Luis Vuitton- Financial Evaluation and Profitability - Report Example

Luis Vuitton Introduction Louis Vuitton is a French fashion house that deals in a wide array of products such as Luxury trunks, books, sunglasses, accessories, jewelry, watches, shoes, ready to wear clothing, and leather goods among others. The company mainly sells its products through traditional brick and mortar stores in stand alone boutiques, lease departments in high end stores, or via electronic commerce through their own official website. The company has been expanding aggressively whereby in 2004 it managed to celebrate its 150th anniversary and subsequently inaugurating stores in; New York, Sao Paulo, Mexico city, and Johannesburg. Come 2010, the store opened up what they described as their most luxurious store which is located in London (Inside-Lux, 2020). The company internal operations is made up of various business units such as; fashion, travel, watches & Jewellery, and wines & Spirits among others. In order for the company to preserve its heritage, it has maintained its traditions in manufacturing some of its goods. For instance, luggage is still hand made whereby craftsmen line up leather and canvas while tapping in nails one by one. According to Millar Brown (2011) the company’s brand is also one of the world’s most valuable brands, and to be precise, the 29th most valuable brand worth an estimated $ 19.781 Billion. With this status, Luis Vuitton has become one of the world’s most counterfeited brands in the fashion world accounting for nearly 18% of the counterfeited accessories being seized in the European Union (Angus, 2006). Financial Evaluation and profitability The Company has a consistent track record of profitability in the last 10 years and has been presenting a double digit growth to the shareholders. Its total net income and sales have been growing steadily for the last 20 years, whereby 2010 sales were approximately slightly in excess of 20 Billion Euros and profits rose to by 73% to 3 Billion Euros which was more than investors expectations(Money central, 2011). With the global financial recession showing signs of recovery coupled with the facts that most consumers have taken refuge with more established brands during the economic downturn, there are signs that consumers appetite for high end consumer products is beginning to return which has prompted analyst to have a positive outlook on such stocks whereby Luis Vuitton shares has risen dramatically by nearly 24% over the past six months. The company also has a Market cap: €55,338.430m Other factors that can also be attributed to the company’s resounding success are that it is now expanding to countries like Mexico and Malaysia. Luis Vuitton is also present in China, a country that has a very huge middle class, and as a result China is today the company’s second largest market on earth (Merco Press, 2011). Table 1.0 Luis Vuitton 10 year financial summary Fig 1.0 Louis Vuitton share price chart Luis Vuitton Organizational Structure Fig 2.0 Luis Vuitton organizational chart The company’s CEO is the overall in charge that is answerable to the board of directors. The company then has some other directors who head the different company’s division. These directors are answerable to the company’s overall CEO Mr. Bernard Arnault who also doubles up as the chairman. Luis Vuitton Expansion Strategy The company invests into new markets by directly investing in stores. The company through one of its directors in an interview outlined that the company will be seeking international expansion by opening up stores in Key cities across the world. The company has opened up stores in London, New York, Mumbai, United states, and Mongolia (Tyya & Vault, 2005, p.237). They are now targeting Santo Domingo (Dominican Republic), Helsinki (Finland), and Beirut (Lebanon) among others. The company also participated in the Universal Expo in Shanghai to showcase some of its iconic products whereby during the exhibition the company managed to inaugurate two new shops in Shanghai (CPP-Luxury.com, 2009). The company is opening up flagship stores in worlds leading centers, specifically in capital cities of prosperous nations. This is so because a country’s capital city was a common trait of internationalizing luxury fashion retailers and Luis Vuitton establishes these stores so that they may develop alluring sophistications for their company’s. Operating stores in such cities also gives out the image that the company is cosmopolitan, successful, and accessible to the world’s wealthiest and most beautiful personalities (Tony & Margaret, 2007, p.93). Factors challenging country’s expansion strategy Negative Perception One of the challenges the company faces when it expands internationally is that sometimes they are faced with very stiff opposition than they had anticipated. This is because some of its competitors had already invaded the market and managed to establish very strong footholds with the locals. This forces the company to spend more than it had budgeted for to market some of its products. There is the perception that some of its goods are exclusively for the rich. Rising costs of Business Some countries experience hyper inflation which erodes away the purchasing power from its citizens. This forces enterprises like Luis Vuitton to issue huge discounts so that some its products can be taken away by consumers from the shelves. With political unrest in the Middle East, the cost of logistics also becomes very expensive for the company making Luis Vuitton to incur additional transportation expenses. Exchange rates When the Euro weakens, the company’s profits are eroded because goods are very cheap to import into the host court whereby this erodes some of the company profit. Online theft The company cannot embrace e-commerce concept into each and every country that they have there physical presence there because some country’s have very weak institutions to deal with online thefts and crimes, and perpetrators of online crimes may take advantage and use the company’s infrastructure to perform illegal activities such as money laundering and credit/debit card thefts. Unique factors that the company may be faced with during international expansion Legal This occurs when the company’s counterfeit products get into the market and the legal institutions present in the country are weak to deal with the issue of counterfeit. This may seriously impact negatively on the company’s because their counterfeit products can be easily channeled into the company’s distributions network, and end up making a few corrupt people very rich while eroding the market value of the company. Economic The company may start witnessing a drop of sales of some of their products when the local economy begins to suffer. When an economy suffers, the citizen’s purchasing power tends to get eroded hence reducing their disposable income. This will make people to shy away from high end products like the ones made by Luis Vuitton. Also global financial crisis such as the ones witnessed during the past recession (2008-2011) may significantly affect the sales of overseas operations because most major currencies such as the Euro tends to weaken significantly against the minor currencies from emerging market, and since Luis Vuitton derives approximately 30% of its sales from the emerging market, then this could become very tricky for the company to maintain its profitability and bullish run (Bernilista, 2009). Politics Country’s experiencing that are experiencing political unrest or stability are likely to scare investors away. When this happens the economy begins to suffer and much pressure begins to be directed to other areas on how money can be raised to meet local demands. Among the areas which are usually first to be identified is the luxury segments. Again, this is likely to make people to shy away from such products. For instance, during the ousting of Egyptian Leader Hussein Mubarak, the economic outlook of Egypt was very discouraging with key facilities shutting down whereby high end fashion houses were not an exception, had Luis Vuitton established a store in the country as they are planning today, then the company Egyptian operations would have been severely affected (Daily News, 2011). We may also look at Lebanon, a country which Luis Vuitton has already established a store there. The country has been rather politically unstable with civil war between (1975-1980). In 2005, Lebanese prime minister was assassinated, and also in 2006, the country had a month long war between Israel and Hezbollah which resulted into civilian deaths and significant damage to the country’s infrastructure (Asia times, 2007). If such a scenario may repeat itself into the country, businesses such as Luis Vuitton may seriously suffer. References Angus McCrone (2006). Special Report: Trying to stub out the fakes, retrieved 26th April 2011 from http://business.timesonline.co.uk/tol/business/law/article673534.ece Asia times (2007). Lebanon douses a terrorist fire, retrieved 26th April 2011 from http://www.atimes.com/atimes/Middle_East/II05Ak01.html Bernilista (2009). Louis Vuitton-Exceptional Performance, retrieved 26th April 2011 from http://www.berlinista.com/en/article/louis-vuitton-exceptional-performance/8281 CPP-Luxury (2009). Louis Vuitton international expansion and development strategy in 2010 retrieved 26th April 2011 from http://www.cpp-luxury.com/en/louis-vuitton-s-international-expansion-and-development-strategy-in-2010_509.html Daily news Egypt (2011). Louis Vuitton in Beirut: eyes next on Egypt, retrieved 26th April 2011 from http://www.thedailynewsegypt.com/fashion-a-design/louis-vuitton-in-beirut-eyes-next-on-egypt.html Fig 1.0 (2011). Luis Vuitton Share price chart, retrieved 26th April 2011 from http://www.hemscott.com/companies/company-chart.do?companyId=431644215086&period=1Y Fig 2.0 Org structure http://www.cogmap.com/chart/lvmh-mo%E3%ABt-hennessy-louis-vuitton-sa Inside Lux (2010). Louis Vuitton opens most luxurious store to date, retrieved 26th April 2011 from http://www.insidelux.com/2010/05/29/louis-vuitton-opens-most-luxurious-store-to-date/ Merco Press (2011). Chinas appetite for Luxury goods fuels record sales and profits for Louis Vuitton, retrieved 26th April 2011 from http://en.mercopress.com/2011/02/05/china-s-appetite-for-luxury-goods-fuels-record-sales-and-profits-for-louis-vuitton Millard Brown (2010). 2010 Brandz top 100 report, retrieved 26th April 2011 from http://www.millwardbrown.com/Libraries/Optimor_BrandZ_Files/2010_BrandZ_Top100_Report.sflb.ashx Money Central (2011). Financial Results: Luis Vuitton, retrieved 26th April 2011 from http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?lstStatement=10YearSummary&symbol=US%3aLVMHF&stmtView=Qtr Table 1.0 (2010). Luis Vuitton 10 year financial summary, retrieved 26th April 2011 from http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?lstStatement=10YearSummary&symbol=US%3aLVMHF&stmtView=Qtr Tony Hines & Margaret Bruce (2007). Fashion Marketing: Contemporary issues, 2nd Edition, Butterworth-Heinemann. Tyya N. Turner, Vault (Firm), Staff of vault (2005). Vault guide to the top consumer products employers, Vault Inc. Read More

 

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