LVMH Case Study
Louis Vuitton Moet Hennessy company is one of the largest companies operating in the market of luxury goods. In fact, this company is one of the world’s leaders in this segment of the market. It has particularly strong positions in Europe through the brands united under LVMH are well-known throughout the world, and its products are popular worldwide. At the same time, it is necessary to take into consideration the fact that, like any other company operating in the market of luxury goods, LVMH has to pay particular attention to peculiarities of the market.
To put it more precisely, it is necessary to realize that the market of luxury goods is quite specific and companies operating in this market often face some difficulties.First of all, it should be said that the company, i.e., LVMH, operates with a limited number of products which traditionally do not belong to the products of mass consumption type. On the other hand, to keep the company’s revenues and income high, it is necessary to provide possibly larger rates of sales and, consequently, attract a potentially large number of consumers.
At first glance, LVMH has managed to fulfill this task until the early 2000s. Till this period the company demonstrated a good trend to growth and specialist could speak about sustained and stable development and progress of the company operating in such a specific segment of the market that was an apparent success of LVMH management.However, the 2000s were marked by a significant slow-down of the company grew to the extent that some specialists (4) had started to speak about the certain crisis within the company and its gradually deteriorating position in the market of the luxury goods. Mainly different factors influenced the position of the company in the market dramatically, but it should be pointed out that they have to be taken into consideration because some of them still affect the situation in the market of luxury goods.One of the main problems of the company at the beginning of the 2000s was the consequences of September 11 terror attacks in New York. It is not a secret that these tragic events affected not only the national economy of the US but the world economy as well.
In this respect, the market for luxury goods suffered the most because it is particularly sensitive to any slightest changes in the economy. As a result, sale rates and income of LVMH, as well as other companies operating in this segment of the market, decreased and the first signs of the approaching crisis appeared.As it has been already mentioned the market for luxury goods is extremely sensitive because of its specific nature. In fact, the problem is that the company is focused on quite a limited circle of customers able to buy luxury goods. Naturally, in the period of economic crisis, luxury goods often turn to be the first category of goods customers refuse from buying off.
Furthermore, it is also necessary to point out that the early 2000s were marked by a global recession which affected the market of luxury goods and the latter had started to demonstrate certain slowdown and decline in the purchase of luxury goods (2).As a result, nowadays the company faces some challenges which to a certain extent result from the problems that have been just discussed above. To put it more precisely, currently, the company has to cope with the consequences of economic issues that followed September 11 terrorist attacks. Also, it is extremely important to increase sales rates and attract a possibly more significant number of customers. In this respect, one of the strategic goals of the company is diversification of its products that may stimulate customers to buy more luxury goods which they have never been offered before, at least by LVMH.
Thus, the company has to overcome the problems to return to the stable growth which has been observed until the early 2000s and only such a situation the words of its CEO; Bernard Anrau will come true when the company’s products “in some way, fulfill a fantasy. You fill as if you must buy it, in fact, or else you won’t be at the moment. You will be left behind” (1). In such a way, the main goal remains to increase sale rates, number of customers via the realization of the strategy of diversification of luxury goods supplied by LVMH.
To properly evaluate the position of the company in the market and forecast its perspectives, it is necessary to analyze its current situation thoroughly. Speaking about LVMH, it should be pointed out that this company is the largest one operating in the market of luxury goods.
Its annual sales constituted 12.2 billion euros in 2002. At the same time, it seems to be even less important compared to the brands that the company incorporates. In fact, LVMH includes several most prestigious brands among which may be named Moet and Chandon, Krug, Louis Vuitton, Givenchy, Parfums Christian Dior and such relatively new but perspective brands as Donna Karan, Christian Lacroix, and Kenzo (3).It is not surprising that the company uniting such brands has two prestigious Parisian department stores, two chains of duty-free shops, a retain cosmetics chain, e-commerce businesses, and a variety of French media properties (3).
Such a wide representation of the company of luxury goods in the market naturally implies a variety of goods offered by the company to its customers. In this respect, it is worthy to mention that sales of champagne and wines in 1988 constituted FF4.875 million, cognac and spirits – FF4.083 million, luggage, leather goods, and accessories – FF3.530 million, perfumes and beauty products – FF3.735 million, and horticulture – FF218 million respectively.
At the same time, the company’s income from operations constituted FF1.042 million for champagne and wines, FF 1.348 million for cognac and spirits, FF1.458 million for luggage, leather goods and accessories, FF594 million for perfumes and beauty products, and FF202 million for horticulture (3).In such a situation, it is very important to point out that the main percentage of sales constituted sales from outside France varies from 40% for horticulture to 98% for cognac and spirits. At the same time, the sales rates are high for different luxury goods, and nowadays its trend even increased.
As a result, nowadays the company operates in different segments including the following which is the most important ones: wine and spirits, leather and fashion goods, perfumes and cosmetics, watches and jewelry, selective retailing, media, e-commerce businesses, etc.Thus, it is obvious that the company, being the world leader in the luxury goods industry, demonstrate an impressive growth and not less impressive slow down in early 2000.
Taking into account the analysis of the position of the company in the market, it is necessary to single out several extremely important trends in the company policy.First of all, it is necessary to point out that one of the main strategic goals of LVMH is global expansion and this strategy is successfully realized, taking into consideration the fact that the company currently incorporates 50 popular brands which are well-known worldwide. It means that LVMH has chosen an efficient way of acquisition and mergers of the company and other popular brands that naturally contributes to the growth of the popularity of its products and, at the same time, natural diversification of luxury goods offered by LVMH to its customers.By the way, the diversification is also an important strategic development of the company, and it is possible to trace the trend to diversification from the analysis of luxury goods sold by LVMH in the late 1980s and early 2000s.
What is important in this strategy is the perspective to avoid limitedness of the market of luxury goods. To put it more precisely, the company simply have an opportunity to vary its sales offering clients new products under popular and well-known brands and it is not obligatory to link a concrete brand to a certain product.Furthermore, it is necessary to underline that currently, LVMH is the largest company operating in the luxury goods segment worldwide. The latter fact is particularly important in the context of the economic globalization though this trend has been obvious since the late 1980s when LVMH was the export-oriented company, and all its goods could not be sold uniquely in France or any other country. Not surprisingly that nowadays the company incorporates a variety of international brands and is multinational by its nature.
As a result, nowadays the company can efficiently operate in any country of the world, regardless national peculiarities and create and sell luxury goods which are universally accepted basically due to the world recognition of the brands which constitute LVMH and offer a variety of luxury goods to the company’s customers worldwide.
Apparently, nowadays LVMH occupies the leading place in the market for luxury goods. At the same time, the difficulties the company faced at the early 2000s indicate the necessity to develop an efficient strategy aiming at the prevention of these problems in the future. In this respect, it is possible to recommend to continue the strategy of diversification of luxury goods that can increase the number of sales through the increase in the number of customers.Unquestionably, the company should not be bound to a few products.
Otherwise, any severe economic crisis would deteriorate the position of the company dramatically since the company could not be flexible enough. In stark contrast, the further diversification would make the company even more flexible and less susceptible to changes in some segments of the market.Furthermore, it is very important to develop the company’s brands since it is not a secret that nowadays brand constitutes a significant part of the company’s value. It should be pointed out that, using the popular brands, LVMH can start the production of new products which may be a luxury not only due to their uniqueness but also due to their brand. In such a way, the company can promote different brands and possible problems of one of the brands would hardly affect the company at large since there are a variety of other not less popular and recognized brands.
Thus, taking into account all above mentioned, it is possible to estimate that LVMH is still in a good position and its perspective for the further growth are quite realizable.
At the same time, the economic recession threatening to result in a profound crisis of the world leader of the luxury goods industry is practically in the past. Despite the fact, that nowadays there are still serious problems the company has to cope with and, which result from the problems that have started at the early 2000s, LVMH has already started to overcome them and can continue its growth and further expansion in the world market.On the other hand, it is necessary to realize that the industry of luxury goods has always been and, in all probability, it will always be quite a risky business since luxury, by its definition, implies some uniqueness and limitedness that, applied to the contemporary open market economy and mass consumption, sound like archaisms. Nonetheless, it is hardly possible to imagine that in the future such companies as LVMH will decline since people are extremely interested in unique goods to which only a few people have access to. Anyway, the current situation seems to be quite stable, and there are no real signs of a possible profound crisis of LVMH or the luxury goods industry at large.
This is why it is possible to estimate that LVMH still remains the leader in the luxury goods industry.