Business Analysis: LVMH
Background
Headquartered in Paris, France, LVMH Moet Hennessy Louis Vuitton SE, also known as LVMH, is a luxury goods conglomerate. In 1987, the company was created through a merger between Louis Vuitton and Moet Hennessy (LVMH#1, 2014). LVMH is the largest fashion brand in the world in terms of revenue with more than sixty subsidiaries. In 2014, the company posted revenue worth €30.6 billion and a hefty profit in excess of €5 billion (LVMH#3, 2016). The largest brand within LVMH business portfolio is Christian Dior that contributes to over 15% of its revenue (LVMH#3, 2015). Listed in Euronext Paris Exchange, LVMH employs more than 120,000 people all around the world (LVMH#2, 2015). Over the years, LVMH has tightened its control over its subsidiary brands. Although subsidiary brands such as Tag Heuer, Bulgari, Hublot, Sephora and others operate as independent companies, corporate leadership plays a big role in the strategic decision making process of all these brands (LVMH#3, 2016). The main competitors of LVMH are Kering, Hermes, and Richemont.
LVMH have more than sixty brands in its portfolio. All brands of LVMH operate in the luxury segment and share similar characteristics. The characteristics of luxury products that influence their performance in the market are as below:
1) Quality: In the luxury segment, quality is of utmost importance. However, the perceived value of quality is more important than the actual quality. If a brand like LVMH continuously delivers high quality products, then over a period of time the LVMH brands such as Louis Vuitton and Dior will begin to be viewed by customers as products of high quality standards (Daneshkhu, 2013).
2) Symbolism: Symbolism also known as brand image is equally important as quality. For luxury segment customers, owning a product has more to do with enhancing status than the utility offered by the product (Daneshkhu, 2013). Therefore, by marketing and advertising the LVMH brands in such a way that customers begin to feel that owning LVMH branded products will enhance their status can help improve the sales and performance of the brand.
3) Extraordinariness: Quality and symbolism are not enough to ensure performance of the luxury fashion products. LVMH should not focus on unique selling point (USP) of the product. Rather, it should focus on exclusivity. All luxury segment customers want a product that has exclusive features not found in other products (Daneshkhu, 2013). Therefore, design innovation in which LVMH is able to deliver consistently so far is important for its success.
Critical Success factors
LVMH is the largest fashion retail brand in the world. However, in recent years, it is unable to grow at a faster rate than its main competitors such as Prada, Gucci and Hermes. There are few critical areas in which the company needs to re-strategize.
1) LVMH supply chain procures mainly from European and Latin American suppliers that are less cost competitive than Asian suppliers in India, China, Sri Lanka and Bangladesh. This is the main reason for low profitability of fashion accessories at LVMH than that of its competitors. Although profitability of the whole group is great, that is mainly because of huge profitability of champagne and cognac business (Moet Hennessey).
2) LVMH is able to grow at a better rate through mergers and acquisitions over the years. However, same tactics that were used successfully by others in recent years have nullified the early competitive advantage of LVMH. In recent years, other competitors such as Gucci, Prada and Hermes are able to take away major market share from Louis Vuitton because of superior and extraordinary designs offered by those brands, which Louis Vuitton was unable to match.
Possible Business Actions
LVMH can take the following business actions to beat the competitors:
1) LVMH should start looking at the suppliers from Asia Pacific region. This will lower its cost of supply chain and raw materials. Supplying a part of the demand from Asia Pacific will also ensure greater diversification of risk in the supply chain. In case of quality or cost problem with some suppliers, LVMH will have the option to source from other suppliers in other regions.
2) LVMH historically has given more focus on quality and marketing of the LVMH brands. Although the company has spent substantial amount of money in design innovation, it seems that its competitors have done a better job. LVMH should refocus on its design capability. It has a huge pool of talent across its sixty brands. Presently, all of these designers work independently for individual brands. However, if LVMH can bring them all together and create a centralized structure for the design team that can work from a central location but still enjoys the independence at the brand level, then idea sharing and design innovation will improve substantially.
3) Finally, most of the LVMH competitors have been able to successfully establish their brands as a sustainable and responsible brand alongside their luxury image (Annamma, 2012). However, due to the lack of vision about sustainability, LVMH is still branding itself as a pure luxury brand (LVMH#1). However, with increased awareness about environment (especially among the high end customers), it will become important to establish LVMH as a responsible corporate house.
References
Annamma, J. et. al. (2012). Fast Fashion, Sustainability, and the Ethical Appeal of Luxury Brands. Fashion Theory. Retrieved on 28th Jan 2016 <https://www3.nd.edu/~jsherry/pdf/2012/FastFashionSustainability.pdf>
LVMH#1. (2014). Social Responsibility Report 2014. Retrieved on 28th Jan 2016 <http://r.lvmh-static.com/uploads/2015/05/rapport-rse-2014_eng.pdf>
LVMH#2. (2016). Corporate Philanthropy and Social Responsibility. Retrieved on 28th Jan 2016 <http://www.lvmh.com/group/lvmh-commitments/corporate-philanthropy/>
LVMH#3. (2015). Annual Report. Retrieved on 28th Jan 2016 <http://www.lvmh.com/group/lvmh-commitments/corporate-philanthropy/>
Daneshkhu, S. (2013). Luxury: Object of Desire. The Big Read. Retrieved on 28th Jan 2016 <http://www.ft.com/intl/cms/s/2/bc275cea-e7ae-11e2-9aad-00144feabdc0.html#axzz3yUiQQ1vy>
Caniato, F., Caridi, M., Crippa, L. and Moretto, A. (2012). Environmental sustainability in fashion supply chains: An exploratory case based research. Retrieved on 28th Jan 2016 <http://www.sciencedirect.com/science/article/pii/S0925527311002659>
