Louis Vuitton Moet Hennessy in the United Kingdom - Essay Example

?Case Study Report – LVMH in UK Executive Summary Louis Vuitton the great fashion retailer has started its operations in United Kingdom among other developed and developing countries. The performance of the group which had been hugely affected by the economic crisis of 2009 has taken key steps for a total change which has helped it in increasing its sales revenues. This paper focuses to analyze the business environment of the firm, both external and internal through specific business models like TOWS Matrix, SWOT Analysis, PESTEL Analysis and Porter’s Five Forces Model to present a holistic picture. Table of Contents Louis Vuitton……………………………………………….……..3-4 Louis Vuitton in United Kingdom…………………………..……..4 Louis Vuitton-TOWS Matrix Model………………………..……5-8 Louis Vuitton-PESTLE Analysis Model…………………..….…9-11 Louis Vuitton-SWOT Analysis Model…………………….……11-12 Louis Vuitton-Porter’s Five Forces Model……………………..12-14 Future Performance of Louis Vuitton………………………..….14 Conclusion……………………………………………….…….…..14 Appendices………………………………………………………..17-20 Louis Vuitton Louis Vuitton Moet Hennessy (LVMH) known as the world’s biggest luxury goods merchandiser operates based on four main segments viz. the product categories, manner of distribution of the commodities to the final consumer, promotional activities regarding the finished products for gaining increased consumer attention and setting price points. To this end, Louis Vuitton renders increased stress on the activities concerning product development, distribution management and promotional activities for which activities concerning setting of high price points becomes easily countered. The luxury group through the opening of highly decorative stores in the regions gains the attention of huge number of customers. This aspect caters to the distribution activities of the company. Further, Louis Vuitton makes huge amount of expenditures on advertising activities to make a large number of consumer aware of their shops and product categories and different ranges. However, the price mix followed by Louis Vuitton cannot be said to be customer friendly. Rather, the luxury goods manufacturer through the setting of high price points endeavors to gain a huge margin on the products manufactured and sold through its various outlets. The margin gained by selling the products at high price points is around 40 to 45 percent, which helps it to sustain itself in the luxury market. Focusing on the consumer portfolio of the luxury group, Louis Vuitton Moet Hennessy it is found that a huge chunk of consumers come from the middle level income groups. The rich segment of the society however contributes to a limited section of the total consumers, which forms a niche segment. The economy of the world hit by the global recession created a huge impact on changing the consumer buying patterns in different countries. This global economic meltdown affected the luxury retail business hugely for the luxury products owing to their high price ranges were observed as objects of lesser importance or optional products. This resulted to a sharp decline in the sales of such products. Louis Vuitton in the light of the changing market scenario decided to strategize its product customization activities through the production of simpler products. This change to simplicity for the Louis Vuitton products also reduced the price point of the products, which thereby caught customer appreciation (The substance of style, 2009). The paper focuses on studying the luxury group’s performance in United Kingdom. Louis Vuitton in United Kingdom The period of 2010 resulted to a huge increase of demand for luxury commodities in the region of United Kingdom. This shows that how the sales of the luxury group Louis Vuitton Moet Hennessy have aptly revived after the event of global recession affecting the different economies. The customers based at United Kingdom have shown a tremendous interest for products like fashion bags, accessories, fashionable garments, and other toiletry products. Sales of Louis Vuitton during the initial months of the 2010 period reached high marks to around 3.9 billion pounds. This figure was observed to be around 11 percent greater than the amount quoted along the same period during the last year in 2009. Further observation showed that the sales of luxury products like watch and jewellery, which was badly struck during the 2009 period increased by 33 percent during the 2010 period. The sudden rise in demand for the luxury commodities in European and Britain’s markets was not only countered by the exclusive stores possessed by Louis Vuitton but also reflected the same for partners of the group selling the different products. Thus other retailers selling the luxury commodities of Louis Vuitton got busy stacking the shelves with different luxury products to attract potential customers. The consumers of Great Britain in the revival of their economy from the financial crisis reflected increased purchases of products like perfumes and champagnes from Louis Vuitton. Thus sales of the two categories reflected a heavy rise with perfume sales increased by 12 percent in comparison to previous year. The rising trend of luxury goods sales helped the company in focusing on expansionary and brand development activities in the European and Great Britain markets. Management at Louis Vuitton also mentioned focusing on reducing operational costs and making feasible investments to help in the growth of profit margins (Wearden, 2010). Louis Vuitton-TOWS Matrix Model (A) The TOWS Matrix Model stands as the reverse of the SWOT Analysis Model. It is because the TOWS stands as the acronym for Threat, Opportunity, Weakness and Strengths spelt in the reverse direction in the SWOT Analysis Model. In that the TOWS Matrix Model helps in making an analysis of the external and internal environment of the firm. The TOWS Matrix is constructed on essentially four main situational factors built through the different combinations of the Internal and External Environmental parameters. The first matrix being the combination of parameters of Internal Strength and External Opportunities measures the internal potency of the concern in grabbing the most of the opportunities offered to it by the external environment. Analysis made on Louis Vuitton using the model would reflect the internal strengths of the firm, which is helping its growth in the England’s markets. ‘Internal Strengths’ and ‘External Opportunities’ Louis Vuitton operating in the luxury goods segment has internal strengths of producing superior designs in luxury bags and other accessories to gain wider market acceptance in developed economies like United Kingdom. The designs produced by the brand along with its unique looks help Louis Vuitton in drawing a specific brand identity for itself in the luxury goods market. Louis Vuitton through its design element and product diversity has been able to create a sustainable market for itself amidst other brands like Gucci, Prada, Kenzo, Givenchy and others clamoring to gain access to retail shelves. Another key internal strength of the luxury group Louis Vuitton is its expansion drives to gain access to foreign markets in and out of Europe. The key focus on its designs has helped the company to create a strong brand position for itself. (Ramachandran & Patvardhan, 2008, pp. 38-46). Louis Vuitton gains wider market acceptance through its huge amount of product offerings to the retail consumers. It specializes on a wide assortment of different product categories to captivate customer attention. The luxury goods company operates in the retail sector through the joint operation of its 50 different brands spread along different product categories (Harish, 2008, p. 57). The external opportunities for Louis Vuitton in United Kingdom is huge for the fashion consumers in United Kingdom are crazy enough to gain access to the best of fashion merchandise in the revival of the economy post depression. United Kingdom has offered to the fashion and luxury goods retailer area for gaining access to bigger markets in the country. The opening of the new outlet in New Bond Street in London would help Louis Vuitton in getting more amounts of footfalls from fashion oriented customers owing to the access to larger space of about 1,500 square meters stacked with fashion merchandise. The luxury group claims that it would be able to present the best of fashion labels starting from clothing to fashion commodities like bags and wallets of exquisite designs and refined quality through its newly opened outlet in London. Customers who would generally enter this type of a market complex stuffed with high-end fashionable clothing and other accessories are expected to be of elite base. This would help Louis Vuitton to sell the luxurious fashion bags, which lost market during recession and thereby gain huge revenue. (La belle maison: Louis Vuitton's new home, 2010). The luxury retail group, Louis Vuitton suffers from considerable weaknesses, which deters its expansion motives in foreign markets both developing and developed ones. This level of weakness acts as a obstacle to the firm from gaining access to external market opportunities as outlined above. Hence in order to get the best of the external market the firm must highly endeavor to reduce the potential of its ‘Internal Weakness’ to optimize the use of offers rendered by ‘External Opportunities’. An analysis based on the second matrix of the TOWS Model would make the matter more clear. ‘Internal Weakness’ and ‘External Opportunities’ The main weakness that the luxury group, Louis Vuitton suffers from is sudden falls in its revenue margins despite making conscious moves to reduce the total operational cost of the firm. Though the firm was on high note in profits and revenue margins for the 2010 period yet during the initial period of the last year during 2009 Louis Vuitton suffered heavy losses dampening its spirit in the luxury market. Reports reflect that during the initial 2009 period, Louis Vuitton suffered losses of the amount of around 1,363 million Euros. This figure accounted for a 12 percent reduction in the firm’s revenues as against the previous period. This loss of the luxury retail arm of Louis Vuitton Moet Hennessy made the total group counter a loss of 23 percent in the total revenues accounting for a loss of 687 million Euros (Moodie, 2009). The potential of the firm needs to be further enhanced to help it counter the huge amount of market risks in times of economic depression. Otherwise this stream of loss would certainly affect the expansion drives of the firm in developed markets like United Kingdom where consumers appreciate luxury before price. The third matrix of the TOWS Matrix Model focuses on the parameters of ‘Internal Strengths’ and ‘External Threats’ of the business firm. The external business environment of different economies both developed and developing offer the business firms with significant market threats that can deter their operations. Thus through this matrix an analysis would be done to understand how Louis Vuitton through its key internal strengths would successfully counter the external threats of the newer markets. ‘Internal Strengths’ and ‘External Threats’ Louis Vuitton does posses key internal strengths owing to its diversified product offerings and large focus on rendering products of exquisite designs and of high quality. However, the developed markets like the United Kingdom render huge amount of business threats to luxury products manufacturers like Louis Vuitton in the form of a large counterfeit market producing imitation products. Many shoppers easily purchase the fake Louis Vuitton hand bags at reduced prices. People flocking to United Kingdom in holidays generally go for such purchases and care less about the quality of the products. The market for counterfeit products amounts to 1.3 billion pounds in the region of United Kingdom, which reflects the potency of such in creating brand dilution of the luxury goods manufacturer (Howie, 2010). To counter such threats, Louis Vuitton needs to create increased brand awareness through focused advertising and improving brand logos and hallmarks. The final matrix of the TOWS Matrix Model puts focus on the area of ‘Internal Weakness’ of a business firm in relation to the huge amount of business threats imposed by the external business environment. In this context it renders focus on the operation of the luxury retail chain, Louis Vuitton in a developed economy like United Kingdom rendering business threat. ‘Internal Weakness’ and ‘External Threats’ The study made on internal weakness of the luxury retail chain, Louis Vuitton shows that the firm has a tendency to get crippled due to the incidence of events like severe market depression. Louis Vuitton during the financial year of 2009 countered heavy losses for which its business operations in foreign markets got widely affected. Keeping in mind the above event the firm has to make itself ready enough to retaliate against the fake product market gaining momentum in developed economies like United Kingdom. (Moodie, 2009; Howie, 2010). Even in times of economic meltdown the firm has to continue its operations of consumer awareness to protect its brand from getting diluted. Louis Vuitton-PESTLE Analysis Model (B) The macro environmental factors of the luxury retail group Louis Vuitton can be analyzed based on the use of the PESTLE Analysis. PESTLE Analysis stands as the acronym for external factors like political, economic, social, technological, legal and environmental which in turn constitute the firm’s macro environment. This analysis would present the macro environmental scenario of Louis Vuitton’s operations in developed countries like United Kingdom. Macro Environmental Conditions Political Factors The fashion retailer, Louis Vuitton, which has gained an international acceptance for its brand luxury and exquisite designs, faced a regulatory threat from the Advertising Standards Agency of United Kingdom for its advertisement activities. The advertising regulatory body in United Kingdom, Advertising Standards Agency states that the advertising used by Louis Vuitton is highly deceptive in nature. The regulatory body went that further in completely ceasing the advertisement to be produced. Consumers in United Kingdom were the first to highlight that though in the advertisement, Louis Vuitton showed the manual making of handbags yet it is widely known that the luxury group produces its products automatically and not manually. Hence, the advertisement became totally banned in United Kingdom. (Louis Vuitton Ad BANNED In UK for Misleading Customers, 2010). Economic Factors The economic factors in United Kingdom in the post depression era during 2010 are found to be favorable to help the luxury group Louis Vuitton draw in huge sales and profits. The luxury retail group observed that owing to the growth of huge demand in the watches and jewelry division sales for those rose by around 34 percent in respect to the previous year. Further the luxury group also stated that owing to the growth of personal income levels of the consumers of United Kingdom the sales of products like wines and champagnes grew by 20 percent in 2010 against the previous records (Hall, 2010). Social Factors Louis Vuitton in the context of United Kingdom is taking some social initiatives to promote the beauty of art in London. The art project of Louis Vuitton would mainly focus on people aged between 13 to 25 years rendering access to leading art institutions of the country. The three years art project, which would help the students, get a touch with traditional art scenes of London was endorsed by the Mayor of the city. This social initiative taken by Louis Vuitton would help in drawing the company near to the people’s minds. (Mayor backs Louis Vuitton Young Arts Project, 2010). Technological Factors The designers of quality products involving high design elements in companies like Louis Vuitton get the access to reach the several satellite stores through the Software Quality Assurance program. This technology enabled in United Kingdom would help the designers to make changes independently, information of which would be generated to the several stores through the technological development (Ross, 2005, p.23). Legal Factors The luxury retail group, Louis Vuitton is facing a legal tussle in the region of United Kingdom owing to the pirated practices of some of its manufacturers. The manufacturers are imitating the products like handbags produced by the firm to produce cheap products, which can be easily sold at reduced prices. In, United Kingdom holiday shoppers are being increasingly checked for counterfeit products, which are being banned (Jeannet & Hennessey, 2005, pp.126-127). Environmental Factors Taking environmental concerns the luxury retail group, Louis Vuitton has been using environment friendly lights, which would generate less heat and help conserve energy. Further the luxury retail group is encouraging the use of bags designed to suit environmental concerns. The bags are made of canvas coated by a plastic cover to enable slow degradation. (Luxury’s little green secret, 2007). Louis Vuitton-SWOT Analysis Model (C) The SWOT Analysis Model studies along the same path as the TOWS Matrix Model in identifying the strengths, weakness, opportunity and threats of the luxury group, Louis Vuitton. The strengths and weaknesses being the internal factors would be analyzed to counter the firm’s potential in managing the external threats and gaining business opportunities. Strengths The luxury retail group, Louis Vuitton performs based on some key strength, which can be underlined as follows. Louis Vuitton firstly has a huge assortment of products starting from leather commodities like handbags and wallets to different toiletry products like perfumes and watches. It also has a different segment focusing on jewelry and other luxurious drinks. Further, the second strength of the firm lies in carrying the huge number of brands under its umbrella to grab customer attention. Thirdly, the most important part of the fashion group is delimiting itself within boundaries of United Kingdom and Europe. It has also spread its wings to embrace developing economies like China. (Ramachandran & Patvardhan, 2008, pp. 38-46; The substance of style, 2009) Weakness The key weakness of the fashion group Louis Vuitton as identified is its failure of profit sustenance during times of economic crisis. The entire operational machinery at that time starts operating with a loss motive which acts as the principal weakness of the firm in foreign markets (Moodie, 2009). Opportunities The key opportunity gained by Louis Vuitton while operating in foreign markets like United Kingdom is the ability to go for market expansions owing to a positive growth in the market after recessions. Creation of the market in the New Bond Street would help gaining the attention of elite consumers, which would help the firm in increasing their revenues. (La belle maison: Louis Vuitton's new home, 2010). Threats The luxury group, Louis Vuitton operating in developed economies like United Kingdom is suffering from increased threats of manufacture of counterfeit products, which has gained a huge market in United Kingdom. This huge counterfeit market is posing threat of brand dilution for Louis Vuitton. (Howie, 2010) Louis Vuitton-Porter’s Five Forces Model (D) The use of Porter’s Five Forces Model to analyze the business environment of Louis Vuitton focuses on micro environmental factors like bargaining power of customers, suppliers, substitute products in the markets, existing and newer competitors to get a holistic view of the market. Micro Environmental Factors Bargaining Power of Buyers The bargaining power of the consumers in United Kingdom is strengthened owing to the huge market for fake products, which is sold at reduced prices. This helps the customers to bargain for price reductions or simply forego the expensive products (Howie, 2010). Bargaining Power of Suppliers Louis Vuitton manages the bargaining power of suppliers through the applicability of scientific systems like Just-in-Time concept, which reduces the chances of stock piling. Further it endeavors to maintain a strong strategic relationship with the suppliers and educating them to satisfy consumer needs (Heizer, Jay, Render, Barry, & Rajashekhar, 2009, p.622). Existence of Substitutes The luxury retail group, Louis Vuitton suffers from the threat of substitutes owing to the increasing market of counterfeit products in United Kingdom. Existence of a large counterfeit market helps the consumers to easily get access to cheap products with same designs. (Howie, 2010). Competition from Existing fashion retailers United Kingdom is the home of existing fashion retailers like Debenhams, the Burton Group, Sears, and Next which are continuously imposing competition to the luxury retail chain, Louis Vuitton. (Goworek, 2007, p.95). However, Louis Vuitton through its large brand architecture is positively countering such threat. Competition from New Entrants The retail space in United Kingdom is getting largely constricted due to the entrants of newer fashion firms like Tommy Hilfiger, Calvin Klein, Versace, Diesel and many others like Zara and Hennes and Mauritz. (Birkin, Clarke & Clarke, 2002, p.39). Thus, Louis Vuitton must focus heavily on advertising and other promotional activities to maintain its retail space in United Kingdom. Future Performance of Louis Vuitton Louis Vuitton with an annual average growth rate of 4.03 percent the revenue incurred by Louis Vuitton would increase from around 20 billion in 2010 to around 21 billion during 2011. (LVMH Moet Hennessy Louis Vuitton SA, 2011). The increasing market for the brands in both the Asian and Western markets further suggest that the annual revenue of Louis Vuitton would increase to around 30 billion for the 2013 period. The rising trend of the United Kingdom’s consumer spending after the recession period is expected to help Louis Vuitton reach the goal for 30 billion by 2013. Conclusion The market for fashion retailing in United Kingdom has come out of the gloom of recession. Customers have again started to gain possession of expensive brands like Louis Vuitton in several categories like handbags, perfumes, watches and even drinks. Thus, Louis Vuitton through the use of its large brand umbrella is expected to incur large profit margins. However, the firm has also to counter some drawbacks like counterfeit practices and threat from competitors to sustain itself in the market. References 1. The substance of style (September 17, 2009), The Economist, Retrieved on January 21, 2011 from: http://www.economist.com/node/14447276?story_id=14447276 2. Wearden, G. (13 April 2010), Luxury goods brand LVMH sees sales soar, Guardian, Retrieved on January 21, 2011 from: http://www.guardian.co.uk/business/2010/apr/13/luxury-goods-brand-lvmh-sales-soar 3. Ramachandran, J. & S. Patvardhan. (2008), International by Design, IIMB Management Review, Vol. 38, no. 9, pp. 38-46.   4. Harish, R. (2008), The Concept and Origin of Brand Architecture: A Comprehensive Literature Survey, ICFAI Journal of Brand Management, Volume 51, no. 12, pp. 51-62. 5. La belle maison: Louis Vuitton's new home (May 25, 2010), London Evening Standard, Retrieved on January 21, 2011 from: http://www.thisislondon.co.uk/fashion/article-23837870-la-belle-maison-louis-vuittons-new-home.do 6. Moodie, M. (2009), LVMH profits fall amid destocking; DFS maintains cost cutting as new openings prosper, The Moodie Report, Retrieved on January 21, 2011 from: http://www.moodiereport.com/document.php?c_id=1178&doc_id=21346 7. Howie, M (August 29, 2010), Fake goods are fine, says EU study, The Telegraph, Retrieved on January 21, 2011 from: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/7969335/Fake-goods-are-fine-says-EU-study.html 8. Louis Vuitton Ad BANNED In UK for Misleading Customers (May 26, 2010), The Huffington Post, Retrieved on January 21, 2011 from: http://www.huffingtonpost.com/2010/05/26/louis-vuitton-ad-banned-i_n_590968.html 9. Hall, J. (April 13, 2010), LVMH sales jump as demand for luxury goods rebounds, The Telegraph, Retrieved on January 21, 2011 from: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/7586582/LVMH-sales-jump-as-demand-for-luxury-goods-rebounds.html 10. Mayor backs Louis Vuitton Young Arts Project (May 12, 2010), London Government, Retrieved on January 21, 2011 from: http://www.london.gov.uk/media/press_releases_mayoral/mayor-backs-louis-vuitton-young-arts-project 11. Ross, R. (2005), Fashion and Textile Technology: Consumer Studies, Retrieved on January 21, 2011 from: http://www.ltscotland.org.uk/Images/FTTConsumerStudies_tcm4-252716.pdf 12. Jeannet, J. & H. Hennessey (2005), Global Marketing Strategies (6Th Ed.), Dreamtech Press. 13. Luxury’s little green secret (March 2, 2007), Financial Times, Retrieved on January 21, 2011 from: http://www.ft.com/cms/s/0/4aa39830-c862-11db-9a5e-000b5df10621.html#axzz1BfRXdNs9 14. Heizer, Jay, Render, Barry, & Rajashekhar (2009), Operations Management, Pearson Education India. 15. Goworek, H. (2007), Fashion buying, Wiley-Blackwell. 16. Birkin, M., Clarke, G., & M. Clarke (2002), Retail geography and intelligent network planning, John Wiley and Sons. 17. LVMH Moet Hennessy Louis Vuitton SA, (2011), Financial Times, Retrieved on January 21, 2011 from: http://markets.ft.com/tearsheets/analysis.asp?s=LVMH Appendices (A) TOWS Matrix Model ‘External Opportunities’ ‘External Threats’ ‘Internal Strengths’ ‘Internal Strengths’ and ‘External Opportunities’ ‘Internal Strengths’ and ‘External Threats’ ‘Internal Weakness’ ‘Internal Weakness’ and ‘External Opportunities’ ‘Internal Weakness’ and ‘External Threats’ (B) PESTLE Analysis Model Political (C) SWOT Analysis Model Helpful to Business in Achieving Objectives Internal Factors Strengths Internal Factors Weakness Harmful to Business in Achieving Objectives External Factors Opportunities External Factors Threats (D) Porter’s Five Forces Model Read More