LVMH

LOUIS VUITTON MOT HENNESSY

An OverviewMr Bernard Arnault entered the branded textiles and clothing business by buying the bankrupt textile company Boussac in 1984In 1987 Louis Vuitton and Moet Hennessy merged24% of LVMH acquired by Mr. Arnault, making him the highest stakeholderTransformed the company in less than a decade through acquisitions and overseas expansionIn 2001 reorganized around five divisionsLVMH controlled more than 50 luxury brandsReported group sales of $10.7 billion in 2001

Luxury Industry and Market

Business LinesSBU% of LVMH revenuesOM (in %)Strengths/ OpportunitiesWeaknesses/ ThreatsWines and Spirits17.8533World leaderOwnership of high-end non-traditional wine producers Markets global selection of wine and champagnesDeclining sales in recent timesFashion and Leather Goods33.0431Very well-established stable of brandsImportant cross-border acquisitions, joint ventures like with Prada, FendiAbility to leverage synergies across its fashion brandsEngaged in significant brand expansion effortsMuch of the sales attributable to Louis Vuitton brandFragrances and Cosmetics18.47Powerful collection of brandsAbility to leverage R&D synergies across brands

Business LinesSBU% of LVMH revenuesOM (in %)Strengths/OpportunitiesWeaknesses/ ThreatsWatches and Jewelry4.35-2Owned prestigious brands like Tag Heuer, Ebel, Zenith, Fred Joallier, Chaumet Opportunity to centralize the manufacture of movementsUtilization of Tag Heuers expertise in retail distributionMore recognizable brands with the competitorsNon-profitable businessSelective Retailing26.291Acts as vertical integration strategyDFS Galleria was the worlds largest travel retailerMCS started duty-free operations at Miami Airport, opening avenues of untapped marketDFS heavily reliant on Japanese travelersThis division made no profit in previous three yearsAuction Houses--Acquisitions in economically viable mid-market auctionsOpportunity to package its high fashion brands to bring in new customersUnable to make profits

CompetitorsPlayersDominant MarketBusiness ModelRemarksGucciEurope, North America, JapanMultibrand ModelCentralized manufacturing providing synergiesDense network of subcontractorsDistribution synergies in retail storesRichemontEurope, Asia-PacificStand alone Brand Model2nd largest luxury goods companyWatches and Jewelry accounted for 70% of total salesNo synergy across its brand portfolioSmaller positions in apparel and fashion accessoriesHermesEuropeSingle Brand StrategyPositioned as super premium manufacturerIntegration of production and retail operationsIn-house manufacture of over 75% of the productsBlended directly owned stores with franchise operationsBulgariAsia-PacificMultibrand ModelSubstantial revenue attributed to watches and jewelryProduced entire range of watches and perfumes in-houseJoint Venture with Marriott International to leverage Bulgari brand name in building resorts

Parenting-Fix Matrix

LVMH Competitive Strategy ApproachMarketing

Fashion shows and Fashion Journals important gatekeepers Ads in Fashion Magazines costing upwards of $50,000 Companies demaning editorial mentionsDesigning design stores with most clout, as buyers willing to try even the small brands from these design housesProduction

Centralizing procurement activities in fragrancesUnlike their competitors, had integrated design houses for in-house productionProduction process of several hundred steps, carefully engineered by accomplished craftsmenPromote their products through premium of 70%Distribution

Largest network of company owned stores 400-100 m2 of retail space for each storeIntroduction of Global Stores ; had Halo effect on smaller LMVH storesUsing selective retail ventures to understand customer needsBusiness Model

Strictly followed the principle of creative autonomyDecentralized by designMaintained a very small cadre of mangers

Corporate Level choices: Three TestsThe three central choices for interest:Where to Compete?What to Own?How to Organize?

Answered through the three tests:Better-Off TestOwnership TestOrganizational Test

Sephora and DFS GalleriaConducting an ownership test on Sephora and DFS GalleriaOwnership is justified, when it either allows a company to create a larger pie or to capture a larger share of an existing pieIn the case of Sephora and DFS Galleria, selective retail chains, the co-ordination requirements between different stages of the value chain is highFor understanding customer needs, these were very important parts of the company and ownership was justified in this case

Why Corporate Strategies Fail: Errors, Traps and PitfallsAuction HousesIn 2002, LVMH divested from Phillips de Pury and LuxembourgFlawed Synergy Logic: Using existing LVMH products in the Auction business to capture new customers seemed as a good synergy approach. However, it failed to create value and the profits expected out of it.Misplaced motives / Incorrect Unit of Analysis: Auction houses are individually justified as a partner for a luxury brand for diversification but looking at a fashion portfolio it appears illogical.

THANK YOU!!