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Case Analysis on Louis Vuitton

Leslie E. Morgan

Georgia Gwinnett College

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Strategic Profile and Case Analysis Purpose

Louis Vuitton (LV) was a strong-minded young boy, who was born in 1821 into a

farming family in the capital of France called Anchay. His instinct desired more out of life than

his environment offered, pushed him to travel on foot at the young age of 14 to the big city of

Paris, where he encountered his destiny. After the 2 year journey to Paris, Vuitton became an

apprentice trunk maker for the French Royalty. During this time, he discovered his passion for

crafting customized luggage and trunks for rigorous travel and mastered the art of packing and

unpacking for extended travel. Louis Vuitton became a well sought after artisan. After building

his reputation for nearly 20 years, he opened his own packing service and luxury luggage, and

trunk shop in Paris in 1854 (Louis Vuitton, 2014). “Vuitton’s success is said to have been built

on the three rules: to master his savoir faire, to provide excellent service to his customers, and to

innovate continuously” (Strategic Management, 2014).

Louis Vuitton died in 1892. His son, George Vuitton carried on the family legacy by

implementing his father’s rules, specifically concerning innovation. George crafted the legendary

LV monogram, iconic patterns and designs, which expanded the company's product line into the

handbag market. The company experienced some economic setbacks mainly due the WWII, but

the Louis Vuitton brand regained its strength and sustainability through forward integration,

acquisition of some competitors, engaged in the global expansion of company stores and became

a publicly traded company in 1980s, under the direction of Henri Racamier, a son in-law to the a

Vuitton matriarch.

The Vuitton family lost control of the company after a merger with Moet Hennessy,

(LVMH) which was initially a part of the strategic plan for growth Louis Vuitton. Instead, the
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merger resulted in different business perspectives and motives that cost Racamier the ultimate

price. Bernard Arnault, was brought in by Racamier to “reverse the merger with Moet and

Hennessy” (Strategic Management, 2014), but Arnault’s had ulterior motives which included

taking over LV by purchasing 45 percent controlling stake in LVMH and creating an alliance

with Moet and Hennessy.

“The LVMH, operated five businesses: wines and spirits, perfumes, and cosmetics,

fashion and leather goods, watches and jewelry and selective retailing. The group owned over 60

luxury brands (Strategic Management, 2014). In 2013 revenues were 29,149 (Euro million),

profits of 6,021 (Euro million). Today Louis Vuitton is still the front runner in “the personal

luxury goods industry” (Strategic Management, 2014). The Fashion and luxury goods industry of

LVMH reported 2013 revenue (EUR millions) 9,882, operating investments of 629, number of

stores increased from 1,280 in 2012 to 1,339 (Annual Business report , 2013).

This case analysis focuses on the six trends of the general environment and its current

state as it relates to technology, demographics, economics, political/legal, sociocultural and

global. Upon concluding the state of the general environment, an examination of the industry’s

environment is then analyzed against the Porter’s Five Forces. This assessment will determine

the potential for new entrants, the strength of the bargaining power of the buyers and suppliers,

the threat of substitute products and services, and the intensity of rivalry among competitors. The

competitive analysis segment will offer details of LV’s top competitors Hermes, Prada, and

Gucci. This section makes comparisons of the companies’ current strategies, strategic mission,

capabilities and core competencies. The Internal Analysis section of the case analysis will focus

on Louis Vuitton’s internal strengths and weaknesses as well as the potential external

opportunities and threats (SWOT). The Internal Analysis will help to determine the company’s
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sustainable competitive advantage. The conclusion of this case analysis, takes into account the

findings from the analyses of the general environment, industry, competitor, internal, and SWOT

and recommends a strategy formulation and the implementation of a supporting action plan.

Situation Analysis

General Environment Analysis

Cloud technology. Businesses are changing the way it stores company data and

collaboration tools. Cloud services offer businesses the option to cut costs for storing data by

using the cloud instead of costly servers. Businesses are now faced with the decision to choose

public or private cloud services. The risk of losing data has been always a security concern for

most businesses when considering cloud storage. Private cloud services seem to offer clients a

more secured experience than public. If businesses are bound to specific privacy regulations

such as those in the health industry, private cloud affords more control (Taft, 2014).

Data analytics. Companies are implementing cloud computing as a part of its strategic

plan. The increased demand for cloud services is linked to big data and the high rate at which

companies are accessing this data. However, “a survey by the Wall Street Journal revealed that

only 16 of 400 business say they are getting demonstrated value from their big data analytics

investment” (Cross, 2014, p. 94) . In order to remain competitive in the market, companies need

to build its strategic framework to support utilization of data analytics (Cross, 2014).

Network security and the mobile workforce. Research shows that company's network

security standards need to be heightened to protect against unauthorized access to the company

network by employees via their own personal devices. Cross (2014) stated in his report that the

new trend “Bring Your Own Device (BYOD)” (p. 92) that supports the fast growing “global
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mobile workforce” (Cross, 2014, p. 92) BYOD requires companies to implement specific BYOD

guidelines for accessing company networks. The recent cyber-attacks on Target and Home Depot

customers credit information is evidence of how critical a company’s network security system

should be.

3D Printing. The latest in manufacturing and production technology is offering

businesses the ability to cut costs by implementing 3D printing. It utilizes computer software to

produce physical 3D objects, synthesizing “materials by spraying layers of particles atop each

other” (Docksai, 2014, p. 12). The growth rate of adoption of 3D printing technology is projected

to be 21% for the next three years, with the United States being the top market at an estimated

42% of sales, with Western Europe and Asia following (Docksai, 2014).

Dynamic model - applications and infrastructure. A company's reliance on pre-

packaged applications and infrastructure, is a way of the past. Standard Software packages that

tend to be utilized by most businesses can only achieve competitive parity. In order for

businesses to achieve a competitive edge, it must incorporate in house IT resources that can

provide dynamic solutions targeted at increasing efficiency and meeting the fast changing market

demands (Gartner, Inc. , 2014).

Wearable computing digital devices. The demand from consumers to access

information 24 hours a day, 7 days a week from any location faster, is forcing change in the

general environment. Mobile devices are expanding beyond cell phones and tablets to wearable

devices such as the google glass, fitness bands, medical monitoring devices and the Apple Pay

and Apple Watch (Guglielmo, The Case Against Wearables, 2014).

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Google glass was first introduced in 2012 as a hands-free device that offered users voice

action to access information from the internet, make phone calls, send text messages, retrieve

personal contacts, take pictures as well as videos. This fairly new technology is still being tested

and updated to include more features, and newer designer frames. Users have the options of

wearing prescription lensed glasses, no prescription, as well as sunglasses. Google glass devices

are considered smart devices with picture and videoing capabilities and therefore, are banned by

businesses where live recording and picture taking is prohibited, just as a smartphone and camera

(Guglielmo, The Case Against Wearables, 2014).

Apple recently announced its first wearable smart device, the Apple Watch projected to

be released in 2015. Apple also released its newest iPhone 6 with Apple Pay features. The Apple

Pay features offer consumers the convenience of faster check out services without having to

carry your credit cards. Credit cards are stored in the phone and authorized by the owner’s

fingerprint.

Technology trends in global business focuses on the strengthening sustainability of its

competitive advance. Technological advancements rapidly changing nature, calls for businesses

to keep its ear to the ground by investing in research and development. Businesses that are

flexible in strategic planning, tend to achieve dynamic model efficiency, reduce production cost,

and improve time to market resulting in meeting consumer demands.

Demographics

Experts project that the world population will be nearly 7.2 billion people in 2015, up

from 6.1 billion in the year 2000. The global population growth will slightly decrease due to the

increased life expectancy coupled with the decline in fertility rates. The impact of this trend will
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change the aging population in high-income developed countries. “More than 95 percent of the

increase in world population will be found in developing countries, nearly all in rapidly

expanding urban areas” (Global Trends 2015: A dialect about the future with Nongovernmental

Experts, 2014, p. 8). The working population will be affected in opposite trends. In the emerging

markets it is projected to fall while in the developed countries the working population will rise

(Global Trends 2015: A dialect about the future with Nongovernmental Experts, 2014).

The United States baby Boomer generation is approaching retirement age, which will

affect America’s working population, causing a decrease. (Economy current trends and issues,

2014).

Recent studies noted that in the United States, there is a growing household population

representing a “coresidency” (Ellis & Simmons, 2014, p. 1) of grandparents and grandchildren.

Reports show that “Recent trends in increased life expectancy, single-parent families and female

employment increase the potential for grandparents to play an important role in the lives of their

grandchildren,” said Renee Ellis, a demographer in the Census Bureau’s Fertility and Family

Statistics Branch. “Increases in grandparents living with grandchildren is one way that the

grandparent role has changed.” The flip side of the trend is that not only is the percentage of

grandparents living with their grandchildren has increased, but also the number grandchildren

living with their grandparents has increased to 10%” (Ellis & Simmons, 2014, p. 1).

Federal Interagency Forum on Child and Family Statistics found in a recent report that

the number of young adults between the ages of 18 and 24 in America in 2012 was 31.2 million

and the percentage of them enrolled in higher education is on the rise in America by 15% since

1980. (America's Young Adult, Special Issue 2014, 2014). Compared to other countries in the

world the rate of college graduates in the United States is low.

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An article on trends as it pertains to household income (2012) in the United States as

reported by MarketCharts.com, show the following “According to the Census Bureau’s age

breakdown, real median household income (HHI) is: Highest among 45-54-year-old

householders ($66,411 last year); followed by 35-44-year-old householders ($63,629); 55-64-

year-old householders ($58,626); 25-34-year-old householders ($51,381); Householders aged 65

and up ($33,848); and 15-24-year-old householders ($30,604).When sorting by race and

Hispanic origin, the study indicates that: Asians have the highest median HHI, of $68,636; Non-

Hispanic whites are next, at $57,009, followed by; Hispanics, at $39,005; and Blacks, at

$33,321” (MarketingCharts staff, 2013, p. 1).

Migration trends within the United States show that people are moving mainly to secure

less expensive housing (8%) while another found that moving to shorten the commute to and

from their place of employment got 5% of the vote (Easier Commutes and Cheaper Housing are

Increasing as Main Reasons for Moving, Census Bureau Reports, 2014).

The Hispanic population in the United States as of July 1, 2013 rose making people of

Hispanic origin the nation’s largest ethnic or racial minority. Hispanics constituted 17 percent of

the nation’s total population. (Source: 2013 Population Estimates) (Facts for Features: Hispanic

Heritage Month 2014: Sept. 15–Oct. 15, 2014)

Economics

The unexpected severe winter storms across the United States in the first quarter, and

other global events impacting 2014 projections on growth was down 0.4 percent for the year.

Things are projected to pick up in the economy for the remainder of the year. “World GDP is
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projected to expand by 3.4 percent in 2015 and 3.5 percent in 2016 – broadly in line with earlier

forecasts” (Research-Country and region specific forecasts and data, 2014, p. 1).

Developing and high-income countries are experiencing different projections. The

developing countries are expected to see less than 5 percent growth for the third year. While the

high income countries are projected to experience growth “by 1.9 percent in 2014, accelerating

to 2.4 percent in 2015 and 2.5 percent in 2016. The Euro Area is on target to grow by 1.1 percent

this year, while the United States economy, which contracted in the first quarter due to severe

weather, is expected to grow by 2.1 percent this year (down from the previous forecast of 2.8

percent).

The global economy is expected to pick up speed as the year progresses and is projected

to expand by 2.8 percent this year, strengthening to 3.4 and 3.5 percent in 2015 and 2016,

respectively. High-income economies will contribute about half of global growth in 2015 and

2016, compared with less than 40 percent in 2013)” (Research. Global Economic Prospects,

2014, p. 1).

Reporters on global economic trends seem to have grown bored with reporting the United

States as having the largest economy in the world. There are more reports highlighting China

being the world’s second largest economy and India ranking third. Reports on China’s growth

projections can be found contradictory. On one hand, reports dictate that China’s economic

growth could expand well into 2020 at an estimated rate of 6% (Siew, 2014, p. 1). On the other

hand, views reporting on China future sustainability gave reasons supporting why China’s

economy has slowed down as a result of policy and excessive investments (Dey, 2014).
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Interest rates. The United States has been trending in a nontraditional way compared to

the rest of the world as it relates to interest rates. Studies have shown that the higher a countries

rates of trade deficits the higher the interest rates. However, the United States has shown an

increase in trade deficits while interest rates are holding steady at a low rate. (Batra, 2013)

European Central Bank leaders elected to lower its interest rates in order to offset the declining

economic conditions on the Eurozone. Leaders are hoping that the lower interest rates will create

an incentive for consumers to take out more loans, which generally, in the past has stimulated the

economy (Team, 2014).

Gross Domestic Product (GDP) for the top five global ranking (2013) are as followings:

United States ($16,800,000,000,000), China ($9,240,270,452,050), Japan ($4,901,529,519,266),

Germany ($3,634,822,579,319) and France ($2,734,949,064,749). The GDP per capita ranking

shows different ranking than the GDP rankings, reflecting Luxembourg ($111,162), Norway

($100,819), Qatar ($93,352), Macao SAR, China ($91,376) and Switzerland ($80,477). The

United States ranked number ten with ($53,143) (Data GDP per capita, 2014).

In the European countries, the economy is growing while the United States economy is

experiencing a slow-down. Historically, the Unites States has led the way for economic growth;

Reports indicate that China and India are experiencing huge economic growth that will sustain

through 2020.

Distribution of wealth. The higher educated and trained class of workers tend to have

higher increases in income than the less educated and lower class in the United States. The rich

are getting richer, while the middle class and the poor are struggling to meet their basic needs.

This has been an issue for the lower class population for some time. As demand increases for

higher quality products, technology advances in services related industries, the higher educated
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and skilled worker will continue to benefit by larger margins. (Economy current trends and

issues, 2014).

Inflation. The consumer price index reported in July to be trending at a slow rise in

overall inflation, while the economy was trending back and unemployment rates are decreasing.

Reports found that items trending at an increase were gasoline, electricity, tobacco, home

furnishings, “meat, poultry, fish and eggs”. Dairy products, cereal, fruit and vegetables showed a

decrease and the “cost of shelter, medical care services and airline fares” showed a slowdown

(Mutikani, 2014).

Political /Trends

Demand is forcing the Industrial and Commercial Bank of China (ICBC) to evaluate the

procedures that regulate capital requirements for commercial banks. To improve the Chinese

banking industry in the international market, reforms and regulations need to be standardized

supporting more resistance to risk and increase security for consumers. “These include the

Regulations on Lenders to standardise private lending practices, the Regulations on Bank Cards

to standardise the credit card market and Regulations on Credit Management to standardise the

credit reporting business. The promulgation of these laws will significantly help the

standardisation efforts for legal and compliant operations of commercial banks, improve market

environments in the banking industry and strengthen the protection of financial consumers.”

(Expanding global reach: interview with ICBC's legal counsel, 2012, p. 1)

The lack of laws protecting copyrights of intellectual property is negatively impacting

global markets. Congress has developed a piracy watch list, which includes China, India,

Switzerland and Russia, in an effort to “level the playing field where all nations live up to their
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obligations to protect intellectual property and enforce existing laws,"(Internet. Piracy, 2014, p.

1).

Sociocultural Trends

Workplace Safety and Health Challenges for Women. The makeup of the workforce

in America is incrementally changing over the years. There are currently more women in the

workforce than ever before. Studies indicate that there are still more men than women in the

workforce, but the numbers have grown 26%, while men in the workforce have decreased by

11%. Factors that contribute to the rise of women in the workplace include pursuing education

sooner rather than after marrying and having children. Women tend to suffer more occupational

cases of “carpal tunnel syndrome, tendonitis, respiratory diseases, infectious and parasitic

diseases and anxiety and stress disorders (Women's Safety and Health Issues at Work, 2013, p.

1). Women are faced with the reality that jobs are harder to secure than they are for men. The

added pressure of needing to keep their job, even in an unsafe environment, can force women to

tolerate unsafe situations in the workplace (Women's Safety and Health Issues at Work, 2013).

Women immigrant workers are more at risk for workplace injury than native born female

workers. Sexual harassment is an issue in the workplace that can inflict mental and physical

damage. The pressures of work life balance can prove to be too much for women, causing

“physical health problems such as poor appetite, lack of sleep, increase in high blood pressure,

fatigue, and increased susceptibility to infection. It can also result in mental health problems such

as burnout and depression.” (Women's Safety and Health Issues at Work, 2013)
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Ebola Virus Outbreak. The World Health Organization reports that there are more than

13,700 Ebola cases currently. The largest number of cases is said to have been contracted in

Liberia recording over 6,000 cases, with the remaining spread among Guinea and Sierra-Leone.

There is no hard evidence that the number of cases are slowing down, but speculations are

hopeful. The total number of deaths due to the Ebola virus has risen to over 5,000 (Ebola, 2014).

Human Trafficking. There is a rise in human sex trafficking cases in Australia. The

investigations are related to forced marriages involving under aged children. Like most criminal

acts, intimidated victims generally are not forthcoming with convicting information that

authorities can use to prosecute the offenders. Human trafficking is an issue that is crossing

borders (Rise in human trafficking, 2014).

Global. The effects of globalization and the exchanges in cultures, business, policies,

ideas, and regulations has spawned a demand for global lawyers. The implementation of new

laws and global policies is offering global opportunities for attorneys who specialize in the

global environment. Areas of demand include intellectual property, economic activity,

international taxation, human rights and potentially many others as globalizations continue to

expand. Trends are reflecting that the main challenges are “both international cooperation and

regulation, and global governance involving participation of non-state actors" (Legal Monitor

Worldwide, 2013, p. 1) The emerging market in India is credited as an influence of this new

demand of lawyers due to the reform and the growing economic activities (Legal Monitor

Worldwide, 2013).

Russia and China business relationship. Due to the declining growth rate in Russia,

officials from China and Russia signed off on a trade agreement that could offer Russia some
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relief from its tanking economy. The deal entails Russia supplying China with gas to the tune of

$456 Billion over 30 years (Kottasova, Russia looks to China for business courtship, 2014).

Global impact of counterfeit products. The Organization for Economic Co-operation

and Development (OECD) estimated the negative impact on the global economy to be $250

billion dollars annually. The seizures of counterfeit shipments in the United States accounted for

a 38.1% increase in 2013 from 2012, reflecting an estimated value of $1.7 billion up $.5 billion

from the previous year. According to the United States Customs and Border Protection agency

(CBP), the number one product shipments seized in 2013 was handbags and wallets (valued at

MSRP) $700.2 million, which accounted for 40% of the total seized goods in the year. The

second most seized product was watches and jewelry valued at $502.8 million, making up 29%

of the overall seizures. Third was electronics and parts valued at $145.9 million accounts for 8%.

Fourth was wearing apparel and accessories valued at $116.2 million, accounting for 7% of the

total seizures in the United States. The last four counterfeit product seizures accounted for $250

million, which made up a total of 15% were, pharmaceuticals/personal care, footwear,

computer/accessories, labels/tags, and optical media (9 most counterfeited products in the USA,

2014).

Industry Analysis
The top most Brand valued luxury companies worldwide in the 2014 are Louis Vuitton,

Hermes, Gucci, Prada, Rolex, Tiffany &Co. Burberry and Ralph Lauren (Brand Value of the

leading most valuable luxury brands Worldwide, 2014). The luxury retail market has been on a

constant increase in growth despite the decline of the economy.

The region with the highest number of stores (2361) is the Asia Pacific, accounting for

“20% of the global luxury market. Looking at luxury consumption per nationality, however,
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Asia Pacific represents the No. 1 region with over 30% of the luxury market value. Chinese

consumers already account for 25% of luxury spending and make more than 60% of their

purchases abroad… Chinese consumers prefer buying luxury goods in Hong Kong (176 stores)

and Macau (64) where the prices are lower than in Mainland China thanks to lower taxes”

(Ortelli, 2013, p. 10). The European region stands second in the Asia Pacific region with retail

stores totaling 1061. The majority of stores in the European region are standalone stores as

opposed to those located in shopping malls. The Americas rank third for having the most stores,

with 975 with the majority of the stores being located in mall shopping centers. “The U.S.

represents 770 stores (around four-fifths of the Americas), with New York (68 stores or 9% of

the U.S.) and Las Vegas (52 stores or 7% of the U.S.) as its most important cities” (Ortelli, 2013,

p. 11). The remaining luxury retail stores account for 263 located in the rest of the world.

This analysis will assess the competitive environment by using the Porter’s five-force

model. We will examine the strength of five basic competitive forces, the threat of new entrants,

the bargaining power of the buyers, the bargaining power of the suppliers, the threat of substitute

products and services, and the intensity of rivalry among the competitors in the luxury retail

industry.

The Threat of New Entrants

The threat of new entrants in the luxury retail industry is low. The dynamics surrounding

the environment and what is required to compete in this industry causes the entry barrier to be

very high.

There are large economies of scale in the luxury retail industry. The industry already has

over 24 major brands, totaling an estimated 5000 stores worldwide. This massive level of
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globalization coupled with a founders’ heritage backing would not be reasonably obtainable.

“This deters entry by forcing the entrant to come in at a large scale and risk strong reaction from

existing firms or come in on a small scale and accept a cost disadvantage. Both are undesirable

options” (Analyzing the External Environment of the Firm, 2014).

The competitive nature of luxury retailers is very intense. This market was founded on

clientele members of royalty, celebrities, and the wealthy over 150 years ago. This expensive,

exclusive, and customization of the product line is not easily entered into. The major players in

this industry have been sought out, and the demand is so specific that its customers are willing to

travel outside of their own country to purchase exclusive pieces only available in another region.

The customer loyalty element is evidently strong as the retail prices in this industry runs well

into the $100,000 range (Said, 2013). It is inconceivable that a new entrant could present a

negative effect to the industry’s current customer loyalty by means of offering product

differentiation.

The capital requirements to enter into the luxury market is a high price to pay, which

creates a high barrier of entry. The product line exclusivity and the intangible asset value of

status cannot be purchased with financial means. The aggregate net luxury goods sales of the top

75 firms were $171.8 billion. Resulting in an average of goods sold from the top 75 brands to be

2.3 billion in 2012 (Deloitte, 2014). Therefore, the threat of new entry on the basis the capital

requirement is low, forcing new entrants to own substantial wealth, resources, assets as well as,

strong partnerships with suppliers and other business relationship in the luxury industry.

The switching cost is a barrier to entry, for the same reasons that capital requirements are

a barrier to entry. Major players in the luxury industry have implemented strategic actions such

as investing in backward and forward integration. Most of the brands in the industry, control its
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distribution channel by selling directly to the customer and for that reason access to distribution

channels is a barrier. The cost disadvantage independent of scale is a strong barrier in the luxury

retail industry as well, because access to raw materials would not be favorable to new entrants.

Leaders in this industry have bought out suppliers and are now taking on the responsibility to

produce its own materials in house (Strategic Management, 2014). New entrants would find this

element as a high risk.

The Bargaining Power of the Buyers

The buyer’s power in the luxury retail industry is weak on the basis that buyers are not

purchasing large volumes relative to the sellers’ sales. The buyers in the industry are not price

sensitive, in contrast, high prices are an accepted element relating to inaccessibility of the

product, which offers a psychological state of “well-being – and social as they serve as markers

as a real or projected status” (Olorenshaw, 2011).

The products in the luxury industry are not standard and undifferentiated, however the

customer segment at the inaccessible or premium level cater to customized leather goods. Other

customer segment products are differentiated from the standard leather good found at third party

retails. Exclusive product lines, was well as the inflexibility of price cutting also makes this

industry differentiated (Olorenshaw, 2011).

Switching cost is not much of a relevant factor as it relates to the consumer. The

competition in the luxury retail industry is very high, and therefore switching from one brand to

the next would not show a significant impact.

Buyers in the luxury industry are not price sensitive, therefore the element of earning low

profits is determined by the individual. Customer segments in this industry are driven by product
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rarity, and high cost because psychologically, it sets them apart from the general consumer.

Luxury goods also have a high resale value and therefore, the earning of profits in this industry is

high (Olorenshaw, 2011).

The threat of backward integration is only attempted by the leaders in this industry. From

the standpoint of a buyer, backward integration limited or eliminated because successful luxury

brands generally maintain operation of its stores, and control retail prices, and product

distribution. Therefore, the threat of backward integration is low (Strategic Management, 2014).

Evidence stated previously regarding the buyer’s insensitivity to price would conclude

the products are very important to the buyers. The intangible psychological value of luxury

products increases the buyers’ willingness to pay premium prices are very strong in this industry

(Olorenshaw, 2011).

The Bargaining Power of the Supplier

The supplier group specializing in premium quality materials such as leather, wool, and

the tanning of leather, are dominated by many companies and less concentrated than the industry

it sells to. Suppliers in the luxury industry are essential to the success of luxury retailers,

however the reputation that the supplier receives from being affiliated with the luxury brand is

more valuable.

Suppliers that are a part of the sourcing process to luxury retailers have to buy into being

controlled by the luxury company. The companies run a tight monitoring and observation

strategy because the materials and craftsmanship of its products is what makes it rare, exclusive

or premium price. Customers are willing to pay premium prices for products that come with

brand authenticity, resulting in suppliers located in different countries. However, luxury retailers
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maintain a strict long-term relationship with its supplier to lessen the risk of losing trade secrets

to counterfeiters (Caniato, 2011). The luxury industry is very important to the well-being of the

suppliers’ reputation. Suppliers are selected based on their prior experience with other luxury

companies. Elements of the luxury retail industry depict a protocol, so to speak, that dictates a

high level way of doing things as it relates to knowledge, materials, craftsmanship and end

products and service. The supplier group products are differentiated, however, that element of

differentiation is not solely credited to the supplier in most cases in this industry. The innovation

of the luxury retailer is what drives that supplier to produce the needed differentiation and is

deemed a dependent element. That’s where the strategy to incorporate long-term relationship

proves to be beneficial to both parties. Larger firms will exercise backward integration if the

situation calls for it which lowers the threat of forward integration by the suppliers.

The Threat of Substitute Products and Services

The threat of substitute products and services is a major concern for any industry. One

direct threat of substitute to luxury products is the counterfeit market. The counterfeit market is

not a direct threat to the industry in a sense that genuine customer segments are turning to buying

counterfeit products off the streets, however, the more counterfeit products circulate the less

desirable the reputation of the brand. Celebrities and premium level customer are less likely to

purchase premium products if there is going to be a social perception that it could be a

counterfeit. This consumer perception can negatively impact sales and the reputation of the

brand. That’s why some of the top companies in the industry have dedicated major investments

towards cracking down on counterfeiting operations. Considering that counterfeit products meet

the needs of a customer segment that was not a component of the luxury retailer, I find that

counterfeit products can be an indirect threat of substitution but not direct. My findings are based
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on the fact that the whole premise of luxury products and what the consumer benefits from it, is

much different from the benefits gained from purchasing counterfeit products (Olorenshaw,

2011).

The idea behind premium and luxury products is associated with an identity of status,

accomplishment, it sets a line of demarcation, and it’s more of a lifestyle as opposed to a buying

habit. The threat of a substitute product for luxury retail goods seems a bit far-fetched. What

could consumers possibly substitute for rare, high fashion that would bring them the

psychological value that luxury handbags and fashion offers? This theory implies that one’s

whole lifestyle and value system would have to change in order to accept a substitute for luxury

goods. Therefore, the threat of substitution is low.

The threat of forward integration in the luxury retail industry is also low. The investment

needed by suppliers to pull together the critical components needed to compete in this industry is

very high. In order for forward integration to be attractive to a supplier, it would have to find the

risks of establishing itself as a competitive luxury retailer are low when compared to the

advantages associated with its business as a supplier. It is possible, considering the heritage of

some of the large firms in the industry, and how the company started from a craftsman and his

reputation for high quality products. However, unless the right partnerships and financial backing

are in place, this is not a favorable option (Said, 2013).

The Intensity of Rivalry among competitors in an Industry

The intensity of rivalry among competitors in the luxury retail industry is high which can

be intimidating to new entrants. Price competition in the luxury retail industry is not relevant as

it is for commodity products. This industry has a nontraditional relationship between price and
LOUIS VUITTON 21

value, the higher the price the higher the perceived value of it. Therefore, companies in the

luxury industry are fixed on the prices of its products and generally do not discount them.

However, the industry’s focus of competition is on opening the right number of stores in the

right location. Reports have shown that brands that operate its own stores outperform those who

engage in third party licensing agreements and multi-brand stores. (Olorenshaw, 2011).

Therefore, rivalry in the luxury industry is high in regards to increasing the number of stores in

emerging markets such as India, and China.

Another intense element of rivalry is advertisement via the internet. Luxury retailer is

growing its focus on advertisement campaigns accessible online through a company website,

social media and YouTube, which create a high fashion experience that ties into the reputation of

the brand that consumers have grown to cherish (Deloitte, 2014).

Intensity of rivalry is also strong in the element of forward and backward integration.

Some major brands have acquired other luxury retailers by takeover. The industry is evident of

mergers that include multiple luxury products which affords them a competitive advantage.

When one segment growth may be slow, other segments in the group may be growing. Deloitte

reported the strategy as “consolidation as growth strategy” (Deloitte, 2014, p. 25).

Competitor Analysis

Gucci

The heritage of Guccio Gucci began some 90 years ago in Florence, Italy, where he

crafted leather goods and luggage through a small company he opened in 1921. It was there that

Gucci created the iconic trademark that was inspired from a horse saddle. Well-known society

figures and celebrities catered to the Gucci brand which helped to increase its product growth.
LOUIS VUITTON 22

Gucci implemented global expansion thirty years later by opening a store in Milan and New

York. The company extended its global expansion over the next 20 years to elite markets such as

London, Paris, Tokyo, Hong Kong, and the United States, (Beverly Hills and Palm Beach). To

further differentiate the brand and it’s exclusively made in Italy product line, Gucci targeted to

up the services to its VIP client segment. In 1977, Gucci invested in redesigning its Beverly Hill

store incorporating an exclusive gallery which offered products valued with $10,000 price tags.

In efforts to gain momentum, like many of the other leaders in the luxury retail industry,

Gucci became a limited publicly traded company in the 1980’s, which resulted in Investcorp

acquiring controlling shares, and taking ownership in the mid-1990s. Since 1995 Gucci has been

a fully publicly traded company. The company’s next step strategies included a Strategic

Alliances that transformed it from a single brand to the multi-brand luxury group. Today, Gucci

has added a children's collection. The company continues to be one of the top leaders in the

luxury industry, holding fast to its founding values of “exclusivity, quality, made in Italy, Italian

craftsmanship, and fashion authority” (Gucci History, 2014).

Hermes

Hermes is family owned, well-known for being a strong competitor to Louis Vuitton. The

value of the brand’s heritage, the foundation of leather craftsmanship and elite customer

segmentation, bonds the two luxury manufacturers as industry rivals. Hermes luxury goods

started 175 years ago, in the heart of Paris, by a saddle and harness craftsman named Thierry

Hermes. Hermes diversified his leather crafting skills originally producing leather goods for his

royalty clientele’s horses, into iconic luxury goods for the world’s richest population. Hermes

continued to manufacture luxury hand crafted saddles and harnesses. In 1922 the company sold

its first handbag. The luxury company’s product line evolved over time into a wide fashion line
LOUIS VUITTON 23

that includes, but is not limited to, handbags, scarfs, perfume, clothing, neckties and more (Said,

2013).

It wasn’t until 1970 that leaders of Hermes decided to incorporate an International

Strategy, at which time the company expanded its retail stores in the United States, Europe and

Japan (Said, 2013). Records from statistca.com reports that in 2007 there were 267 boutiques

increasing steadily to peak with the highest number of stores at 328 in 2011, then dropping to

315 boutiques in 2013 (Number of Hermes Stores Worldwide, 2014). Today, Hermes has

boutiques globally located within the United State, Europe, Asia, Latin America, Middle East,

and Oceania (Stores, 2014).

In 2011 Hermes turned its strategic efforts to a multidomestic strategy which afforded

them the opportunity to expand its market power. The company began to focus on designing

clothes targeting the Indian styles, instead of incorporating the global strategy of trying to sell the

clothing designs traditional to the United States and Europe. Hermes is the first of the luxury

retailers that has taken this approach in efforts to deepen its market power against its

competitors. This savvy business approach seemed successful at attracting the wealthy class in

the India/Asia region. This was evident, when Hermes designed saris, which is a traditional

Indian dress that sold anywhere from $6,000 to $8,000 each. The exclusive collection sold out in

a record time of 6 weeks (Wolverson, 2011).

Prada

The Prada Group dates back to 1931 when it opened its first store in Milan. However the

Prada heritage began in 1919 when it secured a position as the supplier to Italy’s Royalty. Since

then, the Prada Group has evolved through strategic planning which included, launching new
LOUIS VUITTON 24

brands, partnerships, acquisitions, and licensing agreements. Today the Prada Group operates in

70 countries through 551 retail stores (Annual Report, 2013). The Prada Group’s business model

focuses on “combining industrialized processes with sophisticated workmanship, top quality and

the level of detail characteristic of craft production” (Group Profile, 2013, p. 1).

Chief Executive Officer at Prada, “said the goal for 2014 was to consolidate company's

position at the top of the luxury goods segment with industrial, marketing and retail investments,

primarily aimed at reinforcing business know-how, the quality of its products and relationships

with customers” (Smith, 2014, p. 1).

Backward integration is the strategic actions implemented by leading luxury retailers as

global expansion increases in the industry. “The Italian group has acquired historic French

tannery Tannerie Megisserie Hervy, further ramping up the race for luxury firms to acquire their

vital downstream suppliers. Rival groups LVMH Moet Hennessy Louis Vuitton, Chanel Inc. and

Kering have made similar acquisitions over the last 18 months” (Turra, 2014). Once again,

evidence of joint ventures and acquisitions, prove to be a critical component to sustain

competitiveness, the luxury industry. The quality of its raw materials and where it originated

from is essential to the exclusivity, sustaining brand image. It is common practice for luxury

retailers to engage in many supplier as to lessen the dependency on one specific supplier. This

reduces the risk of high supplier bargaining power.

Internal Analysis

Historical Value Chain Management

The Louis Vuitton (LV) has historically been a company run by male dominance from its

beginning in 1854. The Louis Vuitton brand was founded on exceptionally high quality and
LOUIS VUITTON 25

craftsmanship of uniquely designed leather goods and trunks that differentiated it from its

competitors. LV has strategically managed its company’s values in such a way that Louis

Vuitton has lead the luxury retail industry for many years. A large part of its success is due to its

aggressive methods to control the critical components of its value chain.

The family owned business had experienced notable success from its beginning, even

after being passed on to the founder’s son, George Vuitton. George is credited for expanding

product line origination. He was also responsible for the company’s initial strategic action of

global expansion in 1893. In 1977, the family experienced a profitability decline within the

company. It was decided that it not only needed to focus on innovation, but to effectively

implement global expansion, it needed to stronger business driver. Henri Racamier was brought

in to expand the company’s growth. After analyzing the company’s financial report, it was then

that Racamier discovered weaknesses in the company’s value chain. The company was losing

most of its profits to the merchants. It was then that value chain integration first was adopted as a

part of the company’s strategic action plan. Racamier sought more control of its value chain by

implementing vertical integration, which cut out the merchants, directing profits back to the

company. Other strategic action included acquisitions of other luxury companies to increase its

profitability, and becoming a publicly traded company which financed the company’s expansion

efforts. Recamier’s final efforts to strengthen the company’s competitive advantage, led him to a

merger between Louis Vuitton and the industry powerhouse, Moet Hennessy. The merger

ultimately was a success for the company financially, however, the family lost its controlling

position as owner. Louis Vuitton Moet Hennessy (LVMH) is currently run by Bernard Arnault a

wealthy Frenchman, known for his focus on profitability and efficiency. Today Arnault

continues to operate the group on the same strategic actions implemented before his control. The
LOUIS VUITTON 26

LVMH group maintains control over its value chain operations in an effort to support the four

critical components of it business model “- product, distribution, communication and price”

(Strategic Management, 2014).

Deloitte’s 2014 report of luxury retailers, states that “Luxury goods companies keep tight

control over all aspects of business – from product design and sourcing raw materials to

manufacturing, marketing, and distribution. Ownership of successive stages of the value chain

for the company’s products(s) helps ensure the brand-appropriate levels of quality and service

can be maintained, thus protecting brand heritage. As a result, vertical integration has become

another important driver of M&A activity in the luxury goods sector” (Deloitte, 2014, p. 24).

General Administration

Human Resource Management. Louis Vuitton stands behind its founding values. The

HR director states that “Women and men are the most precious part of the fashion house”. The

company has more than 19,000 employees serving in one of its eight departments which consist

of design, manufacturing, logistics, retail, marketing, finance, information systems, and human

resources (Louis Vuitton Careers, 2014).

Training workers is a critical component to protecting the quality of Louis Vuitton’s

brand. Louis Vuitton craftsmanship is an asset which can only be acquired through training to

workers who are experts with the company’s practices and processes for capturing high quality

construction worthy of its brand (Strategic Management, 2014). The company is attracting new

innovative talent by offering an internship and graduate programs (Louis Vuitton Careers, 2014).

Workplace Diversity. The heritage based, luxury retail leader, Louis Vuitton (LVMH)

has committed to tactical actions of reforming its historically male rule executive level make up.
LOUIS VUITTON 27

Louis Vuitton has pledged to promote more women to its Board of Directors in efforts to comply

with new regulations supporting equal opportunity in Europe. The company is planning to

increase the makeup of its Board of Directors to 40 percent by 2020. Despite the fact that

women graduates make up a larger portion than men in the European region, at an impressive

rate of 60 percent, the percentage of women at the executive level in the largest companies

average only 12 percent. LVMH’s committed to restructure its overall makeup to increase the

representation of women will undoubtedly increase its corporate image rating as a leader in the

luxury retail industry (Diderich, LVMH In Pledge To Women, 2011).

Technology Development. Efficiency was the drive that led Louis Vuitton to incorporate

a new production process utilizing automated robots which improved yearly production by 5 %.

The robot was implemented to reduce time walking which resulted in an increase in production.

However, the brand received backlash which suggested that LV claims of “Handcrafted” was

questionable after deciding to make the process improvement (Strategic Management, 2014).

Procurement. Luxury retailers strived to implement in house production, which limited

the supplier’s power in the industry. LVMH incorporated an efficient approach that controlled

innovation of product designs, selections of high quality raw materials and artistic craftsmanship

all in house. Suppliers that were hired as a part of the company had to meet stringent

requirements before being considered. LV’s products are a critical component in sustaining its

exclusivity. Exclusivity involves rarity of style designs, constructed in rare materials by skilled

craftsman.

Primary Activities
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Manufacturing. Louis Vuitton’s success has forced it to expand its manufacturing

facilities to meet the demand for its growing product lines. LV maintains 17 facilities located in

France, Spain and the United States. Decisions surrounding where to build a luxury company’s

manufacturing facility is strongly related to its brand value. Some regions associated with cheap

labor practices could have a negative impact on the craftsmanship of the product causing it to

lose perceived value from customers.

Inbound Logistic: LVMH incorporates an in-house production policy which includes the

high quality materials used to construct its leather goods. A limited supply of components such

as zippers, and buckles are outsourced from the Asian region (Strategic Management, 2014).

Singapore, is the leading logistics hub in Asia, to which LVMH utilizes for its inbound and

outbound logistics in the Asian region (Brown, 2013).

Outbound Logistics. LVMH’s micromanagement approach extended into the company’s

distribution strategy. LVMH regulates product distribution by owning its stores. The brand

image is controlled by strategic plans generated from France encompassing its essence of origin,

which maintains the integrity of the brands across borders. The experience in a store in France

should be the same experience in U.S. Store. To further control distribution, leaders elected not

to engage in any third party licensing agreements or wholesale relationships.

Marketing. Marketing strategies that assisted Louis Vuitton to increase its competitive

advantage include partnership with well-known creative designers like Marc Jacob, who was key

in expanding LV designs to include exclusive collections by artist (Chick, 2013). Other strategies

include online selling, and newly promotion efforts by utilizing YouTube videos targeted at

capturing the Louis Vuitton brand experience (Louis Vuitton, 2014). Louis Vuitton also has
LOUIS VUITTON 29

created a strong connection with its luxury goods, Art and Fine wine to achieve the ultimate

exclusive experience (Strategic Management, 2014).

Louis Vuitton has also engaged in marketing through social media. The brands has

presence and interacts followers on all the popular social media sites such as Facebook, Twitter,

Pinrest, Google+, Instagram, and Foursquare (News, 2014).

Marketing Partnerships. Differentiation in the luxury industry becomes more

challenging as the market expands globally and demand increases, resulting in the market being

saturated with luxury products. This growth can be counterintuitive to the element of brand

exclusivity. Market growth dictates increasing sales growth, which could lessen the brand

element of exclusivity. LVMH takes the risk of commoditizing its product very seriously. The

market’s perception of Louis Vuitton’s products becoming a household commodity, warranted

seeking strategies that would continue to set it apart from less than luxury brands as well as

differentiate the brand from competing luxury brands. Louis Vuitton implemented “artistic

partnerships” with popular Artists such as Marc Jacob, Murakami, Yayoi Kusama and others

who designed exclusive collections. The Artists created designs with bold colors with a flare of

graffiti to some of the traditional LV handbags and accessories. (Chick, 2013).

Service. The Louis Vuitton experience is a vital part of its brand value. The heritage

served a royalty clientele and therefore much of the company’s practices are centered on a royal

experience. The procedures used to ensure customers have an uninterrupted shopping experience

is iconic of luxury. The procedure provides the customer with a devoted attendance (Strategic

Management, 2014).
LOUIS VUITTON 30

Mergers and Acquisitions. The benefits of merging seem to have been a strategy of the

past, while acquisitions has proved to be a vital part of the LVMH’s strategic action plan. LVMH

has acquired over ten luxury companies from 1996 to 2011. The company’s strategy has turned

investment strategies to secure stakes in companies, like its top competitor Hermes. (Strategic

Management, 2014).

SWOT Analysis

Louis Vuitton (LV), the top brand in the LVMH group ranked number ten on Forbes

“World’s Most Valuable Brands” list as of November 2014. Forbes commented, “It is one of the

most profitable brands in the world with profit margins approaching 40%” (World's Most

Valuable Brands, 2014). LV’s far out valued its competitors’ ranking thirty-nine (Gucci), forty-

seven (Hermes) and sixty-nine (Prada). Although, Louis Vuitton is the strongest performing

brand in the LVMH group, the 60 plus luxury brand portfolio dominates the market on the merit

of diversity.

The MarketLine Research Company conducted and published a SWOT analysis report on

the LVMH Moet Hennessy Louis Vuitton SA in August 2014. MarketLine reports…

Strengths

Extensive power brand portfolio increases leading industry sales revenue. LVMH’s

power brand portfolio reflects the firm owns in excess of 60 luxury brands expanding across five

different product segments. The MarketLine analysis featured five of the group’s premier brands

from its wine and spirits segment from “champagne brands such as Moet & Chandon”

(MarketLine, 2014, p. 4) to its “world famous brand, specializing exclusively in high-end

vintages” Krug (MarketLine, 2014, p. 4) brand.

LOUIS VUITTON 31

The second product segment listed some of its brands in the “fashion and leather

segment” (MarketLine, 2014) highlighting the crown brand, Louis Vuitton, fur brands such as

“Fendi” (MarketLine, 2014, p. 4), and “Rossimoda, a brand specializing in the manufacture of

luxury women’s footwear” (MarketLine, 2014).

“The Watches and Jewelry” (MarketLine, 2014, p. 4) segment detailed an expanded list

of brands known for luxury watches from sports to high end watchmakers like Tag and Zenith to

“Bulgari, the pace-setter for Italian fine jewelry” (MarketLine, 2014, p. 4 & 5).

The final segment in LVMH’s portfolio is the “perfume and cosmetics segment”

(MarketLine, 2014, p. 5) comprising of French, Spanish, Italian and American brands such

Christian Dior, Guerlain, Benefit Cosmetics, Acqua di Parma, Parfums Loewe and ForEver.

MarketLine reports that “A strong brand portfolio helps LVMH in increasing brand awareness

and brand recall among its customers in most of its key markets. Also, it helps the company in

attracting new customers thereby increasing its customer base” (MarketLine, 2014, p. 5)

In addition to the four previously mentioned segments LVMH operates luxury retail shops

targeted at travelers named DFS. DFS is located in Abu Dhabi, Auckland, Bali, Cairns, Guam,

Hawaii, Hong Kong, Macau, York, Okinawa, Singapore, and Sydney. DFS offers a premier

experience strategically located in 18 International airports and T Galleria (T Galleria, 2014).

Exclusive multi-brand business sectors and global market existence. The multiplicity

of LVMH’s sectors is representative of the origination of its product lines. The prominent

International synergies of its product segments have generated notable financial outcomes.

MarketLine reported “fashion and leather goods segment generated 33.7% of the total revenues,

and was followed by selective retailing (30.5%), wines and spirits (14.3%), perfumes and

cosmetics (11.1%), and watches and jewelry (9.4%)” (MarketLine, 2014, p. 5).
LOUIS VUITTON 32

The LVMH’s massive global presence dominates its competitors. Starting 2014, LVMH

had 3,384 stores methodically placed in Europe, France, United States, Spain, Asia, Japan and

other countries. Operating a large span of stores, inventoried with luxury lifestyle essentials of

wine and spirits, fashion and leather goods, watches and fine jewelry, as well as perfumes and

cosmetics defends the firm from suffering total or sizeable loss if one markets encounters a

business crisis such as a geographical economic decline or natural disaster (MarketLine, 2014).

Continuous strategic improvements affords high annual ending cash. LVMH’s Fiscal

Year 2013 performance benchmarks recorded increases from 2010 in revenue, profitability, and

net profit at compounded annual growth rates of 13%, 11%, and 4%, respectively. This cross the

board growth afforded the firm to close the year with ending cash and cash equivalents at

estimated at $4,277 million. Continuous strategic improvements resulting in high ending cash

balances, positions the firm to act quickly when opportunities to heighten its competitive

advantage come about.

Weaknesses

High financial debt. LVMH’s net financial debt reflects the ups and downs over the

last three years since 2011. The firm closed out 2013 with a less than impressive amount of debt

at $7,088 million (MarketLine, 2014). High financial debt lowers the firm’s creditworthiness,

which could limit its ability to implement future company enhancements such as technological

advancement, react aggressively to unexpected expansion opportunities (MarketLine, 2014).

Opportunities

Building a stronger group by acquiring other multi-brands and by building an

investing interest in other brands. As previously stated, Louis Vuitton achieved began
LOUIS VUITTON 33

implementing strategic acquisition planning as early as 1996 when it acquired, Celine fashions

and the winery Chateau d’Yquem (Strategic Management, 2014). This strategy is still a major

part of the LVMH growth plan. MarketLine reported that “LVMH acquired Hotel Saint-Barth

Isle de France located on the island of St. Barts in the French West Indies from majority owner

Adventurous Journeys Capital Partners (AJ Capital Partners) and others; the 80% stake in Italian

cashmere clothing brand Loro Piana for about E2 billion (approximately $2.57 billion). Loro

Piana operates a network of more than 130 exclusive boutiques where products are distributed

under the Loro Piana brand name; and the 80% stake in the business which controls the

Pasticceria Cova cafe in Milan” (MarketLine, 2014, p. 6).

In 2013 LVMH strategically targeted three companies that could potentially be added to

its existing brand portfolio under the wine and spirit segment, and fashion segments. MarketLine

reported that “LVMH acquired an additional 30% stake in Chateau d’Yquem (a wine brand)

increasing its ownership interest to 95%. In September 2013, LVMH acquired the 52% stake in

Nicholas Kirkwood, a British luxury footwear company. Also, during FY2013, the company

raised its stake in Marc Jacobs, a fashion brand for men and women, to 80%” (MarketLine, 2014,

p. 6).

Positioned for Asian market growth. Industry trends are supported 60% favorable

growth rates in the Asian region specifically China and India. China’s economic growth,

resulting in consumers experiencing added disposable income has influenced a rise in demand

for leather goods, watches and jewelry. LVMH has strategically expanded its presence into the

emerging markets with premier brands “including Louis Vuitton, Parfums Christian Dior,

Guerlain, BeneFit Cosmetics, Fresh, Zenith, Donna Karan, Thomas Pink, and Acqua di Parma”

(MarketLine, 2014).
LOUIS VUITTON 34

Threats

Damaging counterfeit products. LVMH has a well-known reputation for fighting

against counterfeiting operations. With the increase of internet marketing and sales,

counterfeiters’ can conveniently market to a broader consumer base. LVMH’s latest effort to

combat the illegal trade on its brands involved Google and EBay. LVMH argued that search

engines like google and online auction platforms like EBay should be held accountable for

selling ads and auction platforms that make counterfeiters more successful at what they do.

(Diefenback, 2014). MarketLine Reported “According to the Intellectual Property Rights (IPR)

Seizure Statistics by Customs and Border Protection (CBP) Office of International Trade, the

number of IPR seizures in reached 24,361 in 2013, an increase of nearly 7% compared with

2012. The counterfeit trade in watches/jewelry accounted for 29% of the total manufacturer's

suggested retail price of the seizures in 2013. Counterfeits of LVMH's brands are available in the

market. For instance, in 2010, Philippine law-enforcers seized over 28,000 pieces of counterfeit

Louis Vuitton goods worth more than $4 million. The seized products included handbags,

pouches, leather cases, shoulder bags and other accessories bearing the company's logo”

(MarketLine, 2014, p. 7). The various product segments impacting LVMH could unfavorably

affect its reputation as a luxury brand and its customer loyalty. If the customer’s perception of

the LVMH brands genuine product lacks distinction from the counterfeit products, LVMH

customer could transfer their loyalty to one of LVMH’s competitors (Olorenshaw, 2011). The

company’s efforts to counteract the realized and the potential damage caused by counterfeiters

could be a major ongoing expense for the company.

LOUIS VUITTON 35

Intense competition. The threat of losing market share increases when companies are

faced with intense industry competition. “The markets for fashion and accessories, perfumes,

cosmetics, watches, and jewelry are highly competitive. In each of its geographic markets, the

company faces significant competition from global and regional branded apparel, perfumes,

cosmetics, watches, and jewelry companies” (MarketLine, 2014).

Rising labor costs in the US and Europe. Twenty-seven of the fifty-one states in the US

have higher minimum wage than the current federal minimum wage of $7.25. LVMH operates

two production facilities in the state of California, where the current minimum wage is $9.00 and

scheduled to increase $1.00 in January 2016 to $10.00 (2014 Minimum wages by state, 2014).

Europe’s minimum is currently reported by Eurostat at $1445.38 EUR. That is the highest

minimum wage has been in France (France Minimum Wages, 2014). LVMH operates twelve

production facilities in France. The increase in labor cost (with all else constant) will negatively

affect the company’s profit margin (MarketLine, 2014).

Strategy Formulation

Strategic Alternatives One – Business Level Strategy: Creating and Sustaining Competitive

Advantage through Differentiation

Design an exclusive luxury online shopping experience. Technological trends report

that dynamic model applications and infrastructure offer companies a competitive advantage

because most businesses only achieve competitive parity by utilizing similar software packages

(Gartner, Inc. , 2014). It is my recommendation that LV invest in a breakthrough exclusive

luxury online experience that encapsulates the exclusivity, passion and perfection of the brand.
LOUIS VUITTON 36

The LV platform should offer customer a real time, personal, video based interactive experience

that transcends them anywhere in the world.

Alternative One Evaluation

The current LVMH online presence seems to lack its top leading quality as one of the top

ten most valued brands in the world. The site offers fashion, history, news, video and other

common web features, but it lacks the valued brick and mortar personalized shopping

experience. The general environment trend shows that people are demanding more ways to

engage in 24 hour access to information and secured shopping opportunities. Raising the quality

of LV’s online shopping experience would afford it to take advantage of the opportunity to meet

customer demands, and take brand exclusivity to the next level. The core competencies and

synergies that Louis Vuitton has focused on designing its high end fashion, leather goods,

watches and jewelry products should now be targeted on capturing and dominating the online

shopping experience.

A personalized luxury online shopping experience personalized would attract a broader

customer base in each customer segment, which would in turn increase. The brand market share.

The brand's exclusivity would be taken to another level because this platform offers privacy with

a personal shopping service. The in store experience can be competitive experience among

shoppers. This platform will meet the customers demand for exclusivity, high quality,

customization and uninterrupted service.

Strategic Alternatives Two – Focus Strategy

LVBB -Baby Boomer Exclusive Collection. The demographic makeup of the

population is changing in the world due to longer life expectancy. In America the baby boomers
LOUIS VUITTON 37

are entering the stage of retirement and the population at large is experiencing an increase in

disposable income. Potential opportunities a present within the senior demographic. Louis

Vuitton is a heritage luxury brand that has a history of creatively establishing connections

between its customers and the brand. In the past product designs incorporating bold colors and

with an urban flair have targeted the younger demographic. Adding the LVBB limited exclusive

collection, endorsed by a well-respected senior celebrity or fashion icon could offer a more than

favorable sales.

Alternative Two Evaluation

Louis Vuitton is equipped to develop this niche differential strategy by utilizing its

existing resources of the creative design, production, and marketing teams. Added resources may

include investment into research and development, as well as financing the partnership with

well-known and respected celebrity. The LVBB collection should be symbolic of legacy,

heritage, great value and class.

Strategic Alternatives Three – Corporate Level Strategy through Diversification

Reversing big data usage. The rising trend of businesses investing in big data to help

effectively market to its current and potential customers by tracking online behavior is growing

today. This fairly recent approach to attracting new customers and building relationship with its

existing customers, exposes the average online browser to an extensive list of eCommerce

businesses. Marketing practices among business affiliates and exchanging of customer email

data, will increase the number of emails received by online users. Periodically, users receive

emails from unsolicited ethnically questionable websites. Information about these questionable
LOUIS VUITTON 38

websites could accelerate the crackdown on counterfeit products sold via the internet, if the

reporting process was convenient, confidential and effective.

Technology is not only allowing the population to access information 24/7, it is helping

law enforcement to crackdown on criminals by sharing videos recorded on company surveillance

cameras, and witness’ cell phone. It is the collaborative efforts between the average citizen,

businesses and the local authorities that are producing effective results against crime. LVMH

should develop an Anti-counterfeit social networking website that is unassociated with the

LVMH brand but with the luxury industry. The website should offer a platform that allows

members to make connections with other members based on geographical location, brand

loyalty, counterfeiting experiences, etc. The site should also offer a page to report suspicious

websites. Education and awareness of the negative effects of buying counterfeit products should

be the main component of the site. Educating the public with videos and documentaries could

help to turn existing and/or considering buyers away from this illegal practice. The average

consumer is the target market for counterfeiters that could offer the insight to luxury brands such

as LVMH, and the authorities to crackdown on counterfeiting.

Alternative Three Evaluation. Creating an elite anti-counterfeiting society through

social media is a feasible strategic action for LVMH. My recommendation would be that all

luxury brands would partner with this effort to combat the destruction of the counterfeiting trade.

The project should be developed with the face of the general consumers who strongly opposes

the selling of counterfeit goods. This venture would be financially backed and operated by

LVMH.

Alternative Choice
LOUIS VUITTON 39

My choice is alternative one, implementing differentiation to exclusive luxury online

shopping. Strategically designing an exclusive luxury online shopping experience that no other

company offers will set Louis Vuitton as a leader in online selling.

Strategic Implementation

Strategic implementation of the LV online shopping experience would require research

and development, creative vision, thorough planning, dedicated resources and financial

investment. As previously stated, the existing level of creativity within the company and the

attention to detail is needed to design, develop and implement this platform. To effectively

operate the online division, specific staffing is required to focus directly on the online

experience. The marketing and design team would be required to create a real world experience

for the customers. The online experience should offer the customer a feature that is exclusive to

online shopping only, such as an assigned LV VIP key that opens the doors to the LV Gallery.

The IT team must be cutting edge innovators, as the visuals as well as the customer and

salesperson interaction has to transition seamless.

The upfront cost to fund this online experience will be expensive, however the long term

profits will far outweigh the initial startup cost. Successfully implementing this LV exclusive

online shopping experience would afford it the opportunity to increase estimated average online

sales of 6.4%. This implementation, if exceeds expectation, has the potential to lower operating

cost by requiring less in store staffing.

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References

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