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LVMH Case Study
Transcript of LVMH Case Study
Large supplier power as LVMH purchases eco-friendly textiles and inks with low metal content The Value Chain Early Environment of LVMH
At the time of LVMH’s creation, the concept of luxury as a market expanded globally and socio-economically
Greater value is placed on quality and prestige
Premium pricing enhances brand image
Products add no additional utility, but are desirable and extraordinary Onset Values and Strategies "The mission of the LMVH group is to represent
the most refined qualities of Western "Art de Vivre"
around the world." - Bernard Arnault
A central tenet to Arnault’s business ethic is that you will always be at an advantage by being the first person on on an idea, market, or consumer base. He does not believe in managerial limit setting.
LVMH and its competitors target super affluent and ultra affluent customers
LVMH is an expansive, internationally driven company.
If one sector, such as jewelry, falls in revenue,
it is likely that another sector within LVMH,
such as fashion labels, is on the rise. LVMH establishes itself as the leading provider of luxury goods
LVMH's main strategy is to acquire well-established luxury brands
Grows brands to a level they cannot achieve without LVMH's expansive resources
Captures value by consolidating operating costs of brands
Combines shipping and other expenses
Independent brands cannot capture this value Organizational Identity
and Initiatives 1. Be creative and innovative
2. Aim for product excellence
3. Bolster the image of our brands with passionate determination
4. Act as entrepreneurs
5. Strive to do the best in all we do LVMH Five Fundamental Priorities The "Great Recession" of 2008
LVMH takes a 40% hit in share value in 2008
All luxury goods brands take similar damages
The market recovers much faster than common goods
Asian economies are strong and growing
Seoul, Shanghai, and Hong Kong are poised to become the centers of luxury fashion Forces in Current Market Pinault-Printemps-Redoute (PPR)
LVMH's closest competitor
Compagnie Financière Richemont
Much smaller and focused market than LVMH
Valentino Fashion Group S.p.A
Poor strategies through the recession Competitors in the Current Market HISTORY STRATEGY LVMH Overview Founded in Paris by Henry Racamier (1987)
World's largest luxury conglomerate
International retail network of 3,000+ stores. The Beginning of LVMH 1987: Henry Racamier's Louis Vuitton & Alan Chevalier's Moet Hennessy merge to form LVMH
Racamier: Executive VP of LVMH
Alan Chevalier: Chairman & President
1989: Racamier partner with Bernard Arnault and their combined shares equaled 47%
Shortly after the merge, Arnault pushes Racamier out of his majority sharehold
1990: Racamier asked to step down, leaving Arnault at the head of LVMH
From this point, LVMH grew more powerful, acquiring luxury brands such as Givenchy, Tag Heur, and Sephora Luxury Goods Industry Threat of New Kids on the Block Massive capital requirement to purchase luxury brands
Requires excellent fashion designers
Takes time to establish prestigious brand Power of Buyers Premium pricing is expected of luxury brands
Brands sell prestige, not utility
Industry products are not standardized
Buyers can’t produce product themselves Threat of Substitutes Under "tier one" brands
Abercrombie & Fitch
Knock-offs Rivalry Among Competitors Value Chain What is LVMH's current strategy LVMH modernizes products without compromising the reputation of the brand LVMH hires established designers and gives them freedom to grow a brand LVMH maintains exclusivity of its brands through strategies such as fashion shows and limited edition products Buyer Value
High quality product and prestige Firm Value
Gets better prices from suppliers
Globally recognized brand Supplier Value
Receives bigger orders from firm
Caters to a financially stable firm Willingness to Pay Price Cost Opportunity Cost Price wars are uncommon, instead there are marketing wars
Whichever brand is seen as more prestigious has more power
Different mediums of ads- fashion shows, etc.
If a product is currently trendy, the brand has more power vs
Upper management has goals beyond business,
Designers want to spark a ‘cultural revolution’
Expanding into new markets causes retaliation
Ex) PPR buys a jewelry brand, LVMH can buy a rival jewelry brand LVMH seeks to:
Acquire more luxury brands
Target the "hard" luxury goods sector more aggressively
Expand stores around the world
LVMH has over 800 stores in Asia
By adding more firms, LVMH is able to spread its overhead cost even further LVMH... is DECENTRALIZED!
Arnault sets the core 5 values
Various brands operate independently
own creativity & brand image
Revenue of 23.65 billion Euros (30.53 billion USD) in 2011 LVMH Going Forward
Is the manner at which LVMH is expanding ruining its reputation?
Is LVMH expanding too fast?
Is LVMH too reliant on Louis Vuitton?