Lvmh: Diversification Strategy Into Luxury Goods

LVMH: Diversification Strategy into Luxury Goods

Strategic Issues

By 2002, Moet Hennessy Louis Vuitton was the world's largest luxury products company, enjoying annual sales of 12.2 billion euros. LVMH carries the most prestigious brand names in wine, champagne, fashion, jewelry, and perfume. Upon entrance of this luxury product industry, LVMH was aware that they produced products that nobody needed, but that were desired by millions across the world. This desire in some way fulfills a fantasy, making consumers feel as though they must buy it, or else they will not be in the moment, and thus will be left behind.

The LVMH business portfolio began to take shape in 1987 with the merger between Louis Vuitton and Moet Hennessy which was a four billion dollar merger. Over the course of time, LVMH has acquired over 50 luxury brands, such as Donna Karen, Fendi, and Sephora. They called it, "a collection of star brands and rising stars." LVMH found this industry to be timeless and modern, highly profitable, and very rapid growing.

Despite all of the above mentioned, LVMH did experience some bumpy times. Some of these times were induced through internal problems, while others were caused by externalities, like Sept. 11. With such a wide range of product offerings, LVMH was on top of the industry in certain aspects, but has room for growth in other areas. One instance in particular nearly caused a division in the company. Hennessy believed the company should focus on wine, spirits, and champagne, however Vuitton wanted to focus on fashion and leather goods. The decision fell into the hands of Bernard Arnault, who became president of LVMH, and sided with Hennessy.

Analysis and Evaluation

Under Arnault, the company was the world's leading luxury product group. Arnault believed that LVMH control of retail chains was critical to luxury brand success. The finer points of retailing were believed to be, influencing of the overall image of luxury products, as much as the product attributes.

LVMH was able to broaden the company's media operations, create new retail outlet, enhance their line of champagne, and open fashion houses, like Fendi. LVMH found their corporate strategy was diversification into a wide variety of luxury products. They grouped all of their brands into six different business units. Their wine/spirits unit possessed the number one champagne/cognac, and even more importantly, the unit shows signs of a growing market. Their fashion/leather goods outpaced many of their key rivals. The perfume/cosmetic unit witnessed an increase in growth rate, and led to an opportunity for LVMH. Although they experienced a growth in sales in this area, they were only ranked #7 in the industry, giving them something to work to improve.

With their other business acquisitions, LVMH was able to pick up print publications, newsletters, a radio network, an advertising company, press agency, and Internet sites. The e-luxury website offered fifty plus of the world's most exclusive brands. The website was a huge success; it is believed that the only reason LVMH experienced operating losses were due to development and expansion costs.

Speaking in a corporate sense, much of LVMH's growth was due to new business acquisitions. Expansion and internal growth occurred by exploiting common strategies and capturing strategic benefits across the portfolio. Their strategy was based on core values essential to the success of each business unit. Each of these corporation's businesses demonstrated commitment creativity, innovation, and product excellence. In order to achieve long-term success, LVMH decided it would best be achieved through artistic creativity, technological innovation, and attention to detail. Image meant priceless and irreplaceable. In order to achieve image, stringent management was required to control over every element of a brand's image. LVMH sought to have control over distribution and sales, this in order to better listen to consumer needs; to learn their tastes and desires.

There are five main aspects to the strategy of LVMH, they are product quality, innovation, image, craftsmanship/production process, and risk tolerance. In regards to product quality, LVMH has acknowledged, "the quality of timelessness takes years to develop, a company must pay their dues." This meaning the company must come to stand for something. There are torturous processes through which the products go through to ensure that they are of a quality and standard above all the rest. LVMH also employs only dedicated people, and keeps them for a long time. This is all in an effort to contribute to longevity, timelessness, and authenticity.

As for innovation, this is sometimes harder to guarantee than quality. It is important to merge the old with the new; it is important to honor the past and invent the new at the same time. It takes a special person to work for LVMH, especially in regards to management. Management must discover talented artists and designers and trust them enough with the privilege of complete creative freedom without any limits. LVMH uses a decentralized approach to allow great work to be accomplished. The central headquarters for LVMH, located in Paris, is very small.

Growth is considered the right balance between timelessness and fashion. Growth was available in new markets developing countries, and products, of high desire. It is important that advertising projects brand image. LVMH has all advertising done by the design team, as opposed to the marketing team. This is in effort to keep proximity between the product and its message.

Craftsmanship and the production process are carefully planned out each