Case 3: LVMH in 2016: Its Diversification into Luxury Goods
1. What are the major elements of LVMH's competitive strategy in the brand luxury products industry? How well do the pieces fit together? Is the strategy evolving?
The major elements of LVMH's competitive strategy including a wide business portfolio containing luxury goods product lines such as perfumes and cosmetics, wine and spirits, fashion and leather goods and so on. The company offering the high quality materials, fine craftmanship, prestigious brand image, and bespoke services. According to Gamble, the long-term success of LVMH's brand, in Arnault's view, was largely a function of artistic creativity, technological innovation, and the closet attention to every detail of the production process. All of these different pieces fit together to create a superior brand image, and Arnault tried to enhance the corporate image because he believed it's priceless by attempts to create operational synergies including advertisements, corporate announcements, and speeches by management and designers. This strategy is evolving by adding new products, diversified their company portfolio by doing acquisition and joint venture which has helped the brand to emerged as a successful brand leader in the marketplace.
2. How have LVMH's corporate strategy choices strengthened or weakened its competitive position in the branded luxury products industry?
LVMH's strength would include the high level of brand awareness, diversified brand portfolio, diversified sources of revenue, exclusive supply and distribution system. LVMH's global expansion strategy has help the company establish themselves in the new potential market together with multi-national brand market approach are expected to derive the future growth and maintain its current revenue. In addition, international strategy has enable the company to face the negative impact of the global slowdown on its sales. The management and CRM programs has help the company to maintain a loyalty from their existing customers, also develop a new customer base in new and emerging market. According to Gamble, control over the distribution and sale of its products was the final elements of LVMH corporate strategy and allow its divisions to listen to customer needs, better understand their tastes and anticipate their desires. The weakness of their strategy is debt-burden due to wide ranges of investment, and the limited customer's segment.
3. Is LVMH's international strategy best characterized as a multi-domestic strategy, global strategy, or transnational strategy?
I think LVMH's strategy is a mix of global and multi-domestic because each division develop their own strategy depending on the taste and references of local customer. They have unique strategy for each sector, and the five product sectors are decentralized into two subcategories: production and distribution. For example, wine and spirit group, they has to be aware of local responsiveness, adhere to local regulation and norms, the firm has to adjust to the environment (multi-domestic). In contrast, perfumes and watches, otherwise, are completely global because of the global need for the kind of luxury fashion.
4. Does it make good strategic sense for LVMH to compete in all of its current segment? Which of its product lines-Wine and Spirits, Fashion and Leather Goods, Perfumes and Cosmetics, Watches and Jewelry, Selective Retailing, and Other-do you think is/are most important to LVMH's future growth and profitability? Should one or more of these current segments be discontinue? Why?
I think it doesn't make sense for LVMH to compete in all of its current segment, and the most popular and profitable segment is known for its fashion and leather good, especially designer bags where it's dominant. The advantage of having variety segments helps the company survive through the economy downfall but the down side of is its getting difficult to maintain various products along with the costs are associate with it. The customer taste and references are changing recently, and its segment approximate 60% of the revenues coming from middle class. The demanding for luxury products not only from the developed countries but now also coming from the developing countries, such as China, when luxury goods become a new style, and it's a way of showing off how wealthy one is. By learning customer desire for luxury good, LV trying to create unique high-end apparel and leather goods include the selection of fabrics or leather and the quality of construction. LVMH's Louis Vuitton products were all hand assembled by craftspeople who had trained for years perfecting their talents (Gamble C-301). In addition, Vuitton never put their products on sale but instead they're destroys the leftover stocks. Vuitton never gives its licenses to outside firms to avoid brand degradation.
I think the only section LVMH should discontinue would be "Other Activities" because they're bring in negative revenue for years.
5. What's your assessment of LVMH's financial performance over the 2012-2015 period? (Use the financial ratios in the Appendix of the text as a guide in doing your financial analysis).
LVMH has shown a growth in their overall revenue through the income statement since 2012. Profit from recurring operations from 2015 was 6605 million, 5715 million in 2014, which increasing by more than 16 %. Louis Vuitton recorded revenue of 35.7 billion in 2015, an increase of 16% over previous year. Organic growth was 5%. The group maintain strong momentum is in the United State. In Europe, its demonstrate resilience despite the fact of the economic environment. Asian countries displayed mix results. Group share of net profit increased by 20%. Overall, the operating and net profit from 2012-2015 have been increasing with slight fluctuations.
6. What strategic issues confront LVMH in 2016? What market or internal circumstances should most concern CEO Bernard Arnault and his company leadership team?
The company may encounter strategic issues due to uneven online merchandise selections across their 70 brand portfolio. Louis Vuitton online strategy appears inconsistent, and they've made great strides by being competitive in the online market place. But there're a threat that LV brand plus other famous luxury brand industry encounter is counterfeiting, grey marking in developing countries. The most concerning for the luxury goods industry would be over-saturation, and sometimes it's difficult to distinguish the real or fake products. Arnault and his company leadership team should focus on product quality with unique design and image (so it's not easy to fake it), innovation and craftmanship.
7. What recommendations would you make to Arnault to address the strategic issues confronting LVMH in 2016 in order to sustain its impressive growth in revenues and profitability?
I would recommend that LVMH should try a diversify strategy with strategically planned decision and to ensure that there is no stagnation of its own brand image. I would recommend LVMH study and analyze the world demographic so they can develop a unique market segment while enter the new regional territories, and areas of the rich and developed countries. By studying customers preferences, culture in that territories would give the company more ideas of exclusive gifts and products. Diversification would ensure the company brand image remain strong and vibrant against the competitor brands.
Work Cites
"Excellent performance of LVMH in 2015." LVMH. February 02, 2016. Retrieve 7/11/18. https://www.lvmh.com/news-documents/press-releases/excellent-performance-of-lvmh-in-2015/
