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Strategic Evaluation of LVMH

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And another one from my Strategic Management class. As well as the eBay presentation it is a "slidumentation" as I was required to hand it in.

And another one from my Strategic Management class. As well as the eBay presentation it is a "slidumentation" as I was required to hand it in.

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    Strategic Evaluation of LVMH Strategic Evaluation of LVMH Presentation Transcript

    • Diversification into luxury goods Case Study – ........... Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006
    • Agenda ‣ Luxury goods ‣ Portfolio of LVMH ‣ Overall evaluation industry Strategic fit LVMH’s lineup 9-cell matrix Resource fit Recommendations Priorities Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 2
    • Luxury goods industry Industry attractiveness Competitive strengths of LVMH 9-cell matrix Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 3
    • Luxury goods industry 9-cell matrix 1/4 # Business CS IA %* high priority 1 Champagne 4.25 6.40 11 medium priority 2 Wines 6.75 5.55 6 7 low priority high 3 3 Fashion 7.95 6.62 15 8 4 Leather goods 7.70 6.32 15 5 4 Industry Attractiveness 5 Fragrances 5.40 6.78 14 1 6 Cosmetics 8.40 4.12 4 2 medium 7 Watches 8.30 8.40 2 8 Jewelry 8.30 7.50 2 6 12 9 Selective 9 4.95 3.20 28 Retail 10 10 Media 6.55 2.85 1 low 11 11 Art auctions 6.65 1.55 1 12 e-Commerce 6.35 3.62 1 strong average weak Competitive Strength/ Market Position * percentage of total revenues of LVMH Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 4
    • Luxury goods industry 9-cell matrix 2/4 – High priority Fashion, Leather Goods, Watches and Jewelry ‣ Fashion and Leather Goods are the ‣ All of them contain timeless brands flagship and provide an outlet for that have been the foundation of creative expression and company LVMH’s success (“creating innovation heirlooms”) ‣ All these businesses have high propensity to satisfy the company’s strategy of production process quality excellence The traditional core businesses of LVMH have the highest fit of competitive strength and industry attractiveness Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 5
    • Luxury goods industry 9-cell matrix 3/4 – Medium priority Champagnes, Wines, Fragrances and Cosmetics ‣ Concentration on production and ‣ The main focus in these businesses marketing in the Champagne is brand image business ‣ Fragrances is an innovative business ‣ Their cognac is already number one and an essential part of their in the world market image, this business should therefore maintained on a high level ‣ They should abandon the idea of becoming number one distributor of alcoholic beverages in the world The mentioned businesses have a good outlook for the future – LVMH should use this to maintain/ enhance its competitiveness Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 6
    • Luxury goods industry 9-cell matrix 4/4 – Low priority Selective Retailing, Media, Art Auctions and e-Commerce ‣ e-Commerce is becoming a ‣ Media is only focussed on the more important channel, however it lacks French market and does not fit the service excellence global strategy of LVMH ‣ LVMH should divest the Art Auctions and Media businesses ‣ Selective Retailing should concentrate on own stores, where service excellence and product priorities are guaranteed Some of these businesses should be divested – they are not contributing to LVMH’s success and only take ressources Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 7
    • Portfolio of LVMH Strategic fit Resource fit Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 8
    • Portfolio of LVMH Strategic fit 1/2 – Value chain match-up Purchases Sales and from Technology Operations Distribution Service marketing suppliers Wines & Spirits Fashion & Leather Goods Perfumes & Cosmetics Watches & Jewelry Selective Retailing Media & Other Businesses no synergies Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 9
    • Portfolio of LVMH Strategic fit 2/2 – Synergies Which synergies can be identified from the value chain analysis of LVMH? ‣ Technology  • All businesses are trading in similar markets (luxury products, likely to be • Overlap across all businesses in selling to same customers, premium exchange of technology via Intranet, e- price tag, etc.) procurement in Moët & Chandon ‣ Sales & Marketing, Distribution and • Opportunity to roll out technology Service/CRM  developments across the businesses • ‣ Most obvious area of overlap as the Operations  different businesses can lean on each • Overlap for all businesses except the other for route to market given that wines and spirits the target market is the same, high price tag, etc. The corporate value chain shows potential for the use of synergies between the different businesses Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 10
    • Portfolio of LVMH Resource fit 1/2 – BCG Matrix 100% Star Question mark Fashion & Leather Goods Perfumes & Cosmetics Industry growth rate Watches & Jewelry 10% Media & Wine & Spirits Other Businesses Bubble sizes represent Selective Retailing percentage of total Cash cow Poor dog revenues of LVMH 0% 10 1 0 relative market share Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 11
    • Portfolio of LVMH Resource fit 2/2 – Implications What are the implications of the resource fit analysis? ‣ LVMH has a nice, balanced portfolio ‣ The portfolio of stars within the of businesses company is reasonably diversified and well positioned to capitalize on ‣ Within the poor dogs, certain potential industry growth products have the chance to move ‣ The cash cows are unlikely to up, while others should be divested (which the company did after 2002) become poor dogs, because of the timelessness of LVMH’s products LVMH’s current portfolio is well balanced and looking at the nature of the business it can be expected to stay so Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 12
    • Overall Evaluation LVMH’s lineup Recommendations Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 13
    • Overall evaluation LVMH’s lineup Evaluation of LVMH’s current business lineup ‣ LVMH’s newly acquired businesses ‣ The downturn in the 2001 have contributed significantly to the financials can be mainly attributed company’s revenues over the last to social and political influences, years resulting in few international travelers (9/11, SARS causing ‣ The declining profit margins can be economic recession) described through general trends in ‣ LVMH’s shareholders have the industry, as more players are entering the market benefitted greatly from Arnault’s diversification strategy LVMH has a balanced lineup that makes the company able to set synergies free – only very few businesses do not fit Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 14
    • Overall evaluation Recommendations What recommendations can be made in order to improve LVMH’s position? ‣ LVMH should entrench it’s current ‣ Nurture creative spirit acquisition strategy (independence of artists) ‣ Non-core luxury businesses should ‣ Leverage production excellence be divested (Mass-retailing, Media, ‣ Make more use of company-wide Auctions) synergies ‣ LVMH should not be overhasty in it’s decisions concerning acquisitions or divesting (“timeless brands are not build over night”) Main focus should small clean-ups in the portfolio and making use of the potential for synergies Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 15
    • FT 06 Group 1 Jacques Burger Lynn Haupt Eugénie MacDonald Lars Schmidl Keval Shah Tony Simpson Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006
    • Back-up Case Study – ........... Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006
    • Back-up – Luxury goods industry Industry attractiveness 1/4 Champagnes Wines Fashion Industry attractiveness measure Rating Score Rating Score Rating Score Weight Market size and growth rate 0.175 4 0,70 5 0,88 5 0,88 Industry profitability 0.125 8 1,00 6 0,75 7 0,88 Intensity of competition 0.150 4 0,60 6 0,90 6 0,90 Strategic fits with other industries in 0.150 7 1,05 4 0,60 7 1,05 LVMH lineup Resource requirements 0.100 6 0,60 5 0,50 5 0,50 Potential for production quality 0.075 7 0,52 6 0,45 7 0,52 excellence Artistic flair/ Creative expression 0.100 8 0,80 6 0,60 9 0,90 Potential for timeless appeal 0.125 9 1,12 7 0,88 8 1,00 Total 1,00 53 6,40 45 5,55 54 6,62 Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 18
    • Back-up – Luxury goods industry Industry attractiveness 2/4 Leather Goods Fragrances Cosmetics Industry attractiveness measure Rating Score Rating Score Rating Score Weight Market size and growth rate 0.175 4 0,70 5 0,88 4 0,70 Industry profitability 0.125 7 0,88 9 1,12 6 0,75 Intensity of competition 0.150 5 0,75 5 0,75 4 0,60 Strategic fits with other industries in 0.150 6 0,90 7 1,05 3 0,45 LVMH lineup Resource requirements 0.100 7 0,70 6 0,60 4 0,40 Potential for production quality 0.075 8 0,60 6 0,45 6 0,45 excellence Artistic flair/ Creative expression 0.100 8 0,80 8 0,80 4 0,40 Potential for timeless appeal 0.125 8 1,00 9 1,12 3 0,38 Total 1,00 53 6,32 55 6,78 34 4,12 Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 19
    • Back-up – Luxury goods industry Industry attractiveness 3/4 Watches Jewelry Selective Retailing Industry attractiveness measure Rating Score Rating Score Rating Score Weight Market size and growth rate 0.175 7 1,22 6 1,05 5 0,88 Industry profitability 0.125 9 1,12 8 1,00 3 0,38 Intensity of competition 0.150 7 1,05 6 0,90 2 0,30 Strategic fits with other industries in 0.150 8 1,20 7 1,05 5 0,75 LVMH lineup Resource requirements 0.100 9 0,90 7 0,70 3 0,30 Potential for production quality 0.075 10 0,75 10 0,75 2 0,15 excellence Artistic flair/ Creative expression 0.100 9 0,90 8 0,80 2 0,20 Potential for timeless appeal 0.125 10 1,25 10 1,25 2 0,25 Total 1,00 69 8,40 62 7,50 24 3,20 Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 20
    • Back-up – Luxury goods industry Industry attractiveness 4/4 Media Art Auctions e-Commerce Industry attractiveness measure Rating Score Rating Score Rating Score Weight Market size and growth rate 0.175 5 0,88 1 0,18 7 1,22 Industry profitability 0.125 3 0,38 2 0,25 6 0,75 Intensity of competition 0.150 3 0,45 2 0,30 2 0,30 Strategic fits with other industries in 0.150 1 0,15 1 0,15 3 0,45 LVMH lineup Resource requirements 0.100 2 0,20 2 0,20 2 0,20 Potential for production quality 0.075 2 0,15 2 0,15 5 0,38 excellence Artistic flair/ Creative expression 0.100 4 0,40 2 0,20 2 0,20 Potential for timeless appeal 0.125 2 0,25 1 0,12 1 0,12 Total 1,00 22 2,85 13 1,55 28 3,62 Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 21
    • Back-up – Luxury goods industry Competitive strengths of LVMH 1/4 Champagnes Wines Fashion Competitive strength measure Rating Score Rating Score Rating Score Weight Relative market share 0.20 7 1,40 6 1,20 8 1,60 Marketing and promotion 0.15 6 0,90 6 0,90 8 1,20 Product innovation capabilities 0.10 4 0,40 4 0,40 9 0,90 Distribution capabilities 0.20 6 1,20 6 1,20 6 1,20 Match of business and resources of 0.05 7 0,35 7 0,35 7 0,35 LVMH to industry KSFs Brand name recognition/ image 0.30 9 2,70 9 2,70 9 2,70 Total 1,00 39 6,95 38 6,75 47 7,95 Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 22
    • Back-up – Luxury goods industry Competitive strengths of LVMH 2/4 Leather Goods Fragrances Cosmetics Competitive strength measure Rating Score Rating Score Rating Score Weight Relative market share 0.20 8 1,60 8 1,60 8 1,60 Marketing and promotion 0.15 7 1,05 7 1,05 7 1,05 Product innovation capabilities 0.10 8 0,80 8 0,80 8 0,80 Distribution capabilities 0.20 6 1,20 8 1,60 8 1,60 Match of business and resources of 0.05 7 0,35 7 0,35 7 0,35 LVMH to industry KSFs Brand name recognition/ image 0.30 9 2,70 10 3,00 10 3,00 Total 1,00 45 7,70 48 8,40 48 8,40 Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 23
    • Back-up – Luxury goods industry Competitive strengths of LVMH 3/4 Watches Jewelry Selective Retailing Competitive strength measure Rating Score Rating Score Rating Score Weight Relative market share 0.20 8 1,60 8 1,60 7 1,40 Marketing and promotion 0.15 7 1,05 7 1,05 7 1,05 Product innovation capabilities 0.10 8 0,80 8 0,80 6 0,60 Distribution capabilities 0.20 9 1,80 9 1,80 8 1,60 Match of business and resources of 0.05 7 0,35 7 0,35 6 0,30 LVMH to industry KSFs Brand name recognition/ image 0.30 9 2,70 9 2,70 7 2,10 Total 1,00 48 8,30 48 8,30 41 7,05 Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 24
    • Back-up – Luxury goods industry Competitive strengths of LVMH 4/4 Media Art Auctions e-Commerce Competitive strength measure Rating Score Rating Score Rating Score Weight Relative market share 0.20 7 1,40 7 1,40 6 1,20 Marketing and promotion 0.15 6 0,90 6 0,90 6 0,90 Product innovation capabilities 0.10 7 0,70 6 0,60 7 0,70 Distribution capabilities 0.20 6 1,20 7 1,40 6 1,20 Match of business and resources of 0.05 5 0,25 5 0,25 5 0,25 LVMH to industry KSFs Brand name recognition/ image 0.30 7 2,10 7 2,10 7 2,10 Total 1,00 38 6,55 38 6,65 37 6,35 Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006 25
    • Diversification into luxury goods Case Study – ........... Diversification into luxury goods – Case study – FT 06 Group 1 – 25 October 2006