[IB - Group 4] LVMH Going Global PDF

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LVMH GOING GLOBAL

FOREIGN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS ---------***--------

INTERNATIONAL BUSINESS MOËT HENNESSY LOUIS VUITTON’S GOING GLOBAL GROUP 4

Mai Ngọc Quỳnh Anh – 1711140002 Nguyễn Thị Phương Anh – 1711140005 Vũ Phương Anh – 1711140008 Đỗ Hải Kiên – 1711140044 Đại Thị Thuý Quỳnh - 1711140074

Ha Noi, October 2020 1

TABLE OF CONTENTS 1. HISTORY OF MOËT HENNESSY LOUIS VUITTON ............................3 2. ORGANIZATION STRUCTURE .................................................................6 2.1. Detailed product division structure ..................................................... 6 2.2. Organization analysis............................................................................7 3. STRATEGY ...................................................................................................9 3.1. Innovation efforts in all sectors.......................................................... 11 3.2. Local First or Global First ................................................................. 12 4. LVMH IN CHINA .......................................................................................13 4.1. Overview of china luxury market ...................................................... 14 4.2. Opportunities & Challenges ...............................................................14 4.3. Strategies applied in Chinese market ................................................ 19 5. CONCLUSION AND COVID-19 UNCERTAINTY EVALUATION ....... 19 REFERENCE..................................................................................................25

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1. HISTORY OF MOËT HENNESSY LOUIS VUITTON A symbolic one franc (~1.09 dollar) is all that Bernard Arnault, LVMH’s founder, paid for Boussac, a near-bankrupt textile company, back in 1984. From this tiny acquisition, Mr Arnault built LVMH over the past four decades into the world’s largest luxury group by revenues and became Europe’s richest man in the process. LVMH’s €46.8bn sales last year were more than three times the size of its nearest rival, Kering, worldwide. The growth of LVMH was propelled by Mr Arnault’s voracious appetite for deal-making. Deals were used as a way to expand beyond LVMH’s roots and enter new sectors.

Here’s a timeline of some of the biggest brands LVMH has acquired to build its luxury empire. 1987 - Louis Vuitton, Hennessy and Dom Pérignon. Louis Vuitton, the most valuable brand in the world for the year 2019 with products spanning leather goods, ready-to-wear, accessories, shoes, watches and jewellery, became an integral part of LVMH when it merged with Moët Hennessy to form the corporation. Later on, Hennessy, one of the world’s leading cognac producers, was also owned by LVMH (66%) and Diageo (34%). As a result of the merger with Moët Hennessy, Dom Pérignon was controlled by LVMH when it bought Moët & Chandon.

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1988 - Givenchy. With the first women’s ready-to-wear collection in 1952, Givenchy ventured into men’s fashion as well as cosmetics and fragrances later on. The brand was bought over by Henry Racamier, LVMH’s then-vice chairman and president, in 1988. 1996 - Celine, Loewe. Founded in 1945, French ready-to-wear and leather luxury goods brand Celine was first purchased by LVMH chairman and CEO Bernard Arnault via his holding company in 1987. The brand was then integrated into the LVMH group for US$540 million in 1996. In the same year, LVMH bought another ready-to-wear and leather luxury goods label, Loewe, one of the world’s most renowned luxury houses today. 1997 - Marc Jacobs, Sephora. The majority stake of Marc Jacobs was bought by LVMH at the same year as the French-based multinational beauty chain, Sephora was acquired by LVMH in July when it features over 300 brands, including its own label, in over 2,600 stores across 34 countries. 1999 - Benefit Cosmetics. Founded by twin sisters Jean and Jane Ford in San Francisco in 1976, Benefit Cosmetics has grown its business to over 30 countries worldwide today. The company was bought over by LVMH in 1999. 1999 - TAG Heuer. In a move to boost its watch portfolio, LVMH spent US$736 million for 50.1 percent of stock in Swiss sports watchmaker TAG Heuer. 2000 - Emilio Pucci. Created in Florence in 1947, Emilio Pucci was acquired by LVMH after LVMH’s paying an undisclosed sum for a 67 majority stake. 2001 - Fendi. In 1999, LVMH and Prada invested in 51% of Fendi’s stakes via a joint venture. Two years later, Prada sold its share to LVMH for US$225 million – a decision driven by a mountain of debt from its aggressive acquisitions. Since then, LVMH has increased its stakes to 85%. 2011 - Bulgari. LVMH made a deal with the Bulgari family to transfer their 50.4 percent shareholding in the Italian jewellery company in exchange for 3 percent of LVMH. The deal cost US$6.01 billion.

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2017 - Christian Dior. – With Bernard Arnault being the majority shareholder, chairman and CEO of both Christian Dior and LVMH, the relationship between the two companies is closely interlinked. Having owned Dior Parfums since the ‘60s, Arnault consolidated control over Dior for US$13.1 billion in 2017, folding operations into the LVMH empire. Dior also owns 42.36 percent of shares and 59.01 percent of voting rights in LVMH 2019 - Tiffany & Co. LVMH paid a whopping $16.2 billion for Tiffany & Co. at a rate of US$135 per share. The conglomerate had upped its offer from the initial $14.5 billion bid made last month, making the deal the most expensive acquisition in LVMH’s history.

Along the merger and acquisition timeline, it can be observed that LVMH has been diversifying its product lines, from perfumes and cosmetics, wines and spirits and fashion and leather goods, to selective retailing and watches and jewellery. LVMH had a crystal clear strategy to boost jewellery business through merger and acquisition activities, especially with the largest acquisition of The Tiffany in 2018. Age does not appear to have dimmed 70-year-old Mr Arnault’s hunger for deals. He told the Financial Times that: “We are still small. We’re just getting started. We are number one, but we can go further.” 5

2. ORGANIZATION STRUCTURE LVMH, world leader in the luxury goods industry, has adopted a global product structure wherein the business’s diverse product categories are managed separately. 2.1. Detailed product division structure The merger between Moet Hennessy and Louis Vuitton has created the world's largest luxury goods group, LVMH Group, including perfumes Christian Dior, Tag Heuer watches, Louis handbags. Vuitton, Moet & Chandon champagne are part of the group's merchandise brands. The LVMH group comprises 75 exceptional Houses that create high quality products. It is the only group present in all five major sectors of the luxury market. The lack of similarity between many product lines has led to the LVMH Group divided into 5 divisions, each focusing on a separate market segment on a global scale •

Wines & Spirits

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Fashion & Leather Goods

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Perfumes & Cosmetics

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Watches & Jewelry

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Selective Retailing An operating model is anchored by six pillars:

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Decentralized

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Organic growth

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Vertical integration

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Creating synergies

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Sustaining savoir-faire

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Balance across business segment and geographies Although there are overlaps in specific markets, distribution channels, and

supply chains, these parts are relatively independent. Different subsidiaries of

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different product divisions operating in the same overseas country report to different departments and divisions at the head office. Similar to the functional model, the product division model is designed to be in line with a global strategy. One department is in charge of operating both domestic and overseas markets for the same products. This department can take advantage of the experience and knowledge between the two markets (for example, sharing successes or failures in different markets). 2.2. Organization analysis This is a suitable structure for a highly economically integrated multi-national company. LVMH likes to boast that its global brands unite consumers into a worldwide elite through their highly-recognised motifs and standardised (though quickly replaced) designs. This brings advantageous economies of scale. As a retail brand, LVMH could expect to save 30% of its commercial costs – advertising, rent, shop assistants – each time it doubles in size . Indeed, LVMH uses marketing to change consumer tastes to suit the firm’s existing offerings, not vice versa. Efforts to encourage Asian middle classes to embrace LVMH’s European sophistication have taken off in recent years. At the same time, the structure helps LVMH build and maintain the link between product development personnel and customers, placing brand experts at the helm. Because of this, the firm has been proactive in keeping up with global trends. In addition, the product division model enhances sales capacity or launches new products or stops selling a certain product line because the product lines are unrelated. Of course, there will be repetitive functions or activities between product departments and there is also a difficult chance or way that a product division can learn from national experience and from another product department. To further analysis pros and cons of the group’s organizational structure, we conduct a BCG matrix

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Matrix explanation: A high market share becoming a BCG matrix star and it belongs to the Fashion and leather goods sector, which means this sector has a high-growth market. Stars can generate large cash flow for the business, as same as the largest account for the revenue from LVMH. Stars are the targets to establish a dominant position in the industry. For instance, Louis Vuitton entered into new markets, Lebanon and Dominican Republic; accelerated global expansion of Marc Jacobs; and to maintain policy of targeted investments and rigorous cost management for other brands. The sector of Watches and Jewelry is located at the middle of star and question mark, which has the high potential in market growth but accounts for a little market share. The strategy is to continue to gain market share, pursue upmarket positioning through strong innovation and selective expansion of monobrand store networks.

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Cash cows are Wine & Spirits and Selective Retailing spectrums that have high market share in a low-growth market. They are usually well-established products with wide consumer acceptance, so sales revenues are usually high. LVMH has to continually maintain rigorous management of costs and inventories and increase marketing programs like e-commerce in order to retain the market growth. Dogs are the businesses with low market share in low-growth markets. In LVMH, no one is belonging to this quadrant. 3. STRATEGY LVMH is globally known as the world leading luxury goods companies. LVMH was established by the merger of two fashion houses, called: Louis Vuitton and Moet -Hennessy. LVMH produces and sells wines and spirits, fashion and leather goods, perfumes and cosmetics, watches and jewellery and selective retailing. However, the majority of sales comes from the fashion and leather goods division. LVMH operates globally and in addition to this LVMH has many offices in countries worldwide. Besides, the firm operates in different segments and offers a wide range of different brands. However, the international strategy differs per product group. LVMH has global 10 operations as well as it has its offices in different regions. The firm applies the combination of multinational and global as it provides better inner control and responsiveness. LVMH provides local responsiveness in product lines like wine and spirits as per the local regulations and to adjust with the environment. In contrast, some product lines need more integration rather than local responsiveness like fashion and leather products, because the worldwide need for the kind of fashion and leather goods is almost the same. LVMH’s competitive advantages are what set it apart from the competition. One source of Louis Vuitton’s strategic capabilities is in its brand names, reputation, and marketing know-how. The company is able to avoid competitors by securing a niche and is able to outperform competitors because of their focused differentiation strategy. Within this strategy, LVMH is able to price their items at a 9

premium, give consumers products with superior quality, prestige, and exclusivity, and invest in rapid innovation and high customer service. LVMH can then mitigate buyer power and the ability of substitutes to take business because customer sensitivity to price increases is low and consumers stay brand loyal. Formerly, medium sized firms dominated the marketplace. However currently there are simply a few big players in the blissful luxury market that grew due to acquisitions. In the luxury industry globalization means the introduction of conglomerates. The main strategic issue in the LVMH case is the development and change in the blissful luxury market in relation to globalization. Additionally, those conglomerates do follow a multi-brand strategy, which may be described as producing and selling of several competing products by the same company under different unrelated brands. The goal of a multi-brand strategy is to permit organizations to grow without overexploiting a particular brand and killing exclusivity. Firms seek to stretch their brands to attract new customers. Among the benefits would be that the companies become stronger and also have to cope with less competitors. Besides, organizations dominate the market through padding all quality and price spaces. Nowadays, the range of products in these companies has increased due to globalization. In the luxury market, LVMH has gained the opportunity to be first-mover in Blue Ocean to be pioneering the cost in the luxury products. It has the most diverse international process in all the operations. Company is not limiting itself, as a result, they are Introducing new products, mergers and acquisitions, entering in emerging markets for e.g. geographical expansion to China and other Asian countries also helps the organization to enter into Blue ocean due to unique features. The core businesses of LVMH like fashion, leather goods, watches and jewellery have the highest industrial attractiveness and competitive strength and being a first mover the company has increased the barriers to entry by capturing key assets in target markets as a market entry strategy. Market selection plays a major role as the company focuses on the market where the demand for the luxury product is increasing so they look for customers preferences in different regions. However the

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market of LVMH is limited to the specific companies with strong economies like Japan from where company generates 20% of its profits and the second biggest market is US but as the revenue got reduced during the time of crises from the major market and such issue it was the only luxury company to survive recent financial crises as per the reports. LVMH keeps the reputation of its origin as well as adapt the products to the local needs of the people by keeping tight and lose control over SBU’s. 3.1. Innovation efforts in all sectors One of the key factors contributing to the success of LVMH is the ongoing innovation effort. It is the quest for excellence that drives the group to combine tradition, savoir-faire, craftsmanship and innovation. Each year, the various Houses launch new products to increase customer loyalty and expansion. Innovation in products, technologies used, distribution channels, acceleration of digital ... is part of LVMH’s DNA. The luxury group grew due to key acquisitions and the development and innovation of new products. The future focus of LVMH is likely the growth into new markets and regions, where China, Russia and Eastern Europe countries can be considered. Every division functions has its own general manager and a management team, besides these divisions also control and manage sales abroad. In selective distribution, Sephora continues its e-commerce strategy by offering ever more innovative and personalized tools such as mobile applications that make it possible to choose the ideal foundation based on its color profile or color- Get in-store or e-store personalized advice (My Sephora). Other initiatives include the participation of the LVMH Group since 2016, at Viva Technology Show (Vivatech), bringing together the main players in digital transformation. They took the opportunity to open the doors of its Luxury Lab and to present some innovations including those of the Maison Guerlain with its digital consultation service to discover its perfume or the connected watch of the TAG Heuer House. The luxury market is constantly changing, nowadays there is a wide range for luxury products since the middle-class market purchases luxury products as well. Besides, the luxury sector is related toward economic conditions. Additionally, the 11

development of growing by acquisitions became an important strategy for many firms in the luxury sector. In many of LVMH ‘s acquisitions it had maintained the creative talent as an independent pool and certainly without the generating of synergies between product lines or brands. For LVMH, quality in production and product development is essential for their success strategy. Moreover, integration, training and top management seminars are designed in LVMH to support business strategies. Not only is innovation being developed internally, but the group is also investing an important role in its external growth strategy. By taking over the German company Rimowa in 2017, LVMH has chosen a company that is already a world leader in the alliance of craftsmanship and precision technology. The German company which produces its new polycarbonate models has also launched the electronic label Rimowa, a pioneer in the registration of luggage thanks to an electronic label equipped with Bluetooth. 3.2. Local First or Global First LVMH is a company with the global strategic vision which provides broadly distributed products which brings lots of benefits to the group as it does so with the lower level of investment in R&D and cheaper transaction costs with greater control. Core operations of LVMH are concentrated in their home market but still they have a global presence and broad access to the markets. LVMH as a global offeror has an advantage of arbitrage, more expansion and market opportunities where the company pre-analyse the risks before making an entry in a new market. The main disadvantage which being global brings to the firm is of a distance which can damage the capabilities and the image of the brand and there is less possibility of being emergent. Reducing the operational risk is the brand's motivation to apply horizontal integration which helps in generating economies of scope and reducing operation cost. By this integration, the company is able to sell more products worldwide and share resources. LVMH has a strategy of MnA to increase its market power. As acquiring another brand is more expensive than setting a new brand but the advantages and long-term benefits derived are more as existing brand has its own 12

identity and novelty. Product strategy of LVMH at maturity stage brings style improvement. According to their place strategy, LVMH has a passion for shaping each store into a unique architectural design. As per the pricing strategy they use premium price and market skimming pricing strategy to reach the market segment which is willing to pay for a unique product. The company keeps high prices, never cuts down the prices and allows no bargaining. LVMH follows a network internationalization process as the brand continues to expand in the promising geographical markets and ...