LVMH IN 2016: DIVERSIFICATION INTO LUXURY GOODS

Created to Fulfill Group Assignment

in the Course of Strategic Management

Prepared By:
Group 6 Regular 44

Amira Syifa 18/432725/PEK/23991

Beautiful Barzeera 18/432742/PEK/24008

Fauzan Munadhil 18/432768/PEK/24034

Laity Qonitah 18/432800/PEK/34066

Nyi Mas Rizki Oktavia 18/432835/PEK/24101

Master of Management
FACULTY OF ECONOMICS AND BUSINESS
GADJAH MADA UNIVERSITY
JAKARTA
2019
 CHAPTER I

INTRODUCTION
1.1 Latar Belakang
LVMH Moët Hennessy - Louis Vuitton, also known as LVMH, is a company
French multinational luxury goods company headquartered in Paris. The company was established
in 1987 under the merging of the fashion house Louis Vuitton with Moët Hennessy,
a company formed after the merger in 1971 between champagne producer Moët &
Chandon and Hennessy are cognac producers. LVMH was founded in 1987. Historically
is a supplier of koper for rich people, LVMH is known for combining manufacturing
quality with innovative design to reflect customer needs and fashion
a world that continues to change. Although the history of LVMH began in 1987 with the presence of
the merger between Moët Hennessy and Louis Vuitton has roots that go back a long time to the 18th century.

in the year 1743 when Claude Moët decided to create the work of Dom
Pérignon contemporary with Louis XIV. And to 19th century Paris, famous for celebrations
empirically, where Louis Vuitton, a craftsman, discovered the items
modern.
Currently, LVMH is the leading luxury goods company in the world. Products-
the products include leather items such as bags, suitcases, shoes, watches, jewelry, and
accessories. Most are adorned with the LV monogram. This is one of the most
profitable in the world with profit margins approaching 40%. The result of the alliance
consecutively among companies that pass from generation to generation.
When Bernard Arnault became president of LVMH in January 1989, the company
is a leading luxury brand group in the world with a revenue of around €2.5 billion and
net profit of around €300 million in 1988. The company's business portfolio includes
champagne and wine; cognac and spirits; luggage, leather goods, and accessories; and perfume
and beauty products. After Arnault acquired a controlling percentage of the shares.
The company, LVMH's portfolio diversification is progressing very rapidly. By 2016, Bernard
Arnault ranked 14th on the Forbes billionaire list with a net worth of $
36.7 billion.
LVMH's strategy under Bernard Arnault includes diversification into
sales of luxury products of various types. In 2016, Arnault had amassed
a portfolio of 70 luxury brands, categorized as a collection of star brands and rising stars.
Grapes, champagne, haute couture, and ready-to-wear clothing, cosmetics, fragrances, watches, and
the company's jewelry is among the most produced, innovative, prestigious, elegant, and
expensive to produce. The company's retail division focuses on selling luxury goods.
Other businesses of the company include publications that are of interest to the financial and arts community.

special luxury cruise ship production and luxury hotels. The LVMH business collections are categorized

becoming six business units: wine and spirits; fashion and leather goods; perfume and cosmetics;
jewelry and ornaments; retailing; and other businesses.
Arnault believes that star brand collections of LVMH such as Moët & Chandon, Krug, Louis Vuitton,

Givenchy, and Parfums Christian Dior and rising stars such as Edun, Nicholas Kirkwood, and
Marc Jacobs will lead to long-term company profits due to the star brand.
have the strength to endure.
Arnault's rapidly growing portfolio has allowed LVMH to grow from
around €2.5 billion in 1990 to €35.7 billion in 2015. The company's performance was driven
by the allure of iconic brands and a mix of newer aspirational brands. However, performance
the entire company is negatively affected by the acquisition that is considered as rising
a star that did not materialize. Arnault has chosen to divest from underperforming businesses,
the most recent example is the company releasing the business Donna Karan International since
early 2017 amounting to $650 million. Also, several LVMH businesses compete in the industry that
glamour, but has failed to make a meaningful contribution to the company's performance. There is
concerns among certain analysts that Arnault, as the majority shareholder
as the CEO of the company, can utilize the company's sufficient cash flow to conduct
acquisition based on personal interests rather than based on potential for
increasing shareholder value.
Therefore, an analysis of LVMH's corporate strategy is necessary to
knowing the competitive advantage that the company has and its influence on value
shareholder.

1.2 Tujuan Penelitian

This paper has the following objectives
1. Understanding the vision, mission, and core values of the LVMH company

2. Understanding the results of external environmental analysis (PESTEL, Five Forces Framework and

Strategic Group
3. Understanding the results of the internal environment analysis (Value Chain Analysis, SWOT) of the company

LVMH
4. Understanding the strategies from five generic strategies used by LVMH
5. Understanding the corporate strategy of LVMH
1.3 Research Methodology
The research method used in this paper is a qualitative method where the ...
the author relates the case to relevant theories. Theories and cases come from the book
Main text and other sources of relevant theory come from the Supporting Text book.
 CHAPTER II

THEORETICAL FOUNDATION

2.1 Visi, Misi dan Core Value

Vision
The strategic vision describes the company's aspirations for its future ('where to go')

we will go
●Mission

The company's mission describes the scope and goals of this business ('who we are,
what we do, and why we are here
●Core Value
Beliefs, traits, and behavioral norms expected to be displayed by personnel
the company in running its business and pursuing its vision and mission
the strategy.
2.2 External Analysis of the Company
●Macro Economic Analysis (PESTEL)
The analysis of the impact of these macro environmental factors is often referred to as analysis
PESTEL, which consists of six components: political factors; economic conditions in
general environment of the company (local, national, regional, global); strengths
socio-cultural; technological factors; environmental factors (related to the natural environment); and

legal/regulatory conditions.
●Industry Environment Analysis (Five Forces Framework)
Porter’s model identifies five main competitive forces that need to be considered.

considered when analyzing the industry environment and formulating strategies

competitive
1. Rivalry among existing competitors or competition among existing competitors.
2. Threat of new entry
3. Bargaining power of suppliers
4. Bargaining power of buyers
5. Threat of substitutes.
Strategic Group Analysis
Analysis of strategic groups within the conditions of competition in the business industry,
which has various supporting parts within it. For example,
products sold at various prices, quality, suitable consumer types and
various others. Therefore, in competition, understanding is needed for
 industry competition structure, do competitors have strong brand positioning
whether or not, in which, the problem gives birth to a solution called
strategic group mapping.
2.3 Internal Analysis of the Company
SWOT Analysis
A simple yet powerful tool to measure the strengths and weaknesses of a company,
market opportunities, and external threats to its well-being in the future.
Its measurement is based on:
1. Identify the Internal Strengths of the Company (Strength)
2. Identify Company Weaknesses and Competitive Deficiencies (Weakness)
3. Identify Company Market Opportunities
4. Identify Threats to the Company's Future Profitability
Value Chain Analysis
The company's value chain consists of two major categories of activities:

1. Primary activity mainly in creating value for customers

2. Supporting activities required to facilitate & enhance
performance of main activities

2.4 Five Generic Strategies

Select competitive strategy options (Figure 5.1)
1. Strategi penyedia berbiaya rendah (low-cost provider strategy), berupaya mencapai
overall costs that are lower than competitors for comparable products
that attracts buyers widely.
2. Broad differentiation strategy aims to differentiate
product offers from competitors with attributes that will appeal to
widely buyers.
3. Focused low-cost strategy concentrates on
the needs and requirements of a narrow buyer segment (niche market) at a cost
lower than the competitor.
4. Focused differentiation strategy focuses on
a narrow buyer segment (niche market) by offering specific attributes to
niche market that meets their tastes and requirements and is better than
competing products.

5. Best-cost provider strategy aims to combine

premium product attributes at a lower cost than competitors. The company
 providing added value to customers for the money they spend with
competing with competitors that have similar high-class and multifaceted attributes.
2.5 Corporate Diversification Strategy
BCG Matrix
One of the tools that helps to guide corporate portfolio planning
is the growth-share matrix of the Boston Consulting Group (BCG). This matrix
placing the individual company's Strategic Business Units (SBU) in two dimensions:
relative market share (horizontal axis) and market growth rate (axis
vertical). The company plots its SBU into one of four categories in
matrix: dog, cash cow, star, and question mark.
 CHAPTER III

ANALYSIS

3.1 Visi, Misi dan Core Value Perusahaan LVMH

LVMH Company's Vision
LVMH has successfully preserved a family spirit that places priority on long-term vision.
The Group's vocation is to ensure the development of each of its Houses while respecting
their identities and their autonomy, providing the resources needed to create, produce and
market their products and services through carefully selected channels.
or
LVMH has successfully maintained a family spirit that prioritizes vision.
long term. The Group's task is to ensure the development of each
A house that respects their identity and autonomy, provides resources.
the resources needed to create, produce, and market products and services
they go through the carefully chosen channels.
LVMH Company's Mission
The LVMH group brings together truly exceptional Houses. Each of them creates
products that embody unique expertise, a carefully preserved heritage and a dynamic
engagement with modernity. These creations make our Houses ambassadors of a
distinctively refined art of living.
or
The LVMH group brings together truly exceptional houses. Each of
they create products that embody a unique savoir-faire, a legacy that
nurtured with care and dynamic engagement with modernity. These creations
making our house ambassadors have a very fine art of living.
Core Company Values of LVMH
The three core values articulated by Bernard Arnault are shared by every member.
LVMH. These three imperatives inspire excellence and are the pillars of performance and
the long-term success of the company LVMH.
1. Be Creative and Innovative
2. Deliver Excellence
3. Cultivate an Entrepreneurial Spirit
3.2 External Analysis of LVMH Company
●Macroeconomics/General (PESTEL)
 Factor Explanation

Politics Factor ❏ Political issues for cheap labor in Asia

❏ Good international relations for trade
❏ Existing trade infrastructure
❏ Becoming part of the EU allows for
facilitating trade with currency that
the same in Europe

Economics Factor ❏ Nilai tukar: AS, UE, ASIA

❏ Global Economy: Coming Out of Recession
❏ Tingkat Inflasi: Rendah

Social Factor ❏ Market age: Baby boomers are very influential

❏ Religion: A taboo on alcohol and materialism
❏ Trend: Fashion and Innovation
❏ Perception of luxury goods

Technological ❏ The presence of a good online marketing service

Factors ❏ The presence of social media

Legal Factors ❏ Embargo: may cause the market to suffer losses

❏ Counterfeiting: diminishing prestige

Environment ❏ Climate change: changes in fertile land (wine yards)

Factors ❏ Carbon footprint: A large amount of CO2 in production
grape

Industrial (5-forces framework)

The Threat of Entry
Several threats from new entrants that LVMH can focus on
evaluate the extent of the threat posed by new entrants to LVMH, among others,
The current development of the internet makes it very easy for a brand to become more well-known.

Globally through various media, this opens up opportunities for various sectors.
business for expansion, as well as with luxury brand. Luxury market
will develop because people from different parts of the world can also get to know each other

Getting products is easier through the help of the internet and delivery services.
In addition, there are also newcomers created by new designers from a new brand,
they are usually quickly acquired by more well-known industry brands
to provide them with the facilities and infrastructure they need to
its growth. If newcomers remain independent, this will pose a threat.
for the company, by capturing the volatile middle market customers.
LVMH has been in the luxury products market for a century, giving them
complete cost advantages in business key development, customer loyalty
untuk LVMH dari waktu ke waktu, layanan produk juga kualitas tergolong tinggi.
Therefore, it cannot be denied that newcomers may not be compatible with
in a short period of time, newcomers will find it hard to survive
and will easily be removed from the market.

The Threat of Substitutes

Many other luxury products in the market such as Prada, Dior, Chanel, Hermes, etc. that
becoming a threat to LVMH, besides that in reality, it often happens in the market
sales of fake (KW) luxury brand products that are popular in the market. Consumers are interested.

buying the counterfeit items because they resemble the originals and have a
the selling price is lower compared to the original product. The cost used
the company's imitation of luxury products is lower, for example, leather that
used in the production of bags not made of genuine leather, but of artificial/synthetic leather, which

This is what ultimately made the counterfeit product more affordable.

It is estimated that 80% of these counterfeit products come from Asia, especially China. Imitation products

this (KW) is distributed all over the world, but when compared to quality
the original one will be far superior in quality even though the design is very similar
The threat of substitutes for LVMH can be said to be significant, because there are many
the substitute products are easily spread.

The Power of Suppliers

The power of suppliers in the luxury goods market can be classified as medium to
high. To attract consumer attention, luxury goods require products that
high quality and exclusive design, so that business players must
maintain and strengthen good relationships with trusted suppliers
to provide high-quality materials and exclusive design.
LVMH often purchases raw materials from suppliers based on delivery.
This method can reduce the marking of losses and establish economic scale.
LVMH recently acquired fewer Tanneries Roux, a leather supplier.
With this step to obtain primary suppliers, it will reduce
the strength of suppliers in terms of leather products. By limiting the ability to
by planning suppliers that conflict with each other, LVMH will be able to
 saving costs on storage space and ensuring product quality
that is provided

The Power of Buyers

In the case of LVMH, their buyers are retailers consisting of small companies.
until large companies. Buyers can be in a strong bargaining position when
Many players in the retail market, but becoming stronger and more affected by something.
the brand will reduce the bargaining power of the buyer because it follows
consumer demand, so there is no choice for retailers but to provide what
what the market desires.

Rivalry among the Existing Competitors

There are several main competitors of LVMH in luxury goods, including
Channel Group from the USA, The PRR Group from France (now called Kering,
who owns Gucci, Yves Saint Laurent, Bouchern, ..), and The Polo Group
Richly from Switzerland (Cartier, Montblanc). These companies do not
applying strategies through price wars because their target market is people
-people with high income. And if a price reduction is made on the product
luxury goods, this will affect the image of the brand so that the area
their competition focuses on design, brand recognition, quality, capability
to attract the right designer with the right skills. For example
LVMH memiliki perancang bintang Marc Jacobs untuk Louis Vuitton nya.
Competition in this industry is quite high due to the constantly growing demand.
caused by the increasing high lifestyle.
Strategic Group

Player Net Profit Margin (%) CAGR (%) Revenue (million)

LVMH 11.6 10 41,593

Richemont 11.4 1.1 11,677

Kering 7 11.9 13,700

Hermes 21.2 12.4 5,755

Tiffany & Co. 12.1 -3 4,002

 Prada 8.9 -5.3 3,515

Burberry 10.4 4.7 3,603

Luxottica 9.4 9 10,051

Ralph Lauren -1.5 -6.6 6,653

Salvatore Ferragamo 13.8 3.9 1,591

Tod's 8.9 3.2 1,150

3.3 Internal Analysis of LVMH

●SWOT

Strengths Weakness

❏ A strong and prestigious brand ❏ Premium/high price for

❏ Known worldwide several brands
❏ Strong/Superior quality control ❏ Too focused on the "star" brand
Craftsmanship ❏ More focused on consumer targets
❏ Loyal customer base certain consumer segment that
❏ Good growth strategy narrow
continue high end mergers and acquisitions ❏ Shifts in preferences
other brand consumer
❏ Advertisements with celebrities ❏ Increasing in false imitation
❏ No discount

Opportunities Threats

❏ Market expansion to new areas ❏ Low-cost copier (China)

❏ ["Searching for creative talent globally"] ❏ The increase in raw material prices
 ❏ Invest more in ❏ The loss of talented individuals
R&D and experienced
❏ Transferring skills and ❏ Global economic and political conditions
strength and regional
❏ Collaboration with competitors ❏ Competing with other luxury brands

Value Chain

3.4 Five Generic Strategies

Of the five competitive strategy options available, this LVMH company implements a strategy
focused differentiation strategy that concentrates on the segment
niche buyers (or market niche) and surpass competitors by offering attributes
specifically for niche members who better meet their tastes and requirements
compared to competing products. Because it has a premium price for each of its brands, the segment

the targeted market segment by this LVMH company is consumers

the upper class with high economy who enjoys or has a hobby of collecting and
using luxury items from renowned brands. The differentiation offered by
this LVMH company is located at :
● Designs tailored to the tastes and preferences of diverse consumers. LVMH
recruit highly talented and creative designers who can create a variety of
an appealing product line for several consumer segments.
The use of quality raw materials such as leather or fabric and good construction quality.
with advanced technology.
Products produced are specially made by the craftsmanship of artisans who have years of experience.
Years of training to perfect their talents so that the production results are also of high quality.

dibanding produk pesaing. LVMH sangat mengutamakan kreativitas artistik, inovasi

technology, and attention to every detail of the production process.
Releasing new models over time that are in accordance with tradition, history,
and company style.
Control the distribution and sale of its products so that they are selected selectively.
company-owned retail location (under company control) to ensure its products remain
high quality. The company ensures its products are sold by retailers who
offering top-level customer service for customer satisfaction, for
listening to customer needs, to better understand their tastes, and
anticipating their desires.
As a result of everything above that is offered by the company LVMH, when compared
Another competitor creates a very good image and reputation for the company's products.
in the eyes of its customers, which then creates consumer loyalty even though
Their products are premium priced items.

3.5 Corporate Strategy of LVMH

LVMH operates a type of diversification, both in related and unrelated businesses.
The step taken by LVMH in the related business approach is proven through the synergy of
various portfolios of LVMH business units on the company's value chain, which are applied
on the quality of products made by highly dedicated people, creativity, and innovation
company.
Another step is that LVMH is diversifying into unrelated businesses.
How does LVMH, as a conglomerate, acquire various brands?
luxury brands based on the motivation of the CEO, Bernard Arnault, who is considered to have

management decisions and tactics that make decisions based on personal interests,
it is not the potential of shareholder value. LVMH's growth comes from acquiring new businesses.
It can be concluded that LVMH implements an unrelated diversification strategy.
According to Thompson (2018), unrelated diversification always enters businesses that
new by acquiring an established company, compared to
building a startup subsidiary within its company structure.
The assessment of corporate strategy conducted by LVMH through acquisitions,
it depends on how the company manages each brand of its brand divisions,
How LVMH successfully increased its sales in each brand division
them. For example, in 2016, LVMH successfully achieved 35.7 billion euros in
global sales, from each division managed by the company. The acquisition that
LVMH is assessed to address the cost of entry for the company into new businesses, with
conducting an acquisition with an established company, engaging in vertical integration, namely
relationship with suppliers, achieving economies of scale. A total of 64 companies have been
acquired by LVMH from 1987 to 2015.
However, there are negative results from the acquisition steps taken by LVMH, namely
There are several brands that had to be divested because they failed to meet expectations.
and the vision of the company applied by the company, this can also have an impact on
decline in shareholder value of the company.

BCG Matrix LVMH

When Bernard Arnault became president of LVMH in 1989, LVMH had
quickly releasing a business portfolio by acquiring high-end product lines in the area
different businesses. In 2016, LVMH had combined 70 brands and various
product lines categorized into 6 divisions such as Wine & Spirits, Fashion & leather goods,
Perfume & cosmetics, Watches & jewelry, Selective retailing, and other businesses. Until
Currently, LVMH operates in over 1500 retail locations in developed countries worldwide.
world.
Core competencies of LVMH are potential leadership, unique products, and
quality, distribution channels, communication, and price. LVMH maintains innovation and
creativity by placing the best talents and designers in the industry. This company
has design skills and talents, and each design unit operates independently
by its own designer, where this aspect is not possessed by its competitors. LVMH
creating value for customers even with expensive product prices. From this fact, it can be
analysis using the BCG Matrix analysis tool as shown in the following picture:
 From the above matrix, it can be seen that for products in the form of clothing and leather bags
LVMH's (Fashion & leather goods) production consists of products that hold
the key role of LVMH's success. In addition, these products represent a
the unity of quality, creativity, and innovation. Meanwhile, for perfume products and
cosmetics (Perfume & cosmetics) from LVMH are products that for now have not
become the mainstay of LVMH. Therefore, LVMH must further enhance its competitiveness in
long term.
For similar products like wine (Wine & Spirits) and selective retailing for now
this becomes the main source of revenue for LVMH. Meanwhile, for media-related products
and other businesses of LVMH are now focused only on the domestic scope of France, and have not
oriented towards overseas.
 CHAPTER IV

CONCLUSION AND SUGGESTION

4.1 Conclusion
LVMH is one of the main players in luxury goods sales and marketing.
luxury goods
Through various acquisitions, this company has taken the largest share of the market.
With increasing income amidst the global recession, and the reality that
most of LVMH's products are expensive and never go on sale is a testament to
extraordinary quality and great marketing.

4.2 Saran
●Expansion: We believe that LVMH should focus their efforts to
pressing counterfeiting rather than expansion.

In 2015 alone, American border officials seized counterfeit LV items that,

if authentic, it will be worth $ 1.2 billion. This means a loss of revenue for
LVMH.
●Counterfeiting: One of the largest distributors now is Alibaba. LVMH must
collaborate with the government and Alibaba instead of just demanding.
●Diversification: Reducing dependence on LV and supporting other businesses that
runs well like a luxury watch.