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Case Study 12 LVMH

Case Study 12 LVMH

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Published by: Ary Setiyono on Jun 27, 2012
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r
I:vvr
Vo"r
t
",
n"..v
tou,
v.
-o-
5A
r.
r
e
wo'd
larseirrnarketerof
uxuryproductsand
brandE
Cha rman
BernardArnault
has assembled
a
dve6e
emp
re
of
nrore
than60
brands, sales
of
which
totaled
$24.2billion
(€17.2
b
lion)
in
2008
(see
Fiqure
1)
Arnault, whom
some refer
to
as
"the
pope
of
hlqh
fashion,"
recentysummed
upthe
uxury
businessasfo
oM:
"Weare
here
to
sel drearns
Whenyou
seea
coutureshowonryaround
thewodd,
you
dream. Whenyouenter a
Dior
boutique and
buy
your
lipstick,youbuy
something affordable,
blt
it
has
the dream n
ir.'Decades ago,
the .ompan
es
that
iod.y
comprse
LVN,IH
were
famiy-run
enterprises
focused
more
onpren
ge
ihan
onprofit.
Fendl,Puc(i,
and
othe6
sold
ma
n
y
to
a niche markercomprsedof
very
ri(h dientele.
However,as
markets
began
ro
globalize,rhesmall
uxury
playe6
nruggledto cornpete
When
Arnaurserabout
acquiinq
smaller
luxury
brands.
hehad thre€
goa
s
in
m
nd.
F
ut,
he
hoped
ihat the
portfolo
apprcach
would
redu.e
the
risk
exposu.e
to
lashon
cyces.
A(.ord nq
to
this loqlc,
if
demand
lor
watches
orjewe
rf
dec
ned,
dothins
or
accessory
sales
would
off
sei
.ny
ossessecond,
he
niended
to
cut
costs by
e
minat nqredundan.ies
n
sourc nq
and
manufactu
ng.
Third,
he hoped
thar
LVMHS
(ableofbrandswo!
d
iranrate
nto
a
srronger
baBaining
positonwhen manaqeu
negotated
eases
for
rerai
space
or
Sales
ol
luggageand leather
fash
onqoods,
nc!d
ng rhe
100
year-old
Lou
s
Vu
tton
brand, a.count
for34
percent
of
revenues.
The companySspecialty
gro!p
ncludes
Dury
Frce5hoppers
(DF5)
and Sephora.
DF5
operates
stores
in
nternariona
a
rcorts
around
the
worldj
Sephora,wh
(h
LVN,1H
acquired
in1997,
is
Europe3
second-argen
chain
of
perfumeandcosrneti.s
nores.
Drven
by such we I
known
brands as
Christ
an
D
or,
Givenchy,
and
Kenzo,
perfumesand
cosmet.s
generare
neary
20
per.eniof
LvlvlHS
revenues
LVMHSwineandsprlsunr
nc
ldes
suchprenigous Champagnebrands
as
Domperqnon,
r,.roet
&
Chandon,
and Veuve
C
cquor
5"/"
Despite
the
h
gh
expensesassociated
with
operar ng
eeqant
stores
andpurchasng
adve.t
s
nq
space
in
upE.ae
magazines,rhe
prem
um
retail
prl.es
that
uxurygoods
(ornmand
transate
inro
handsorne
profits
The
Lou
sVutton
brand alone
..counts
forabour
60percent
of
LVM
H5
operating
prcfil.
Ufscruputous
operalorshave
taken note
of
the
hgh
rnargns
associared
wirh
Vuirton
handbaqs,
gun
cases,
and
uqqage
dsplayngthe
distnctve
beige
on
brown
attcework
LV
monoqra.n.Lous Vuitton
54
spends
$tO
mi
on
annualybattlnq
countede
ter5 in Tu.key,
Thaiand,
China, Morocco,
south
Korea,
and
ltaly.
Someofthe moneyisspenton
lobbyisrswho
rFp
e.pn
rh4Lorpd,vs|.'6rp.\f
nee(
^g!
6
'-
'orp
q.
qo\
e
ment
offcias.
Yves
Carcele,
chaman
of
Louis Vu
tion
SA, recenlyexplained,
"Almon
every
month, we
qer
a
qovernnrenrsomewhere
in
the world
to
destroy.anvas,
or
finished
produ.c."
Anotherprobern
is
a
flourishinq
qray
market. civenchy
andChristian
D
orl
Dune
lragran.e
arejun
two
ofthe
uxury
perfume
brands
ihat
are
sometimes
d
verted
fromaurhorzed
channets
for
sale
at
mass-rnarket
retaloutets.
LVMH
and
other
luxurygoods
marketers
re.enty
founda new way
to
combatgray
markerlmports
lnto the
United
States.
ln
Mar.h
1995,
rhe U.S
Supreme
Court etstand
an
appeahcourt
r!
ng
proh
bitinga
dscolnr
drugstore
cha
n {rom se inq
Glvenchy
perfume
wthoui
permiss
oi
Pdrfums
Given.hy
USA
had
caimed
that
irsdisr
ncuvepa.kag
n_o
shou
d
be
protectedunder
U
S
copyrght
aw. The
ruiing
mears
thaiCostco,
Walmart.
and
other
discounterswil
no
onger
be ac
e
to
sel
some
impo.ted lraqrances
without
althorzanon
Oppotunities
and
Challenges in
Asia
Asa
particulary
lapan
is
a
key
region
for
LVr.rH
3.c
ii
competitors.
The
financ
al
tu
rmoil of the late
I99ota.d
rhe
s!b!:-
qrentcurrenq
deva
uationsand weaken
n9
ol
the
ye.
rrr.s
aledinto lowerdernand
foriurury
qoods.
Be.ause
pr.e
oercepto.s
are
a
crtica
component
of
ururv
qoods'
apoeai, LMVH
execuives
made
a
number
of
adjunments in
respon!e
ro .han9
.q
bLrs.ess
condilions.
For
exampe,
Patrck
Choe,presdenr
ofihe
perfume
FIGURE
1
LVMH
Operating
l.rnitsby
2008
Net
Salee
35%
395
 
and
cosmetics
d
vsion,
rased
whoesa
e
pr.es
n
ndiv
dual
Asrn
markets
Theqoalwas
to
dBcou
raqe
d
scoun
t
retai
ers
lrorn
nock
iig
up
on
desgner
productsand
the.
se
i.q
them
to
dowi
market consumers Also,
erpe.dit!res
on
perfLrme
and.ormetics
advert
t
nq
were reduced
to
ma
nt.
nprcf
tab
ty
n
lhe
f.]ce
ol.
LousVu
lton
cha
rrnan
Yves
C.r.elLe
a
5(r
m.de
.djLrnments
He
cance
ed
p
anr
for
a
new
nore
n
ndones.r,
.nd
group
managers
r.
sed
pr.es1().ountera.l
the effect
ofcurrencydevalu
alions.
Bec.use
the
DF5
chain depends
o.
Japa.esetourns
in Asia
.nd
Hawa
for75
perc€nt
ol
sa
e5,
LousVu
tton
managers
a
so
work
wih
toLrr
operators
lo
pred.i
the
fLow
ol
Japanese
tourns
When
toursm
s
al
apeak,
pr.er(eases
from
10
to
22
per.ent
he
p
max
m
ze
profits
on mer.hard
se
ta
es
Arnaull
w.s
conlde.t
th:t
ihe
Aean.r
s
s
wo!
d not
severely
.ffect
hr
comp.ny5
perfo'ra..e
n
lhe
long
term
As
Arn.!t
expa
ned
i
lhe
spr
.qof
1998
one
has
to
d
nng!
sh
between
.l.p.n,
wherc
inon.r
oJr
bls.e$
s,andtherenofAs!
lapan
5
na
growth
s
!r.,
brt
t
srt!onqtohavethesamedff.!l
t
e5.s
Kore!
or
nd..e!.
And
oLrr
bLrs
ners
l..lapan
5
dong very
we
Be.arse:he
Lou
s
V!
ttor
!n
t
contros
ts
own
d
str
blton,
mnnagemenl
has
elen
been
ibe
to
take advantage
ol
the
.rts
by
Enegotat
n9
nore
eases
n
keyAsan.tes
in
some
nstances,
the company har
ee.lred onqe,
ease
terms
p
!s
reductions ln
rales
by
rs
mu.h
as
one
thrd Arna!t!
optmsm
was
w€l
f
ounded;
wth
inter€nrate! at
.e.ord
ows and agloomy
olt
ookfor the
nock
rnark€l,
lapaieie
.oE!meE
had
lew
other
spend-
inqopt
onl
n
2001,
€recur vos actua
ly
ra
sed
pr.es
ar
LouisVu
tlonS
Japanese
norel.
''Ohe
ftiehd af
hihe
has
1A
Louis
Vuittan
bags.ln
lapan,
it\
a
status
symbol. lts
very
inpanant
ta
have Eurapeah
luxutygaods."
a
lg-yeaFo
d
fliqhtattendant
bated ln Tokyo
Sraregic
Decisions
at
LVMH
Over
the
pan
de.ade, Arna!
t
has
eleraged his
mult
brand
nrately
by
broaden n9
the
.ompany\
consumer
base
ln
the
late
19905,Arnau
t
sensed
that .osmel.s
buy
nq
h.bts
werechang
nq
.
key
.iarkets
He opened
Sephora
stores
n
New
Yorl,chtrago.
a.d
5an
Fran.sco
n
conllnction lvith
a
new Web
site,
sephor:.om
lod.y,
there
are
neary
100 Sephora
nores in the
Un
ted
Siates;
thechain
a
so
has
a
prelen.ein
more
than
one
dozen
olher
.olntr
es,
ncud
ng
Ch
na and Rus
a
CunomeE
who
visrt
Sephora UsA
nore!
are
en.ou.aged to
waider
free
y
andsampe
produ.ts
oi
an
ope.
floor
wiiholt
wa trng
for
sales
cierks
n
2001.
Arna! t
pa
d
more
than$600
millon for
Donna
Karai
lnternatonal
n.
and
ts lrddemarks
Arnaut
had
tred
wnholt
success
to acq!
re Giorg
o
A,m..
I
Donna Karanis
LVMH! 1i6t
Anrercan
des
qner
abel
As ArnaLr
t.oled,
Whatippeaedto!s
is
the
fi.t
that t it oie
of the ben
[.ow.
brandnamesn the
n
lanlary
2008,
ere.ltves
at
Lou
s
VLi
tton a.nounc€d
a
new
colporate
brand
iq
campa
9n
usinqa
90
second ad
that
wou
d
appeir
on
cab
e
and satellitete
ev
s
on
and
n
on,A.n.!
Thswis
someth
ig
new
rn
the lx!ry
qoodssectort
qener.
y,
advert!nqbudaet!
are
limt€d
and
televsion is viewed
a!
too...:
:
n
add
tion,
some
n
the
indunry
be
eve
thatry3
siatls;i
:
:
rnarkelinq
med
um.an
Lrnderc!1a
uxurybraids
aLrr.
of..:
:
However,
Lou
s
Vu
tlon
execuliles
hoped
audien.eswoL
. ::
^.1
.rab.a
d
..a."t
-ragp.
aqe..y
proposed
buy
ng
l
nre
on
new!
channeh
th.:
:
:traveers watch
sLrch
as
cNN
As Lous vLrirlon
m.rker
I
:
P
etro
Bec.ar
.oted,
t
B lLrpposed
to
louch
oLr
vewers
n
yr.ysthat
perhaps
other
meda
w
not
touch
_
w.y
to
s.y
Lou
s
Vu
tton
is
diffe.ent
lt
s
sorneth nq
apha,
:
:
a
so somethng
that
stays
^,"
L
.dl
o
Lolis
Vlitton
entered nda
in 2002
wth
a
bollqle.r:
,q
I
"u"
".d
Do,
d"
opp.
fo
o
I
o
LVMH
has
a
o.k
onprmelocatons at
Emporio,
an
upi..
::
:
:
p
n9
mal that
opened
rece.ty
in
New
De
hi.
Be.alse
LVr,l-
:
qroup
preseice
n
the ma
,
t.an
negot
ate
lavorable
lease
-:
:
r.dpo6^,n,...po,o..on. d6o^.p
6p.6-
laln.h
ol Vogue
nd
a
On.e
again. thanks
to
LVMH!
d
!er!.
:
:
porrfoio.
the .ompany
is
able
lo
buy larqe
blo.ks
of
ad,.
:
:
spa.e
from conda
Nan
ndia
at
d
s.olnted
pr.es.
Trdgobi
6o.o.
5"r
9.-"da
o
J',-.
-d.dro.du.ur
gooo
o
no
excepton Overa
pu.chases
ol
uxurygoods
fei
:
:
U.5
nrarket,
sales
towed
n
Russa and
other
emerq
nq
'
:
as
we
Atholgh
tota
sales
n
the
uxury
segme.:
:
-
o.p"
."d
o
"o
I
o
r"
o.o
--.
b
ron.5.
8
or
or
ndunry
oblervers expected
that
trey
wou
d drop
s
9n
1..
2009
For European-based
l!x!ry
.ompanies, there
w.i
::
'
goodnews the
dolar
was strengthening
against
tie
e,
:
-
the 2008
ho
day
shopp
n9
teason
approa.hed,
man!
qood,
makers
redlced
pnces
in the
Uniled
States At
a-:
-
the
.u1s
ranged
from
7
to
l0
percent;as
lohn
G.:
presdenl
of
chane
5
u5
!nt,
noted,
"The
dolar;'::-
nrengthh.salowed
us
to
pass
on
greatervaue
to
o-
:
tomers
Lou
r
Vu
tton
was
a nolable
exceptron;
in fa]:t,
:
:2008,
the
.omp.iy
ra
sedprices
tw.e,
resull
ig
n
an..:::-
n(ease
of
1
0
per.e.t
The
price
increases
d d not
damp..,:
:
n
fact.
sa
es
cont.ued
to
ncreas€
Visit
the
Wer-'.
-
www
vnl
::
-
A.omp
ete
PowerPointpresentaton.'_:.urenr
yea
lI'nd',idlra,-lr\i.2.
..
ON
thE
LVMH
WEL!
J
'
wwwsephor; ::
-
DiscussionQuestions
l.
Bern.rd Arnau
t
has
bu t
LV\4H nto
a
uxlry
goods
er.
.
:
m.k
nq
nurneroLrs
a.q!
stons
What
nrategy
is
evdeii
..
2.
What alethe
poss
b
e
rsks
of Lo!
s
Vuitton!
f
6t-eve
i..
son adlertE
nqcampaign?
3.
n
Mar.h
2008.
theeuro/dolar ex.hanqe
ratewas
€'l
=
!
:
By
November.
the dollar
had
strengthened to
€1
=
$l
2:
Assume
that
a
E!ropean
!x!ry
goods
marketerculsthe
pr.e
of
an
$8.000tweed
ruit
by
l0
percent
io
ma,.t..
hoiday
saes
ri
De.embeL How
wllrevenues
be
affecte.
when
dolar
prcet
are
conlertedto
euros)
396

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