luxury goods industry

The Luxury The Luxury Goods Goods

IndustryIndustry

The Luxury The Luxury Goods Goods

IndustryIndustryPresented By: Luben Blagoev, Stephanie Garisto & Ana Radunovic

AgendaAgendaAgendaAgenda The Luxury Good Industry

Key Factors Influencing Performance

The Consumer

Globalizations and the Industry

Case Study: LVMH & Ralph Lauren Strategies

Theoretical Analysis

News Update

Conclusion

The Luxury Good Industry

Key Factors Influencing Performance

The Consumer

Globalizations and the Industry

Case Study: LVMH & Ralph Lauren Strategies

Theoretical Analysis

News Update

Conclusion

The Luxury Good The Luxury Good IndustryIndustry


LUXURY: The habitual use of, or indulgence in, what is choice or costly, whether food, dress, furniture or appliance

Luxury equates to Desirability

The world of Luxury and Luxury goods

Reputation: “Luxury is supposed to be immune to market fluctuations because its value is by definition - timeless and transcendent”

LUXURY: The habitual use of, or indulgence in, what is choice or costly, whether food, dress, furniture or appliance

Luxury equates to Desirability

The world of Luxury and Luxury goods

Reputation: “Luxury is supposed to be immune to market fluctuations because its value is by definition - timeless and transcendent”


Continued... Continued...


Continued... Continued...

Economics defines a luxury good as one for which demand increases as income increases

Unlike inferior goods, they are related to price and high-income individuals

Establish image via pricing, exclusivity, limited availability, quality and location

High pricing gives the product its prestigious nature, and implies high quality.

Veblen Good

Veblen Good

Market Market TrendsTrendsMarket Market TrendsTrendsOverall world market is

estimated at $170 Billion USD growing at a rate of 7.9 %

Sector Breakdown: 1. Luxury Beverages 2. Fashion Accessories 3. Cosmetics and Fragrances 4. Watches and Jewelry 5. Luggage and Handbags

Key Trends: Globalization, Consolidation and Differentiation

R&D and Innovation

Overall world market is estimated at $170 Billion USD growing at a rate of 7.9 %

Sector Breakdown: 1. Luxury Beverages 2. Fashion Accessories 3. Cosmetics and Fragrances 4. Watches and Jewelry 5. Luggage and Handbags

Key Trends: Globalization, Consolidation and Differentiation

R&D and Innovation

World Luxury Goods Market by Product Sector

Factors Factors Influencing Influencing

Performance Performance

Factors Factors Influencing Influencing

Performance Performance

Global Economy

Economic Times and Disposable Incomes

Consumer Perception

Marketing and Media Coverage

Oligopolistic Pricing

Global Economy

Economic Times and Disposable Incomes

Consumer Perception

Marketing and Media Coverage

Oligopolistic Pricing

The The ConsumerConsumer

The The ConsumerConsumerDemographics of the Consumer Age, Sex, Income

Consumer Loyalty

Expectation of Quality and Value

Consumer Price Sensitivity: Introduction of the New Luxury Consumer

Consumer Market Breakdown

Demographics of the Consumer Age, Sex, Income

Consumer Loyalty

Expectation of Quality and Value

Consumer Price Sensitivity: Introduction of the New Luxury Consumer

Consumer Market Breakdown

Demand for Luxury Goods by Geography 2004

GlobalizationGlobalizationGlobalizationGlobalizationDefinition: The increase in connections around the world, resulting in a more standardized life. It can be more broadly defined as the worldwide process of homogenizing prices, products, wages, rates of interest and profits.

Definition: The increase in connections around the world, resulting in a more standardized life. It can be more broadly defined as the worldwide process of homogenizing prices, products, wages, rates of interest and profits.

Pros ConsReduction in Protectionist

Barriers

Few Companies Own Market Share

Lower Costs of Production

Consolidation

Expansion of Global Demand

Outsource Production at the Expense of National Interests

Tools Towards Future Progress

Compromises Luxury Experience

Creation of Economic and Political Ties

Upsurge in Number of Multinational Counterfeit Operations

Discussion Discussion QuestionQuestion

Does the luxury goods industry benefit from the implications of globalization?

Discussion Discussion QuestionQuestion

Does the luxury goods industry benefit from the implications of globalization?

Case Study: Case Study: LVMHLVMH

Case Study: Case Study: LVMHLVMH

History of the Company - LVMH Values

Excellent Fundamentals 1. Presence in all luxury sectors 2. Geographic balance amongst three continents 3. Multi-brand strategy 4. Synergistic approach

History of the Company - LVMH Values

Excellent Fundamentals 1. Presence in all luxury sectors 2. Geographic balance amongst three continents 3. Multi-brand strategy 4. Synergistic approach

LVMH Sales 1992 - 2000

LVMH’s LVMH’s Strategies Strategies Strategies Strategies

LVMH’s LVMH’s Strategies Strategies Strategies Strategies

Synergies

Acquisitions - Expansion of Brand Portfolio

Financial Data

Ownership of Distribution Channels

Continuous Innovation and R&D

Expansion into high growth markets

THE BRAND NAME - “MADE IN FRANCE”

Synergies

Acquisitions - Expansion of Brand Portfolio

Financial Data

Ownership of Distribution Channels

Continuous Innovation and R&D

Expansion into high growth markets

THE BRAND NAME - “MADE IN FRANCE”

Goodwill 4.4 Billion Euros

Marketing and Selling Expense

6.1 Billion Euros

Revenues 17.2 Billion Euros

Net Income 2 Billion Euros

*Based on 2008 Annual Report for LVMH

Case Study: Polo Case Study: Polo Ralph Lauren Ralph Lauren

Corp. Corp.

Case Study: Polo Case Study: Polo Ralph Lauren Ralph Lauren

Corp. Corp.

History of the Company - Values

4 Product Production Categories 1. Apparel 2. Home 3. Accessories 4. Fragrances

Business Model: Retail, Wholesale and Licensing

Brand Expansion Strategy

Financial Data

Move from Domestic to a Global Market

THE BRAND NAME - “MADE IN CHINA”

History of the Company - Values

4 Product Production Categories 1. Apparel 2. Home 3. Accessories 4. Fragrances

Business Model: Retail, Wholesale and Licensing

Brand Expansion Strategy

Financial Data

Move from Domestic to a Global Market

THE BRAND NAME - “MADE IN CHINA”

Goodwill $0.97 Billion USD

Marketing and Selling Expense

$1.93 Billion USD

Revenues $4.8 Billion USD

Net Income $0.4 Billion USD

*Based on 2008 Annual Report for Polo Ralph Lauren Corp.

Theoretical Theoretical AnalysisAnalysis

Theoretical Theoretical AnalysisAnalysis

While many European firms claim that manufacturing occurs at home, Polo Ralph Lauren and many American firms outsource production

Ralph Lauren is utilizing an Offensive Relocation Strategy

In theory, moving production offshore to LWCs decreases costs, thereby:

Enabling greater economies of scale

Ultimately capitalizing on de-localized production

While many European firms claim that manufacturing occurs at home, Polo Ralph Lauren and many American firms outsource production

Ralph Lauren is utilizing an Offensive Relocation Strategy

In theory, moving production offshore to LWCs decreases costs, thereby:

Enabling greater economies of scale

Ultimately capitalizing on de-localized production

Countries should specialize and trade based on Absolute Advantage

Results in the world using its resources more efficiently and total increase in world output

Realistically, countries should specialize and trade based on Comparative Advantage - the ability of a country to produce a good at a lower (opportunity) cost than another country

Many developing countries boast a comparative advantage in labour

Countries should specialize and trade based on Absolute Advantage

Results in the world using its resources more efficiently and total increase in world output

Realistically, countries should specialize and trade based on Comparative Advantage - the ability of a country to produce a good at a lower (opportunity) cost than another country

Many developing countries boast a comparative advantage in labour

Theoretical AnalysisTheoretical AnalysisContinued ... Continued ...


David Ricardo’s Theory of David Ricardo’s Theory of Free Trade and Free Trade and

Comparative Advantage Comparative Advantage

David Ricardo’s Theory of David Ricardo’s Theory of Free Trade and Free Trade and

Comparative Advantage Comparative Advantage

Production and Production and Consumption With Consumption With Specialization and Specialization and

TradeTrade

Production and Production and Consumption With Consumption With Specialization and Specialization and

TradeTradeTaking advantage LWC’s comparative advantage has allowed Ralph Lauren to shift to a higher to a new Production Possibility Frontiers (PPF)

Curve showing various combinations of two goods that a country can produce when ALL of a it’s resources are fully employed and used in their MOST efficient manner

A shift in a firm or country’s PPF can be attributed to improvements in technology or more efficient factor resources, such as labour

Taking advantage LWC’s comparative advantage has allowed Ralph Lauren to shift to a higher to a new Production Possibility Frontiers (PPF)

Curve showing various combinations of two goods that a country can produce when ALL of a it’s resources are fully employed and used in their MOST efficient manner

A shift in a firm or country’s PPF can be attributed to improvements in technology or more efficient factor resources, such as labour



Empirical Empirical AnalysisAnalysis

Empirical Empirical AnalysisAnalysis

For AgainstReduction in Protectionist

Barriers

Counterfeit Operations

Lower Costs of Production

Idea of Sweatshops

Tools Towards Future Progress

Conflicts with National Interest

Creation of Economic and Political Ties

Compromises Brand Image and

Idea of Luxury

Beyond economic theory, however, there are several modes of reasoning for and against

moving production offshore:

NEWS NEWS UPDATEUPDATENEWS NEWS

UPDATEUPDATE

Wall Street Journal Friday March 20th, 2009

luxury goods industry

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