Case Study LVMH: Managing A Multi-brand ConglomerateTeam 5:Ilario Fulvio GiannettiChen PengPriyesh SalunkeHarjeev SabherwalInna Zinina
What does globalization mean to the luxury industry? Opportunities Threats • Market expansion • Counterfeiting • Low-cost raw materials, equipment and • “Grey” market labor available in the local market • Vulnerable to PEST-EL Factors • To achieve economies of scale and • Successive decrease in brand value scope • Increased competition • Increased margins due to pricing policy • Creation of new competition by • New consumer groups available in the sharing know how local market • Extension of the definition of luxury • To adapt local and new trends for the local market • To source talent globally • Transfer of skills and strengths Conclusion Although there are significant number of threats to the luxury industry, globalization is unavoidable for continuous growth.
Assessment of LVMH’s diversification Strengths Weaknesses • Share operational resources and • Difficulty to manage various competencies across brands and divisions divisions • Different organization structures in • Maintaining exclusivity by multiple countries may cause problems in brands under one division administration and coordination • Strong Balance Sheets help to • Lack of attention and neglecting the absorb losses from unprofitable smaller brands divisions and maintain position • 98% of operating profits are • Selective retailing complements generated by 2 major divisions other brands by providing easy access to all brands Conclusion Although diversification helps in leveraging the synergies, it creates difficulty in the management of the various divisions. Disproportionate profit generation is an evidence of under utilization of non – core division
What is the international strategy of LVMH?The international strategy of LVMH is that of rapid expansion andthat of a first mover. • It has focused most of its acquisition efforts on Acquisitions brands within the luxury segment. • LVMH in its acquisition phase seeks to purchase star brands that evoke innovation and quality • Focus on new product launches Organic growth • Expand its retail network • Increase expenditure on communications
International strategy of LVMHGlobal Global TransnationalIntegration PPR-Gucci Puig L’OREAL HIGH 1 LVMH 3 LVMH SWATCH 2 LVMH LOW Hermes International Multinational LOW HIGH Local Responsiveness
How does international strategy of LVMH differ from itscompetitors? LVMH Richemont PPR Swatch Hermes Both Acquisition and Acquisition Key priority: Organic Both acquisition and Organic GrowthGrowth Organic Growth Growth Organic GrowthStrategy When required: Acquisition 1.Wines & Spirits; 1.Fashion & 1.Fashion & Leather Watches Fashion & Leather 2.Fashion & Leather Leather Goods Goods GoodsProduct Goods; 3. Perfumes & 2.Watches & 2.Perfumes & Cosmetics: WatchesDiversification Cosmetics Jewelry 3.Watches & Jewelry Perfumes 2.Watches & Jewelry Shoes 3.Selective Retailing Expand target audience Elite and Expand target audience Present in all price Elite and ExclusiveTarget when entering new Exclusive when entering new segmentsAudience markets markets Most brands Primarily in Europe and US Globally Primarily in manufactured in Europe FranceManufacturing country of origin and few brands moved to low cost countries 100% exclusive Partly retail Partly retail and franchise Partly retail and 100% exclusiveDistribution and franchise franchisechannelConclusion: LVMH has the most diverse international strategy in all functions. They are notlimiting themselves and they are trying to be the first to reach a broad product clientele byrapid expansion.
LVMH’s core competence Managing creativity No Financial Cost Control In Top Designers Constraint on Manufacturing Designers LVMH’s core competence is managing creativity and this helps in efficient management of the star brands.
How does LVMH manage creativity and its creative assets? Creativity and/or creative assets are managed in the following manner: Design Decentralized design (each brand is independent and run by its own creative director) Managers Small number of managers Profitability Correlation between profitability and creative freedom Talent Emphasis on retaining best talent (Marc Jacobs) Quality Strict control on quality and strong cost control in other areas (i.e. manufacturing) Knowledge Knowledge sharing between parent company and subsidiary Differentiation from competitors: LVMH are more equipped at crisis management when it comes to preserving talent
How well has LVMH exploited its core competences in theirvarious diversification moves and strategic acquisitions?LVMH integrates acquired company in the following way: • The core assets of the acquired brand are assessed • The creative team and management is preserved • The resources and knowledge are shared but at the same time, the culture of the company is maintained. • LVMH maintains the essence of the company, giving them the required freedom in creativity. • LVMH keeps a check on the core competence in the acquired firm However, LVMH gives too much attention to “Star Brands” and the other brands feel neglected. On this basis, creative freedom is granted mostly to the “star brands”. As a result of this, creative talent is leaving LVMH because they feel abandoned. Conclusion Strategic acquisitions and diversification is driven by potential profitability which depends on creativity. LVMH emphasizes on creative freedom, however, this freedom is enjoyed only by the star brands. This results in the adulteration of their core value. Hence, the core competence of LVMH is not utilized fully.
What are the factors influencing companies which seekgrowth through acquisitions in this industry?Companies which seek growth through acquisitions are influenced by thefollowing factors: • Available companies to buy in the market • Saturation of the current market forcing companies to diversify External • Competitors’ activities in acquisitions • Industry trends suggesting that all major brands are turning into luxury conglomerates • Eliminating potential threats via acquisitions • Financial capabilities to acquire the target company • Capability to integrate the acquired company into the existing business Internal • Plan to acquire targeted companies resources such as: local knowledge and data base, brand value, R&D facilities, market share • Avoiding over exploiting star brands by adding fresh brands into the family
How are they managing and integrating these acquisitions? Ways to manage the acquisitions Keep independent Partial integration 100% integration Creativity Marketing Production Distribution HR Finance Strategy Control by parent company
LVMH strategy Maintaining Acquisition of star creativity and and strong brands independence of new brands Synergizing activities such as Requirement of LVMH strategy marketing and profitability distribution Diversification in all Strict control over luxury segments quality
Does LVMH’s structure support its strategy? The structure model of LVMH is the matrix organization. Paris New York Tokyo LVMH LVMH Dior Fendi LV Dior Givenchy … LV Dior Givenchy … LVMH Givenchy cre ati vity …cre ati vity … cre ati vity … mar ket ing … … … … … … … … … pro duc tion … HR dis tri but ion Marketing HR Production Conclusion • In general, in the short term, it supports its strategy by putting emphasis on creativity of each brand while taking advantage of functions including production, distribution and marketing. • However, in the long run it will be harder to integrate new brands into the current structure.
Can this strategy be sustained?What would you recommend LVMH do? LVMH strategy can be sustained. However, certain changes need to be made to optimize the trade off between profitability and creativity. • Pay equal attention to all brands and transform them into profitable units • Better allocation of key resources like creative talent We • Finding a suitable successor for Bernard Arnault recommend • Developing a system to find and retain top designers • Trying to move towards a unified organization structure for each brand
How is LVMH “cultivating” leaders for tomorrow? • Best talent in the industry is hired • These hired people are given “on the job” training • Association with leading business schools and educational programs • Hiring of people with diverse educational backgrounds • Brand immersion and Inter company seminars to develop perfect management, communication and leadership skills • Giving opportunities for transfer to the global headquarters • Introduction of different business games to simulate business culture and operating realities Conclusion LVMH is excellent at cultivating future leaders of tomorrow
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