Managing a Multi-Brand Conglomerate

GROUP 1
COSSON Marina
WEE Sabrina
WU Xiaoyou

SEDBON Kevin
ZILLER Aljoscha

AGENDA

Case Overview

LVMHs assessment

Implications of globalization to luxury industry

Assessment of LVMHs diversification of products

LVMHs international strategy

LVMHs core competences

Factors and integration of growth and acquisition

LVMHs structure

Recommendations

10

LVMHs creative assets management

11

The leaders for tomorrow

30/11/2014

LVMH Case

CASE OVERVIEW LVMH

One of the
companies

worlds

leading

56,000 employees, 1,592 stores and a total of 60

brands worldwide

5 primary sectors (wines and spirits, fashion and

leather goods, perfumes and cosmetics, watches
and jewelry, and selective retailing)

Only focus on high margin activities

Focus on star brands, which are timeless,

modern, fast-growing and highly profitable

At the core of the business model is the Louis

Vuitton brand itself (star of the star brands)

LVMH follows a multi-brand strategy and grows

through key acquisitions and the development of
new products

A socially involved
Foundation)

Group

&

luxury

goods

sponsor

(LV

LVMH is a powerful conglomerate with prestigious brands and a highly profitable company. However,
several questions remain: is the multi-brand model holding up? How will the internationalization plans be
carried out successfully? How can creativity and profitability be managed at the same time?

30/11/2014

LVMH Case

LVMH 9 CELL MATRIX

Industry
Attractiveness

High

1.) Wines &

Spirits

2
Medium

4
1

3
5

Low

2.) Fashion
& Leather
Goods

3.)
Perfumes &
Cosmetics

4.) Watches
& Jewelry

Average
Weak
ge
Competitive Strength / Market
Position
Strong

5.) Selective
Retailing

The traditional core businesses of LVMH have the highest Industry Attractiveness and Competitive
Strength. Watches & Jewelry is a promising industry with LVMH not having been able to take full
advantage of it. The industries of Wines & Spirits and Perfumes & Cosmetics remain interesting. Here,
LVMH has upside potential. Selective retailing is taking up resources but has a lot of distribution synergies
with the rest LVMH businesses
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LVMH Case

ASSESSMENT OF LVMH

Threat of New
Entrants
Potential
Entrants
(Low)

Bargaining Power of
Suppliers

Suppliers
(Low)

Rivalry
(Medium)

Buyers
(Medium)

Bargaining Power of
Buyers

Substitutes
(Low)

Threat of
Substitute Products

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LVMH Case

IMPLICATIONS OF GLOBALIZATION TO THE LUXURY

INDUSTRY
Rise of the
economies,
creation of and
access to new
markets

Ease of trade due to lower entry barriers

Growing affluence of emerging economies (BRIC)
Cost savings & new sales opportunities
Challenge of the grey market and counterfeit

The spread of
western Art de
Vivre

Democratization of luxury
Current concept of luxury largely defined by the West
Educating the new markets (Chanel exhibitions)

Intensification of
competition

From local and regional brands (Shanghai Tang)

A strive to constantly innovate
Need to understand and adapt to local cultures (ShangXia)

Less control over

brand image

Facing the paradox of being global without diluting the brand image
Control of the market expansion and accessibility of products (right balance)

Globalization has given rise to opportunities for the luxury industry to expand and make the most of new
markets and cost advantages. However historical luxury Maisons have to tackle new issues: controlling
their brand image and facing new competitors that eventually might compete in their historical markets.

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LVMH Case

LVMH DIVERSIFICATION OF PRODUCTS

REPARTITION SALES OF BUSINESS

GROUPS

INCOME FROM OPERATIONS BY BUSINESS

GROUP IN 2003
-2%
5%

18%
25%

Wines & Spirits

8%
36%

Fashion & Leather

Perfumes &
Cosmetics
Watches & Jewelry

4%

18%

35%
Retail
60%

Fashion & Leather + Retail = 60% of

total sales

Fashion & Leather + Wines & Spirits = 96%

of total income

LVMHs growth strategy was operated through acquisitions and product developments. With 60 brands and
5 primary sectors, LVMH is known for its multi-brand strategy and is one of the leader in the luxury
industry. Fashion & Leather and Wines & Spirits represent 96% of the total income of the Group.

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LVMH Case

ASSESSMENT OF LVMHS DIVERSIFICATION

STRENGTHS

WEAKNESSES

Increasing revenues with existing customers

and new customers

Focusing more on star brands to the detriment

of smaller brands (eg: Celine)

Spreading of Risk : the loss of one brand can be

balanced by the profit of another and vice versa

96% of income from operations comes from

Fashion & Leather and Wines & Spirits
highlights the difficulty to be successful in all 5
segments (expertise?)

Achieving economies of scale/scope: synergies

from sharing tangible and intangible resources
(R&D, logistics, development) across the
different brands and businesses
Increasing market power/share through brand
portfolio
Making the most of group
reputation/awareness: if customers are satisfied
by the brand, they will tend to buy another of
their products

Expensive strategy: a lot of money to spend on

brands and products that may not have a high
return
Difficulty to manage all the brands
simultaneously risk of inefficiency with the
different organizational setups in different
countries

Reinforcing the philosophy of creativity into each

new business Bernard Arnault is deeply
involved in the creative process

LVMH aims at being a holistic luxury group but despite a lot of advantages arising from its diversification, it
also faces shortcomings that may not be sustainable in the long term. Most of the income comes from
Fashion & Leather and Wines & Spirits, highlighting the difficulty to manage and focus on 5 segments.

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LVMH Case

LVMH INTERNATIONAL STRATEGY (1/2)

Acquiring iconic brands

to expand in new
markets (perfumes US)

Combining disparate
business

Retail strategy:
acquiring retails to
create new possibilities

Manufacturing less
exclusive products
overseas

Growing star brands to

expand the brand
abroad

LVMH
International
Strategy

Acquiring the best producers and

manufacturers (ArteCad)

Opening new stores

and controlling them

Recruiting and forming

local talents

Developing
international
partnerships (Koh JV)

LVMH has a pro-active international strategy through brand acquisitions, strategic partnerships and
management of worldwide stores. LVMHs international strategy aims at reinforcing its brand image,
conquering new markets and increasing its market power abroad while maintaining a high quality process.

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LVMH Case

LVMH INTERNATIONAL STRATEGY (2/2)

GLOBAL

LVMH
Decentralized organizational
structure but corporate HQ in
Paris, Tokyo, NYC and Amsterdam
constrained freedom
Global training for all personnel
categories
Integration is key
business strategy

for

TRANSNATIONAL

LVMH
Global
Integration

INTERNATIONAL

MULTI NATIONAL

LVMHs

Products
are
uniform
across
culture (although each market
chooses the products for its local
stores
Local responsiveness

LVMHs international strategy is global as the Group is more in need of integration than local
responsiveness due to uniformity of the products across cultures. Although the structure is decentralized,
the headquarter has a lot of control over the different businesses and intervenes in case of unprofitability.

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LVMH Case

10

HOW DOES LVMHS INTERNATIONAL STRATEGY

DIFFER FROM ITS COMPETITORS
LEADERS IN THE MULTI-BRAND LUXURY SECTOR WITH A REVENUE > $1BILLION
(TABLE 1 APPENDIX)
LVMH
RICHEMONT
KERING
SWATCH
LOREAL
Growth strategy

Acquisition and organic

growth

Organic growth:
creating innovative
products

Mainly organic
growth but
acquisitions if
needed

Acquisitions (more
past) and organic
growth (current)

Acquisition and
organic growth

International
expansion

Worldwide (mainly in
Western Europe)

Europe, Asia and

Americas

Western Europe,
NA, Japan, Asia
Pacific and other
countries

Europe, America,
Middle East,
Australia, Asia

130 countries :
Africa, Asia, Europe,
America

Emerging market

Fast to enter/pioneer

Moderate to enter

Slow to enter

Fast to
enter/pioneer in
India

Strong to expand

Segments

-Wines & Spirits

-Fashion & Leather
-Watches & Jewelry
-Perfumes &
Cosmetics
-Selective retailing

-Watches &
Jewelry
- Fashion &
Leather

-Perfume &
Cosmetics
-Fashion &
Leather
-Watches &
Jewelry

-Watches

-Perfume &
Cosmetics

Target

Aspirational*

Upper-end
individuals

Aspirational

Large range: from

mass to premium
individuals

Large range: from

mass to upper-end
individuals

* brand of goods that people believe is of good quality and that will make them feel successful if they own it

Albeit the leaders in the luxury industry having a strong international strategy, LVMH found a solution to
differentiate itself; LVMHs products diversification, rapid expansion and first-mover advantage in emerging
countries as well as targeted audience gives the Group a competitive advantage.

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11

LVMH ACQUISITION INTEGRATION APPROACH

Need for Strategic Interdependance

Low

Symbiosis

Holding

Absorption

High

Preservation

Low

Need for
organizational
authority

High

LVMH M&A integration is always aimed at acquiring a company, not absorbing it and/or merging it with
a Maison it already owns
LVMH is collecting brands but has the objective to respect the brands independence and unique spirit
However, LVMH seeks high interdependence and maintain a high organizational authority
LVMH is looking at acquiring Maisons that will be able to give the group a competitive advantage over the
strategy of its competitors. This is why it looks at investing in companies that will give an overall symbiosis
to the Group and build its core competence: maximizing synergies

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LVMH Case

12

LVMH CORE COMPETENCE

LVMH core competence = expertise to leverage synergies between the Maisons or brands it acquires in
order to increase the bottom line and reduce the costs

DIVISION

CORE COMPETENCE APPLICATION AND RESULT

LVMH Wines & Spirits BU focuses on high margin activities which depend on high quality land
Synergy leverage: Pommery has vasts lands in the Champagne region
Pommery bought for its lands and name then sold without the lands reallocated for Mot and VC
Synergy leverage : Kenzo is acquired notably because of its efficient production facility usable for
other Fashion and Leather Goods Maisons of the Group
Kenzo production facility evoloves to become a RTW logistics platform capable of managing
several brands at a time (Kenzo Givenchy, Christian Lacroix), thus reducing costs
A collection of Maisons : PCD, Guerlain, Kenzo, Givenchy
Synergy leverage: this BU requires high investments in R&D
Integration of R&D into a unique division next to production, distribution & sourcing facilities
R&D expenditure economies of scale. A unique center profitable for all Maisons
Synergy leverage : Zenith is the only manufacturer of certain watch components and Tag Heuer
has an expertise in retail distribution
Reduction of costs, manufacturing synergies and transfer of knowledge across the BU
Synergy leverage: Selective retailing as part of a vertical integration of the Group
Easy access to a wider distribution around the world for P & C and W & S
Sales increase and cost synergies

LVMH core competence lies in its ability to have made the most of its diversifications and acquisitions and
benefit from synergies and reduction of costs. Its ability to vertically integrate part of its businesses also rely
on this core competence.

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FACTORS INFLUENCING COMPANIES WHICH SEEK

GROWTH THROUGH ACQUISITIONS
EXTERNAL

INTERNAL

Ongoing consolidation in the luxury industry

High need to act fast since competitors are aggressive
(first mover advantage)
A way to still be competitive and gain market share
Presence of small players, often family run, that are
successful and interesting for internal objectives
Acquiring a brand Securing a designer
Limited amount of star designers which are key to the
success of brands and want to be taken over
Fast growing segment of private equity firms interested
in luxury firms
Barriers to entry from local authorities
High saturation of European market
Eastern acquisitions are an opportunity to increase
market share in growing markets and have less
competition

Advantage of diversification through the acquisition of

other popular brands
Limits the risks if one sector of the industry is not
going well during a certain period of time
Potential synergies across brands (production &
distribution processes)
Reduction of costs
Enter into the promising Asian market
A way to cross sell between brands

Acquire know-how and key resources

Gain market share to achieve leadership positons
Impose commercial and financial discipline

There are several external and internal factors which influence acquisitions in this industry, the main ones
being the intent to gain from synergies and to secure or improve market positions. With the private equity
firms, a new type of player has entered the industry as well. The fast growing market in Asia, especially
Japan, will be fierce fought for in the future.
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LVMH Case

14

HOW LUXURY COMPANIES USE HORIZONTAL AND

VERTICAL INTEGRATION
HORIZONTAL INTEGRATION:

Vertical Forward Integration

Seeks control over competitors (e.g. with acquisitions).

Examples: Swatch Groups purchase of Harry Winston,
acquisition of Bvlgari by LVMH
Luxury brands must grow if they want to survive in
our world, The Luxury Strategy: Break the Rules of
Marketing to Build Luxury Brands

Horizontal

VERTICAL BACKWARD INTEGRATION:

Involves the purchase of suppliers (e.g. with

acquisitions). Examples: Esprit, H&M, Zara
Suppliers of luxury material have become top
acquisition targets for names like LVMH and Guccis
owner Kering
Captured significant market share over the past few
years, growing more rapidly than traditional
manufacturers and retailers

Luxury

Integration

Conglomerates

There is an increasing trend in both horizontal and vertical (backward) integration in the industry.
Horizontal Integration can help lower cost per customer which can be useful to reach new markets with an
increasing share of voice. Financial benefits include economies of scale & scope and monopoly pricing.
Vertical backward integration can be pursued to improve efficiency and cost savings and to lock in rare
skills and ingredients that are vital to brands' survival.
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ACQUISTIONS: WHAT DID LVMH DO?

Acquire knowledge: Now owner of Bulgari and ArteCad, a

Swiss watch dial manufacturer
Increase LVMHs competitive position against other watch
making rivals such as Patek Philippe & Co

Benefit from synergies: LVMH acquired

international
Reduce cost of leather and crocodile skin

Heng

Diversification: LVMH acquired major companies in all five

sectors

Increased Revenue: LVMH has continually increased

revenue throughout the years with increasing share price
and strong dividend pay-out ratio
Signal of successful acquisitions

Synergies

Long

Enter New
Markets

Entering New Markets: Miami Cruiseline Services acquired

to access NA travelers. It manages duty free operations at the
Miami airport as a gateway to get access to the Latin
American market

Acquire
Knowledge

Diversification

Increasing
Revenue

Source: Prof. Ha HOANG lecture slides

LVMH managed an astonishing increase in revenues despite a difficult economic environment by strategically
acquiring brands and companies (both small manufacturing companies and some of the largest Fashion, Jewelry
& Watch companies), by evaluating their contribution on the value chain & estimating their benefits in terms of
economies of scope/scales. Throughout these acquisitions, LVMH has always tried to be one step further of its
competitors, securing new market and making the most of a first mover advantage.
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HOW ARE ACQUISITIONS MANAGED AND

INTEGRATED?

Three ways are possible for integration. How much is controlled by the parent company depends for
each luxury Group though some similarities prevail

Managed individually
Partial Integration
Full integration
Creativity
& Marketing

Synergies

HR

Production

Finance

Distribution

Synergies

Strategy

Generally, acquisitions are managed individually in terms of what is their core competence and competitive
edge. However, some of the supporting activities are integrated as part of the Group (via process
harmonization and pooling of resources).
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DOES LVMHS STRUCTURE SUPPORT ITS

STRATEGY? (1/2)

Brand
development
(Internal)
Fashion &
Leather

Wines &
Spirits

Perfumes
&
Cosmetics

Watches &
Jewelry

Innovation

Quality

Selective
retailing

Strategy
&
Synergies

Acquisition of brands
(External)

LVMHs structural management among its business divisions and its brands provides great support for
both its organic growth and its acquisition of new brands. The top of the execution is led by a globalized
structure but the brands are managed separately.

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SUSTAINABILITY OF THE STRATEGY

PARADOX

Star brands strategy:

potentially killing exclusivity

Strong support of brand image

Brand
development
(Internal)

Innovation

Quality

Help developing
new brands

Enriching
brand portfolio

Avoid overexploitation

Profitability?

Constrained
freedom

Acquisition of brands
(External)

LVMHs strategy is sustainable because its acquisition strategy and its internal brand development could
counterbalance, facilitate each other and give the Group a global reach. However, in the long run, there are
some potential problems that might be vital for LVMHs future (e.g. not giving full potential of existing
acquisitions, not trying to give full profitability of each business knowing star brands are here in emergency)
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RECOMMENDATIONS

BUILD MORE LOCALIZED MANAGEMENT TEAM:

Refining geographical division, integrate the needs of local customers and product innovation and
service, to achieve national responsiveness while having worldwide sold products

ADJUST BUSINESS STRUCTURE AND DIVERSIFY STRENGTHS:

Divest non-core luxury division, bolster businesses that are small but have potential high profitability,
e.g. Watch & Jewelry.

ALLOCATE GROUP RESOURCES MORE EQUALLY:

Put more effort into fostering new brands, instead of over-exploiting star brands; whereas reserving
marketing and branding resources for star brands to maintain their brand influence

REFRAIN THE ACQUISITION STRATEGY

Try to make already acquired brand grow and gain profitability before acquiring new Maisons

LVMH managed to create a powerful Group. But the acquisition strategy needs to be refrained to let the
time for past acquisitions to grow within the Group. In order to still pave the way LVMH could better
understand local market and make the most of it for the next launches and collections (e.g. Miss Dior)

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10

CREATIVITY MANAGEMENT

CREATIVITY AND CREATIVE ASSETS ARE MANAGED IN THE FOLLOWING MANNER:

Designers have complete freedom to create and innovate

One designer for multiple Maisons (a way to retain and secure
the creative source)

Best practices and skills (notably craftsmanship) transferred

from one generation to another

Talents

Hiring the right people and retaining the best talents

Constant training to be at the cutting-edge
Developing a group spirit

Maisons

Developping the brand heritage into the modern world

Innovation

People are encouraged to present their ideas and be source of

proposition

Designers

Knowledge/Expertise

LVMH cultivates the leaders of tomorrow through intense investments in training as well as investments on
the star designers. Its objective is to spot the best people and hire them, train them so that they can in turn
share their expertise to the next generation and grow the business

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11

CULTIVATING THE LEADERS OF TOMORROW

Securing Star
Designers

Hiring people
with a different
background

Training as a
motto

LVMH focuses on attracting and securing the best designers by investing in their
own brands and appointing them in the star Maisons or the rising star Maisons
Drawback: not paying enough attention to the second tier designers which can
also become rising stars
Making the most of the knowledge people have from their past experience in
other industries to gain competencies
Having fresh blood to gain a fresh vision of the business
Dispensing of trainings and seminars throughout the year in order to create a
Group spirit, awareness and have a big picture and better knowledge of the
business for the managers
Objective : being the best retail Group in the world

Forming the next

generation

Investing in tomorrows talents and leaders

School programs in France and Asia like the ESSEC LVMH Chair

Transmitting the
savoir-faire

Forming the next craftsmen via transmission of historical savoir faire

Developing and communicating of the savoir faire

LVMH cultivates the leaders of tomorrow through intense investments in training as well as investments on
the star designers. Its objective is to spot the best people and hire them, train them so that they can in turn
share their expertise to the next generation and grow the business.

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LVMH AND THE LUXURY INDUSTRY: ABOVE AND

BEYOND

11

LVMH

Multi-brand marketing : More focus placed on smaller brands instead of its previous heavy focus on its
star brands (Fendi and Cline)

Re-establishment of brands exclusive image : Shift price positioning and increase focus on high-end
leather goods (Premium Capucine collection)

Continuation of strategic acquisitions less towards Maisons and more towards key raw material
producers (e.g. 2000s acquisition of Bvlgari and 80% stake in Italian cashmere producer, Loro Piana)

LUXURY INDUSTRY

Increasing demand in Asia and other emerging markets for luxury products. Apparition of Asian luxury
brands on the international stage

However new issues to tackle in Asia (Chinas policy over corruption, geopolitical crises)

Growing demand in global fragrances market

Increasing importance and focus on men products

Increase in labour cost in US & Europe

LVMH is well-positioned to tap into the growing markets. The Group should continue to develop its unique
brand portfolio rather than acquiring new Maisons and leverage on its business model to generate superior
cashflows. However, new competitors and issues are rising, forcing to a shift in the way to do business.

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THANK YOU

Q&A