LOUIS VUITTON MOT

HENNESSY

An Overview

Mr Bernard
Bernard Arnault
Arnault entered
entered the
the branded
branded textiles
textiles and
and clothing
clothing business
business
by
by buying
buying the
the bankrupt
bankrupt textile
textile company
company Boussac
Boussac in
in 1984
1984

In 1987
1987 Louis
Louis Vuitton
Vuitton and
and Moet
Moet Hennessy merged

24%
24% of
of LVMH
LVMH acquired
acquired by
by Mr.
Mr. Arnault,
Arnault, making
making him
him the
the highest
highest
stakeholder

Transformed the
the company
company in
in less
less than
than a
a decade
decade through
through acquisitions
acquisitions
and overseas expansion

In 2001
2001 reorganized
reorganized around
around five
five divisions
divisions

LVMH
LVMH controlled
controlled more
more than
than 50
50 luxury
luxury brands
brands

Reported group sales of $10.7 billion in

in 2001
2001

Luxury Industry and Market

Turnover
Turnover

$80
$80 billion
billion per
per year
year

Jewelry
Jewelry

Segments
Segments

Watches
Watches
Leather
Leather goods
goods
Apparel
Apparel
Wines
Wines and
and champagnes
champagnes

High
High Significance
Significance of
of Country
Country of
of Origin
Origin

Restraints
Restraints

Market
Market

Local
Local Craftsmanship
Craftsmanship is
is preferred
preferred
Established
Established Brands
Brands have
have advantages
advantages
High
High entry
entry barrier
barrier

High
High Net
Net Worth
Worth Individuals
Individuals Prime
Prime Target
Target

Japan,
Japan, the
the most
most closely
closely targeted
targeted market;
market; accounts
accounts 30%
30% of
of
global
luxury
market
global luxury market

Business Lines
SBU

Wines and
Spirits

Fashion
and
Leather
Goods
Fragrances
and

% of
LVMH
revenue
s

17.85

33.04

18.4

OM
(in
%)

Strengths/ Opportunities

Weaknesses/
Threats
Declining sales
in recent times

33

World leader
Ownership of high-end non-traditional wine
producers
Markets global selection of wine and
champagnes

31

Very well-established stable of brands

Important cross-border acquisitions, joint
ventures like with Prada, Fendi
Ability to leverage synergies across its
fashion brands
Engaged in significant brand expansion
efforts

Much of the
sales
attributable to
Louis Vuitton
brand

Powerful collection of brands

Ability to leverage R&D synergies across

Business Lines
SBU

Watches
and
Jewelry

Selectiv
e
Retailing

Auction
Houses

% of
LVMH
revenu
es

4.35

26.29

OM
(in
%)

-2

Strengths/Opportunities

Weaknesses/
Threats

Owned prestigious brands like Tag Heuer,

Ebel, Zenith, Fred Joallier, Chaumet
Opportunity to centralize the manufacture of
movements
Utilization of Tag Heuers expertise in retail
distribution

More recognizable
brands with the
competitors
Non-profitable
business

Acts as vertical integration strategy

DFS Galleria was the worlds largest travel
retailer
MCS started duty-free operations at Miami
Airport, opening avenues of untapped market

DFS heavily reliant

on Japanese
travelers
This division made
no profit in previous
three years

Acquisitions in economically viable midmarket auctions

Opportunity to package its high fashion

Unable to make
profits

Competitors
Players

Domina
nt
Market

Gucci

Europe,
North
America,
Japan

Europe,
Richemon Asiat
Pacific

Remarks

Multibrand Centralized manufacturing providing synergies

Model
Dense network of subcontractors
Distribution synergies in retail stores
Stand
alone
Brand
Model

2nd largest luxury goods company

Watches and Jewelry accounted for 70% of total sales
No synergy across its brand portfolio
Smaller positions in apparel and fashion accessories

Europe

Single
Brand
Strategy

Positioned as super premium manufacturer

Integration of production and retail operations
In-house manufacture of over 75% of the products
Blended directly owned stores with franchise operations

AsiaPacific

Multibrand Substantial revenue attributed to watches and jewelry

Model
Produced entire range of watches and perfumes in-house
Joint Venture with Marriott International to leverage Bulgari

Hermes

Bulgari

Business
Model

Parenting-Fix Matrix

LVMH Competitive
Strategy Approach
Business
Business Model
Model
Strictly
Strictly
followed
followed the
the
principle
principle of
of
creative
creative
autonomy
autonomy
Decentralized
Decentralized
by
by design
design
Maintained
Maintained aa
very
very small
small
cadre
cadre of
of
mangers
mangers

Production
Production

Marketing
Marketing

Distribution
Distribution

Centralizing
Centralizing
procurement
procurement activities
activities
in
in fragrances
fragrances
Unlike
Unlike their
their
competitors,
competitors, had
had
integrated
integrated design
design
houses
houses for
for in-house
in-house
production
production
Production
Production process
process of
of
several
several hundred
hundred steps,
steps,
carefully
carefully engineered
engineered by
by
accomplished
accomplished
craftsmen
craftsmen
Promote
Promote their
their products
products
through
through premium
premium of
of

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

Largest
Largest network
network
of
of company
company
owned
owned stores
stores
400-100
400-100 m
m22 of
of
retail
retail space
space for
for
each
each store
store
Introduction
Introduction of
of
Global
Global Stores
Stores ;;
had
had Halo
Halo effect
effect on
on
smaller
smaller LMVH
LMVH
stores
stores
Using
Using selective
selective
retail
retail ventures
ventures to
to
understand
understand
customer
customer needs
needs

Corporate Level choices:

Three Tests
The
The three
three central
central choices
choices for
for interest:
interest:

Where
Where to
to Compete?
Compete?

What
What to
to Own?
Own?

How
How to
to Organize?
Organize?

Answered
Answered through
through the
the three
three tests:
tests:

Better-Off
Better-Off Test
Test

Ownership
Ownership Test
Test

Organizational
Organizational Test
Test

Sephora and DFS Galleria

Conducting
Conducting an
an ownership
ownership test
test on
on Sephora
Sephora and
and DFS
DFS Galleria
Galleria

Ownership
Ownership is
is justified,
justified, when
when it
it either
either allows
allows a
a company
company to
to create
create a
a larger
larger pie
pie
or
or to
to capture
capture a
a larger
larger share
share of
of an
an existing
existing pie
pie

In
In the
the case
case of
of Sephora
Sephora and
and DFS
DFS Galleria,
Galleria, selective
selective retail
retail chains,
chains, the
the cocoordination
ordination requirements
requirements between
between different
different stages
stages of
of the
the value
value chain
chain is
is high
high

For
For understanding
understanding customer
customer needs,
needs, these
these were
were very
very important
important parts
parts of
of the
the
company
company and
and ownership
ownership was
was justified
justified in
in this
this case
case

Why Corporate Strategies

Fail: Errors, Traps and Pitfalls
Auction
Auction Houses
Houses

In
In 2002,
2002, LVMH
LVMH divested
divested from
from Phillips
Phillips de
de Pury
Pury and
and Luxembourg
Luxembourg

Flawed
Flawed Synergy
Synergy Logic:
Logic: Using
Using existing
existing LVMH
LVMH products
products in
in the
the Auction
Auction
business
business to
to capture
capture new
new customers
customers seemed
seemed as
as a
a good
good synergy
synergy approach.
approach.
However,
However, it
it failed
failed to
to create
create value
value and
and the
the profits
profits expected
expected out
out of
of it.
it.

Misplaced
Misplaced motives
motives // Incorrect
Incorrect Unit
Unit of
of Analysis:
Analysis: Auction
Auction houses
houses are
are
individually
individually justified
justified as
as a
a partner
partner for
for a
a luxury
luxury brand
brand for
for diversification
diversification but
but
looking
looking at
at a
a fashion
fashion portfolio
portfolio it
it appears
appears illogical.
illogical.

THANK YOU!!