Case Study

LVMH: Managing A Multi-brand Conglomerate

Team 5:Ilario Fulvio GiannettiChen PengPriyesh SalunkeHarjeev SabherwalInna Zinina

What does globalization mean to the luxury industry?

Opportunities Threats

• Market expansion• Low-cost raw materials, equipment and

labor available in the local market• To achieve economies of scale and

scope• Increased margins due to pricing policy• New consumer groups available in the

local market • Extension of the definition of luxury• To adapt local and new trends for the

local market • To source talent globally• Transfer of skills and strengths

• Counterfeiting • “Grey” market• Vulnerable to PEST-EL Factors• Successive decrease in brand value • Increased competition• Creation of new competition by

sharing know how

ConclusionAlthough there are significant number of threats to the luxury industry, globalization is unavoidable for continuous growth.

Assessment of LVMH’s diversification

18%38%

35%

60%18%

8%

4%

-2%

25%5%

Sales Operating profit

Wines&Spirits Fashion&Leather GoodsPerfumes&Cosmetics Watches&JewelrySelective Retailing

LVMH diversification

Assessment of LVMH’s diversification

Strengths Weaknesses

• Share operational resources and competencies' across brands and divisions

• Maintaining exclusivity by multiple brands under one division

• Strong Balance Sheets help to absorb losses from unprofitable divisions and maintain position

• Selective retailing complements other brands by providing easy access to all brands

• Difficulty to manage various divisions

• Different organization structures in countries may cause problems in administration and coordination

• Lack of attention and neglecting the smaller brands

• 98% of operating profits are generated by 2 major divisions

ConclusionAlthough diversification helps in leveraging the synergies, it creates difficulty in the management of the various divisions. Disproportionate profit generation is an evidence of under utilization of non – core division

What is the international strategy of LVMH?

The international strategy of LVMH is that of rapid expansion and that of a first mover.

Acquisitions

• It has focused most of its acquisition efforts on brands within the luxury segment.

• LVMH in its acquisition phase seeks to purchase star brands that evoke innovation and quality

Organic growth

• Focus on new product launches• Expand its retail network• Increase expenditure on communications

International Multinational

Global Transnational

Local Responsiveness

Global Integration

LOW

HIGH

L’OREAL

LVMH

LVMH

LVMH

PPR-Gucci

Hermes

1

2

3

International strategy of LVMH

Puig

SWATCH

LOW HIGH

How does international strategy of LVMH differ from its competitors?

LVMH Richemont PPR Swatch Hermes

Growth Strategy

Both Acquisition and Organic Growth

Acquisition Key priority: Organic GrowthWhen required: Acquisition

Both acquisition and Organic Growth

Organic Growth

Product Diversification

1.Wines & Spirits; 2.Fashion & Leather Goods; 3. Perfumes & Cosmetics2.Watches & Jewelry3.Selective Retailing

1.Fashion & Leather Goods2.Watches & Jewelry

1.Fashion & Leather Goods2.Perfumes & Cosmetics:3.Watches & Jewelry

Watches Fashion & Leather GoodsWatchesPerfumesShoes

Target Audience

Expand target audience when entering new markets

Elite and Exclusive

Expand target audience when entering new markets

Present in all price segments

Elite and Exclusive

Manufacturing

Most brands manufactured in country of origin and few brands moved to low cost countries

Primarily in Europe

Europe and US Globally Primarily in France

Distribution channel

100% exclusive Partly retail and franchise

Partly retail and franchise Partly retail and franchise

100% exclusive

Conclusion: LVMH has the most diverse international strategy in all functions. They are not limiting themselves and they are trying to be the first to reach a broad product clientele by rapid expansion.

LVMH’s core competence

Managing creativity

Top DesignersNo Financial Constraint on

Designers

Cost Control In Manufacturing

LVMH’s core competence is managing creativity and this helps in efficient management of the star brands.

How does LVMH manage creativity and its creative assets?

Creativity and/or creative assets are managed in the following manner:

Design Decentralized design (each brand is independent and run by its own creative director)

Managers Small number of managers

Profitability Correlation between profitability and creative freedom

Talent Emphasis on retaining best talent (Marc Jacobs)

Quality Strict control on quality and strong cost control in other areas (i.e. manufacturing)

Knowledge Knowledge sharing between parent company and subsidiary

Differentiation from competitors: LVMH are more equipped at crisis management when it comes to preserving talent

• The core assets of the acquired brand are assessed• The creative team and management is preserved • The resources and knowledge are shared but at the same time, the

culture of the company is maintained.• LVMH maintains the essence of the company, giving them the

required freedom in creativity. • LVMH keeps a check on the core competence in the acquired firm

How well has LVMH exploited its core competences in their various diversification moves and strategic acquisitions?

However, LVMH gives too much attention to “Star Brands” and the other brands feel neglected. On this basis, creative freedom is granted mostly to the “star brands”. As a result of this, creative talent is leaving LVMH because they feel abandoned.

Conclusion Strategic acquisitions and diversification is driven by potential profitability which depends on creativity. LVMH emphasizes on creative freedom, however, this freedom is enjoyed only by the star brands. This results in the adulteration of their core value. Hence, the core competence of LVMH is not utilized fully.

LVMH integrates acquired company in the following way:

• Available companies to buy in the market• Saturation of the current market forcing companies to

diversify• Competitors’ activities in acquisitions• Industry trends suggesting that all major brands are

turning into luxury conglomerates • Eliminating potential threats via acquisitions

What are the factors influencing companies which seek growth through acquisitions in this industry?

Companies which seek growth through acquisitions are influenced by the following factors:

External

Internal

• Financial capabilities to acquire the target company• Capability to integrate the acquired company into the

existing business• Plan to acquire targeted companies resources such as: local

knowledge and data base, brand value, R&D facilities, market share

• Avoiding over exploiting star brands by adding fresh brands into the family

How are they managing and integrating these acquisitions?

Ways to manage the acquisitions

Keep independent Partial integration 100% integration

Creativity

Marketing

Production

Distribution

HR

Finance

Strategy

Control by parent company

LVMH strategy

LVMH strategy

Acquisition of star and strong brands

Maintaining creativity and

independence of new brands

Requirement of profitability

Synergizing activities such as

marketing and distribution

Diversification in all luxury segments

Strict control over quality

The structure model of LVMH is the matrix organization.

Does LVMH’s structure support its strategy?

Paris New York Tokyo

Marketing

HR

Production

LV Dior Givenchy …

cre ati vity …

… … … …

LVMH LVMH

LVMH Givenchy

Dior Fendi

cre ati vity …

… … … …

HR

LV Dior Givenchy …

cre ati vity …

mar ket ing …

pro duc tion …

dis tri but ion

Conclusion• In general, in the short term, it supports its strategy by putting emphasis on creativity of each

brand while taking advantage of functions including production, distribution and marketing. • However, in the long run it will be harder to integrate new brands into the current structure.

Can this strategy be sustained?What would you recommend LVMH do?

LVMH strategy can be sustained. However, certain changes need to be made to optimize the trade off between profitability and creativity.

• Pay equal attention to all brands and transform them into profitable units

• Better allocation of key resources like creative talent• Finding a suitable successor for Bernard Arnault• Developing a system to find and retain top designers• Trying to move towards a unified organization structure for

each brand

We recommend

• Best talent in the industry is hired• These hired people are given “on the job” training• Association with leading business schools and educational programs• Hiring of people with diverse educational backgrounds• Brand immersion and Inter company seminars to develop perfect

management, communication and leadership skills• Giving opportunities for transfer to the global headquarters• Introduction of different business games to simulate business culture and

operating realities

How is LVMH “cultivating” leaders for tomorrow?

ConclusionLVMH is excellent at cultivating future leaders of tomorrow

Any Questions?

LVMH: Managing A Multi-brand Conglomerate

Thank you

LVMH: Managing A Multi-brand Conglomerate