Introduction
LVMH Moet Hennessy Louis Vuitton SE, also known as LVMH, is a luxury goods conglomerate, headquartered in Paris, France. The Company was created through the merger of Louis Vuitton and Moet Hennessy in 1987. LVMH is the largest fashion brand in the world in terms of revenue with over sixty subsidiaries. LVMH has posted revenue of €30.6 billion and a hefty profit of over €5 billion in 2014 (LVMH#3, 2015). Christian Dior is the largest brand within LVMH business portfolio, contributing more than 40% of its revenue (LVMH#3, 2015). Bernard Arnaut is the largest shareholder of the company. The company has done exceptionally well over the years and the revenue has increased from €15 billion in 2006 to €30 billion in 2014 (LVMH#3, 2015). Headquartered in Paris, the company is listed in Euronext Paris Exchange. The company employs over 120,000 people globally. 30% of the workforce of LVMH works in France (LVMH#3, 2015). 75% of all the employees of LVMH work in retail outlets. The company has 2,400 store outlets worldwide. Over the years, LVMH has increased its tight control over the subsidiary brands. Although subsidiary brands such as Tag Heuer, Bulgari, Hublot, Sephora and others operate as independent companies, corporate leadership has huge influence in the strategic decision making process of all these brands (LVMH#3, 2015). LVMH advertises itself as a luxury brand and most of its products are priced for entry level luxury and luxury segments. The main competitors of LVMH are Hermes, Kering and Richemont. LVMH is one of the few fashion companies in the world that do not source materials from Asia. Most of its materials are sourced from Central America, Mexico and South America (LVMH#3, 2015). This essay will primarily examine the corporate social responsibility (CSR) initiatives of LVMH and assess the efficacy of those initiatives. The essay will also focus on the future CSR strategy of LVMH.
LVMH brand has over 60 brands and it has its own tagline. However, LVMH is trying to align the objectives of all its subsidiaries with the overall mission of the company. LVMH does not have a vision but it has a mission statement. The mission of the company is to represent the most refined qualities of western “Art de Vivre” around the world (LVMH#1, 2014). LVMH wants to create a brand that is synonymous with elegance and creativity. The mission of LVMH is to create products that promote cultural values, and blend tradition and innovation. The products of LVMH should also inspire dream and fantasy (LVMH#1, 2014).
Figure: Long standing values for LVMH (LVMH#1, 2014)
Be Creative and innovative.
Aim for product excellence.
Bolster the image of the brands with passion.
Promote the brand as an entrepreneur.
Strive to be the best in the class (LVMH#1, 2014).
CSR-Sustainability Background
Very few companies implemented sustainability initiatives even 15 years back. Companies were more concerned about cost and quality of the product. Companies like LVMH were more interested in increasing the brand value by delivering superior quality than concentrating on sustainability and CSR initiatives (Abillama, 2013). However, in a recent study conducted by Reputation Institute in 2012, 60% of the purchasing behavior is driven by the perception of the brand and only 40% is driven by product quality and services the company offer. Especially, in the fashion industry, this trend is particularly predominant. Good perception stems from trust, esteem, admiration and good feeling. Among the four dimensions, trust and good feeling about a company are highly influenced by corporate ethical and sustainability behavior. For example, after KFC’s horse meat scandal surfaced in China, KFC’s brand reputation plummeted (Annamma, 2012). The company started losing sales all over the world. Although the horse meat scandal affected less than 0.1% of company’s products, people lost trust in KFC’s products because of the company’s unethical practices. Additionally, it was observed that by creating good CSR structure and sustainability practices, companies can gain monetarily in the long run. These findings have motivated LVMH to create CSR structure and implement sustainability initiatives (Abillama, 2013).
Additionally, in the fashion industry, many a time in the past allegations of sweatshop manufacturing practices have rocked several brands (Abillama, 2013). In fact, in 2012, poor working condition of Mexican apparel workers associated with some of the LVMH suppliers came to the fore (Annamma, 2012). It is observed that brands and companies that are able to maintain a clean brand image over the years are the most successful brands in the industry. Gucci is a great example. It has completely revamped its leather supply chain and improved the lives of people in Asia involved in manufacturing Gucci bags (Saint-Jean, 2013). These factors have also motivated LVMH to implement CSR initiatives in recent years.
CSR and Sustainability Strategy at LVMH
Before getting into the sustainability and CSR strategies at LVMH, it is important to know the meaning of sustainable development. Many of us believe that sustainable development only means environmental friendly business practices. However, environment is only one factor of sustainability. While creating a sustainability strategy, companies need to include strategies that are socially and environmentally sustainable. This is ensured through CSR activities in most of the companies, including LVMH.
Figure: Four basic values of LVMH CSR activities (LVMH#1, 2014)
LVMH CSR activities are centered around four pillars that are called basic values by LVMH. These four values uphold all sustainability initiatives and parameters within the organization. These four basic values are developing talent and skills, managing quality of life in the workplace, supporting local communities and local area development and preventing discrimination and respecting individuality (LVMH#1, 2014). The core value for LVMH is respect for individual. LVMH has formulated this CSR activity structure since 2011. It has also created a special team for CSR that is responsible for the implementation of the company’s corporate sustainability initiatives at all the company owned subsidiaries.
CSR Initiatives at LVMH
LVMH has launched many CSR activities and initiatives in recent years. The main problem for the company is its holding and diverse structure. The company has over 60 subsidiaries and therefore, implementing CSR initiatives at all its subsidiaries is a challenge. However, in order to ensure proper implementation of CSR initiatives, the company has created a corporate cell that looks into the implementation plan of CSR across its holding companies. However, LVMH encourages its subsidiaries to come up with new ideas for sustainability and environment-friendliness.
Environmental initiatives are in place in LVMH since the last five years. The major focus is to reduce carbon footprint across organizations. The company is using electric vehicles to supply the inventory from one location to another so that the use of fossil fuel is reduced. Most of its US warehouses use electric vehicles. The company plans to use 100% electric vehicles for internal deliveries and inventory movement by 2018 ((LVMH#1, 2014). LVMH also mandates its retail outlets to shift to LED lightings. In fact, most of the Louis Vuitton and Dior Couture stores have already shifted to LED lighting. This has reduced the overall electric consumption by over 60% in retail stores (LVMH#2, 2016). Sephora has started rolling out an energy management system that is one of the best in the world and not only uses LED lights but also is intelligent enough to switch on and off lights based on requirement. This has led to the reduction of energy usage in Sephora stores by almost 40% (LVMH#2, 2016). Sephora plans to roll out this energy management system in all its stores by 2018. LVMH also encourages its subsidiary companies to use clean sources of energy for manufacturing, logistics, and store operation. The ultimate goal of the company is to reach zero carbon footprints. Tag Heuer and Loro Piana have installed thousands of solar panels in their warehouses to meet the energy demands (LVMH#2, 2016). LVMH is also conducting research on the construction of green buildings. Recycling is another area where the company has taken up a few new initiatives. LVMH perfume and cosmetic houses such as Sephora and Dior have taken initiatives to recycle their cosmetic boxes and perfume glass bottles, which are then sorted, recycled and recovered. Hennessy is using woods produced in sustainably managed forests (LVMH#2, 2016). As the wine industry requires a huge amount of wood barrels for storing and delivering wines, LVMH is able to reduce the overall environmental impact by using sustainably managed forests. Additionally, by using woods only from sustainably managed forests, the company is able to make the quality of wood barrels more consistent as managing the aging process of these woods is easier. Apart from these initiatives, the company is also continuously trying to come up with new eco designs for its line of jewelries (LVMH#2, 2016).
Respect for people and individuals is of utmost importance in LVMH. The company joined the United Nations Women Empowerment program in 2013 and is currently one of the leading signatories of women empowerment principles. It is crucial for LVMH to protect the needs and requirements of women as 75% of its total employees are women (LVMH#1, 2014). The company regularly publishes data on the percentage of women at different levels of the company and encourages increased participation of women in the higher levels of the company. Between 2011 and 2014, women representation in the executive committee has increased from 26% to 38% (LVMH#1, 2014). Additionally, women representation in the management has increased from below 50% to over 63% (LVMH#1, 2014). The company has also initiated a program called Results in Social Entrepreneurship (RISE) in which internal talents from within the company are groomed and given platform to flourish. Lionel Morin (winner of 2014 Young Talent Award) was allowed to showcase her creations in the Berlin Fashion Week and LVMH fully sponsored the show. In 2014, Louis Vuitton also opened the Louis Vuitton Foundation whose primary responsibility is identify and train talented employees, generate futuristic sustainability ideas and provide crafts and design vocational training ((LVMH#2, 2016).
LVMH has taken several initiatives to reduce discrimination within the company. It has started recruitment discrimination test during the recruitment process to ensure that applicants are not discriminated based on race, color, creed, gender or financial background (LVMH#2, 2016). Moet Hennessy has introduced a new recruitment program in which people with disabilities are trained to participate in the day to day operations of the company. The overall employment of disabled individuals in Hennessy has increased significantly in recent years. Finally, the Arnault family has set up several philanthropic funds that support education, public health, and youth talent management (LVMH#2, 2016).
Financial, Marketing, and Operational Impacts
One of the reasons for many companies not to employ sustainability initiatives is cost. However, a cash rich company like LVMH can easily implement CSR initiatives. CSR initiatives and sustainability measures are supported by a corporate CSR fund in LVMH. However, the company encourages its subsidiaries to reserve a part of their budget for sustainability initiatives. The company has invested over $100 million in training worldwide, which is equivalent to Euro 804 per employee (LVMH#1, 2014). Additionally, the company has invested about $200 million in research and development for coming up with sustainable product design and environment-friendly operational practices. Subsidiaries such as Sephora, Bulgari, and Christian Dior have invested over $50 million for sustainable initiatives (LVMH#1, 2014).
Implementation of sustainability initiatives is changing the way LVMH works in some areas. For example, LVMH is now forced to implement a reverse logistics chain especially for the cosmetics and perfume products as they are planning to recycle a lot of the casing and glass bottles. Hennessey is probably one of the most environmentally friendly spirits company in France and it continues to implement new operational techniques (LVMH#1, 2014).
Figure: Traditional Marketing (Left) and Green Marketing (Left) of Louis Vuitton (Abillama, 2013)
LVMH has also changed the way it is marketing its brand. It was all about luxury in the past. However, it presently focuses more on promoting the LVMH brand as a responsible company who takes care of the environment, society and its employees while delivering superior quality.
Challenges and Gaps
LVMH is not the pioneer in the area of CSR. It only scores about average in almost all of the CSR and sustainability parameters among the competitors in the same segment. Gucci and Hermes who are pioneers in this area have completely revamped some or their deisgn, operation and marketing processes to make those more sustainable. However, in LVMH, the processes are still not well defined and not implemented consistently companywide.
The major challenges for LVMH is its independent subsidiary based structure. Therefore, some of the subsidiaries such Sephora, Hennessey and Tag Heuer has implemented world class sustainability measures. On the other hand, some other brands such as Nude, De Beers Diamond and some others still follow practices that are still more focused on profit than overall sustainability (Saint-Jean, 2013). Main task for LVMH is to ensure that CSR initiatives are uniformly implemented across the company because only one bad step can significantly reduce the brand value.
Conclusion and Recommendations
LVMH is the largest fashion brand in the world earning more than €30 billion in annual revenue and €5 billion as profit. The company owns many successful brands such as Louis Vuitton, Dior, Sephora, Hennessey and Tag Heuer in its portfolio. LVMH understands the value of corporate social responsibility initiatives. The company has started putting high focus on CSR activities from 2011. Initiatives such as women empowerment and equality within the organization, carbon reduction and anti-discrimination work practices are already in place. Though LVMH is presently doing well as a business house, some its competitors are doing much better in terms of creating a long term sustainable business model and introducing CSR initiatives within the company. The major challenge for LVMH is to create a uniform CSR practice across the organization as it allows all its subsidiaries to work independently. LVMH can improve the effectiveness of its CSR campaigns and align its CSR initiatives with business objectives by embracing the below initiatives:
1) LVMH CSR initiatives are now not standard across its subsidiaries. To ensure proper implementation of the sustainability and employee initiatives across the organization, LVMH should introduce some minimum adherence criterion that all its subsidiaries must follow. It should start recognizing subsidiaries that can show better results than others.
2) LVMH should identify subsidiaries that have the best CSR practices within the organization and try to see if those can be replicated across the board. This will reduce the overall brainstorming and implementation time.
3) LVMH should implement carbon neutral initiatives in its supply chain (which it has started). As customers are becoming more environment conscious (especially high end customers), the image of LVMH as a “green” company will help its sales in the long run.
4) LVMH should also focus on research and development to come up with products that can be recycled and reused, thereby reducing the overall environmental impact. Green products will not only reduce environmental impact, but will also help the overall manufacturing cost per product over the life cycle.
5) LVMH should focus on building a long term sustainable relationship with employees and suppliers. Happy and motivated employees can improve customer satisfaction immensely. If LVMH can pass on some of the benefits of its business to the suppliers, then that will help create a more sustainable supply chain built on trust and collaboration.
References
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