Strategic Analysis of LVMH in Cosmetics Luxury Industry

STUDENT’S NAME: ALEXIA-VASILIKI KARAGOUNI
ID NUMBER: 127101
COURSENAME&NUMBER: MG 4740 A L6 BUSINESS STRATEGY
DUE DATE: NOVEMBER 19th
, 2019
PROFESSOR: DR. CHRISTOS SIGALAS

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TABLE OF CONTENTS
Introduction…………………………………………………………………….. p.3
1. Presentation of LHMV’s Profile....………………………………….……….p.4
2. Description of the Company’s Direction…………………………………....p.4
2.1 LHMV’s Mission & Major Goals…….………………………………..p.5
2.2 LHMV’s Vision and Core Values………………………………….…p.5
3. LHMV External Environment Analysis……………………………………....p.6
3.1 PESTEL Analysis……………………………………………………...p.6
3.2 Porter’s Five Forces Analysis….…………………………………...p.10
3.3 Key Success Factors………………………………………………..p.11
3.4 Strategic Group Mapping……………………………………………p.12
4. LHMV Internal Environment Analysis……………………………………...p.13
4.1 VRIN Analysis………………………………….………………….…p.13
4.2 Resources Capabilities……………………………………………...p.14
4.3 Financial Analysis…………………………………………………....p.15
4.4 Value Chain Analysis………………………………………………..p.18
4.5 Corporate Strategy…………………………………………………..p.21
5. SWOT Analysis………………………………………………………………p.22
6. Front-Barrier Issues for LHMV…………………………………………..…p.23
7. Alternative Courses of Action& DecisionCriteria………………...………p.24
8. Implementation of the plan & Concluding Remarks…………………...…p.26
References……………………………………………………………………….p.27

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Introduction
In the continuously growing world of business, there is an intense need for
companies to follow a strategy in order to remain competitive and better project the
impact of future initiatives. In this thesis, which is based on a case study entitled
“LHMV in 2016: Its Diversification into Luxury Goods”, we will examine in detail the
analysis, assessment and application of a strategy to the world’s largest company of
luxury brands LVMH Moet Hennessey- Louis Vuitton. Among the various segments
and markets on which LHMV operates, this project will focus on the one of perfumes
and cosmetics in the United States.
To start with, a brief presentation of this company’s profile will be provided,
accompanied with the vision, mission, values and major goals, in order to get a
complete image of LHMV company’s direction. Thus, an extensive study of the
company’s foreign environment will follow in order to discover the impact of external
factors (political, legal, economic, sociocultural, technological and environmental) in
the industry of cosmetics, the competitive environment of the segment and the
interaction of buyers, suppliers, substitutes and new entries in the market. Specifically,
the research will include Pestel analysis, 5 forces analysis, the key success points of
LVMH, and an illustration of strategic group mapping of the segment’s competitors.
Moreover, the internal environment of LVMH will be carefully examined, too through
another variety of methods, such as VRIN, Value Chain and financial analysis, as well
as resources and capabilities. The in depth comprehension of both internal and
external analysis will lead to SWOT analysis, where the LVMH company’s strengths,
weaknesses, opportunities and threats will be identified. In addition, we will clarify the
front-burner issues of the company; identify the action that should be taken to confront
each one of them and the criteria through which it will be chosen. Last but not least,
the project will include a specific plan on how to implement the decisions mentioned
and draw relative conclusions.

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1. Presentation of LVMH Profile
Moët Hennessy Louis Vuitton, better known as LVMH, is one of the largest
multinational conglomerates of luxury-goods in the global market, whose headquarters
are located in Paris in Avenue Montaigne.1 Based on the case study provided by
Thomson et.al, the Company started to take the shape that it has today in 1987, when
Louis Vuitton merged with Moet-Hennessy and currently owns more than 70
prestigious brands and houses that create high quality products of great value. The
chairman and CEO of LVMH since 1989 is Bernard Arnault (2017). All these years,
Arnault followed a visionary leadership style, applied ambitious growth expansionary
strategies that were accompanied by a series of successive acquisitions and finally
managed to secure LVMH’s position as one of the most profitable organizations in the
luxury-goods industry. LVMH currently employs 156,000 people worldwide and the
reported sales reached the level of 46.8 billion euros in 2018.1 This amount is
inextricably linked with the fact that Bernard Arnault is currently recognized as the
second wealthiest man in the world.2 The activity of LVMH is mainly focused in luxury
industry and its wide product portfolio is divided into six major segments: Wines &
Spirits, Fashion & Leather Goods, Perfumes & Cosmetics, Watches & Jewelry,
Selective Retailing and Other Activities.2
2. Description of the Company’s Direction
Α company’s direction comprises of two fundamental elements; its vision and mission,
which refer to the core values and the major goals accordingly (Mirvis, Googins &
Kinnicutt, 2010). According to Ahmad and Chopra, as it stated by Anitsal et.al, many
high-performing firms owe their performance to engraving their vision and mission
statements in the hearts and minds of their people (2014).
1 https://www.lvmh.com/
2 https://www.forbes.com/consent/?toURL=https://www.forbes.com/billionaires/list/;

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LVMH’s Mission & Major Goals
An organization’s mission reflects its long-term purpose. Mission statement is
indispensable for companies to guide both their internal and external public about their
strategy and major goals, as well as communicate their position in the market and
purpose of operation (Terjesen et.al, 2011). Thus, a company may build a long-lasting
relationship with them and create a positive reputation in the market. In this case, the
mission of the LVMH group is “to represent the most refined qualities of Western "Art
de Vivre", meaning “The art of living”, around the world. In other words, the overall
objective is to give people a taste of the qualities of the art of living.3 LVMH is the
characteristic example of company whose mission provides a frame of current
activities and at the same time allows future growth. This point is reflected to the
objectives that follow right below:3
 Be synonymous with both elegance and creativity
 Blend tradition and innovation and kindle dream and fantasy in all of its products
 Remain committed in building relationships of integrity and ethical conduct with all
stakeholders, Group’s executives, employees, suppliers and partners.
Mission statements often discuss the organization's key stakeholders and the
responsibilities of these individuals and groups, too (Anitsal et.al, 2014). However, in
the case of LVMH, there is no such reference and thus its mission statement could be
assessed and mention the valuable role of stakeholders, which is though analytically
explained in the company’s code of conduct.
2.1 LVMH’s Vision and Core Values
The vision of a company constitutes the basic dynamic to preserve its unchanged core
ideology, and envision future to stimulate progress (Thota et.al, 2011). The vision
statement reflects the image of what the organization is willing to do (Cavender et.al,
2014). Regarding LVMH, In Bernard Arnault’s words, “our business model is anchored
3 https://www.lvmh.com/group/about-lvmh/the-lvmh-model/

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in a long term vision that builds on the heritage of our Houses and stimulates creativity
and excellence”. According to him this model drives the success of this conglomerate
and reassures its promising future.3
The core ideology of an organization consists of two main distinct parts; the core
values, which represent a system of guiding principles, and the core purpose, which
is the organization's most fundamental reason for existence (Guercini et.al, 2017).
That is why LVMH Group’s growth and long-term success is inextricably linked to the
values and principles that frames its culture and inspires the employees’ actions. The
three fundamental values shared by all members of the LVMH Group are the following:
 Be creative and innovative: creativity and innovation are two main ingredients of
the LVMH houses’ success and established legitimacy. This combination requires
the Group to continually renew the products offered by looking to the future and at
the same time preserve its unique heritage;
 Deliver excellence: LVMH gives great emphasis on the detail and perfection. From
products to service the company never compromises on quality and constantly
seeks for excellence.
 Cultivate an entrepreneurial spirit: LVMH cultivates an entrepreneurial spirit that
entrusts each individual to take meaningful responsibilities of risk and motivates
teams to achieve ambitious objectives.4
3. LVMH External Environment
3.1 PESTEL Analysis
PESTEL analysis provides a framework of six factors (political, economic, social,
technological, social that need to be examined when attempting to diagnose the
sources of a change and analyze the external environment of an organization (Cadle,
2014). For instance, the luxury industry is proving to be less cyclical than predicted,
which means that brands, such as LVMH, have demonstrated resiliency and
4 https://www.lvmh.com/group/about-lvmh/the-lvmh-spirit/

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leadership in the recovery from the most recent global economic recession (Hassan,
Duverge et.al, 2015).
Political
Donald Trump, who is the President of the United States of America since 2016, had
set the objective to bring manufacturing jobs back to the country and thus has imposed
tariffs to a list of products imported in an attempt to negotiate better terms of trade for
the US (Chatzky, 2019). The journalist explains that the administrator’s list includes
cosmetic-related goods such as organic cosmetics, as well as ingredients needed to
manufacture make up and skin care product. More specifically, Robert Lighthizer, who
is US Trade Representative, has started the procedure to impose 25% tariffs on
imports from China, who responds by imposing 10% additional tariffs to lipstick,
fragrances and face powder (Chatzky, 2019). These tariffs directly influence LVMH,
which characteristically gets raw materials from Chinese forests for the needs of Cha
Ling brand.5 Besides, according to the journalist, the European Union imposed import
duties for imports from the US, which negatively affects the American cosmetic brands
of LVMH that need to be exported in Europe, such as the ones of Benefit and Fresh.
Economic
The USA is the world's bigger economic power since its Gross Domestic Product
(GDP) accounts for a quarter of the world’s total. To be more specific, the market of
prestigious cosmetics and fragrances in the US is the most valuable one and is
expected to grow annually by 2.9% until 2023.6 As it is illustrated in the graph below,
in 2019 the revenues of Prestige Cosmetics & Fragrances segment reach the amount
of $14,581million. Skin care products that are significant part of this segment make up
the largest part of the cosmetic market worldwide.6
This market segment is determined
by the features of consumer demand, consumer expenditure, and purchase behavior.
5 https://www.lvmh.com/houses/perfumes-cosmetics/cha-ling/
6 Prestige Cosmetics & Fragrances - United States. (n.d.). Retrieved November 19,2019, from https://www-
statista-com.acg.idm.oclc.org/outlook/21050000/109/prestige-cosmetics-fragrances/united-states

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Graph 1: Average Revenue per Capital in the US Prestigeous Cosmetics& Fragrances Market
Legal
Companies like LVMH that manufacture, import, distribute and sell cosmetics may
confront various legal issues. The copyright and patents regarding the formulation and
implementation of a product, as well as the copy of a company’s trade dress in terms
of color, typeface, package shape and design features that make it unique in the
industry, are characteristic examples of that matter (Weiss, 2019). Besides, the author
points out that companies should reduce the risk former employers sharing to the
newly hired or using confidential information in order to legally secure their trade
secrets.
Environmental
The last decade companies feel that protecting the environment and being sustainable
is not an obligation, but a matter of social responsibility and respect towards people
and their individuality. The preservation and respect of natural resources while
manufacturing products, can be considered as a source of competitive advantage and
may lead companies to long-term success, since it makes them more reliable and

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strengthens their position in the market. For instance LVMH has pursued a historical
commitment to the environment by encouraging eco-friendly practices in its sales
areas and production process. In 2015 LVMH set up an internal carbon fund to finance
projects launched by its Maisons to fight climate change.7
Sociocultural
Since the early years of European settlement, when French explorers brought the first
colognes and scented waters to North America, the desire for fragrances has been
established and turned into seen a billion dollar growing industry (Men et.al, 2012).
Nowadays, fragrances are dominant in the American culture since 92% of women
wear a perfume and 41% of them do so, on a daily basis. These numbers reflect that
fragrance retailers have a wide target market available.8 The “luxury” of having a
fragrance is currently an affordable purchase, which is why price competition has
become intense. As far as make up is concerned, lately women apply products with
high functionality that will make them look more beautiful and improve their
appearance in their daily routine. This means that product categories that are used to
create a natural make up, such as foundation, concealer and face powder are growing,
while mass make up categories are declining.9
Technological
Nowadays, consumers worldwide give emphasis on their health, well-being and
appearance more than ever before (Patravale et.al, 2008). Thus, cosmetics industry
uses technology to formulate natural, organic products of highest demand that are
synthesized by nutraceutical ingredients, free from artificial preservatives (DeGroot
et.al, 2010). More specifically, latest technology advancements, such as microbiomics
that promote skin benefits, are incorporated into innovative formulations to create
cosmetics that provide multiple benefits with minimal efforts (Aurora, Agrawal et.al,
2012). Apart from the production procedure, keeping in mind that consumers’ time to
visit stores is very limited, technology has affected the distribution channels, too.
Retailers (ex. Sephora) have created applications where customers can try cosmetics
7 https://www.lvmh.com/group/lvmh-commitments/social-environmental-responsibility/
8 https://www.euromonitor.com/premium-beauty-and-personal-care-in-the-us/report
9 Prestige Cosmetics & Fragrances - United States. (n.d.). Retrieved November 19, 2019,from https://www-
statista- com.acg.idm.oclc.org/outlook/21050000/109/prestige-cosmetics-fragrances/united-states

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and make up products virtually through their smartphone.8
3.2 Porter’s Five Forces Analysis
Porter's Five Forces Model is a strategic management tool that determines the
competitive landscape of the industry in which the company operates, and helps
strategic planners to realize its profitability potential and attractiveness (Iacobucci,
2013). This technique, introduced by Porter in 1979 in Harvard Business Review,
identifies the business pressure of new entrants, subsidiaries, suppliers, consumers
and rival competitors and examines the interaction between them. In an attempt to
apply this analysis for LVMH the five forces are provided below:
Threat of New Entrants
The threat of new entrants in the industry of luxurious cosmetics and fragrances is
moderate because of the desire of already existing luxurious brands to diversify and
enter different industries, such as. In that case, new entrants put some pressure on
prices, costs and level of investment since they aim to gain market share (Porter,
1989). Thus, LVMH needs to build higher loyalty. It has high capital and a strong brand
image to proceed with continuous innovation and maintain, if not increase, its market
share.
Threat of Subsidiaries
The threat of subsidiaries is moderate to high, since there is a considerable variety of
products, that function similarly in this industry and contribute in making consumers
feel more beautiful and take care of themselves. For instance, soaps, shampoos and
healthcare products or brands that offer perfumes or makeup products with lower
prices are considered substitutes that limit an industry’s profit potential by setting
ceiling prices.9
LVMH can distance itself from substitutes, in order to secure profitability
and growth potential, through high product performance and use of superior quality
products or raise awareness of more middle priced brands.

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Bargaining Power of Suppliers
Powerful suppliers tend to increase charging costs and limit the quality of their
supplies. In the case of LVMH, where key components and materials are outsourced,
bargaining power of suppliers is low because high killed workers of this company do
not risk receiving raw materials of lower quality or squeezing profitability from reducing
the cost and prices (LVMH, 2019).
Bargaining Power of Consumers
In LVMH’s House of perfumes and cosmetics bargaining power of customers is
moderate since there are a few opportunities for discounts and special offers. This
means that consumers are slightly price sensitive and thus, try to push prices down
and at the same time get the best possible quality (Liao et.al, 2014). However, the
price reductions are not considerable enough to increase costs and risk the company’s
profitability.
Rivalry of Competitors
Rivalry competitors are considered the ones that roughly have the same size and
power, such as Estee Lauder, L’ Oréal, Coty and Shiseido. The specific segment of
luxurious cosmetics and fragrances is characterized by strong competition since there
is an increasing rate of demand, high entry barriers and high effort to stay (Porter,
1989). In order to confront existing competitors and avoid reduction of profitability,
LVMH proceeds with strong marketing campaigns, introduction of new products,
continuous improvement of service and a few discount opportunities.9
3.3 Key Success Factors
The key success factors of LVMH reflect the resources and competencies that it
should possess in order achieve competitive ‘success’ and profitability in the market
(Collins, 2006). Keeping in mind that LVMH is leading perfume brand throughout the
world, we assume the following:

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 LVMH has consistently maintained a strong brand image and value of
perception
 LVMH offers products of unique quality and high satisfaction customer service
 Ability to develop advanced technologies in order to quickly adapt to changing
trends and confront high competition
3.4 Strategic Group Mapping
Strategic group mapping is a technique for displaying the different competitive
positions that rival organizations occupy in the industry in terms of certain
characteristics (Thomson, Peteraf et.al, 2017). The map provided below, illustrates
the rivals of LVMH in the Fragrances& Cosmetics House in relation to their
price/performance and coverage-number of stores in the US, while the size of the
bubble will reflect the level of the organization’s revenues.
Graph 2: Strategic Group Mapping of LVMH in the Hose of Fragrances& Cosmetics

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4. Internal Environment Analysis
4.1 VRIN Analysis
VRIN framework stands for valuable, rare, imperfectly imitable and not substitutable-
usually intangible- resources that constitute a company capable of achieving a
sustainable competitive advantage. Resources are valuable when they enable the
company to exploit opportunities, neutralize threats and operate through implementing
their strategies efficiently and effectively (Talaja, 2012). This means that VRIN
analysis is inextricably linked to company’s internal characteristics. According to Porter
(1985), competitive advantage is based on the company's ability to create value for its
buyers that will exceed the cost of its creation. On the contrary, latest researchers
have completely distinguished competitive advantage from its sources and superior
performance (Sigalas et al., 2015).
Valuable Rare Inimitable Non-Substitutionable Outcome
Strong Brand
Image and High
Brand Value
Yes Yes Yes Yes
Sustainable
Competitive Advantage
because consumers are
willing to pay for the
status
Raw materials of
Superior
Quality10
Yes Yes Yes Yes
Sustainable
because the use of
exceptional materials is
key
High
Performance10 Yes Yes Yes Yes
Sustainable
because the excellent
results of the products
are key to the consumers'
choice.
Wide
Geographical
Coverage11
Yes Yes
Yes
Short-Term
No
Temporary
because competitors may
expand the distribution of
their brands
10 https://www.lvmh.com/group/lvmh-commitments/transmission-savoir-faire/
11 https://www.lvmh.com/talents/our-metiers/retail/

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Horizontal
Integration Yes Yes
Yes
Short-Term
No
Temporary
acquire or merge with
other companies, too.
Vertical
Integration Yes Yes
Yes
Short-Term
No
Temporary
acquire retailers, such as
Sephora, to distribute
their products, too.
Table 1: VRIN Analysis of LVMH in the Fragrances & Cosmetics Segment
4.2 Resources Capabilities
The synthesis of resources and capabilities are the primary determinants of the firms’
profitability and success. Resources are the productive assets possessed by the
company to feasibly achieve its goals, while capabilities are modes of behavior that
describe “what a firm is good at” and reflect the essence of superior performance
(Größler, 2007). Usually the company needs its resources to be able to take
advantage of its capabilities. Resources can be distinguished to tangible and
intangible ones. The last ones cannot be easily measured or copied by competitors,
while capabilities are even more complicated to define (Kamasak, 2017). A complete
research that aims to examine the effects of resources on firm performance needs to
analyze both kinds of resources, as well as capabilities, as in the table below for the
case of LVMH’s Fragrances& Cosmetics .
RESOURCES
CAPABILITIESTangible
Resources
Intangible Resources
Raw Materials of
exceptional quality
High reputation and
awareness of the brands
Business process of supply chain
management that enables to
transmit raw materials into finished
goods in a seamless way of
operational excellence and
continuous improvement.

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Strong financial
assets- very high
capital
Unique organizational
culture of the company,
since employees are free
to use their skills,
creativity and innovation.
Human Capital that combines the
features of high skills, expertise,
creativity, innovative thinking, pro-
activity, collective learning, and
know-how of managers and
employees.
Interpersonal relations
among Managers of the
different brands
Networking Capabilities
Intellectual Property, such
as copyrights, patents,
registered designs,
trademarks
Table 2: Resources & Capabilities of LVMH in the House of Perfumes & Fragrances
4.3 Financial Analysis
After taking a look at the Income Statement of LVMH for 2018 and 2019 that is
depicted in the table below, we can draw the following assumptions:
 The company’s revenues in 2019 have increased by 15,3%
 The company operates at profit both years 2018 and 2019
 Τhe company both in2018 and 2019 spent 38,12% of its revenues on marketing
expenses.12
12 https://r.lvmh-static.com/uploads/2019/07/rapportfinanciersemestriel2019_va.pdf

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Table 3: Income Financial Statement of LVMH in 2018-2019
After extracting some data from the table provided above, the rate of change in
revenues, gross margin and net income can be calculated, as well as the Gross Profit
Margin that finally remains almost stable during 2018-2019. The fact that the rate of
change in Revenues and Gross Margin is almost the same indicates that the prices of
the company are perfectly aligned with its cost of goods sold.
2019 2018
Rate of
Change
Revenues 25,082 21,750 15%
Gross Margin 16,635 14,620 14%
Net Income 3,268 3,004 9%
Gross Profit
Margin
66% 67%
Table 4: GPM of LVMH in 2018-2019

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Table 5: Balance Sheet of LVMH in 2018-2019
From the Balance Sheet, which is another financial statement of LVMH, we can
calculate the ratios illustrated in the table; ROE, ROA and CLR.
2019 2018
ROE 0,092 0,095
ROA 0,036 0,042
Liquidity 1,145 1,406
Table 6: Ratios Calculation for 2018&2019
ROE (Return on Equity), which in this case is almost stable, represents the profit
LVMH creates when the investments of shareholders are used.
ROA (Return on Assets), which remains almost the same represents the return earned
by the shareholders on the organization’s total assets.

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CL (Current Liquidity) reflects the company’s capability to convert its assets into cash
in order to cover its current liabilities and is higher than 1 both years (Thomson,
Peteraf et.al, 2017).
All the above data concerned LVMH Company as a whole, since there was no such
data available focusing only on the House of Perfumes& Cosmetics. However, from
the data provided below, we can draw some conclusions regarding the specific
segment and the US market.
Table 7: Income statement of Perfumes& Cosmetics Segment
 The Perfumes& Cosmetics sold in the US represent the 13% of the total sales
in this segment, which is 420,68 millions.
 LVMH has 376 stores that sell perfumes& cosmetics worldwide.12
4.4 Value Chain Analysis
Value chain analysis is an indispensable tool that recognizes the whole chain of
business activities, from raw material to the final consumption of the product, and thus
reflects the firm’s strengths and weaknesses (Keivan Zokaei et.al, 2006). According
to these autors, Christopher mentions that in every step of this chain, the execution of

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every activity needs to be aligned with consumer value propositions and deliver a
product whose features are compatible with consumers’ requirements (2005). In
Stefania Saviolo’s words (Head of Master fashion program at Bocconi University) in
luxury goods industry “the only source of luxury is who makes the product. This is
luxury today.”
PRIMARY ACTIVITIES
SUPPLY CHAIN
MANAGEMENT
 Selection of high quality raw materials,
some of which are outsourced to secure
the products’ high performance (ex.
Herbs, flowers, aromas, colors)
 Sharing of resources
 High-skilled workers that follow in detail
the savoir-faire
 Excess stock is discounted rather than
destroyed.13
OPERATIONS
 Sales Forecasting
 Supply of raw materials
 Meticulous and strict quality control
 Constant and precise monitoring of
stores’ stock levels
 Regular monitoring of logistical analyses
and reports 14
DISTRIBUTION
 Company-owned retail stores, such as
Sephora, to better control of distribution
and company image
 Distribution and availability of products in
various luxurious retailers all over the
world
 Use of ship or route transportation
services to distribute stock levels to the
various retail networks around the world
and in the country of production
accordingly.
 Online stores 11
13 https://www.lvmh.com/talents/our-metiers/production-supply-chain/
14
https://www.lvmh.com/talents/our-metiers/craftsmanship-creation/

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SALES & MARKETING
 Deals with the best fashion magazines,
such as Vogue, Vanity Fair, and Elle
 Collaborations with famous supermodels,
actors/tresses and singers.
 High investment on TV Commercials
 Digital and Social Media advertising 15
CUSTOMER SERVICE
 Excellent customer relations throughout
the sales process
 Guidance towards a suitable range of
products and collections after having
understood the customer’s need.
 Offering of samples and loyalty card
 Limited after-sales service of this House
SUPPORT ACTIVITIES
R&D,TECHNOLOGY
AND SYSTEMS
 Well-developed laboratories to formulate
fragrances and cosmetics and execute
product safety tests
 High product design, carefully planned
through the latest technology
FIRM
INFRASTRUCTURE
 Decentralized system, where the brands
operate relatively and independently of
each other in order to create their
own brand image and encourage
creativity.
 Effective information system to secure
product stock to all retailers according to
their needs 3
HUMAN RESOURCES
MANAGEMENT
 Special training programs to ensure the
best quality products and transmission of
savoir-faire to the next generations.
 Recruitment of creative talents that are
encouraged to develop their innovative
skills
 Incentives to reduce employee turnover
rates and retain talent. 16
GENERAL
ADMINISTRATION
Bernard Arnauld, who is LVMH's CEO since
1989, the company’s revenues have been
multiplied 14 times.
Table 8: Value Chain Analysis of LVMH’s Fragrances& Cosmetics
15 https://www.lvmh.com/talents/our-metiers/marketing-communications/
16 https://www.lvmh.com/talents/your-career-at-lvmh/recruitment/

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4.5 Corporate Strategy
LVMH’s business strategy is about setting its direction based on environmental
demands and internal resources, by using its strengths and eliminating its weaknesses
(Tecee, 2009). On the other hand, corporate strategy represents the company’s future
actions to gain a competitive advantage and improve its efficiency and profitability,
through the selection of a mix of businesses that compete in multiple industries or
product markets (Hertz, Hultman et.al, 2010). Among the two distinguished forms of
competitive advantage that Porter introduced- the cost-leadership and differentiation-
LVMH implicates the diversification strategy, since it operates in more than five
different industries under the overall mission or vision of the company and has a strong
history in mergers and acquisitions (Ismail, 2016). To be more specific, LVMH’s
strategy focuses on improving its excellent quality and maintaining its brand name
through exceptional inputs, continuous innovation and generation of new
technologies.
We should also keep in mind that LVMH, as a powerful multi-national company, follows
an international strategy and especially the one of exporting goods to foreign markets.
Through this strategy LVMH has reached new customers, gained access to resources
and capabilities located in foreign markets, increased profits and international sales,
and achieved lower costs due to economies of scales.17 LVMH follows the
transnational approach of international strategy, which encourages “thinking global
and acting local” (Peng, Wang et.al, 2008).This means that LVMH needs to combine
the local responsiveness and standardization for its products. For instance, LVMH may
allocate the amount of every brand in fragrances and cosmetics distributed in each
country based on the preferences and demand of the consumers.
17 https://www.lvmh.com/group/lvmh-commitments/

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5. SWOT Analysis
STRENGTHS WEAKNESSES
 Strong brand name and equity
 Superior performance
 Raw materials of exceptional
quality
 Strong Savoir-Faire
 Superior R&D
 Very high awareness and
popularity
 Wide geographical presence
 Women Premium Fragrances
 Not very wide skin care portfolio
 Low credibility in skin care
 Very high prices in fragrances
 Limited offers and discounts
 Lack of awareness of smaller
brands of the House
 Not very wide loyal customers
base
OPPORTUNITIES THREATS
 Expansion of the derma-
cosmetics segment
 Increase of growth rate of the
luxurious cosmetics segment
 Merger with the company
competitor of Tiffany’s& Co
 Strong competition with other
prestigious brands of fragrances
and cosmetics
 Consumers find similar products
with lower prices
 Imposed tariffs
 Loss of sales in a potential
economic recession
Table 9: SWOT Analysis of LVMH’s Perfumes& Cosmetics Segment
SWOT Strategies
Opportunities Threats
STRENGTHS
 The strong brand name and value of
LVMH will enhance the serious
discussions about merging with
Tiffany's& Co reflect the capability of
acquiring more brands in cosmetics.
 Superior R&D and use of
exceptional raw materials lead
to the company’s products' high
performance can minimize the
threat of intense competition

23
WEAKNESSES
 More focus on skin care products and
expand this portfolio since the growth
rate of this segment is increasing and
thus create credible products of high
performance.
 Merging with Tiffany's& Co, which is a
considerable competitor, will enlarge the
product portfolio of LVMH and attract
more customers.
 An increase of discounts and
special offers may contribute to
the building of a loyal customer
base and help the brands of the
company fight strong
competitors with high market
share.
Table 10: SWOT Strategies of LVMH’s Perfumes& Cosmetics Segment
6. Front Burner Issues (FBIs)
Front Burner Issues derive from the SWOT analysis and more specifically constitute
opportunities and threats that the company urgently needs to take advantage of or
eliminate accordingly, in order to increase its competitiveness (Thomson, Peteraf et
al., 2017).
The Front Burner Issues of LVMH in the segment of Fragrances& Cosmetics are the
following:
1. Expansion of derma-cosmetics
segment
2. Merger with the competitor Tiffany’s
&Co corporation
3. Strong competition
1. Expansion of derma-cosmetics segment
The House of Fragrances& Cosmetics of LVMH provides a considerable range
of luxurious brands of perfumes and makeup products, while the portfolio of
skin care products offered is limited. Since the segment of skin care products
has currently noted a significant increase, LVMH needs to take advantage of
this opportunity and formulate products of high performance through an
exceptional savoir-faire, which will include well-selected raw materials that will
take care of customers’ skin.

24
2. Merger with the competitor Tiffany’s &Co corporation
LVMH is currently going through serious discussions about making an
agreement with the corporation of Tiffany’s &Co and proceed with its acquisition
(Chapuis, 2019). The aforementioned American company that has a great
reputation in producing luxurious watches and jewelry operates in the segment
of fragrances and cosmetics, too. Thus, LVMH will expand its product portfolio,
increase its market share and add the loyal customers of Tiffany’s &Co in its
customer base.
3. Strong competition
Fragrances and cosmetics is a segment characterized by intense competition
since there is a significant number of multinational and local companies that
provide large portfolios of similar products and frequently add new ones in order
to constantly innovate and cover more customer needs. Besides, the
companies producing substitutes, such as skin care and cleansing products,
are considered indirect competitors that belong in an increasing market
industry. That is why multinational companies such as LVMH proceed with line
extensions to enter in the skin care industry, too.
7. Alternative Courses of Action, Decision Criteria&
Recommendations
Issue 1: Expansion of derma-cosmetics segment
If LVMH decides to operate more dynamically in the segment of skin care, it
needs to expand its product portfolio on this segment. This can happen by
creating a new skin care brand, which means that the company will make a
considerable investment to create an R&D and develop an exceptional savoir-
fare that will help LVMH maintain its high quality and strong brand value.
On the contrary, if LVMH decides that such a plan is too costly and currently
unattainable the company should merge with an already existing brand, whose
portfolio focuses on derma-cosmetics and whose savoir-faire needs to be

25
compatible with LVMH’s vision and mission. In this case the company will follow
the operational scope of vertical integration (Pellinen, Teittinen et.al, 2016).
Decision Criteria: Among the aforementioned alternatives, the company
should create a new brand that will operate exclusively in the skin care
segment. This choice will lead LVMH to implement vertical integration, through
which it may expand its suppliers and have high control over the whole value
chain procedure, from the supply of raw material to selective retailing. Vertical
integration fosters excellence, which one of the dominant values of LVMH.
Issue 2: Merger with the competitor Tiffany’s &Co Corporation
If LVMH finally acquires the colossus in jewelry Tiffany’s& Co its product
portfolio will reach a greater value. The conglomerate of Tiffany’s& Co has a
brand portfolio in the segment of luxurious fragrances& cosmetics that will be
added to the one of LVMH along with its loyal customer base. In that case,
LVMH will apply the scope of horizontal integration, since it will expand on its
own industry of luxurious products by acquiring one of its strong competitors in
the House of Jewelry& Watches (Pellinen, Teittinen et.al, 2016).
On the contrary, if LVMH does not come into agreement with this organization
they can examine making a strategic alliance with another competitor in the
perfumes& cosmetics segment, such as L’ Oreal or Estee Lauder, who are
market leaders. This would dramatically increase LVMH market share in this
segment and reign in it.
Decision Criteria: Since Tiffany’s& Co matches the image of LVMH and LVMH
has talented workers that can easily adapt and adopt the “know-how” of
Tiffany’s& Co, the criteria for such a decision would be the company’s
profitability and the results from sales forecasting. Currently, Tiffany’s & Co is a
very profitable company (Chapuis, 2019) and thus its addition to LVMH’s brand
portfolio in the different segments will be directly reflected to LVMH’s revenues.

26
Issue 3: Strong Competition
The issue of intense rivalry in this segment is inextricably linked with the two described
right above. Both strategies, vertical and horizontal integration, would be used to
strengthen a company’s competitive position. The number of different brands that
operate in the segment of luxurious perfumes and cosmetics is significant, as well as
the number of the ones operating in the mass- industry, which are considered indirect
competitors. In the case of LVMH that provides on its own various similar brands, the
last ones may compete among them and thus have the phenomenon of
cannibalization. (Iacobucci, 2013)
Decision Criteria: LVMH should apply vertical and horizontal strategy in the cases of
expanding in the skin-care segment and merging with Tiffany’s &Co accordingly.
Measurable criteria, such as profitability and market share, will indicate the company’s
performance in the industry in relation to its competitors.
8. Implementations & Concluding Remarks
All in all, LVMH should take the following actions in order to successfully solve its FBIs
and become more competitive.
 Create synergies with suppliers or share resources from the already existing brands
to formulate a new skin care brand efficiently and effectively.
 Investment for an exceptional R&D will be required in order to achieve high quality of
the new products in the skin care segment and create a loyal customer base in order
to confront competition.
 Execute accurate sales forecasting
 Recruitment of high- skilled employers and training of talented employees to learn and
adjust the merging company’s Savoir-Faire and make it compatible with the one of
their own.
Word Count: 5,032

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