Overview of the companyLouis Vuitton Malletier à Paris, which is more known to the public as Louis Vuitton, is well-known brand of a luxury French fashion and leather goods. The company was established in 1854 by Louis Vuitton, who specialized in manufacturing luggage during the second half of the nineteenth century. Now the company is owned by LVMH, headed by Bernard Arnault / Reuters Description of LVMH, 2007 /.
Louis Vuitton created a special signature for his leather items, which is now highly appreciated in the world of fashion and is regarded as a status symbol. However, it should be mentioned that in spite of its well-recognized trade mark Louis Vuitton is probably one of the most counterfeited brands in the world with over 99 % of all the goods going under the name Louis Vuitton being a fake / Company Spotlight: LVMH, 2007/.The Vuitton managed to become not simply a well-known brand but established a cult-like following among wealthy consumers, which makes us talk about Louis Vuitton as equal to the top fashion brands like Gucci, Fendi, Prada, and Hermès / Company Spotlight: LVMH, 2007/.Position of LVMH on the international marketThe position of Louis Vuitton on the international fashion accessories market is really very high.
The proof of this can be found in numerous researches, investigating the most important and well-known brands. Thus, in 2006 BusinessWeek/Interbrand conducted a research of best brand in the world. As the result of their work they presented the list of 100 Best Global Brands. In this list Louis Vuitton occupied the seventeenth position and this was the highest rate among all fashion brands under research /Davis, 2006 /.
Louis Vuitton was among the twenty best global brands, while the other fashion company, Gucci, managed to enter only in fifth ten and was listed on the 46th position. Among the rest famous brands, which were listed in the best 100 Global Brands were Chanel, occupying 61st position, Cartier with its 95th place, Armani, which was 97th, and Burberry occupying 98th place / Davis, 2006 /.LVMH is a very high trademark, which holds is position of a company with a luxury pricing strategy. This implies that the prices for its products are extremely high, its items are quite limited in their availability, and without a practice of markdowns (a few that were could be really called a sensation).
It is a well-known fact that once a reporter asked whether there will be a post-Christmas sale in the Louis Vuitton store in Paris. Yves Carcelle, the president of the company replied to this question negatively explaining this by the fact that for Louis Vuitton markdown implies devaluation of its brand / Echikson, 1995 /. This is one of the peculiarities of the marketing strategy of Louis Vuitton.The other peculiarity of the Louis Vuitton’s marketing is the way it sends its products.
This is done only through a global network of stores, which are entirely owned by the company. On the one hand, this practice limits the availability of the products and lowers the amount of the products sold. But on the other hand, this is a very important aspect of the overall strategy, though which Louis Vuitton is able to keep margins high enough and controls its products on the every stage of selling process in the channel. According to Bernard Arnault “If you control your factory, you control your quality; if you control your distribution, you control your image” / Levine, 1997/.
In fact, this practice also promotes the development of the network of company-owned stores, without giving other companies the right to represent its products. Now Louis Vuitton owns a global network, which consists of 1,286 stores. The number of stores constantly grows. Thus, if compared with 1999 LVMH increased the number of its stores by 28 %.
A half of all company-owned stores in the LVMH network is constituted by 284 Louis Vuitton stores and 461 Sephora stores / Marsh, 2000 /.During a last few years Louis Vuitton established a number of flagship concept stores, which are situated on high-fashion avenues in the most famous parts of the world such as Rodeo Drive or Fifth Avenue. The average level of sale in these stores is extremely high and makes up $1,800 per square foot. Louis Vuitton also has a number of the best-selling stores, which make a profit of $8,000 per square foot / Marsh, 2000 /.
Of course, for the luxury brand like the one of LVMH it is of vital importance to constantly hold its upscale image. For this LVMH spend over 10 % of its sales annually for promotion and advertising. Because of the peculiarities of its target group Louis Vuitton holds the advertising company for the most part in fashion and lifestyle publications. It is also a common practice for leading brands to sponsor the most famous international events.
This practice is also supported by Louis Vuitton, which is a sponsor of the America’s Cup /Kamm, 1987 /.So, it is clear that image means almost everything for the company operating on the market of luxury goods. That’s why LVMH is careful with its image and thoroughly investigates any advertising and promotional opportunity before launching it and tests such opportunities for consistency with the company image / Levine, 1997/.If we look at the position of Louis Vuitton on the international market we will see that the company experienced growing sales during the last nine months.
This can be partially explained by the economic growth, which experience some of the states, where LVMH operates, like the US and China. On the other hand, it should be mentioned that such upper-level company like LVMH is highly dependent on the global spending power. This enables the company to receive the rise in the sales, when European tourism activity increases, but leads to the considerable decrease in sales during any slowdown / Company Spotlight: LVMH, 2007/.Marketing researchers proved that during the several last years the most profitable markets of LVMH were the US and China mainly due to the favorable economic conditions in these countries.
The company stated that its fashion and leather goods division achieved 12 % organic growth during the past nine-month period / Company Spotlight: LVMH, 2007/.Appendix 2 presents the overall increase in income margin.The company expects the stable growth in profits in the future as well. This desire is quite real to become a reality due to several factors, the main among which are increased level of tourism in Europe and economic upsurge in some Asian countries and the USA.
This rise can be obtained largely due to the flexibility of the company and its ability to obtain benefit from every upturn in the sphere of tourism spending. On the other hand LVMH never relies completely only on the one market as for example in case of any downturn in the USA or China the company will loose much / Company Spotlight: LVMH, 2007/.Business DescriptionLVMH is an international group of companies, which specializes in production and sale of luxury products, and encompasses several famous brand names. The company has a very developed network of the company-owned stores: its has over 1,700 stores situated in different parts of the world.
The company is quite many-sided and due to the wide number of various brands under its roof LVMH operates practically on any sphere of the global luxury markets from wines and spirits, through fashion and leather goods up to cosmetics and jewelry / Company Spotlight: LVMH, 2007/.The wines and spirits division, which specialises on production and sale of wine, champagne, sparkling wines, cognac, vodka, etc., comprises such world-famous brads as Dom Perignon, Moet & Chandon, Ruinart and Veuve Clicquot Ponsardin, Hennessy Belvedere and Chopin / Company Spotlight: LVMH, 2007/.The most popular brands of LVMH belong to the sphere of leather accessories production and fashion.
Such brands as Louis Vuitton Malletier, Loewe, Celine and Berluti; Kenzo, Givenchy and Christian Lacroix are all belong to this department of the company. The other division of LVMH produces fragrances and cosmetics. The most important brands under this division are Parfums Christian Dior, Fahrenheit, Guerlain, Pure Poison, Parfums Kenzo, and Parfums Givenchy / Company Spotlight: LVMH, 2007/.LVMH also operates on the international market as a producer and distributor of sports watches, chronographs (through TAG Heuer), watches and jewellery ( through Ebel, Zenith, Chaumet, Fred Joaillier), writing instruments (Omas).
LVMH also operates with is De Beers, diamond jewellery manufacturer, with which it has a joint venture / Company Spotlight: LVMH, 2007/.LVMH is the owner of DFS, which is involved in the network distribution of LNMH’s luxury to international consumers, paying particular attention to Asia-Pacific region. LVMH also owns other companies specialising on retail, like Sephora (fragrance and cosmetics retail chain), Le Bon Marche, and Thomas Pink. Under LVMH there are some specialised stores like Solstice – producer of sunglasses, and Synchrony – watches manufacturer / Company Spotlight: LVMH, 2007 /.
However, not all the companies, that are included to LVMH, belong to the sphere of fashion, cosmetics and spirits. LVMH is also an owner of Desfosses International, which is a publisher of the French daily financial newspaper, La Tribune; and Investir, which is a publisher of a French weekly financial newspaper and a monthly magazine / Company Spotlight: LVMH, 2007 /.The performance of the LVMH Company and its various divisions can be seen from Appendix 1.This was a short outline of the structure of LVMG Company and its main sphere of production and distribution.
We can see that it is a large company, which encompasses many different directions and prates in many countries of the world. I also proved by statistic data that LV is a developing company, which constantly increases its sales rate. However, in the contemporary time of strong competition and ever changing marketing conditions there is a need to amend one’s marketing strategy from time to time to fit into appropriate conditions.One of the practices, which can inform the management of the company about the changing marketing aspects and the position of the company on the market, is SWOT analysis.
In this paper I’m going to make this analysis to disclose the position of Louis Vuitton on the international market more fully.SWOT analysis of LVMHTheory on SWOT AnalysisSWOT analysis can be defined as a strategic planning model applied for the evaluation of the Strengths, Weaknesses, Opportunities, and Threats, which appear in the course of realization of a new project or business venture. The model is based on the monitoring of the internal and external marketing environment / Marketing & Competitive Intelligence FAQ, 2007/.SWOT includes the analysis of possible future:· Strengths, which lists the possible strong points of the organization, which will be valuable for the achievement of the set task;· Weaknesses, which include the weak points of the organization, which will bar the success of the organization;· Opportunities concentrate on external conditions, which are beneficial for the achievement of the posed objective;· Threats are also related to the external conditions, however, in this case the model regards the cases, which will hamper the progress of the business /Marketing & Competitive Intelligence FAQ, 2007/.
In our paper I’m going to discuss the LVMH Company with the help of the SWOT model and find the answer to the following questions:1. What are the strengths of the company and how can they be used?2. What are the main weaknesses of the company and in which way can they be discontinued?3. Which new opportunities open before the Louis Vuitton and how can it exploit them?4.
What are the main threats connected with the expansion of the company on the international market and how can the management defend the company against these possible threats?SWOT model is also extremely valuable for our analysis, as it is capable of identification of the main opportunities of the company within different internal and external factors, which are necessary for attaining the set the objective. SWOT analysis can be applied for differentiation all factors into two main groups:· Internal factors, which include internal strengths and weaknesses existing inside of the organization;· External factors, which include external opportunities and threats existing outside the company in its external environment / Marketing & Competitive Intelligence FAQ, 2007/.LVMH AnalysisStrengthsAmong the main strengths of the company is powerful and prestigious brand image. In fact, the support ad promotion of the prestige brand image is one of the primary tasks of the LVMH’s overall marketing strategy.
LVMH is proud to have one of the strongest brand portfolios in the sphere of fashion. The company made the decision in 2001 to launch a new strategy of organic growth of “star” brands. This strategy appeared especially for the companies like LVMH in the beginning of the 21st century, which was characterized by the general economic slowdown / Company Spotlight: LVMH, 2007/.The “star” brands that underwent the new strategy involve Louis Vuitton, Moet & Chandon, Hennessy and Parfums Christian Dior.
LVMH is the only company, which is the owner of brand entering top 100 brands list (Louis Vuitton, Hennessy and Moet & Chandon). These fame of the good name is better than any advertising company / Company Spotlight: LVMH, 2007/.The other purpose of the strategy applied by LVMH is development of new “stars” within the company. This will promote the growth of these brands with the future potential to become profitable.
Among these potential “star” brands are Zenith, Acqua di Parma Fendi, Ebel, Fresh and De Beers. This strategy is well-considers and at final result aims to Presence of these strong brands secure customer loyalty towards these brands. The other final objective is to build the general company brand to be able to successfully create and expand products into new lines / Company Spotlight: LVMH, 2007/.The second major strength of the company is powerful distribution abilities.
Thus, LVMH has over 1700 company-owned stores in the whole world, creating a really powerful global distribution network. This powerful network was created not so long ago, just in 2002-2004, when due to rapid store expansion the number of LVMH’s stores was almost doubled from 828 to 1700 stores. This expansion was a result of the new approach to cash generation, considerable restructuring and capital investments to particular aims / Company Spotlight: LVMH, 2007/.Among all the stores of LVMH company 896 stores belong to the sphere of fashion and leather, with the considerable prevalence of Louis Vuitton chain having over 300 stores.
690 stores belong to the sphere of selective retailing and are represented by such company’s brands as Sephora, DFS, Bon Marche and La Samaritaine. LVMH supports the growth of its network in order to further promote the development of its distribution capability with the aim to reach the company’s target market effectively / Company Spotlight: LVMH, 2007/.The other strength of the company is its strong position in the market of wines and spirits, which can be regarded as a general advantage to the LVMH company. Due to the strong position in champagne and cognac and high visibility Moët-Hennessy is very profitable and makes a considerable contribution to LVMH budgets.
Moët-Hennessy is the fourth most famous brand in the world’s list of the best spirits brands and now it can be considered as one on the major growing engine of LVMH especially regarding the ever-growing of its distribution channels / Company Spotlight: LVMH, 2007/.Finally I can name one more strength of the company. It is its improved financial position. This is particularly vivid during the last three years, when LVMH managed to greatly strengthen its financial structure.
In spite of a low top line growth, the operating income of the company increased at CAGR of 9.8 % during the span of two years and its operating margins grew from 16 % to 19 %. Net income of the company increased at CAGR of 34.8 % at the same period.
This improvement in financial position led to the greater financial flexibility of LVMH, which enables the company to make further investments in future growth / Company Spotlight: LVMH, 2007/.WeaknessHowever, the company has its inner weaknesses, which can hamper its development if not properly managed. Thus, the first weakness is bad performance of the company on Japanese market.The problem of operation of the market of Japan largely is connected with the peculiarities of this market, which is characterized by slowdown and deflation of the country economy, which in its turn led to the decrease in purchasing power in Japan and thus, the general operation of the company in this country.
If we take, for example, two succeeding years – 2003 and 2004 – we will see that revenues from Japan decreased from E1,913.9 million to E1,767.2 million, which is 7.7 % decline.
This is a real problem to LVMH, for which Japan is the second largest market after the USA / Company Spotlight: LVMH, 2007/.The other weakness is great dependence of the company on debt financing. The debt was incurred by the company in order to find financing for its luxurious stores. At the beginning of 2005 the general LVMH’s debt was E5,193 million, with a debt equity ratio of 0.
69 / Company Spotlight: LVMH, 2007/.The company tries to reduce its long term indebtness, but the level is still much higher than the one of the competitor companies. For the time being this debt does not present any significant problem, however, in future in case of any decline in sales it can considerably influence the profitability of the company / Company Spotlight: LVMH, 2007/. Have a look to see the tendency in reduction of the indebtness of the LVMH.
The last weakness, which could be found within the company, is the general labor unrest. The first time when the company faced this problem was in France and concerned the closure of the La Samaritaine store. Labor unions because of the fear that this event will led to the fear that the closure will cause a dismissal of employees organized numerous act of protests. This event had a negative impact on the company.
On the one hand if a company lays off these workers, it will be heavily criticized and raise the wave of protests. On the other hand it is very hard for the company to retaining such number of unnecessary employees / Company Spotlight: LVMH, 2007/.These were the inner factors, which can influence the company from inside. However, there are also external factors, which also have an impact on the company’s performance and profitability.
They can also be positive or negative.OpportunitiesOpportunities are the external factors, which prompt the development and expansion of the company. Among the opportunities of LVMH is the expansion into new markets. LVMH realized that European and US markets are already explored and are not so profitable as they were before.
Therefore, the company came to the decision to expand to other markets, like BRIC (Brazil, Russia, India and China). This is a real opportunity for the company, which now experiences considerable growth in its profits particularly due to the new Eastern markets / Company Spotlight: LVMH, 2007/.The other opportunity for LVMH is the growing of the market of male toiletries and fragrances. Indeed, this is quite new market but it grows with each coming day.
This stimulates the development of new product lines and increase sales of the company. The researchers say that the market and the demand of men’s toiletries and fragrances will steadily grow over the next five years. This is a real driving motif for the company’s development / Company Spotlight: LVMH, 2007/.One more possibility is acquisition of Glenmorangie, which recently was a well-known brand on the US Scotch whiskey market.
This is a real opportunity for the company, which is well aware of the general shift in consumer’s tastes towards premium and super-premium products. If properly invested, this brand is even forecast to outperform the industry / Company Spotlight: LVMH, 2007/.ThreatsOn the other hand, besides considerable opportunities there are numerous threats as well.The first one are protests against DeBeers JV, which were organized by activists, who blamed the management of the company for helping Botswana government in its antihuman actions.
The activists formed a picket during the opening of the new store in New York and in London. The management of the company further expects the similar attacks in the future, which can become a real threat to the promotion of the brand / Company Spotlight: LVMH, 2007/.The other possible threat is considerable decline in wine consumption in Western Europe, which is widely observed in major European countries since the beginning of the 21st century. It should be mentioned that France, Italy and Spain were main wine consumers and thus, if the consumption of wine in these countries further decreases the company will be in a very difficult position / Company Spotlight: LVMH, 2007/.
Finally, I can’t but mention the last but not the least threat to LVMH development and promotion – counterfeit goods. The counterfeiting in fashion accessories in especially developed. The majority of fakes are made on hand bags, watches, shoes, etc. The most popular thing for counterfeit is Louis Vuitton bag, and the prices for these fakes are really very different – from fraction up to full original price.
Numerous researches proved that the main consumers of these counterfeited goods are not lower social class but well-off women, who are in fact the main target consumer group of LVMH also. This problem poses serious threat to the general operation of the company and its image / Company Spotlight: LVMH, 2007/.Ashok Som conduced a research on the management of Louis Vuitton and came to the conclusion that although this brand is still very profitable, but it has considerable problems, which can hamper its further development and expansion. Among the main problems, listed in his research, is great dependence on “star” designers like John Galliano and Marc Jacobs, which puts the success of the company in dependence from the whim of these creative talents / Som, 2004/.
Finally, the main question, which Arnault places, is whether the management of the company is talented enough to manage such “loose” organization as LVMH with so many luxury brands under its helm.Probably, this question is valid enough, however, for the time being I can state that LVMH is one of the best luxury multi-brand company, which effectively operates in different spheres and expands to different markets in different countries of the world!Works cited Company Spotlight: LVMH. [online]. Available from: < http://www.
in-cosmetics.com/page.cfm/link=124> accessed 12 April 2007.Davis, Mari.
(2006). Louis Vuitton Is The World’s Top Fashion Brand According To Business Week. [online]. Available from: < http://www.
fashionwindows.com/runway_shows/louis_vuitton/F061.asp > accessed 12 April 2007.Echikson, William.
(1995). Luxury Steals Back. Fortune.Kamm, Thomas.
(1987). Latest Fashion. Wall Street Journal.Levine, Joshua.
Liberté, Fraternité – But to Hell with Égalité! Forbes.Marsh, Lisa. (2000). LVMH Thinks of Vuitton Globally, Acts on 5th Ave.
New York Post.Marketing & Competitive Intelligence FAQ. SWOT & PEST analysis [Online]. Available from: <http://www.
marketing-intelligence.co.uk/help/Q&A/question24.htm> 12 April 2007.
Som, Ashok (2004). Personal touch that built an empire of style and luxury. ESSEC Business School, ParisReuters Description of LVMH ( 2007) [Online]. Available from: < http://uk.finance.yahoo.com/q/pr?s=MC.PA > 12 April 2007.Appendix 111% increase in operating income in 2004in millions of euros20032004In Million EuroWines & Spirits796806+10Fashion & Leather Goods1 3111 329+18Perfumes & Cosmetics178181+3Watches & Jewelry(48)13+61Selective Retailing106244+138Other and eliminations(161)(153)+8LVMH2 1822 420+238 Appendix 2Appendix 3