Rehan

LVMHs DIVERSIFICATION Strategy into Luxury Goods

Introduction
   

LV stands for LOUIS VUITTON MH stands for MOET HENNESSY World's leading luxury products group. Growth was due to new business CEO: Bernard Arnault acquisitions. Each of these corporations businesses demonstrated commitment creativity, innovation, and product excellence. Diversify in both related and unrelated Businesses.

ITALIAN STYLE

By 2002, LVMH was the worlds largest luxury products company Despite, LVMH did experience some bumpy times.


 

Some of these times were induced through internal problems Some others were caused by externalities, like Sept 11 Making acquisitions outside the companys sector Global Recession which contributed to decline in purchase of Luxury Goods

Question 1
Corporate Strategy? What are Star Brands? Strategic Approach for StarBrand? Business Strategies in Segments?

LVMH Strategy Overview

Star Brand

Strategic Approach For Star Brands

Strategic Approach for Managing Portfolio of Star Brands

Product Quality

Innovation

Image

Craftmanship & Production Process

Risk Tolerance

Star Brand

Strategies for Business Segments

Wine & Spirits Fashion & Leather Goods Perfumes & Cosmetics Watches & Jewellery

1. Vines produced from Selective 1. Seeds 2.Rejects entire production if grapes are not of quality 3.Distribution from production to retail outlets was typically 3.
2.

Recruitment talented designers &

of

highly 1. creative

Different products for 1. different geographic

New models were introduced from time to time that were consistent with company

areas & for different ages

tradition, history and style was 2. to Distribution independent large stores upscale was through or

Designers have leeway to design products High Quality fabrics &

2.

Growth attributed

jewellers

innovation and new product introductions

3.

department

handled by either a subsidiary, joint venture or third party

4.

Leather Distribution through third party retailers and company owned retailed locations

Distribution through

was retailers

around the world

Jahangir

Question 2
Evaluation of Arnault Acquistion? Diversified into Attractive Industry? Luxury Product Competitive Position? 9-Cell Matrix?

Arnaults Acquisitions
Acquisition of the haute couture house of Givenchy in 1989 Purchased additional shares of Loewe Purchased all assets of Pommery which is the largest champagne provider Increased stakes in the Guinness group to 24%, the largest alcoholic

Continued
Desfosses International- Frances leading financial and business publication La Tribune Desfosses LAge Investir. Used its cash reserves in expanding the number of company-owned retail stores Vertical integration; Louis Vuitton and Loewe leather goods and celine, Christian dior and acquired $2.5 billion of Duty Free Shopper (DFS)

Continued
Sephora, the leading French chain by sales for perfumes and cosmetics retailing and No. 2 in Europe Purchased 30% interest in a German beauty-goods retailer Douglas International with 190 stores in Europe

Continued
Chateau dyquem New distribution agreements in the wines and spirits sector with the Diageo group Parisian department store La Belle Jardiniere and Le Bon Marche.

Continued
In partnership with Prada, LVMH acquires a 51% stake in Fendi LVMH strengthens its Perfumes & Cosmetics division by acquiring Bliss, Hard Candy and BeneFit

Continued
Famous auction houses Phillips, de Pury & Luxembourg, and letude Tajan. Broadened the media operations by addition of French radio network and magazines.

Continued
Other Businesses New world wine producer New retail outlets in the form of Italian cosmetics retailing chain and Miami Cruiseline Services Krug champagne Fashion houses Emilio Pucci & Thomas pink.

Continued
Gucci- but lost Donna Karan group La Samaritaine- the largest department store in Paris

LVHM into Attractive Industries

Market Size and Projected Growth rate Intensity of Competition Resource requirement Industry profitability

Luxury Product Competitive Position

Relative Market Share Ability to meet or beat rivals on product attributes Brand image and Recognization Innovation Distribution capabilities

Raffay

9-Cell Matrix

9-Cell Matrix

Question 3..

Strategic Fit and Value Chain Match-ups? Opportunities for Skill Transfer, Cost & Brand Sharing?

Strategic fit & value chain

Technology Innovation Higher product quality & services Sales and marketing Cost saving

Skill Transfer, Cost & Brand Sharing Skills and knowledge transfer LVMH House Development of a common research and development group of fragrance Enterprise Resource Planning

Question 4
Financial Characteristics of Six Segments? Cash Cows & Cash Hogs? Compare Financial Performance? Analyze Trend of Financial Situtaion?

Financial characteristics of LVMH six segments

1. Wine & Spirits:
In 2002 LVMH was the world s leading champagne producer, with a 22% global market . Champagne sales declined by 7% in 2001 due to economic recession and terrorist attacks in New York and Washington. Market share| 19%

Continued

2. Fashion and Leather Goods:

LVMH had increased both sales and operating expenses by more than 100 percent between 1998 and 2001. And in 2001 entire division grew by 13%. Market share | 29%.

Continued

3. Perfumes &Cosmetics:
The industry growth was 5 percent in 2001 Market share | 19%

4. Watches & Jewelry:

Sales decline of 11 percent during 2001
Withdrew from contract manufacturing for third-party brands

Market share | 4%

Continued

5. Selective Retailing:
Sales grew by 6 percent even though the sales of Duty Free Shops (DFS) fell by 10% after tourism in the AsiaPacific region fell by more than 50% after the September 11, 2001 terrorists attack in United States While Sephora sales increased by 23% during 2011 Market share | 28%

6. Other Businesses:
This segment s operating loss was 372 million Euros in 2001 Market share | 1%

Which Business Might be considered as cash cows and cash hogs?

Financial performance by segments in 1999-2001

1999-2000 Sales Growth (In %) 35% 2001 Operating Profit Margin (In %) 13% 2000 17% 2000-2001 6% 1999 18% 1988 26%

Overall Financial Situation of LVMH

2001 2000 1999 1998 1997 1996 1995 1994 1993 Operating Profit Margin 12.8 16.9 18.1 17.1 17.3 22.6 24.5 24.3 23.6 % % % % % % % % %

Net Profit 0.1% 6.2% 8.1% 3.8% 9.4% 11.9 13.6 23.0 15.0 Margin % % % % Return on 0.1% 8.5% 8.9% 4.2% 11.2 10.3 13.1 21.2 15.3 Equity % % % % % Debt to Equity 62.1 41.1 39.6 22.6 22.4 12.3 12.1 17.2 33.1 Ratio % % % % % % % % %

70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2001 2000 1999 1998 1997 1996 1995 1994 1993 Operating Profit Margin Net Profit Margin Return on Equity Debt to Equity Ratio

Question 5
Overall Evaluation of Business? Portfolio proivde above average return? Weak Perforance is Because of Which Factor?

Evaluation of Business Lineup in 2002

The acquisition of Donna Karan was not a good idea because the brand did not meet the criteria of Arnault star brands. There was also a suggestion that Arnault should invest in the high luxury brands that gives him huge return and not to invest in the low margin brands. Further investment in retailing businesses was not a good idea.

Market Return to Shareholders

Cyclical Downturn in demand of luxury products or a sign of portfolio weakness

Terrorist attack of 9/11 Large acquisition made by Arnault that are Donna Karan INT, LA Sammaritarine the largest departmental store in Paris. Withdraw of contract with the third party of watches. Huge development cost and expansion cost at Phillips, De Pury and Luxembourg.

USMAN

Question 3
Strategic Fit among Star Brands? Value Chain Matchups? Opportunities for Cost Sharing? Skill Transfer? Brand Sharing?

Question 6
Actions to Improve Financial & Market Performance?

Improving Financial & Market Performance

Distinguish themselves from other brands Better relations with their customers, to increase customer loyalty Continual acquisition of profitable brands will increase the profitability Sell the acquisition which don't fit the company image and which is not profitable i.e. Art Auction House

Recommendations

Recommendations

Continue with Business Diversification

Focus on Core Business

Focus on Profitable Brands

Sell the acquisitions which don t fit the company image

Gain access to distribution channels as a different proposition

Supporting Material

Industry Attractiveness
Wine & Spirits Industry Attractiveness Market Size and Projected Growth rate Intensity of Competition Resource requirement Industry profitability Industry uncertainty or business risk Production quality Distribution channel Strategic fits with other industry Total Weighted Score Weight Rating 7 6 5 6 4 6 5 5.5 Weighted Score 1.4 0.9 0.5 0.7 0.2 0.9 0.75 0.75 Rating 9 5 7 7 3 7 5 4 Fashion & Leather Goods Weighted Score 1.575 0.75 0.7 0.7 0.15 1.05 0.75 0.5

0.175 0.15 0.10 0.10 0.05 0.15 0.15 0.125

1.0

5.763

6.175

Perfumes & Cosmetics Industry Attractiveness Weight Rating Weighted Score 0.128 Rating

Watches & Jewellery

Weighted Score

Market Size and Projected Growth rate Intensity of Competition Resource requirement Industry profitability Industry uncertainty or business risk Production quality Distribution channel Strategic fits with other industry Total Weighted Score

0.175 0.15 0.10 0.10 0.05

6.45

1.225

5 6 9 3

0.75 0.6 0.9 0.3

6 8 6 6

0.9 0.8 0.6 0.3

0.15 0.15 0.125

7 8 5

1.05 1.2 0.625

9 6 8

1.35 0.9 1

1.0

6.4

7.705

Selective Retailing
Industry Attractiveness Weight Rating Weighted Score 1.05 Rating

Other Businesses
Weighted Score

Market Size and Projected Growth rate Intensity of Competition Resource requirement Industry profitability Industry uncertainty or business risk Production quality Distribution channel Strategic fits with other industry Total Weighted Score

0.175 0.15 0.10 0.10 0.05

1.4

2 2 3 5

0.3 0.2 0.3 0.25

4 3 5 5

0.6 0.3 0.5 0.25

0.15 0.15 0.125

3 3 6

0.45 0.45 0.75

6 6 3

0.9 0.9 0.375

1.0

3.75

5.225

Competitive Strength
Wine & Spirits Fashion & Leather Goods Rating Weighted Score Competitive Strength Weight Rating Weighted Score 1.95

0.30 Relative Market Share Ability to meet or beat rivals on product attributes Brand image and Recognization Innovation Distribution capabilities Marketing and Promotion Total Weighted Score 0.15 1.0 0.1 0.15 0.1 0.2

6.5

2.4

8 9 5 6

0.8 1.35 0.5 1.2

7 9 8.5 6

0.7 1.35 0.85 1.2

0.9 5

1.05 7

Perfumes & Cosmetics Weight Competitive Strength 0.30 Relative Market Share Ability to meet or beat rivals on product attributes Brand image and Recognization Innovation Distribution capabilities Marketing and Promotion Total Weighted Score 0.15 1.0 9.5 1.425 7.975 9 0.1 0.15 0.1 0.2 6 9 8 7 0.6 1.35 0.8 1.4 7 9 8 8.5 8 Rating Weighted Score 2.4 Rating

Watches & Jewellery Weighted Score

7.5

2.25

0.7 1.35 0.8 1.7

1.35 5.5

Selective Retailing
Weight Competitive Strength 0.30 Relative Market Share Ability to meet or beat rivals on product attributes Brand image and Recognization Innovation Distribution capabilities Marketing and Promotion Total Weighted Score 0.15 1.0 7 1.05 2.8 6 0.1 0.15 0.1 0.2 7 7 6 8 0.7 1.05 0.6 1.6 6.5 7 7.5 6.5 6.5 Rating Weighted Score 1.95 Rating

Other Businesses
Weighted Score

6.5

1.95

0.65 1.05 0.75 1.3

0.9 2.5

THE END