r I:vvr Vo"r t ", n"..v tou, v. -o- 5A r. r e wo'd larseir rnarketerof uxury products and brandE Cha rman BernardArnault has assembled a dve6e emp re of nrore than 60 brands, sales of which totaled $24.2 billion (€17.2 b lion) in 2008 (see Fiqure 1) Arnault, whom some refer to as "the pope of hlqh fashion," recentysummed upthe uxury businessasfo oM: "Weare here to sel drearns Whenyou seea coutureshowonryaround thewodd, you dream. When you enter a Dior boutique and buy your lipstick, you buy something affordable, blt it has the dream n ir. ' Decades ago, the .ompan es that iod.y comprse LVN,IH were famiy-run enterprises focused more on pren ge ihan on profit. Fendl, Puc(i, and othe6 sold ma n y to a niche marker comprsed of very ri(h dientele. However, as markets began ro globalize, rhe small uxury playe6 nruggled to cornpete When Arnaurserabout acquiinq smaller luxury brands. he had thre€ goa s in m nd. F ut, he hoped ihat the portfolo apprcach would redu.e the risk expo su.e to lashon cyces. A(.ord nq to this loqlc, if demand lor watches orjewe rf dec ned, dothins or accessory sales would off sei .ny osses second, he niended to cut costs by e minat nq redundan.ies n sourc nq and manufactu ng. Third, he hoped thar LVMHS (able ofbrandswo! d iranrate nto a srronger baBaining positon when manaqeu negotated eases for rerai space or Sales ol luggage and leather fash on qoods, nc!d ng rhe 100 year-old Lou s Vu tton brand, a.count for 34 percent of revenues. The companyS specialty gro!p ncludes Dury Frce 5hoppers (DF5) and Sephora. DF5 operates stores in nternariona a rcorts around the worldj Sephora, wh (h LVN,1H acquired in 1997, is Europe3 second-argen chain of perfume and cosrneti.s nores. Drven by such we I known brands as Christ an D or, Givenchy, and Kenzo, perfumes and cosmet.s generare neary 20 per.eni of LvlvlHS revenues LVMHSwineandsprlsunr nc ldes such prenig ous Champagne brands as Dom perqnon, r,.roet & Chandon, and Veuve C cquor 5"/" Despite the h gh expenses associated with operar ng eeqant stores and purchasng adve.t s nq space in upE.ae magazines, rhe prem um retail prl.es that uxury goods (ornmand transate inro handsorne profits The Lou sVutton brand alone ..counts for abour 60 percent of LVM H5 operating prcfil. Ufscruputous operalors have taken note of the hgh rnargns associared wirh Vuirton handbaqs, gun cases, and uqqage dsplayng the distnctve beige on brown attcework LV monoqra.n. Lous Vuitton 54 spends $tO mi on annualybattlnq countede ter5 in Tu.key, Thaiand, China, Morocco, south Korea, and ltaly. Someofthe moneyisspenton lobbyisrswho rFp e.pn rh4Lorpd,vs|.'6rp.\f nee( ^g! 6 '- 'orp q. qo\ e ment offcias. Yves Carcele, chaman of Louis Vu tion SA, recenl y explained, "Almon every month, we qer a qovernnrenr somewhere in the world to destroy.anvas, or finished produ.c." Another probern is a flourishinq qray market. civenchy and Christian D orl Dune lragran.e arejun two ofthe uxury perfume brands ihat are sometimes d verted from aurhorzed channets for sale at mass-rnarket retal outets. LVMH and other luxury goods marketers re.enty found a new way to combat gray marker lmports lnto the United States. ln Mar.h 1995, rhe U.S Supreme Court etstand an appeahcourt r! ng proh bitinga dscolnr drug store cha n {rom se inq Glvenchy perfume wthoui permiss oi Pdrfums Given.hy USA had caimed that irs disr ncuve pa.kag n_o shou d be protected under U S copyrght aw. The ruiing mears thaiCostco, Walmart. and other discounterswil no onger be ac e to sel some impo.ted lraqrances without althorzanon Oppotunities and Challenges in Asia Asa particulary lapan is a key region for LVr.rH 3.c ii competitors. The financ al tu rmoil of the late I99ot a.d rhe s!b!:- qrent currenq deva uations and weaken n9 ol the ye. rrr.s aled into lowerdernand foriurury qoods. Be.ause pr.e oercepto.s are a crtica component of ururv qoods' apoeai, LMVH execuives made a number of adjunments in respon!e ro .han9 .q bLrs.ess condilions. For exampe, Patrck Choe, presdenr of ihe perfume FIGURE 1 LVMH Operating l.rnits by 2008 Net Salee 35% 395
Transcript
rI:vvr Vo"r t ", n"..v tou, v. -o- 5A r. r e wo'd larseirrnarketerof uxury products and brandE Cha rman BernardArnaulthas assembled a dve6e emp re of nrore than 60 brands, sales ofwhich totaled $24.2 billion (€17.2 b lion) in 2008 (see Fiqure 1)Arnault, whom some refer to as "the pope of hlqh fashion,"recentysummed upthe uxury businessasfo oM: "Weare here tosel drearns Whenyou seea coutureshowonryaround thewodd,you dream. When you enter a Dior boutique and buy your lipstick,you buy something affordable, blt it has the dream n ir. '
Decades ago, the .ompan es that iod.y comprse LVN,IH werefamiy-run enterprises focused more on pren ge ihan on profit.Fendl, Puc(i, and othe6 sold ma n y to a niche marker comprsedof very ri(h dientele. However, as markets began ro globalize, rhesmall uxury playe6 nruggled to cornpete When Arnaurseraboutacquiinq smaller luxury brands. he had thre€ goa s in m nd. F ut,he hoped ihat the portfolo apprcach would redu.e the risk exposu.e to lashon cyces. A(.ord nq to this loqlc, if demand lorwatches orjewe rf dec ned, dothins or accessory sales would offsei .ny osses second, he niended to cut costs by e minat nqredundan.ies n sourc nq and manufactu ng. Third, he hoped tharLVMHS (able ofbrandswo! d iranrate nto a srronger baBainingpositon when manaqeu negotated eases for rerai space or
Sales ol luggage and leather fash on qoods, nc!d ng rhe100 year-old Lou s Vu tton brand, a.count for 34 percent ofrevenues. The companyS specialty gro!p ncludes Dury Frce5hoppers (DF5) and Sephora. DF5 operates stores in nternarionaa rcorts around the worldj Sephora, wh (h LVN,1H acquired in1997, is Europe3 second-argen chain of perfume and cosrneti.snores. Drven by such we I known brands as Christ an D or,Givenchy, and Kenzo, perfumes and cosmet.s generare neary20 per.eni of LvlvlHS revenues LVMHSwineandsprlsunrnc ldes such prenig ous Champagne brands as Dom perqnon,r,.roet & Chandon, and Veuve C cquor
5"/"
Despite the h gh expenses associated with operar ng eeqantstores and purchasng adve.t s nq space in upE.ae magazines, rheprem um retail prl.es that uxury goods (ornmand transate inrohandsorne profits The Lou sVutton brand alone ..counts for abour60 percent of LVM H5 operating prcfil. Ufscruputous operalors havetaken note of the hgh rnargns associared wirh Vuirton handbaqs,gun cases, and uqqage dsplayng the distnctve beige on brownattcework LV monoqra.n. Lous Vuitton 54 spends $tO mi onannualybattlnq countede ter5 in Tu.key, Thaiand, China, Morocco,south Korea, and ltaly. Someofthe moneyisspenton lobbyisrswhorFp e.pn rh4Lorpd,vs|.'6rp.\f nee( ^g! 6 '- 'orp q. qo\ e
ment offcias. Yves Carcele, chaman of Louis Vu tion SA, recenl yexplained, "Almon every month, we qer a qovernnrenr somewherein the world to destroy.anvas, or finished produ.c."
Another probern is a flourishinq qray market. civenchy andChristian D orl Dune lragran.e arejun two ofthe uxury perfumebrands ihat are sometimes d verted from aurhorzed channets forsale at mass-rnarket retal outets. LVMH and other luxury goodsmarketers re.enty found a new way to combat gray markerlmports lnto the United States. ln Mar.h 1995, rhe U.S SupremeCourt etstand an appeahcourt r! ng proh bitinga dscolnr drugstore cha n {rom se inq Glvenchy perfume wthoui permiss oiPdrfums Given.hy USA had caimed that irs disr ncuve pa.kag n_o
shou d be protected under U S copyrght aw. The ruiing mearsthaiCostco, Walmart. and other discounterswil no onger be ac e
to sel some impo.ted lraqrances without althorzanon
Oppotunities and Challenges in AsiaAsa particulary lapan is a key region for LVr.rH 3.c iicompetitors. The financ al tu rmoil of the late I99ot a.d rhe s!b!:-qrent currenq deva uations and weaken n9 ol the ye. rrr.s aledinto lowerdernand foriurury qoods. Be.ause pr.e oercepto.s area crtica component of ururv qoods' apoeai, LMVH execuivesmade a number of adjunments in respon!e ro .han9 .q bLrs.esscondilions. For exampe, Patrck Choe, presdenr of ihe perfume
FIGURE 1
LVMH Operating l.rnits by 2008 Net Salee
35%
395
and cosmetics d vsion, rased whoesa e pr.es n ndiv dual Asrnmarkets The qoal was to dBcou raqe d scoun t retai ers lrorn nockiig up on desgner products and the. se i.q them to dowimarket consumers Also, erpe.dit!res on perfLrme and.ormeticsadvert t nq were reduced to ma nt. n prcf tab ty n lhe f.]ce ol.
Lou s Vu lton cha rrnan Yves C.r.elLe a 5(r m.de .djLrnmentsHe cance ed p anr for a new nore n ndones.r, .nd groupmanagers r. sed pr.es 1().ountera.l the effect ofcurrencydevalualions. Bec.use the DF5 chain depends o. Japa.esetourns in Asia
.nd Hawa for 75 perc€nt ol sa e5, Lou s Vu tton managers a so
work wih toLrr operators lo pred.i the fLow ol Japanese tournsWhen toursm s al a peak, pr.e r(eases from 10 to 22 per.enthe p max m ze profits on mer.hard se ta es
Arnaull w.s conlde.t th:t ihe Aean.r s s wo! d not severely
.ffect hr comp.ny5 perfo'ra..e n lhe long term As Arn.!texpa ned i lhe spr .q of 1998 one has to d n ng! sh between.l.p.n, wherc inon.r oJr bls.e$ s,andtherenofAs! lapan5 n a growth s !r., brt t srt!onqtohavethesamedff.!l
t e5.s Kore! or nd..e!. And oLrr bLrs ners l..lapan 5 do ng very
we Be.arse:he Lou s V! ttor !n t contros ts own d str blton,mnnagemenl has elen been ibe to take advantage ol the .rtsby Enegotat n9 nore eases n keyAsan.tes in some nstances,
the company har ee.lred onqe, ease terms p !s reductions lnrales by rs mu.h as one thrd Arna!t! optmsm was w€lf ounded; wth inter€n rate! at .e.ord ows and a gloomy olt ookfor the nock rnark€l, lapaieie .oE!meE had lew other spend-inq opt onl n 2001, €recur vos actua ly ra sed pr.es ar Louis
Vu tlonS Japanese norel.
''Ohe ftiehd af hihe has 1A Louis Vuittan bags.ln lapan, it\ a status symbol. lts very inpanant
ta have Eurapeah luxuty gaods."
a lg-yeaFo d fliqhtattendant bated ln Tokyo
Sraregic Decisions at LVMHOver the pan de.ade, Arna! t has eleraged his mult brandnrately by broaden n9 the .ompany\ consumer base ln the late19905, Arnau t sensed that .osmel.s buy nq h.bts were changnq . key .iarkets He opened Sephora stores n New Yorl,chtrago. a.d 5an Fran.sco n conllnction lvith a new Web site,sephor:.om lod.y, there are neary 100 Sephora nores in theUn ted Siates; the chain a so has a prelen.e in more than onedozen olher .olntr es, nc ud ng Ch na and Rus a CunomeEwho visrt Sephora UsA nore! are en.ou.aged to waider free y andsampe produ.ts oi an ope. floor wiiholt wa trng for sales cierks
n 2001. Arna! t pa d more than $600 millon for Donna Karailnternatonal n. and ts lrddemarks Arnaut had tred wnholtsuccess to acq! re Giorg o A,m.. I Donna Karan is LVMH! 1i6tAnrercan des qner abel As ArnaLr t.oled, Whatippeaedto!sis the fi.t that t it oie of the ben [.ow. brand names n the
n lanlary 2008, ere.ltves at Lou s VLi tton a.nounc€d a newcolporate brand iq campa 9n usinq a 90 second ad that wou dappeir on cab e and satellite te ev s on and n on,A.n.! Thswissometh ig new rn the lx!ry qoods sectort qener. y, advert!nq
budaet! are limt€d and televsion is viewed a! too...: :
n add tion, some n the indunry be eve thatry3 siatls;i : :
rnarkelinq med um.an Lrnderc!1a uxurybraids aLrr. of..: :
However, Lou s Vu tlon execuliles hoped audien.es woL . ::^.1
.rab.a d ..a."t -ragp.aqe..y proposed buy ng l nre on new! channeh th.: : :traveers watch sLrch as cNN As Lous vLrirlon m.rker I :
P etro Bec.ar .oted, t B lLrpposed to louch oLr
vewers n yr.ys that perhaps other meda w not touch _
w.y to s.y Lou s Vu tton is diffe.ent lt s sorneth nq apha, : :a so someth ng that stays
^, " L .dl o
Lolis Vlitton entered nda in 2002 wth a bollqle.r:,q I "u" ".d Do, d" opp. fo o I o
LVMH has a o.k on prme locatons at Emporio, an upi.. : : : :
p n9 mal that opened rece.ty in New De hi. Be.alse LVr,l- :
qroup preseice n the ma , t.an negot ate lavorable lease -: :r.d po6
^,n, ...po, o..on. d6o^ .p 6p.6-
laln.h ol Vogue nd a On.e again. thanks to LVMH! d !er!. : :
porrfoio. the .ompany is able lo buy larqe blo.ks of ad,. : :
spa.e from conda Nan ndia at d s.olnted pr.es.Trdgobi 6o.o. 5"r 9.-"d a o
J',-. -d.dr o.du.ur gooo o
no excepton Overa pu.chases ol uxury goods fe i : :U.5 nrarket, sales towed n Russa and other emerq nq ' :as we Atholgh tota sales n the uxury segme.: : -
o.p" ."d o "o I o r" o.o - -. b ron.5. 8 or or
ndunry oblervers expected that trey wou d drop s 9n 1..2009 For European-based l!x!ry .ompanies, there w.i :: 'good news the dolar was strengthening against tie e, : -the 2008 ho day shopp n9 teason approa.hed, man!qood, makers redlced pnces in the Uniled States At a-: -
the .u1s ranged from 7 to l0 percent; as lohn G.:presdenl of chane 5 u5 !nt, noted, "The dolar;'::-nrength h.s alowed us to pass on greatervaue to o- :
tomers Lou r Vu tton was a nolable exceptron; in fa]:t, : :2008, the .omp.iy ra sed prices tw.e, resull ig n an..:::-n(ease of 1 0 per.e.t The price increases d d not damp..,: :n fact. sa es cont.ued to ncreas€
Visit the Wer-'. -
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.urenr yea l I'nd',idlra,-lr\i.2. ..
ON thE LVMH WEL! J 'wwwsephor; :: -
Discussion Questionsl. Bern.rd Arnau t has bu t LV\4H nto a uxlry goods er. . :
m.k nq nurneroLrs a.q! stons What nrategy is evdeii ..2. What ale the poss b e rsks of Lo! s Vuitton! f 6t-eve i..
son adlertE nq campaign?3. n Mar.h 2008. the euro/dolar ex.hanqe rate was €'l = ! :
By November. the dollar had strengthened to €1 = $l 2:Assume that a E!ropean !x!ry goods marketerculs thepr.e of an $8.000 tweed ruit by l0 percent io ma,.t..hoiday saes ri De.embeL How wllrevenues be affecte.when dolar prcet are conlerted to euros)
396
4. Lou s v! tton executives raised pr.es in 2008, and sales
.oit nued io nrcase What does th s sayaboutthedemand curve oflhe typ.a LoulsVuitton cunomerT
sbtr,rcsr R&hel D.des xnd Chrijinr ersiriello, Ii Ra'c Move. Luxtrr,C@ds Make$ Trnn nrcn Prices in US. Th? tull st'".t Jo nal(November 1.1, 2m3). p B I i Eric Pfannei vuitton h Emb xcirg Medium ol
the Ma$es, 7rz N?Lt va,l 7im?r (ianudr, 30. 2008). p. C3i Chri\linaPa$anelb, LVMH Books PNs.se lo India ror vuiib.. Dior. Fendi. Celine,''the \rall Snra Jotntul \M\y 8.200r), pr. Bl. B2i Lisa Bmnon and
Ale$andtu GJroni. "Bmnd Mlnlger Deluxe." 7/r. $'.111 5tre.1 J.utnl(Oclober 10,2001). p. BliJohn C,iielrou and Chri(opher LaMon.
