Introduction
LVMH is a luxury goods conglomerate that has placed themselves in a position as a market leader in the luxury brand market. Founded in 1987, after the merger of Louis Vuitton and Moet Hennessy, the company was able to sustain numerous years of high growth and profitability due to their corporate and acquisition strategy. They have opened various stores across Europe, Asia, the United States and other markets. LVMH history dates back to when Louis Vuitton was regarded as a supplier of luggage to the upper class in France. After expanding their products, Louis Vuitton grew into a larger brand and set its mark as the luxury brand that people wanted to be associated with, so they can feel as if they were of a higher prestige. LVMH’s marketing strategy was very successful, and it enabled them to enter various emerging markets. For example, they were able to enter the Japanese market when no other company saw the market as fit. They were able to early detect the demand for high fashion in certain markets, and took advantage. With the changing styles and fashion that occurred, they also learned to adapt and revise their business strategy based on the forecast of trends. LVMH’s consistency in product quality, expansion strategy, and brand image were deftly controlled and eventually it caught the attention of a huge clientele whom developed a fixation towards the luxury conglomerate.
History: Louis Vuitton
The Louis Vuitton brand was founded in 1854 by a French box-maker. He was appointed a box maker and packer of the Empress of France, Eugenie de Montijo, who was the wife of Napoleon Bonaparte. This opportunity had opened doors to a class of royal clientele for Vuitton, and drove Louis Vuitton to open up his own box making and packing workshop in Paris. He then began making stackable rectangular shaped trunks. This became popular because they were easy to stack on trains for consumers who were used to traveling a lot. Vuitton started to implement leather into his products, given it a higher quality, and then implemented a broader range of designs into his trunks. After Louis Vuitton’s death in 1892, his son George Vuitton took over and sought to globalize the brand. He created the famous LV monogram and created a successful business model that allowed him to enter into countless evolving markets. His business model can be explained by its efficiency in design, productivity and manufacturing. Louis Vuitton’s efforts to continuously improve their management practices have even enabled them to cut down production time, and establish a strict controlled distribution network. Once Marc Jacobs was appointed the house’s first Creative Director in 1997, the Men’s and Women’s ready-to-wear collections were introduced. Marc Jacobs’s wittiness and strategic collaborations opened doors for the brand and allowed them to cultivate a strong following under the leadership of Jacobs. Louis Vuitton would then become known as the world’s most luxury brand, bringing in a fortune of revenue since its birth in the mid-1800s.
History: Moet Hennessey
Moet was established by Eperney wine trader Claude Moet in 1773, and began shipping wine from the Champagne Province to Paris. Moet & Chandon was regarded as France’s premier brand of Champagne, and was also sought after outside of France with exports that accounted for a chunk of its sales by the 20th century. The company began to diverse in 1968 when it acquired Parfums Christian Dior. A merger between Moet & Chandon and Champagne Mercier combined the top best-selling brands of champagne. The company then changed its name to Moet Hennessey after the 1971 merger with Jas Hennessey and Co, whom was the world’s second-largest producer of cognac.
1987 Merger
In 1987, the French government went into an era of privatization to increase economic growth and diminish the country’s unemployment rate. The Louis Vuitton family and the Moet-Hennessey family felt that a merger would be most strategic in order to prevent their companies from being takeover targets of huge international corporations that were making investments in the France nation. The $4 billion dollar merger was executed between both families. With the combination of the two, the Louis Vuitton brand was able to increase their investments in luxury brands, and Moet Hennessy avoided a takeover. The LVMH merger also allowed heirs of both companies founders to retain control of LVMH with a combined ownership of 50 percent of outstanding shares. Hennessey Heir and Chair Alain Chevalier, was in position of Chair of LVMH, and Henry Racamier from the LV family was appointed LVMH’s Director General. Each company's management and divisions stayed integral throughout the merger. Bernard Arnault, owner of Christian Dior, Celine and Christian Lacroix brands was invited to purchase shares of the company. He ended up becoming LVMH’s largest shareholder with 60 percent interest in the joint venture while Guinness held 40 percent.
Business Strategy
LVMH main focus was growth, and they attempted to diversify their portfolio in the 1990s. With Bernard Arnault as their CEO, his concern was to double profits and sales over the next decade. In order to do so, Arnault adopted an acquisition strategy, and promoted management cooperation between all divisions under LVMH. Between the year 1987 and 2015, LVMH acquired over 50 different companies, under five divisions. LVMH witnessed a positive market performance of common stock between 2007 and 2016, with 2009 to 2011 being their largest spike. They found themselves in a stable financial situation and positioned themselves to have better financial results than their competitors.
The company’s portfolio would include champagnes and wines, cognac and spirits, leather goods, high-end accessories, and beauty products. Their portfolio of wines and spirits was highly regarded because of the well-respected history that followed. For example, Ruinart was the world’s oldest champagne company, and Hennessey and Hine, founded in the mid-1700s were recognized as the two most prestigious brands due their quality. The acquisition strategy was very strategic because what Arnault did was diversify his portfolio by incorporating a wide range of products, from fashion and leather good, to jewelry watches and cosmetics. Even if some divisions in his portfolio weren’t doing as well in certain years, because his portfolio was so diversified, the revenues of the businesses that did extremely well would make up for it. It was also strategic in a sense that even though his portfolio was differentiated, each subdivisions within the portfolio all shared the same characteristics; superfluity, product quality, and innovation.
Although much of LVMH’s growth was caused by the acquisition of new businesses, Arnault’s emphasis on internal growth led to LVMH consistency in the luxury market. Arnault based his strategy off of four points; quality, product, innovation, image, and craftsmanship & the production process. Arnault firmly believed in the hiring of dedicated employees and trying to keep them within the company for the long term. He also believed in the freedom of creativity and fluidity, which entailed leads to innovation. Arnault demanded that each division commit to those four points and give them equal divided attention. His corporate strategy definitely had a major effect on his acquisition strategy. This can be represented in the businesses he worked to acquire between the years of 1987 and 2015.
SWOT Analysis
Strengths
Louis Vuitton is a widely recognized name with more than 100 years of history. Their brand logo alone holds so much power because it is easily recognizable and it engraved and printed on most of their products. The brand has done well in the marketing and advertising sector by using celebrities who have strong influence amongst consumers. Another attribute to their use of celebrities is their diverse use of who they choose to have them represent their brand. Not all the celebrities they use are within the same field, but all come from different backgrounds such as athletes, film stars, music artists, and models. Few examples include Andre Agassi, Audrey Hepburn, and Kanye West. The brand has a clientele that includes celebrities of all over the world, upper –middle class to upper class groups, and women of high purchasing power. Consumers want to be associated with LVMH because it gives them the sense that they belong in a higher status quo. The brand has a strong presence in many countries with more than 400 stores in fifty plus countries, and also has a presence in malls and large shopping hubs. Their wine and spirits have a strong history and an excellent reputation, with most of LVMH brands dating back to the 17 and 1800s. LVMH has a diversified revenue stream with portions coming from parts of Europe, the US, parts of Asia, and France.
Weaknesses
When it comes to weaknesses, fake imitations affect’s the brands image and takes away from their sales. Louis Vuitton has always been synonymous with status, persuading consumers that purchasing Louis Vuitton placed them above all other members of the society. Now that the personality of consumers are starting to shift within generations, consumers tend to be fine with getting their hands on counterfeits that look just the same as the original. It becomes more complex in associating the difference between the actually product and the fake imitations as well, due to the changing of technology.
Another weakness that LVMH has is their relatively small target audience. Because of the prices of their products, they only elude to those of the upper-class. This makes it unattractive to those that are in a lower class, thus pushing them to purchase products that exhort a similar luxury look, such as Zara and H&M. The upper class still holds a strong purchasing power, but within the fashion sector, most consumers are young, highly innovated fashion teens and young adults. This leads to a missed opportunity of extra revenue that LVMH can make. It is possible that this may be a cause of their decline in revenues within the fashion and leather goods division in the year 2016.
Opportunities
A number of opportunities remain present for LVMH. There is still a large market for luxury goods, and in some countries, the market is not fully saturated. This is especially true in the Asian region, where there happens to be positive trends within those emerging markets. LVMH can take advantage of those emerging markets and position themselves in front of new consumers and clientele. Another opportunity is building relationships with up and coming designers and small companies. This can lead to the continued acquisitions of companies that exert potential to be successful within the luxury industry.
One opportunity is the use of social media. Social media can offer LVMH a platform where they can reach to new clientele that they have not been able to reach to in the past. With so many different social media platforms out there, LVMH can seize the opportunity by using these platforms to create huge campaigns and promotions while using very little financial expenditure.
Threats
Threats for LVMH include the increased market for counterfeit products. Another threat is smaller brands who are able to duplicate LVMH products and sell at a lower price. Increasing activity from these duplicate brands can lead to a decline of sales for LVMH. Lastly, external factors such as government policies and economic crisis is a major. Government policies on international trade may slow down LVMH operations, and economic crisis and recession may affect the fluidity of Louis Vuittons revenues.
Financial Analysis
A lot of LVMH revenues are generated from their wine and spirits unit. In 2016, they were the world’s leading champagne producer with a 20.1 percent market share and sales volume of 61.4 million bottles in 2015. In addition, the company was number one in the global cognac market with a 46.5 percent market share and sales volume of 76 million bottles in 2015. Their success within the wine and spirit industry benefited from Moet-Hennessy’s distribution network and their expansion into luxury spirits. Also, the acquirement of spirit brands Ardbeg, Belvedere and Genmorangie contributed to their growth.
In 2016, revenue for LVMH started to slow down. This was due to internal and external factors that had come about. This could be seen within their fashion and leather goods division, which had declined in revenues by one percent. An external factor that placed a toll was the terrorism that had started too abrupt in the first half of 2016. An internal factor was the struggling Donna Karen fashion brand. Donna Karen was well known in the late 1980s, due to the sophisticated women’s’ suits and casual wear. In the 1990’s, Donna Karen (DKNY) began to lose flavor and suddenly disappeared in the market. The brand lost prestigious accounts such as Neiman Marcus, and was never able to achieve the status that Bernard Arnault had envisioned. Moreover, both beauty and jewelry units witnessed about 5 percent revenue increase, but there was no change in operating profit for jewelry during the first six months. Selective retailing grew by four percent during the first six months, but their operating profits declined by five percent.
Their business unit that involved other activities was made up of media, luxury, yacht production, Leisure Park, and a luxury hotel chain. Despite sales from their yachts, they recorded operating losses in both 2014 and 2015. The Other Activities business unit recorded 123 million losses in euro during the first six months compared to 75 million losses in euro during the first half of 2015.
Recommendations
LVMH’s share and success are extremely present in Japan. One major challenge LVMH has to overcome is its dependence on the Japanese market. The global financial crisis that occurred in 2007-2009 had a major impact on the Japanese economy and the purchasing power. This was a threat to Louis Vuitton because their products were priced very high, and consumers were not as eager to spend during the financial crisis. In addition, the buyer personality was shifting. Luxury goods held a different position in the mindset of consumers, compared to previous generations. Young Japanese women were no longer eager to purchase Louis Vuitton products, and were more eager to purchase lower-priced accessories and small leather items, such as clutches, wallets, and travelers. These lower-priced accessories had reported a huge sales increase in the recent past.
Another strategy LVMH can adopt to expand their conglomerates in different parts of world. Currently, the conglomerate does very well in continents such as North America and Europe. They do extremely well in Japan, where most of Louis Vuitton’s shares stem from. LVMH can focus on entering into other parts of Asia, such as China and India, and launch locations in cities where the upper and middle class reside.
Another strategy that would enable the firm to improve sales and to generate adequate profits is to lower its prices particularly in regions where many people are still yet to embrace the brands from this company. LVMH is quite expensive which shies away a large number of consumers. The cons of reducing their prices may tarnish their image of being a luxury brand, but they cannot ignore the change in generations, because it may hurt them in the next decade. Launching more products with reduced prices, and reducing the prices of their current goods may be a solution because they would still have their luxurious brands fixated at high price. This may attract a large number of buyers, who in turn would spawn a great deal of income for the business.
Louis Vuitton should also look to do constant reviews of businesses within their portfolio, and recognize which businesses may be hurting their financial portfolio. An example was getting rid of DKNY. They should continue to review the financial projections of certain companies within their portfolio, and dispose of them to make room for the acquisition of newer companies that exemplify more potential.
Conclusion
LVMH is the embodiment of luxury goods and brand imaging. Through its copious acquisitions, the company is a top tier in its market and has been able to achieve strong brand recognitions through its marketing, corporate, and business strategies. In the future, LVMH must be familiar of the emerging markets in emerging nations. In addition to the rising markets in the Asian areas and other continents, LVMH should work to invest in these emerging markets, and do it wisely in order to make profitable revenue. If LVMH can take advantage of new opportunities that arise within global markets and maintain their profile as the premiere luxury multinational company, they will be able to sustain themselves as the company selling the world’s premier luxury lifestyle.
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