Louis Vuitton Moët Hennessy, or LVMH, is currently the world leader in the luxury market. LVMH had recorded high profits in 2006, thus making it the best performer in the fashion and luxury industry. This achievement was acknowledged by the present CEO of the group, Bernard Arnault, who stated that the excellent performance recorded in the year 2006 illustrates the vitality of the major brands of the company. This achievement continues to strengthen and help the company gain market share (Finanznachrichten.com, 2007). As mentioned in Arnault‘s speech, LVMH consists of various autonomously run sub-companies, that are composed of distinct brands. In 1987, the conglomerate was established by consolidating Moet et Chandon, Hennessy and Louis Vuitton, which are the three producing and designing companies of the luxury products of champagne, cognac and fashion respectively.
However, being located in the exclusive luxury market brings several opportunities as well as complications. The company offers exclusive and expensive products and has thus created one major limitation in this industry, which is the danger of counterfeit products. The ways and means by which the company decided to deal with this problem by going through the various steps of strategy formation is an interesting topic that is worthy of a discussion. Another issue that stems from this topic is the need to conglomerate the environment through further regulations and by increasing the responsibility that is recognized by LVMH. The paradox of strategic change, as to whether a company tackles its concerns that are revolutionary or evolutionary in nature are applied to this issue and seem to be of absorbing nature. Additionally, in order to analyse the industry of the company, an analysis of the five forces of Porter's model seem to be an adequate tool.
This paper will cover the following mentioned points. An introduction to the strategy of the LVMH group will be presented. After evaluating the performance of the company over the period of five years from the year 2005 until the present day, the paper will provide an indepth discussion about the strategic formation with respect to counterfeitgoods. The paradox of strategic change, as mentioned above, will be applied. Following this, the third point, being an analysis of the industry will be provided through the application of Porter‘s five forces to this case. Recommendations on how to improve and sustain the performance of the company will be provided in accordance with the issues highlighted beforehand. In order to clarify the implications of the arguments,a conclusion will bring these together and summarize the outcomes.
[...] In the luxury market, few but very powerful players exist. Due to high competition and strong brand identities, entry barriers are very high. Before a new entrant establishes his presence and name to the degree that LVMH has managed to, a lot of time will be gone and the group has to handle the situation accordingly. The threat of new companies posing a sudden serious competition is therefore rather low. The third factor in the framework of Porter, is the potential substitutes of the luxury market, and create a threat but not as severe as within other industries concerning normal goods or commodities. [...]
[...] LVMH should offer its own products in a new market the medium priced industry. New products tailored especially for 'customers' who possess the advantages of a popular luxurious brand name and its quality, but do not have the financial means to pay for it must be created. By acquiring or by building a new brand in itself, the company will have one additional weapon against counterfeit and simultaneously be able to face the upcoming competition in the form of companies such as ZARA and GAP in the fashion sector. [...]
[...] Furthermore, the market share of Guerlain increased, particularly in Asia. Watches & Jewellery: The revenue in this segment grew to between 2005 and 2006 on account of the presence of distinctive brands, such as Tag Heuer and Zenith. This sector of the group LVMH managed to increase its market share within the industry in America, Europe and Asia. Moreover, it developed new lines of products exclusively designed for ladies. In China the group reinforced the distribution agreements and opened new stores. [...]
[...] The company is currently the world leader in the luxury market and is furthermore present in five successful functioning activities, namely: wines and spirits, fashion and leather goods, perfumes and cosmetics, watches and jewellery and finally selective retailing. The performance of the past few years has been growing for all activities in many regions. New shops opened especially in China, the Middle East and in Eastern Europe. The group's prospects in Asia are booming, with the highest growth in revenues, being 16%. [...]
[...] In order to draft their course of action, the strategic reasoning process is a reasonable tool, which can be further divided into eight formation activities that help in guiding a company through the foundation of their strategy. In order to visualize this process, a graph of the framework is provided and attached to this paper in appendix A (Wit de, Meyer, R., 2004). Due to the fact that LVMH managed to establish a name representing luxury and sophisticated values, the brands of the various sub companies are internationally known, possessed and consumed by the wealthy part of the world population. [...]
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