LVMH: Strategic Integration and Expanding Brand Dominance in Asia. We will suggest our recommendations on strategic sectors and we will explain why LVMH has to focus on Asian market to guarantee its future growth.

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DE TERNAY Anastasia                                                                Master 2 CPEI

MORAR Crina

XIA Xiaou

ZERMANI Sihem

  LVMH: Strategic Integration and Expanding Brand Dominance in Asia


Table of contents

INTRODUCTION……………………………….…………………………………......…3

  1. LVMH and its environment ……...…………………………..……….………………..3

A. The luxury market and it segmentation……………………...………….………………3

  1. Analysis of the luxury market: « The luxury-goods industry »…..………………...3
  2. Segmentation……………………………………...…...….…………………......….4

B. LVMH presentation…………………………………...…...….……………………….….5

  1. General presentation………………………………...…...….…………………...….5
  2. The Geographic Position in Sales………………...…...….…………………...…….6

C. LVMH analysis…………………………………………………………………………....6

  1. Company SWOT……………………………………………………………………7
  2. SWOT per sector……………………………………………………………………9
  3. Key Success Factors for LVMH………………………………………………..….13
  4. Competitors……………………………………………………………………..…14
  1. LVMH strategic integration.………………………………………………………….15

A.The logic of métiers…………………………………………………………..………….15

B.Optimization of synergies….……………………………………………………………18

  1. Marketing program: how to double profits within 5 years……………………20
  1. General recommendations on strategic sectors………………………………………20
  2. The Asian market…………………………………….. ………………………...……21
  1. Challenges and opportunities…………………………….......................................21
  2. Recommendations in the process of expansion in Asia...........................................22

Introduction

LVMH, the world leader on the market of luxury products Group was created in 1987 and results from the merger of Louis Vuitton (an upscale luggage company) and Moët Hennessy ( producer of champagne and cognac). Since its creation LVMH has made changes to its structure and in 1997 LVMH started creating business branches around the different métiers of the Group by combining apparently disparate businesses and synergies between the sectors. By changing its corporate structure LVMH greatly improved its sales and profit, which strengthened LVMH 'dominance in the world luxury goods industry relative to its large competitors.

LVMH has successfully conquered European and US markets, and is determined to capture the growing Asian market: the size of whose population and the income of whose middle-class are synonymous with a market share that LVMH intends to capture.

After a brief analysis of the luxury-goods industry and its segmentation, we will present the company. After that we will expound the LVMH strategic integration: how LVMH could optimize its corporate structure and thereby satisfy its constant desire to generate profit? At the end of our presentation we will suggest our recommendations on strategic sectors and we will explain why LVMH has to focus on Asian market to guarantee its future growth?

I) LVMH and its Environment

A. The Luxury Market and its Segmentation

1) Analysis of the Luxury Market: « The Luxury-goods Industry »

  • The luxury-goods industry has known four different phases since the 19th century:

- The elitist industry (19th to mid-20th century) emerged during the Industrial Revolution when major entrepreneurs created exceptional products, reflecting the elitist lifestyle of that time. As business grew more and more important, the reputation for exceptional quality evolved in well-established brands. The customer base became broader as the elites of the world became larger and more diverse.

- The Democratization of Luxury (1970s and 1980s): The expansion of product offer, growth of the distribution network, a boom in travel, the introduction of affordable products and the greater exposure of luxury brands drove the democratization of luxury.

-Industry Consolidation and the Luxury Bubble (1990s): The prosperity of the US economy, the exuberance in the financial markets and the consolidation of the South East Asian and Japanese markets boosted cash flows. The need to maintain high returns on investments and the accumulation of liquidity contributed to the industry's consolidation.

-The end of Exuberance (2001 to 2003): The exuberance of the 1990s shaped the luxury-goods industry as it entered the new millennium. Productivity, synergies and cost cutting entered the vocabulary of industry leaders. Synergies and economies of scale had to be implemented.

  • What is the definition of a luxury brand?

First of all, a luxury good must be of excellent quality, resulting from years of craftsmanship and improvements: it has to be perfect to deserve its reputation and to justify high prices.

Secondly, the brand aura allows the brand to be credible thanks to years of experience, tradition, heritage in order to build a strong reputation and create legitimacy.

Thirdly a luxury good must be desirable, with a strong aesthetic appeal, modern and traditional at the same time. Desirability depends on high price, which is synonymous with high volume of sales. It also depends on scarcity, which attracts consumers.

  • Some figures:

According to Bear, Stearns and Co., in 2003 worldwide spending on luxury products totaled $88 billion, and in the following four years sales of luxury products were expected to rise by 3% to 5%. Shares in luxury companies had a rising tendency.

Around the world, prosperity was on the rise: the World Wealth Report 2004 reported that 7,7 million people worldwide had financial assets of more than $1 million in 2003. This same year the wealth of Millionaires worldwide reached $28,8 trillions, and this figure is estimated to grow in the future.

2) Segmentation

  • By class:

We can divide the luxury-goods industry into two classes:

1° Rich population: Luxury-goods companies were established to satisfy rich customers.

2° Middle-class population: During the period of the Luxury Market's democratization a middleclass population emerged, a population whose behavior shows an increasing request for luxury goods.

  • By business areas

Watches, jewelry, fashion and leather goods, selective retailing, perfumes, cosmetics (wines and spirits in the case of LVMH).

  • Geographic segmentation:

The luxury-goods industry has a tradition of international development.

  • Europe: the modern luxury-goods industry has its origins in Europe.

  • America: since the beginning, luxury-goods companies have opened store branches in the US, after which they strongly expanded.

  • Asia: At the time of the democratization of luxury ( 1970s and 1980s), the South East Asian market of luxury goods exploded, and we saw the consolidation of the Japanese market.

In 2003, buyers in Asia accounted for 30% to 40% of sales of all luxury clothing, handbags and watches, and their ranks were expected to grow as China's economy expanded and Japan's economy affirmed itself.

B. LVMH’s Presentation

1) General Presentation

LVMH was created in 1987 in Paris through the merger of Louis Vuitton and Moët Hennessy. Since its merger, LVMH stood out as a leader in the luxury goods industry.  During a period of 15 years, LVMH created exceptional value and accumulated the most valuable portfolio of luxury brand in the world. Bernard Arnault is the chairman and CEO since 1988. This success can be attributed to him. In 1997, LVMH decided to group brands under five different sectors: Wines and Spirits, Perfumes and Cosmetics, Fashion and Leather Goods, Watch and Jewelry, Selective retailing. This new structure would allow for the full exploitation of economics of scale and back-office costs reduction. Despite facing the toughest environment (the depressed financial markets, the slowdown in the world economy, the impact of 9/11 on worldwide tourism and Asian economy, SARS…), the company delivered strong results for 2003, reporting a thirty percent increase in net income in 2003. The company has a dominant position in champagne, cognac, fashion and leather goods and selective retailing. Among the star brand we have notably Louis Vuitton, Donna Karan, Tag Heuer…

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2) The Geographic Position in Sales:

C. LVMH’s Analysis

We need to do first an internal and external analysis of the company to understand what can be done to improve LVMH’s growth profits and sales during the next few years. Then we have to focus on the different sectors. Both analysis will enable us to know what are the success requirements for LVMH.


1) Company SWOT

  • Internal analysis comments:

  • The most important strength of LVMH is its valuable portfolio of luxury brands. Consumers don’t buy only a product ...

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