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The Luxury The Luxury Goods Goods
IndustryIndustry
The Luxury The Luxury Goods Goods
IndustryIndustryPresented By: Luben Blagoev, Stephanie Garisto & Ana Radunovic
AgendaAgendaAgendaAgenda The Luxury Good Industry
Key Factors Influencing Performance
The Consumer
Globalizations and the Industry
Case Study: LVMH & Ralph Lauren Strategies
Theoretical Analysis
News Update
Conclusion
The Luxury Good Industry
Key Factors Influencing Performance
The Consumer
Globalizations and the Industry
Case Study: LVMH & Ralph Lauren Strategies
Theoretical Analysis
News Update
Conclusion
The Luxury Good The Luxury Good IndustryIndustry
The Luxury Good The Luxury Good IndustryIndustry
LUXURY: The habitual use of, or indulgence in, what is choice or costly, whether food, dress, furniture or appliance
Luxury equates to Desirability
The world of Luxury and Luxury goods
Reputation: “Luxury is supposed to be immune to market fluctuations because its value is by definition - timeless and transcendent”
LUXURY: The habitual use of, or indulgence in, what is choice or costly, whether food, dress, furniture or appliance
Luxury equates to Desirability
The world of Luxury and Luxury goods
Reputation: “Luxury is supposed to be immune to market fluctuations because its value is by definition - timeless and transcendent”
The Luxury Good The Luxury Good IndustryIndustry
Continued... Continued...
The Luxury Good The Luxury Good IndustryIndustry
Continued... Continued...
Economics defines a luxury good as one for which demand increases as income increases
Unlike inferior goods, they are related to price and high-income individuals
Establish image via pricing, exclusivity, limited availability, quality and location
High pricing gives the product its prestigious nature, and implies high quality.
Veblen Good
Veblen Good
Market Market TrendsTrendsMarket Market TrendsTrendsOverall world market is
estimated at $170 Billion USD growing at a rate of 7.9 %
Sector Breakdown: 1. Luxury Beverages 2. Fashion Accessories 3. Cosmetics and Fragrances 4. Watches and Jewelry 5. Luggage and Handbags
Key Trends: Globalization, Consolidation and Differentiation
R&D and Innovation
Overall world market is estimated at $170 Billion USD growing at a rate of 7.9 %
Sector Breakdown: 1. Luxury Beverages 2. Fashion Accessories 3. Cosmetics and Fragrances 4. Watches and Jewelry 5. Luggage and Handbags
Key Trends: Globalization, Consolidation and Differentiation
R&D and Innovation
World Luxury Goods Market by Product Sector
Factors Factors Influencing Influencing
Performance Performance
Factors Factors Influencing Influencing
Performance Performance
Global Economy
Economic Times and Disposable Incomes
Consumer Perception
Marketing and Media Coverage
Oligopolistic Pricing
Global Economy
Economic Times and Disposable Incomes
Consumer Perception
Marketing and Media Coverage
Oligopolistic Pricing
The The ConsumerConsumer
The The ConsumerConsumerDemographics of the Consumer Age, Sex, Income
Consumer Loyalty
Expectation of Quality and Value
Consumer Price Sensitivity: Introduction of the New Luxury Consumer
Consumer Market Breakdown
Demographics of the Consumer Age, Sex, Income
Consumer Loyalty
Expectation of Quality and Value
Consumer Price Sensitivity: Introduction of the New Luxury Consumer
Consumer Market Breakdown
Demand for Luxury Goods by Geography 2004
GlobalizationGlobalizationGlobalizationGlobalizationDefinition: The increase in connections around the world, resulting in a more standardized life. It can be more broadly defined as the worldwide process of homogenizing prices, products, wages, rates of interest and profits.
Definition: The increase in connections around the world, resulting in a more standardized life. It can be more broadly defined as the worldwide process of homogenizing prices, products, wages, rates of interest and profits.
Pros ConsReduction in Protectionist
Barriers
Few Companies Own Market Share
Lower Costs of Production
Consolidation
Expansion of Global Demand
Outsource Production at the Expense of National Interests
Tools Towards Future Progress
Compromises Luxury Experience
Creation of Economic and Political Ties
Upsurge in Number of Multinational Counterfeit Operations
Discussion Discussion QuestionQuestion
Does the luxury goods industry benefit from the implications of globalization?
Discussion Discussion QuestionQuestion
Does the luxury goods industry benefit from the implications of globalization?
Case Study: Case Study: LVMHLVMH
Case Study: Case Study: LVMHLVMH
History of the Company - LVMH Values
Excellent Fundamentals 1. Presence in all luxury sectors 2. Geographic balance amongst three continents 3. Multi-brand strategy 4. Synergistic approach
History of the Company - LVMH Values
Excellent Fundamentals 1. Presence in all luxury sectors 2. Geographic balance amongst three continents 3. Multi-brand strategy 4. Synergistic approach
LVMH Sales 1992 - 2000
LVMH’s LVMH’s Strategies Strategies Strategies Strategies
LVMH’s LVMH’s Strategies Strategies Strategies Strategies
Synergies
Acquisitions - Expansion of Brand Portfolio
Financial Data
Ownership of Distribution Channels
Continuous Innovation and R&D
Expansion into high growth markets
THE BRAND NAME - “MADE IN FRANCE”
Synergies
Acquisitions - Expansion of Brand Portfolio
Financial Data
Ownership of Distribution Channels
Continuous Innovation and R&D
Expansion into high growth markets
THE BRAND NAME - “MADE IN FRANCE”
Goodwill 4.4 Billion Euros
Marketing and Selling Expense
6.1 Billion Euros
Revenues 17.2 Billion Euros
Net Income 2 Billion Euros
*Based on 2008 Annual Report for LVMH
Case Study: Polo Case Study: Polo Ralph Lauren Ralph Lauren
Corp. Corp.
Case Study: Polo Case Study: Polo Ralph Lauren Ralph Lauren
Corp. Corp.
History of the Company - Values
4 Product Production Categories 1. Apparel 2. Home 3. Accessories 4. Fragrances
Business Model: Retail, Wholesale and Licensing
Brand Expansion Strategy
Financial Data
Move from Domestic to a Global Market
THE BRAND NAME - “MADE IN CHINA”
History of the Company - Values
4 Product Production Categories 1. Apparel 2. Home 3. Accessories 4. Fragrances
Business Model: Retail, Wholesale and Licensing
Brand Expansion Strategy
Financial Data
Move from Domestic to a Global Market
THE BRAND NAME - “MADE IN CHINA”
Goodwill $0.97 Billion USD
Marketing and Selling Expense
$1.93 Billion USD
Revenues $4.8 Billion USD
Net Income $0.4 Billion USD
*Based on 2008 Annual Report for Polo Ralph Lauren Corp.
Theoretical Theoretical AnalysisAnalysis
Theoretical Theoretical AnalysisAnalysis
While many European firms claim that manufacturing occurs at home, Polo Ralph Lauren and many American firms outsource production
Ralph Lauren is utilizing an Offensive Relocation Strategy
In theory, moving production offshore to LWCs decreases costs, thereby:
Enabling greater economies of scale
Ultimately capitalizing on de-localized production
While many European firms claim that manufacturing occurs at home, Polo Ralph Lauren and many American firms outsource production
Ralph Lauren is utilizing an Offensive Relocation Strategy
In theory, moving production offshore to LWCs decreases costs, thereby:
Enabling greater economies of scale
Ultimately capitalizing on de-localized production
Countries should specialize and trade based on Absolute Advantage
Results in the world using its resources more efficiently and total increase in world output
Realistically, countries should specialize and trade based on Comparative Advantage - the ability of a country to produce a good at a lower (opportunity) cost than another country
Many developing countries boast a comparative advantage in labour
Countries should specialize and trade based on Absolute Advantage
Results in the world using its resources more efficiently and total increase in world output
Realistically, countries should specialize and trade based on Comparative Advantage - the ability of a country to produce a good at a lower (opportunity) cost than another country
Many developing countries boast a comparative advantage in labour
Theoretical AnalysisTheoretical AnalysisContinued ... Continued ...
Theoretical AnalysisTheoretical AnalysisContinued ... Continued ...
David Ricardo’s Theory of David Ricardo’s Theory of Free Trade and Free Trade and
Comparative Advantage Comparative Advantage
David Ricardo’s Theory of David Ricardo’s Theory of Free Trade and Free Trade and
Comparative Advantage Comparative Advantage
Production and Production and Consumption With Consumption With Specialization and Specialization and
TradeTrade
Production and Production and Consumption With Consumption With Specialization and Specialization and
TradeTradeTaking advantage LWC’s comparative advantage has allowed Ralph Lauren to shift to a higher to a new Production Possibility Frontiers (PPF)
Curve showing various combinations of two goods that a country can produce when ALL of a it’s resources are fully employed and used in their MOST efficient manner
A shift in a firm or country’s PPF can be attributed to improvements in technology or more efficient factor resources, such as labour
Taking advantage LWC’s comparative advantage has allowed Ralph Lauren to shift to a higher to a new Production Possibility Frontiers (PPF)
Curve showing various combinations of two goods that a country can produce when ALL of a it’s resources are fully employed and used in their MOST efficient manner
A shift in a firm or country’s PPF can be attributed to improvements in technology or more efficient factor resources, such as labour
Theoretical AnalysisTheoretical AnalysisContinued ... Continued ...
Theoretical AnalysisTheoretical AnalysisContinued ... Continued ...
Empirical Empirical AnalysisAnalysis
Empirical Empirical AnalysisAnalysis
For AgainstReduction in Protectionist
Barriers
Counterfeit Operations
Lower Costs of Production
Idea of Sweatshops
Tools Towards Future Progress
Conflicts with National Interest
Creation of Economic and Political Ties
Compromises Brand Image and
Idea of Luxury
Beyond economic theory, however, there are several modes of reasoning for and against
moving production offshore:
NEWS NEWS UPDATEUPDATENEWS NEWS
UPDATEUPDATE
Wall Street Journal Friday March 20th, 2009