CASE: LVMH
1. How have LVMH’s corporate strategy choices strengthened or weakened its competitive position in
the branded luxury products industry?
Though most of LVMH’s growth came from acquiring various brands, it was paramount to find the right
synergies, common strategies and aligning these businesses to same level of growth as a part of their
corporate strategy. The CEO of LVMH, had identified a few areas which were its key focus to maintain
growth in not just the band of start companies under the portfolio but also the rising stars.
Below were the choices which helped LVMH to gain a strong competitive position in the market on
branded luxury products industry –
Stringent management control over the image of the brand – This was one of the top choices
recognized as this was area of heavy focus by the CEO. He believed that the brand image is the first
communication of the product with the customer and its priceless especially the operating industry
Secondly, control over the distribution and sales – As this allowed their business heads to listen to
their customer and stick by the current trends
Product Quality – also comes from hiring very dedicated people but more importantly keeping them
for a long time. Quality mantra ones captured by an employee gets embedded in the bones and hence
the employee becomes your asset
Innovation – The first word that comes to mind when we think about growth in this industry is
innovation. The designers working under various brands were given unlimited freedom to chair out
various designs and go beyond possibility. My Arnault believe that innovation cannot be controlled by
managers who are functioning as per the guidelines, rules and policies. In this department, language of
growth is creativity coupled with freedom
Above were the choices that helped the company to gain a competitive position in the market and
achieve the growth.
2. Does it make good strategic sense for LVMH to compete in all of its current segments? 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 discontinued? Why?
On one side, having a wide range of market segments allows a company to stay competitive when
the economy is struggling and consumers' purchasing power is dwindling. On the other hand,
maintaining numerous items becomes challenging as costs are linked with each. LVMH's ability to
withstand sharp drops in other segments demonstrates the benefits of the diverse business model it
has in the luxury goods industry. It is clear that a few brands in the business tend to drag down the
outstanding yields of others. However, Vuitton has established strong brand equity in most of its
brands, demonstrating its capacity to be able to charge a higher price as well as provide solid profits.
Hence, from a strategic point of view, it would make sense for LVMH to keep on competing in its
current segments and diversify. Diversifying a portfolio in general, would allow any organization to
be able to take risks and expand into other growth areas in order to profit from diverse perspectives.
Performance Analysis of the Business Groups of LVMH for the year 2014 and 2015 (Data taken
from Exhibit 5):
Revenues (YoY Profit from Operating Cash Inflow Cash Inflow
Business Group
Growth Rate) Operations Investments (2015) (2014)
Wine & Spirits 15.90% 18.80% 53.30% 1262 1114
Fashion & Leather Goods 14.20% 9.90% -5.50% 3593 3159
Prefumes and Cosmetics 15.30% 26.50% 3.60% 479 343
Watches & Jewelry 18.90% 52.70% 6.80% 427 262
Selective Retailing 17.80% 5.90% 2.60% 901 789
Other Activities -7.30% -23.40% 42.20% -449 -397
The Cash Flow for each segment is calculated by using the following formula:
Cash Flow for 2015 = Profit from Operations – Operating Investments + (Depreciation and Amortization)
1. As per our analysis, we can see here that the most important Business Groups from LVMH are
Fashion & Leather Goods, Wine & Spirits followed by Selective Retailing. Fashion and Leather
goods bring in the most amount of revenue for the group company and also have the highest
amount of profit amongst all the other Business Groups. Its Profits from Operations are 3 times
that of Wine & Spirits and 4 times that of Selective Retailing. This is hence the most important
segment for LVMH to focus and will undoubtedly bring in the most amount of future growth as
well. From 2014 to 2015, the revenue for Fashion and Leather Goods segment has been
increasing at a steady rate of 15% while the profit has also raised YoY by 10%.
2. After Fashion and Leather Goods, Wine & Spirits looks to be the most promising sector for
LVMH. The revenue and profit numbers for 2014 and 2015 are high compared to the remaining
categories.
3. Selective Retailing clocks in a good amount of revenue for LVMH, however the Profit from
Operations for this particular sector is on the lower side. The Profit as a Percentage of Revenue
is only 8%. This low figure can mainly be attributed to the high operating expenses associated
with running retail outlets. LVMH should be more careful and judicious in opening more stores
to expand their market presence.
4. The Other Category of LVMH were loss making from 2014 to 2015 despite a huge amount spend
on Operating Investments. Businesses which are part of this segment need to be individually
evaluated and discontinued if necessary.
3. What strategic issues confront LVMH in 2016? What market or internal circumstances should most
concern CEO Bernard Arnault and his company’s senior leadership team?
In 2016, LVMH has issues in both market and internal circumstances.
Internal Circumstances: The development of divisions in LVMH is not uniform due to which certain
divisions are performing well and certain divisions are underperforming. Perfumes, Cosmetics, wine and
spirits are few divisions which are operating in profits whereas jewelry, watches retailing are running in
losses.
Market Circumstances: Not all brands are performing well for the company Louis Vuitton is majorly
successful brand in luxury products list. Online presence of LVMH is also not uniform, also there is threat
of imitations in the market as there are many products from the company expanded over the wide
regions. Publicity of products and consumers remembering them turning difficult due to its widely
distributed brands.
Performance Metrics:
Following are the brand wise performance metrics in terms of increase in sales in 2016 when compared
to previous year 2015.
Brand Revenue Percentage
Perfumes and cosmetics 5% increase
Wine and Spirits 7% Increase
(Highest)
Fashion and Leather Goods 1% decrease
Watches and jewelry 4% Increase
Selective Retailing 4% increase
Other Activities Running in Losses
Concerns:
CEO Bernard Arnault must look into the imitation threat that is increasing in the grey market and should
differentiate their products by introducing products with unique design and that are difficult to produce
by imitations. Unique promotions and creative activities must be done in order to promote their brands
and people to remember them. The brands which are underperforming must be improved or removed as
there is already large number of products from the company. Also even the revenues are increasing the
operating profit generated is decreased in 2016 when compared to 2015, this should be worked on and
focus on both increasing revenue and operating profits.
4.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?
Global Expansion: LVHM should modernise its retail outlets in order to attract more customers while
also focusing on worldwide expansion and innovation as essential tools for advancement, such as,
wines and spirits are popular among many individuals all over the world, they can expand their market
Launch of E-Commerce Business: LVMH should enter the E-Commerce market in order to maintain
organisational viability and revenue and profit growth
Brands Divestiture: LVMH can exit non-performing properties, allowing it to focus more on methods
to improve cash flows from its high-performing brands
Building Business around Luxury: Because luxury ensures a high return, LVMH may be interested in
establishing and operating hotels in expensive locations across the world, offering customers with
exclusive shop experiences, and other strategies to attract top-class consumers
Selective Acquisitions: LMVH must leverage its ability to make selective acquisitions of other luxury
brands to add to its existing product portfolio
Use of Innovative Technologies: LVMH may enhance its product flexibility by utilising innovative
technologies to produce customised luxury items that are best suited for specific markets (such as
developing nations) and their culture
Selective Retailing for Certain Products: Watches and jewellery are another market that has
been damaged this year. If they operate in selective retailing, they will be able to save sales and
profit percentages
