’s growth in many years. As well, it also attracts customers worldwide with endorsements such as Jennifer Lopez, Kanye West, Uma Thurman, Madonna, Tyra Banks, etc.
Figure 13: LVMH Stores by geographic region
In consequence of having high customer loyalty, strong brand image, and positive value perception, LV gets the opportunity of being prestigious and credible brand being less affected by external factors as economic fluctuations. These factors give LV a solid brand position as well as a tool that enable it to sell the products without any discount or promote sales in its whole product life cycle. Diversified source of revenue: As LVMH has a diversified brand portfolio, the revenue therefore comes from variety sources which is generates from five divisions. The chart below show the source of revenue based on business groups as in LVMH Annual Report 2012 (LVMH, Annual Report, 2012).
Renevue by Business Group in 2012 14% 28%
35%
10% 13% Wine and Spirits
Fashion and leather goods
Watches and Jewelry
Selective Retailing
Perfumes and Costmetics
Figure 14: LVMH Revenue by business groups 2012
High control over the supply chain and value chain: In order to control the company’s requirements of products and its components standards, LV chose the method of fully control its supply chain. In detail, it is difficult to evaluate the power that suppliers have as this luxury industry has a really high product differentiation. Thus, LV decided on the important alternative of securing the quality of raw materials and giving little power to the suppliers.
5.1.2
WEAKNESSES
Limited customers’ segment Though the company has done well on its performance and gaining revenue, LV has a shortcoming of having a narrow customer segmentation of only high income class: increasingly from Accessible, Aspirational, to Absolute Group. Even then, it now has the tendency to minimize the scale to focus on the top two groups calling as “elite” or super rich customers who desire to become distinctive from other social classes. A few brands are responsible for most of LVMH revenue There is another factor that can be seen as a considerable down-side of the corporation that is putting large proportion of revenue earning responsibility onto only several brands within the whole LVMH Group. LVMH is perceived as “the strong player with two legs”. This means that among five major divisions of the corporation, Wines & Spirits and fashion & Leather Goods are the two which bring LVMH 80% of group’s total operating profits and 95% net cash (LVMH, Annual Report, 2012). In particular, the brand Louis Vuitton wins the leading position among brands within Leather Goods category, whereas Moet et Chandon is the king of champagne world. Increase in debt burden According to its annual report in 2011, the corporation experienced an increase in indebtedness which may impact on upcoming loans to finance its business operation. As in the graph showing the double in net financial debt in 2011 comparing to 2,678 million in the previous year, it can be seen that the rise in debt may limit LVMH capability of reacting to the economy’s fluctuations (LVMH, Annual Report, 2011) Figure 15: LVMH Net financial debt 2011
Products only available in its exclusive stores
Different from other luxury businesses, LV seems to choose the way of introducing the products only through its own exclusive stores. Those flagship stores were located in major cities’ prime venue and some of them only be available to their members.
Recent changes in the leader position of the group The leading positions inside LVMH has not been really stable due to usual changes during its history. This may directly affect undetermined in Group’s long-term strategies and operation processes. For instance, just in a short period of time that the organization had several changes in brand’s leadership. In 2011, LVMH announced that Jordi Constans – an executive from Danone SA – would replace their long-term CEO of brand Louis Vuitton Yves Carcelle at the end of 2012. Nevertheless, after his nearly one month performance, that position was replaced by LVMH’s insider Michael Burke in December of that year. 5.1.3
OPPORTUNITIES
Market expansion: The emergence of new wealthy markets such as India, China, and South America enables the global market of luxury goods to reach its strong growth in the coming time. The growth in those nations also leads to the concentrations of high net worth individuals, thus increases Louis Vuitton’s probable profits and market scope. Inside the BRIC (Brazil, Russia, India, and China) emerging market, specifically in India, Louis Vuitton plans to open 25 new stores and launch a private equity fund (worth roughly $600MM) to invest in its retail chains and brands (Grail, 2008). Synergies between brands Mr. Arnault’s strategy of managing a lot of different activities in order to cover a wide range of luxury market is executing through launching a “collection of global brands” and creating strong synergies between those brands to ensure the company long-term operation and profit earning processes (Bernstein, 2009). In comparison to its large competitors, LVMH appears to have the most diversified product lines, and it will be a huge opportunity for the organization development thanks to owning over 60 luxury, prestigious brands across the product lines. Increasing in the disposable income Taking an example of the rise in earnings within India, the annual disposable income of this country has increased from 25,999,520 million Rupees in 2004 to approximately double figures in 2009. This value is considered as one of the highest numbers among the emerging markets all around the world’s luxury
markets. Indians at the moment are purchasing high-end products much than they had had before. This opportunity gives luxury brands in general the chance of gaining their revenue and expand the businesses’ scales (Grail, 2008). Expanding in the concept of luxury Overall at global view, luxury goods spending was expected with a growth by 2% to €217 billion over 2013 at that time current exchange rates, as the continue in Europe’s challenging economic circumstances, and as China shifts itself from market enlargement to network preservation of a number of key luxury brands which moved in China market over the past few years (Bain, Luxury Goods Worldwide Market Study, 2012). Adapting local and new trends for the local market For being in the luxury market, Louis Vuitton supposed to have important decision on its strategy of adapting the products and communicating locally. For instance in 2011, a Taiwanese actor named Godfrey Gao became Louis Vuitton new face, and that is the first time the company has used an Asian male for advertising its products. In addition, Louis Vuitton recently presented a new collection which has the inspiration from Shanghai in the period of 1920s. 5.1.4
THREATS
Counterfeiting: It can be easy to realize that Louis Vuitton is one of the most brands that be counterfeited in the whole fashion industry. As a result of its well-known image and status symbol, Louis Vuitton not only faces the threat of losing its revenue, but also of declining brand reputation since the customers doubt about purchasing the real product or the imitated one. Furthermore, it is crucial as the modern technology used to counterfeit those items is much enhanced, and the differences between a high-quality Louis Vuitton and a counterfeited product definitely decreases. (Bernstein, 2009) Grey market The grey market is when you sell genuine products but through disapproved sellers. Saying in nation level, the home country may gain the reputation of having poor quality products, and this definitely will cause losses in export industry which will infers job and foreign exchange losses. These sellers are the
people taking part in damaging the genuine brands due to the fact that over time, the company’s prestige and exclusiveness toward their brands is reduced when the products at the grey markets are sold at discount price to the wrong target customers. Over-saturation of the luxury goods industry Louis Vuitton was one of the great brands to firstly expand its initial market in China mainland; however, after joining in this enormous popularity throughout a period of time, the demand in this country seems to shift to other luxury brands. There were some reasons make LV be saturated in this huge market. First cause appears to be relevant with the increasing in quantity of other big players did and were entering this high-end marketplace which also have their own strong competitive advantages such as Hermes, Gucci, or Channel. Secondly, as China has been known as a place where brands can much more easily to be counterfeited than any other countries, additionally LV is the one brand which has been imitated in the greatest volume. This cause results in the company’s customers feelings of “appearing too much as well as being doubtful”. Another reason is that LV perhaps looks like to be too familiar with its majority of monogram canvas which no longer be interested specifically in China market. Therefore, recently Louis Vuitton has just launched a new line of bags which have no logo and monogram on them with the hope of adapting and creating new trends within Asia marketplace. High competition in the market Though LVMH Group has a rich and long history of development, the corporation is obviously not be able to have no strong competitors or immune to this threat. In each territory over the world, Louis Vuitton has to deal with threats coming from many different competitors; namely, Gucci, Hermes, Channel, Prada, etc. With its own competitive advantages, Louis Vuitton’s large competitor Hermes is getting more and more benefits from providing its high quality products with fairly stable price, while Louis Vuitton still has their plan of increasing price making the customers feelings of somehow uncomfortable. Changes in the customers’ buying behavior in Asia
Louis Vuitton recently is known to be aiming at Asia luxury market; however, existing a threat to the company within this targeted market. In the 1970s, lots of manufacturers as well as retailers had the opportunities of taking full advantages from Asian customers as they traditionally be affected by oriented culture that they were willing to follow their “leaders” – individuals who have much decisive power than others. Nonetheless, later generations nowadays tends to be more independent in buying behaviors as well as emphasizing on their opinions and personal desires. Moreover, the changes in spending manners can have crucial influence on the luxury market. It means that people now intend to have saving behaviors rather than spending on goods, thus it may directly affect the sales and revenues of companies inside this industry (Schuttle, 1995). Economic slowdown According to IMF, due to the harshly weaker activities in Russia and many other emerging markets, CCA’s economic growth experienced a reduce of 6% in 2014. Adding to this point, the inflation in CCA is predicted to rise by 1.5 percentage points to 7.5% in the period 2014 - 2015, primarily as a consequence of the recent exchange depreciation in Kazakhstan as well as firming domestic demand within Georgia (IMF, 2014). The continuing of economic slowdown in China actually reported a fall 1.7% in 2014 in comparison to the previous year. This issue also reflects the strong impact of Europe’s weak demand, increasing wages and currency value’s rise in China. Furthermore, global vagueness and the steady tapering of the US monetary policies easing is probably impacting the internal capital flows of the economy. As well, China’s slowdown and financial uncertainty are possibly gaining a substantial influence on Taiwan’s economy because of their strong trading and financial relations (IMF, 2014).
5.2
Competitive Profile Matrix (CPM)
With the Competitive Profile Matrix, by listing all the critical success factors considered significantly important in the luxury industry to create a brand’s competitive advantage, weight them, and rate them respectively to the compared brands, we can have a better view about Louis Vuitton and their two major competitors, namely Hermes and Gucci; and who is doing a better job. Louis Vuitton No.
Critical success factors
Hermes
Gucci
Weight
Rating
Score
Rating
Score
Rating
Score
1
Brand reputation
0.12
3
0.36
3
0.36
2
0.24
2
Craftsmanship
0.06
4
0.24
3
0.18
2
0.12
3
Variety of products
0.04
2
0.08
3
0.12
4
0.16
4
Price competitiveness
0.05
3
0.15
2
0.10
4
0.20
5
Innovative culture
0.15
3
0.45
2
0.30
4
0.60
6
Clear strategic direction
0.10
2
0.20
3
0.30
3
0.30
7
Customer loyalty
0.15
3
0.45
3
0.45
3
0.45
8
Profit margin
0.05
4
0.20
4
0.20
3
0.15
9
Power over suppliers
0.04
4
0.16
2
0.08
3
0.12
10
Power over distributors
0.04
4
0.16
4
0.16
4
0.16
11
Customer service
0.10
4
0.40
3
0.30
4
0.40
12
Market share
0.10
4
0.40
2
0.20
3
0.30
1.00
3.25
2.75
3.20
Figure 16: Louis Vuitton Competitive Profile Matrix
All three brands target a similar segment of customers who seek for status and quality but each brand differentiate themselves with the core values and the promotion tactics. Louis Vuitton unlike the other two brands have very exclusive distribution channel which is to protect the brand image and identity. It only sell selected products online, whereby most of their products are only available in their brick-and-mortar stores. Also, Louis Vuitton has never believe in giving discounts or sales. This serve as a form of assurance that the value of a LV product will always remain close to market value. Furthermore, it maintain the
exclusivity of each product so as to maintain customer’s satisfaction. On top of that, Louis Vuitton has always being doing print advertisements on magazines such as Vogue so as to reach to their target market more efficiently, it was only recently that they started advertising on TV. This include the recent TV commercials, L’Invitation Au Voyage – The Louis Vuitton Advertising Campaign. Prestigious Brand Image All 3 brands are long-standing, well-established luxury brands that cater to the high-end market. The premium prices, high quality and elegant designs of each of the 3 brands’ products serve to create prestigious brand images. This in turn leads to the brands’ products to be positioned as status symbols in consumers’ minds. High Quality Materials and Fine Craftsmanship Louis Vuitton, Gucci and Hermès all offer high quality designer apparel, footwear and accessories. Across the 3 brands, the product category that accounts for most of consumers’ brand awareness is that of designer handbags. Each designer bag is made of high quality materials with all or some elements hand stitched by craftsmen, thus contributing to their fine workmanship and premium prices. All 3 brands predominantly use leather and other animal skins to craft their bags. Louis Vuitton handbags and luggage pieces contain elements that are painstakingly hand stitched and then put together by mechanized processes to increase productivity. Gucci bags are constructed similar to Louis Vuitton bags while Hermès bags are completely hand stitched. Exclusive Distribution Channels Louis Vuitton, Gucci and Hermès sell their products through selective distribution channels. This strategy allows the luxury brands to maintain an air of exclusivity surrounding their product offerings, to appeal to consumers of the high-end market who wish to differentiate themselves from the masses by using branded products as status symbols of wealth, elegance and style. The 3 brands retail their products mainly on high streets, in exclusive shopping malls and online on the brands’ official websites. By choosing to sell their items directly to consumers via limited retail channels, the luxury brands can also control product quality and pricing.
Bespoke Services Louis Vuitton offers bespoke services, such as the personal engraving service on hand luggage pieces. By offering consumers the choice to personalize and customize their wallets, bags and other leather goods, Louis Vuitton effectively boosts its brand appeal amongst consumers who wish to differentiate their leather goods to suit their personal tastes. Gucci has bespoke services as well, for selected apparel, footwear and bags. Hermès also provides a similar service for bags and scarves, two of the brand’s most famous products. For example, Hermès’ Custom Silk Corner allows consumers to customize their own classic scarf using the brand’s scarf embroidery service. These bespoke services allow the luxury brands to maintain the notion of exclusivity: that nobody has it, and maintains their premium image in the luxury goods market.
5.3
External Factor Evaluation (EFE) Matrix
External Factor Evaluation (EFE) matrix method is a strategic-management tool often used for assessment of current business conditions. The EFE matrix is a good tool to visualize and prioritize the opportunities and threats that a business is facing. External factors assessed in the EFE matrix are the ones that are subjected to the will of social, economic, political, legal, and other external forces. No.
Opportunities
Weight
Rating
Score
1
Market Expansion (especially in BRIC countries)
0.15
3
0.45
2
Synergies between brands
0.05
3
0.15
3
Increasing in the disposable income
0.10
1
0.10
4
Expanding in the concept of luxury
0.05
2
0.10
5
Adapting local and new trends for the local market
0.05
4
0.20
No.
Threats
Weight
Rating
Score
1
Counterfeiting
0.15
4
0.60
2
Grey market
0.15
4
0.60
3
Over-saturation of the luxury goods industry
0.10
3
0.30
4
High competition in the market
0.10
3
0.30
5
Changes in the customers’ buying behavior in Asia
0.05
1
0.05
6
Economic slowdown
0.05
1
0.05
1.00
2.90
Figure 17: External Factor Evaluation Matrix
Every company deals with internal and external factors that affect their business. These external factors involve trends related to things such as price changes, political instability, government regulation and many more. External environment impacts every company; it’s all about how every company adjusts to external trends and prepares for them before they occur. There are two types of trends: the ones that can offer the company strategic opportunities and the ones that provide threats. By identifying opportunities and threats, companies can protect themselves from future harm and take advantage of opportunities as they emerge. There is a set of trends common
within an industry. Each of these forces has a different weight depending on the company, and is dealt with differently as well. Companies always differ on how they prioritize trends. Right now there are two main trends happening in the luxury goods industry. One is the expanding of the luxury segments in emerging countries, especially in the China mainland. Recent market researches indicates that China is currently the second largest market for luxury goods, and is expected to take the first place in 2015 (PwC, 2012). In 2011, China is accounted for $12.6 billion, or more than a quarter of luxury purchases worldwide. LV opened its first mainland stores at Beijing’s Peninsula Hotel in September 1992. Before that, luxury goods were practically nonexistent in China. Now the Chinese comprise the largest customer base of LV. With the current over-saturated condition in the emerged market like US and European countries, China obviously becomes the target of every luxury brands, not only Louis Vuitton, due to its promising growth in market size. Another trend is the changing in the customer’s reference as luxury product in these emerging markets. Even though, the expanding in the concept of luxury products make them become remarkably attractive to middle-class consumers, the taste of this segment has changed in these recent years. In the past, Chinese consumers appreciate luxury goods that will be never go out of fashion, and Louis Vuitton specializes in making timeless products. This feature differentiates LV from its main competitors, such as Dior and Prada, who launch new collections nearly every year (Daxue, 2013) . However, counterfeiting products, which is also a huge industry in China, makes the brand less desirable as the monograms and the logos are now become very ubiquitous in the country – a very common phenomenon in the luxury goods industry. This trend, if we look on the bright side, is not simply a threat to Louis Vuitton, but also guide them to the opportunity of making new products that include neither their monogram nor their traditional logo to make their bags or luggage attractive again to the Chinese consumers.
5.4
Internal Factor Evaluation (IFE) Matrix
Internal Factor Evaluation (IFE) matrix is a strategic management tool for auditing or evaluating major strengths and weaknesses in functional areas of a business. IFE matrix also provides a basis for identifying and evaluating relationships among those areas. The Internal Factor Evaluation matrix or short IFE matrix is used in strategy formulation. The IFE Matrix together with the EFE matrix is a strategy-formulation tool that can be utilized to evaluate how a company is performing in regards to identified internal strengths and weaknesses of a company. The IFE matrix method conceptually relates to the Balanced Scorecard method in some aspects. No.
Strengths
Weight
Rating
Score
1
Values developed over a long time
0.05
3
0.15
2
High level brand awareness (especially Louis Vuitton)
0.15
4
0.60
3
Extremely diversified brand portfolio
0.10
4
0.40
4
Strong global presence
0.10
4
0.60
5
Diversified source of revenue
0.05
3
0.15
6
High control over the supply chain and value chain
0.10
4
0.40
7
Source of global talent
0.05
4
0.20
Weight
Rating
Score
No.
Weaknesses
1
Limited targeted customers
0.10
1
0.10
2
A few brands are responsible for most of LVMH revenue
0.10
3
0.30
3
Increase in debt burden
0.10
4
0.40
4
Products only available in its exclusive stores
0.05
1
0.05
5
Recent changes in the leader position of the group
0.05
1
0.05
1.00
3.40
Figure 18: Internal Factor Evaluation Matrix
The one of the most important strengths of LVMH Group is the values developed over a long time existing in the luxury goods industry, which including their high level of awareness of every single brand.
Moreover, the vertical diversification strategy also help the group to have the most diverse portfolio in the industry with more than sixty brands varying from Bvlgary to Hennessy cognac. Another notable strength of the group is their absolute control over their supply chain and value chain. The horizontal diversification strategy allows the groups to get in to the selective retailing segment, which create more control of LVMH towards their logistics activities. However, the close control over their distribution channel also create certain difficulties to customers when the authentic products can only be purchased from their exclusive stores. Besides, the limited targeted customers also make it difficult for them to increase their revenue rapidly, when the fastgrowing middle class is not aimed. In the financial facet, the fact that only a few brands are responsible for most of the brand revenue is noted; one easy example is Louis Vuitton, the heart of the business, when LV by itself is accounted for almost one fifth of the group revenue. Additionally, the debt burden due to recent acquisitions of the group also put them in a situation of not-so-good credibility.
5.5
Internal – External (IE) Matrix
The Internal-External (IE) matrix is another strategic management tool used to analyze working conditions and strategic position of a business. The Internal External Matrix or short IE matrix is based on an analysis of internal and external business factors which are combined into one suggestive model. The IE matrix is a continuation of the EFE matrix and IFE matrix models and is based on the following two criteria:
Score from the EFE matrix -- this score is plotted on the y-axis
Score from the IFE matrix -- plotted on the x-axis
“The IE matrix works in a way that you plot the total weighted score from the EFE matrix on the y axis and draw a horizontal line across the plane. Then you take the score calculated in the IFE matrix, plot it on the x axis, and draw a vertical line across the plane. The point where your horizontal line meets your vertical line is the determinant of your strategy. This point shows the strategy that your company should follow” (Maxi-Pedia, n.d.) . On the x axis of the IE Matrix, an IFE total weighted score of 1.0 to 1.99 represents a weak internal position. A score of 2.0 to 2.99 is considered average. A score of 3.0 to 4.0 is strong. On the y axis, an EFE total weighted score of 1.0 to 1.99 is considered low. A score of 2.0 to 2.99 is medium. A score of 3.0 to 4.0 is high. With the IFE total weighted score of 3.40 (strong) and the EFE total weighted score of 2.90 (medium) we can plot the position of Louis in the IE matrix as follow (see figure) Cells IV, V, and VI suggest the hold and maintain strategy. In this case, the tactical strategies should focus on:
Market penetration
Product development
INTERNAL – EXTERNAL MATRIX EFE Score
4.0
I Grow
II And
III Build
IV Hold
V And
VI Maintain
VII Harvest
VIII Or
IX Divest
3.0
2.0
1.0 1.0
2.0
3.0
Figure 19: Internal - External Matrix
4.0
IFE Score
5.6
Strategic Position and Action Evaluation (SPACE) Matrix
The SPACE matrix is a management tool used to analyze a company. It is used to determine what type of a strategy a company should undertake. The Strategic Position & Action Evaluation matrix or short a SPACE matrix is a strategic management tool that focuses on strategy formulation especially as related to the competitive position of an organization. The SPACE Matrix built for Louis Vuitton is showed as below. Competitive Advantage (CA)
Industry Strength (IS)
Market share
-1
Growth potential
2
Product quality
-2
Profit potential
4
Product life cycle
-3
Financial stability
5
Customer loyalty
-3
Technological know-how
4
Know-how
-2
Ease of entry
5
Degree on vertical integration
-1
Capacity utilization
6
Average
-2.0
Average
4.3
Total axis X score: 2.3 Financial Strength (FS)
Environment Stability (ES)
ROI
5
Inflation
-3
Liquidity
4
Demand variability
-2
Working capital
6
Price range
-1
Cash flow
4
Barrier to entry
-1
Leverage
5
Competitive pressure
-2
Average
4.8
Average
-1.8
Total axis Y score: 3.0 Figure 20: Strategic Position and Action Evaluation Matrix
From the total score in axis X and Y, we can plot the position of Louis Vuitton in the graph as below.
Conservative
Aggressive
Defensive
Competitive
Figure 21: Strategic Position and Action Evaluation Diagram
The diagram above shows favorable positions in all four dimensions and therefore the business can follow an aggressive strategy as it leverages its strengths into the opportunities available. The strong position in environmental stability means that the business does not have to hold back a good proportion of its financial strength to protect the business in difficult times but can be used to finance growth strategies. The business is also blessed because it has a good competitive advantage in an industry which is considered to be attractive. Their position in the SPACE Matrix also suggested the potential strategies that can be applicable to the firm, which includes:
Integration
Diversification
Market penetration
Market development
Product development
5.7
Grand Strategy Matrix
The quadrant one of the Grand Strategy Matrix is meant for those firms which are in a strong competitive position and flourishing with rapid market growth. Firms located in this quadrant are in excellent strategic position and they need to concentrate on current markets and products. Concentration on current markets reveals the adoption of strategies such as market penetration and market development and likewise concentration on current products calls for adoption of product development strategy. These firms or divisions should continue to ponder upon current competitive advantage and must avoid from losing the focus from the competitive advantage gained over the time. In case quadrant one firms have excessive resources, than, it would be wise to adopt the expansion program and indulge in backward, forward, or horizontal integration. But and a careful thought process needs to be done before assuming such integrations so that any meditation from the current competitive advantage can be avoided. The quadrant one firm also requires identifying the risk associated mainly if it is committed to a single product line. The best strategy to espouse in this case is related diversification because it can be helpful in reducing the risk associated with the slender product line.
One of the main advantages to the quadrant one firms is that they can afford to exploit the external opportunities and magnify the wealth in numerous areas of dealings.
Rapid Market Growth
Louis Vuitton
10.0
Weak Competitive Position
5.0
Strong Competitive Position
Slow Market Growth Figure 22: Grand Strategy Matrix
A strong competitive position in the industry along with the current rapid market growth of 10% per year put LVMH in the first quadrant of the Grand Matrix. The firm’s position suggests these following strategies:
Market penetration
Product development
Forward integration
Backward integration
Horizontal integration
Concentric diversification
5.8
Strategies Summary
The table below measures the how favorable these strategy options according to the suggestions from the matrix analysis we have done above STRATEGY OPTIONS
IE MATRIX
SPACE
GRAND
TOTAL
Forward Integration
1
1
2
Backward Integration
1
1
2
Horizontal Integration
1
1
2
1
1
3
INTEGRATION STRATEGIES
INTENSIVE STRATEGIES Market Penetration
1
Market Development Product Development
1 1
1
1
1
3
Concentric Diversification
1
1
2
Conglomerate Diversification
1
1
Horizontal Diversification
1
1
DIVERSIFICATION STRATEGIES
DEFENSIVE STRATEGIES Joint Venture
0
Retrenchment
0
Divesture
0
Liquidation
0 Figure 23: Strategy Summary
As from the table, the two strategies: Market Penetration and Product Development will be considered when establishing a new strategy for Louis Vuitton.
5.9
Quantitative Strategic Planning Matrix (QSPM)
CRITICAL SUCCESS FACTORS
Weight
MARKET PENETRATION AS TAS
PRODUCT DEVELOPMENT AS TAS
Opportunities 1
Market Expansion (especially in BRIC countries)
0.15
1
0.15
4
0.60
2
Synergies between brands
0.05
3
0.15
1
0.05
3
Increasing in the disposable income
0.10
2
0.20
4
0.40
4
Expanding in the concept of luxury
0.05
2
0.10
2
0.10
5
Customization for the local markets
0.05
3
0.15
4
0.20
Threats 1
Counterfeiting
0.15
1
0.15
1
0.15
2
Grey market
0.15
1
0.15
1
0.15
3
Over-saturation of the luxury goods industry
0.10
2
0.20
4
0.40
4
High competition in the market
0.10
2
0.20
4
0.40
5
Changes in the customers’ behavior in Asia
0.05
3
0.15
4
0.20
6
Economic slowdown
0.05
2
0.10
3
0.15
1.00
1.70
2.80
Strengths 1
Values developed over a long time
0.05
3
0.15
4
0.20
2
High brand awareness
0.15
2
0.30
4
0.60
3
Extremely diversified brand portfolio
0.10
2
0.20
3
0.30
4
Strong global presence
0.10
3
0.30
2
0.20
5
Diversified source of revenue
0.05
2
0.10
2
0.10
6
High control over the supply chain
0.10
3
0.30
4
0.40
7
Source of global talent (in design)
0.05
2
0.10
4
0.20
0.10
3
0.30
3
0.30
0.10
3
0.30
4
0.40
3
Limited customers A few brands are responsible for most of LVMH revenue Increase in debt burden
0.10
2
0.20
3
0.30
4
Products only available in its exclusive stores
0.05
3
0.15
3
0.15
5
Recent changes in CEO position of the group
0.05
1
0.05
1
0.05
Weaknesses 1 2
1.00
Figure 24: Quantitative Strategic Planning Matrix
2.30
3.00
3.95
5.80
The two strategies now are measured again based on the critical success factors, and with the higher score of 5.80, Louis Vuitton should engage in the Product Development Strategy, and that will continue will some recommended alternatives from the group. 6
STRATEGIC ALTERNATIVES
As analyzed in the Quantitative Strategic Planning Matrix, the chosen category for LVMH is Product Development, which can be implemented through taking the advantage of the moving trend in the customer’s buying behaviors in Asia and other emerging market. As in problem statement, in emerging countries, the luxury sector's expansion has reached double digits. However, as luxury products continue to penetrate global markets, the prestige of brands like Louis Vuitton has not declined at all. This seems at odds with the concept of luxury being tied to rarity and exclusivity. The fact has put a question mark on the sustainability in the growth of Louis Vuitton, for how long it will maintained. On the other side, the growth in revenue due to more goods are sold is not really a positive sign for the brands, as it will become more ubiquitous and cannot convey the message of exclusivity that the consumers expect. Thus, balancing between maintaining the profitability of the brand and protecting the values developed over more than one and a half century of Louis Vuitton is the challenge the Board of Director has to face. In order to solve the problem, the recommended strategic alternatives from the group includes:
Heritage-based strategy: implementing actions that focusing on protecting the luxury image of the brands
Diversify strategy: expanding in the perfume segment like what Dior, Givenchy and Kenzo has done
6.1
Heritage-based strategy
This alternative focus on value-creating actions that maintain the prestigious image of Louis Vuitton as a whole, the course of actions might include developing new handbags product line that can:
Focusing in leather products with high value-added,
Adapt to the no-logo taste in Asia, endorsed with celebrities that can convey the message of exclusivity.
Sold with premium price, limited quantity as well as excellent buying experiences.
Along with the action of having a premium handbag product customized for the expanding Asian market, Louis Vuitton can also pulling a break on opening new stores and instead of that, expanding the current stores, reduce the number of displayed product in each store, and offering customers a more personal relationships with more customized products. Even though the strategy might lead to the consequence of a decrease in revenue in short-term, while improving the profitability, it will bring benefits to the image of the brand in a long run. By limiting the customers into the absolute and aspirational groups, neglecting the accessible group, the prestigious brand of Louis Vuitton is protected. Besides, according to the market research of PwC, the highest growth between 2012 and 2014 are expected to come from the top two segment of the markets. By 2011, the absolute luxury segment made up 21 percent of the overall market and expected to growth by 8 to 10 percent by the end of 2014, aspirational segment was expected to grow close to overall market rates, while the accessible segment was expected to growth below the market rate (PwC, 2012). Thus, as a whole, the profit of the group will not be affected significantly by this course of actions, but will only have a slight decrease in its financial performance; this, thus, will bring pleasure to LVMH’s stakeholders.
6.2
Diversify strategy
Louis Vuitton products include a wide range of luxury fashion goods for both men and women including handbags, wallets, luggage, accessories, ready-to-wear clothes, shoes, watches and jewelry, though the company’s mainstay, and what it is best known for, is the collection of leather products. One area in which Louis Vuitton does not offer products is perfumes. This is an area into which the company is considering expanding. The perfume market stood at 19 billion of EUR in 2011, and was expected to grow by 5% in 2012. The absolute and aspirational segment made up about a quarter of the market. Thus, by entering into this area, Louis Vuitton can have their aim on the accessible group, which made up the other three quarter of the market, by that ensuring the profitability of the Group as a whole. According to the LVMH Annual Report in 2012, “Revenue for Perfumes and Cosmetics increased by 7% on a constant consolidation scope and currency basis, and by 3% based on published figures. This growth confirmed the effectiveness of the value-enhancing strategy resolutely pursued by the Group’s brands in the face of competitive pressures spawned by the economic crisis. The Perfumes and
Cosmetics business group saw appreciable revenue growth in the United States and Asia, notably China.� (LVMH, Annual Report, 2012). With the support from the parent company LVMH, who has industry leading brands such as Dior, Guerland, and Givenchy under its umbrella, expanding into a new area such as perfume is not a difficult task, especially when the brand Louis Vuitton is so internationally recognized.
6.3
Quantitative Alternative Analysis
The next step is to put these two alternatives in a quantitative analysis and to measure the attractiveness of the possible outcomes each alternatives can bring. When rating each factor with a score between 1 and 4, with 1 being the worst and 4 being the best, we have the score of the heritagebased and diversify strategy as below. HERITAGE-BASED Evaluating Factor
DIVERSIFY
Weight
Rating
Score
Rating
Score
Maintaining the financial growth
0.3
2
0.6
3
0.9
Customer expansion
0.1
1
0.1
4
0.4
Providing better buying experience
0.2
4
0.8
2
0.4
Increasing the brand’s value
0.3
4
1.2
2
0.6
Create synergies between brands
0.1
2
0.2
3
0.3
Total
1.0
2.9
2.3
Figure 25: Quantitative Alternative Analysis
Thus, with the score of 2.9 over 4.0, the heritage-based is chosen by the group as it ensure the value protecting aspects of the brand while does not tremendously affect the financial performance of Louis Vuitton. In short-term, it might, however, in long-term the value created by the brands will trade-off the financial loss.
7
BUSINESS STRATEGY RECOMMENDATION FOR IMPLEMENTATION
The recommendation made by the group for implementing the strategy includes three separated period and will take place within 24 months with the evaluation on the outcomes received. Introduction This stage’s purpose is to help Louis Vuitton on avoiding being too commonplace. By pulling a break on opening new stores and instead of that, expanding the current stores, increase the price reduce the number of displayed product in each store, and offering customers a more personal relationships with more customized products, Louis Vuitton will officially switch their focus on the absolute and aspirational group, who made up a large proportion of the luxury purchases throughout the world. New Release This alternative focus on value-creating actions that maintain the prestigious image of Louis Vuitton as a whole, the course of actions might include developing new handbags product line that can:
Focusing in leather products with high value-added,
Adapt to the no-logo taste in Asia, endorsed with celebrities that can convey the message of exclusivity.
Sold with premium price, limited quantity as well as excellent buying experiences.
Harvest At this final stage, the task is to only review the sales data and customer’s reaction towards the brands. Then evaluating the outcomes and decide on whether or not the strategy is suitable.
Introduction
New Release
Harvest
(0 - 6 months)
(6 months - 12 months)
(12 months - 24 months)
•Store redecoration •Limited product display •Introduce more privilege service for membership •Increase in price •Product development
•Introduce handbags with new design, without LV logo and monogram. •Premium price •Customized for special customers
•Review sales data and customers' reactions through market research •Evaluate current plan
Figure 26: Recommended Strategy Implementation
8
CONCLUSION
The luxury retail industry has remained quite healthy and attractive despite the macroeconomic and financial headwinds the world is currently facing. Although some sectors will grow slower than others, the luxury retail industry as a whole, is projected to grow in the future, short term and especially long term. Fashion is an industry that is constantly changing and that requires strong cash flows, extremely low levels of debt, and high profit margins. Companies in the luxury retail industry generally will make for an attractive investment even in times of recession or recovery. However, for the time of development like in 2013, Louis Vuitton seems to face some difficulties managing the brand. The quest of balancing between pushing the firm forward and maintaining the values of the brand seem to bothering the Board of Directors of LVMH. Along with the analysis being done by the group, our group concluded that it is crucial that LVMUY management focuses on its competitive advantage: the brands. These brands need to be protected and continually improved. Such a diverse product mix makes it difficult to keep with the fast paced environment of the fashion industry. Acquiring additional high quality brands that add to the portfolio is essential as time passes, but it is also important to focus on the return that will be added from the acquisition.
9
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