Louis Vuitton Moet Hennessy

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Table of Contents

Introduction
Overview of the LVMH
Strategic Business Units (SBU) LVMH
PESTEL Analysis
Porters 5 force
Opportunities and Threat
Internal Environment
Swot Analysis
Conclusion
References List

Introduction

The main objective of this report is to analyze the business environment of Louis Vuitton Moet Hennessy, in addition to conducting a market audit. The purpose of the report is to analyse the structure and performance of LVMH. The report shall also provide a brief overview of LVMH. In addition, the company’s SBUs, PESTLE analysis, SWOT analysis, Porter’s 5 Forces, and McKinsey 7S Matrix, shall also be conducted.

Overview of the LVMH

LVMH was formed in 1987 when Moet Hennessy merged with Louis Vuitton (Rugman 2005). The French based company operates in different parts of the world and it has over 100,000 employees (LVMH n.d). The company’s largest market share is in the US (26%), followed by Europe (18%), France (16%), and Japan (15%). Latin America and Asia account for 25% of the company’s market share (Rugman 2005).

LVMH enjoys global presence, and this has enabled the company to diversify its market risk. For example, LVMH managed to withstand major financial crises such as the 1998 Asian crisis and the 2007 global financial recession.

Some of the company’s famous brands include Chadon, Moet, Givenchy, Dom Perignon, and Christian Dior (Rugman 2005). Currently, the LVMH enjoys a 15% of the global luxury goods market share. This is a very competitive market with an estimated annual growth rate of10% (Rugman 2005). Some of LVMH’s major competitors include Bulgari, Richemont, and Gucci.

To remain competitive in the market, the company has mainly focused on shared synergies and costs across its dimensional value chain. In the last three financial quarters of 2012, LVMH has recorded an estimated €19.9 billion in revenue. This represents a 22% increase in revenue, compared with the same period last year (LVMH 2012).

Strategic Business Units (SBU) LVMH

LVMH operates under five SBUs namely, perfumes and cosmetics, fashion and leather goods, watches and jewelry, wines and spirits, and selective retailing (Reuters 2012). The table below is an illustration of LVMH’s SBUs

Perfumes and Cosmetics

Guerlain
Givenchy
Christian Dior
Kenzo

Fashion & Leather Goods,

Louis Vuitton
Pucci
Donna Karan
Fendi, Loewe
Celine
Thomas Pink
Les Tanneries Roux,
Marc Jacobs,

Wines and Spirits

Champagne and Wines
Cognac and Spirits branch

Watches and Jewelry

Zenith
TAG Heuer
Chaumet
Dior Watches
Fred

Selective Retailing

Le Bon Marche and Sephora

PESTEL Analysis

Political factors

The tax rate in China is very high and as such, LVMH charges 30 percent more for its products compared with other Asian nations (Roberts 2012).
Political climate in China is ideal for business. Earnings from luxury sales in China were 40% compared with the European market which accounted for 25 % (Roberts 2012).

Environmental issues

LVMH is committed to environmental protection and sustainability (Arnault n.d). The company had adopted an environmentally sound approach aligned to its business and core values (Arnault n.d).).
The company uses natural materials to protect biodiversity.
The company has established an Environmental Affairs Department to encourage the adoption of a culture of ecological practices (Arnault n.d).

Social cultural factors

Increase in demand for fine wine and champagne has led to high profits in Wine and spirits SBU (LVMH 2012).
Emerging Asian clientele has led to an increase in selective retailing.
Use of celebrities to promote its products has impacted positively on the company’s sales.
Beauty is part of lifestyle among most people, and this has increased demand for perfumes and cosmetics (LVMH 2012a).

Technological

LVMH uses the latest technology to promote its products through its website (www.lvmh.com)
Its products are produced using state-of- the- art technology (LVMH n.d).
LVMH believes in creativity and innovation. It has combined technological innovation and artistic creativity on its products (LVMH n.d).

Economic factors

The market in Europe was affected by the 2007 financial crisis. This affected consumers’ purchasing power (LVMH 2012a)
Economic environment in Europe is uncertain (LVMH 2012).
In 2012, the operations in North America, Singapore, Mocao and Hong Kong recorded revenue increase (LVMH 2012).
In 2012, the company has recorded a 22% increase in profit (LVMH 2012a) due to market and economic diversification.
Demand for wines and spirits continues to increase. For example in 2012, the company recorded a 20% increase in profits.
Difference in exchange rate and currency value affects the overall profits of LVMH.

Legal issues

In 2010, LVMH adopted self regulatory strategies that align its marketing principles with WFA (LVMH n.d).

Porters 5 force

The diagram below is an illustration of Porter’s 5 forces with regard to LVMH as demonstrated by Prads (2010).

An illustration of Porter’s 5 forces with regard to LVMH as demonstrated by Prads (2010)

LVMH faces competition from new entrants and existing competitors such as Gucci and Bulgari (Rugman 2005). The presence of close substitutes due to cheap products and imitations threatens its operations (Pradas 2008). As the market leader, the company’s supplier bargaining power is high.

The company is a market leader and this is its competitive advantage as well. As such, buyers have little influence on the prices of the company’s products (Nagasawa 2008). The luxury industry is competitive and new entrants must have enough capital. Therefore, potential entrants have less influence on the market.

Opportunities and Threat

Opportunities

Product diversification through SBUs can increase LVMH’s global presence and market share (Rugman & Girod 2003).
Endorsement of celebrities will have an advertising impact, thereby increasing the company’s sales.
There is a large untapped market for luxury goods in Asia (Roberts 2012).
New technology provides LVMH with an opportunity to produce state-of-the- art Jewelry and watches.

Threats

LVMH faces strong competition from new entrants and competitors like Bulgari and Gucci (Rugman 2005)
Economic cycles like inflation lead to market uncertainties and may threaten the revenues generated by LVMH (LVMH 2012).
Imitators, copycats and counterfeits are the major threat to LVMH (Rugman).
High and intense competition in the wines and spirits industry.

Internal Environment

McKinsey’s 7S matrix

Structure: The organization is divided in five units. Each of these units makes its own decisions (Rugman & Girod 2003)

Strategy: Creativity and technological innovations are the major business strategies adopted by the company (LVMH n.d). The company operates under high competitive pricing strategies supported by focused differentiation.

Systems: LVMH has integrated its IT operations such as online marketing and distribution.

Skills: LVMH’s core competences include training employees and skills development so as to enhance quality service and products (Pradas 2008).

Style: LVMH uses transformational leadership which promotes innovation and creativity (LVMH n.d).

Staff: LVMH has 100,000 well trained staff (LVMH n.d). Employee diversification helps to bring cultural diversity in the workplace.

Shared values: LVMH is committed to a sustainable environment and developing a culture of biodiversity conservation (Arnault n.d).

Marketing mix

Marketing mix employed by LVMH entails the 4ps namely, price, place/distribution, promotion, and products.

Price: Prices of LVM products are extremely high compared to those of its competitors. For example, Louis Vuition handbags are highly priced which prohibit bargains (Nagasawa 2008). The company has adopted seven pricing principles which are prohibit exorbitant pricing, bargain sales, price changes, odd pricing, prestige pricing , and “Louis Vuitton Products are Money” bargains (Nagasawa 2008, p.44).

Product: LVMH products are of high quality and are designed through creativity and technological innovations (Nagasawa 2008).

Promotion: LVMH uses advertisements to promote its products worldwide. For instance, the company sets aside 11% of its sales for advertising (Rugman & Girod 2003). It also endorses celebrities such as Madonna and Jennifer Lopez to promote its products (Rawat 2010). LVMH does not give discounts as part of product promotion (Rawat 2010).

Place/distribution: LVMH products are available in over 3000 retail stores owned by the company. The company has a broad and vertically integrated distribution channels which increases efficiency and effectiveness (Nagasawa 2008).

Strengths and Weakness

Strengths s

Powerful brand portfolio and SBUs have increased LVMH’s market share and revenue by 22% (LVMH 2012a).
World renowned and the largest global brand with presence in the UK, Europe, Asia and Latin America (LVMH 2012)
Strong distribution capabilities like online platform and stores (Rawat 2010).
Sponsors famous celebrities and models such as Madonna and Jennifer Lopez.
LVMH has business and market diversification as part of its business strategy. This reduce its market risks (Rugman).
Creativity and technological innovations are the pillars of LVMH success.

Weaknesses

LMVH major target is the rich and the elite in society which limits its customer base (Rawat 2010).
Its products lack discounts which reduces bulk purchases (Rawat 2010).
The company has numerous brands which it relies heavily on.

Swot Analysis

Corporate Analysis

The table below is an illustration of LVMH performance between 2011 and 2012 as provided in LVMH (2012a).

Euro millions	Change 2012 / 2011 first 9 months
Euro millions	Reported	Organic*
Wines & Spirits	+ 20%	+ 12%
Fashion & Leather Goods	+ 16%	+ 8%
Perfumes & Cosmetics	+ 14%	+ 8%
Watches & Jewelry	+ 68%	+ 7%
Selective Retailing	+ 25%	+ 14%
Total	+ 22%	+ 10%

Wines and spirits recorded a 12 percent revenue growth due to a rise in sales and demand for champagne. Leather and fashion has organic revenue growth of 8 percent, perfume and cosmetics have revenue growth of 8 percent which has been as a result of increased growth for Christian Dior (LVMPH 2012). The business units of LMH have led to increase in its revenues.

USB SWOT Analysis/ Fashion and Leather Goods

Strengths

Strong brands such as Kenzo, Celine, and Louis Vuitton (Rugman & Girod 2003).
Louis Vuitton handbags have developed a niche in the market (Scola & Wing 2009).
Designs high quality products.

Weaknesses

Depends heavily of its brand names.
Depends on foreign markets (Rugman) for its sales.

Opportunities

There is an emerging market for handbags in Asia (Scola & Wing 2009).

Threats

Faces competition from close competitors such as Gucci (Rugman).
Presence of lower leader goods threatens LVMH (Scola & Wing 2009).
Counterfeits and imitators form perfect substitutes

Conclusion

LVMH is a key player in the luxury industry with a global market share of 15%. Its major sales come from foreign markets such as Asia, Latin America, China, Malaysia, and Japan. The LVMH group operates under five SBUs namely perfumes and cosmetics, fashion and leather goods, watches and jewelry, wines and spirits, and selective retailing.

Its major strengths include a strong brand that is recognized worldwide and technological innovations. In addition, the company has adopted creativity and technological innovations as part of its strategic plans. The major competitors are Bulgari, Richemont and Gucci. In the third quarter, LVMH has revenue of €19.9 billion which was a 22% increase.

References List

Arnault, B., LVMH and the environment. Web.

LVMH, Group mission and values. Web.

LVMH 2012, Excellent first half for LVMH. Web.

LVMH 2012a, LVMH: 22% increase in revenue for the first nine months of 2012. Web.

Nagasawa, S. 2008, Marketing principles of Louis Vuitton: The strongest brand strategy: Waseda Business & Economic studies, no.44, pp. 41-54.

Pradas, A. 2010, LVMH case evaluation. Web.

Rawat, K. P. 2010, Louis Vuitton. Web.

Reuters 2012, LVMH Moet Hennessy Louis Vuitton SA (LVMH.PA). Web.

Roberts, A. 2012, ‘LVMH skips European austerity raising prices for Chinese’, Bloomberg, 2 May, pp.1.

Rugman, A. & Girod, S. 2003, ‘Retail multinationals and globalization: The evidence is regional’, European Management Journal, vol. 21, no. 1, pp. 24–37.

Rugman, A. M. 2005, The regional multinationals MNEs and “global” strategic management. Cambridge, Cambridge University Press.

Solca, L. & Wing, M. 2009, LVMH: King of the luxury jungle, Bernstein Research, pp. 1-188.

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