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Khattab Al Qrarah Manas Ussenov Victoria Rosca Yousra Zaghdoud Bernichi 11.18.20141LVMHBusiness review Mot Hennessy Louis Vuitton S.A. is aFrenchmultinationalluxury goodsconglomerate, headquartered inParis.

LVMH was formed by the 1987 merger of fashion house Louis Vuitton withMot Hennessy (from the merger in 1971betweenthechampagne producer Mot & ChandonandHennessy, thecognac manufacturer.

2LVMHBusiness review

Business PortfolioWine and SpiritsFashion &Leather GoodsPerfumes & CosmeticsWatches & JewelrySelective RetailingMedia & Other Business3LVMHFacts

Chairman and CEO: Bernard Arnault

Revenue: 29.1 Billion Euros

Operational Profit: 6,021 Million Euros Employees: 114,000 in over 70 countries

Distribution Channels : 3,384 Stores

Prestigious Brands

4LVMHRevenue over category

5LVMHMain Competitors

6Timeline1743: M&C, established in Champagne Province (France). One of the first Champagne French brand, with exports accounting for a large percentage of its sales by the 20th century1968: Acquisition of Parfums Christian Dior1971: Merger with Champagne Mercier1971: Merger with Henessy & Cie (words second largest producer of cognac) -> Change name for Mot-Hennessy1987: French government launched an area of privatization Merger with Louis Vuitton, to avoid takeover from large international companies. Portofolio of uxury brands Veuve Clicqot, Dom Prignon, Canard Duchne (wine), Christian Dior and Givenchy perfumes and cosmetics, Gearoges Delbard (grower or roses), Louis Vuitton, M&C, Hennessy1987: Join ventures with Guinness PLC distribution British cie1988: Bernard Arnault Owner of Chrstian Dior, Celine, and Christian Lacroix purchase share of LVMH and join forces with VuittonAfter a join venture with Guiness, Arnault became the LVMHs largest shareholder, and ask for changes in the cies management1988: Arnault acquire Givenchy1989: Arnault became LVMHs president1990: Arnault became chairman1990: Purchase interest on Loewe (Spanish brand) and all assets of Pommery (largest vineyard in Champagne region), increase of LVMH share in Guinness from 12% to 24% : LVMH became the worlds largest alcoholic beverage seller1994: Arnault abandoned his quest to gain a controlling stake in Guinness, agreement to a stock swap7TimelineBetween 1990 and 1994, few small acquisitionsBrought additional fashion and fragrance and diversified by purchasing 2 of Frances leading financial and business publications Investir, La Tribune Desfosses, LAgefiExpansion of the number of cie-owned retail stores where its LV, Loewe, Celine, CD, Givenchy can be found1996: Arnault strongly believes that the brands should offer high quality customer service, acquisition of Duty Free Shopper (180 duty-free boutiques in Asia and various international airports)1997: Acquisition of Sephora, French cosmetic retailer, and 30% interest in Douglas International, a German beauty-goods 1997: Acquisition of Chteau dYquem (Champagne)1997: Purchase of 11% of Grand Metropolitan PLC Britsh Food conglomerate ($1.5 bn wine and spririts sales)1998: Retailing operations: La Belle Jardinire, Le Bon March1998: Laflachre France leading producer of hygiene beauty, and Marie-Jeanne Godard, a fine fragrance line1999-2000: Boldest acquisition: TAH Heuer (watches), Ebel (watches), Chaumet (Jewelry), Zenith (Watches), Bliss, BeneFit, Hard Candy, Make Up For Ever, Fresh, Urban Decay (all make-up artists) Philips, de Pury & Luxembourg, LEtude Tajan (all famous auction houses).Also these years, broadened the companys media operations, thanks to a French radio network and magazines, New World wine produces in the US and Australia, retail outlets in the form of an Italian cosmetcs retailing chain, KRUG, producer of some of the wordlt most expensive champagnesEmilio Pucci, Thomas Pink and Fendi acquisition2001: Dona Karan International and La Samaritaine, the largest departement store in ParisTried to acquire Gucci Group, but lost against the main competitor, PPR (today Kering)8LVMH Indutries

9Luxury industry structure

Characteristics of luxury products10Global Market Size

Globaly growing market, sensitive to macro-events11Growth by geographic markets

Important expected growth rate of the Asian Market12Recent trends

Globalization over 40% of sales is from luxury tourism13Recent trends

Globalization plenty of untapped potential in emerging markets14Recent trendsConsolidation individual brands are bought up by large luxury groups

15Recent trendsConsolidation large companies experience much higher margins Brand recognition (esp. emerging markets) Economies of scale (eg. advertising)Optimal brand portfolio management

???16Recent trendsDiversification apparel brands branch out to other luxury product categories, eg. jewelry, cosmetics, perfume, even restaurants

LVMH175-forces model-Luxury industryRising popularity of middle-price brandsConsumers tend to trade down during economic crisesCounterfeitLimited high skilled workersKey components and materials are outsourcesHighly specialized atelier dart with a narrow scope of expertiseCannot switch easily to another supplier risk a lower qualityBrand image and CRP programs build high brand loyaltyScale economiesCapital requirement: very high break-even pointExclusive access to suppliers & distribution

Decreasing buyers concentrationIncerasing number of wealthy househouldsTop-tier customers are usually early adopters and can drive consuptionNo one single buyer can determine pricesIncreasing switching costs with loyalty programsOlipololy with the big 3Growing demandHigh barrier for entry and high barrier to stay

Threat of Substitutes - ModerateThreat of new entrants-Moderate to lowRivalry among Existing competitorsHighBuyers Bargaining power - LowSuppliers Bargaining PowerModerarte

18Threat of new entrantsBrand image and CRM programs build high brand loyaltyDecreasing brand loyalty as a results of different needs in emerging markets

Traditional marketsEmerging marketsCraftmanship (artisanat)ExclusivityInnovationServiceCRMHeritageExtravaganceStatusObvious brand logo-> Easily swith to other brands of similar status19Scale economiesConsolidation of luxury brands achieve high economies of scale LVMH, PPR (Gucci), Prada Group, Richemont Minimize risk through diversification in the company brand portfolio More financing options e.g. IPO Operating synergies e.g. advertising

High marketing & management costs Distribution Fees: High rent to develop monobrand boutiques in prestigious shopping areas e.g. South Koreas Apgujeong; HKs Tsim Sha Tsui Canton Road To develop global presence, 400 stores are needed to cover the world! High salaries for craftsmen High investment for promotional activities e.g. Chanels elaborate runway shows during Paris Fashion Week; Louis Vuittons microfilm

20Capital requirementA very high break-even point ...In the luxury sector, even the smaller brands have to pretend they are powerful and rich, and by doing so they end up with a very high break-even. ..For example, every brand must be present everywhere in the world. ...If the Japanese tourist cannot find his Givenchy or Aquascutum store when he visits Milan or New York, he may well conclude that these brands are weak and he might decide to stop buying them in Japan. (Abstract from Luxury Brand Management: A world of Privilege)

21Exclusive Access to Suppliers & Distribution Many brands have acquired suppliers to protect competitive advantage and insulate against future rising supply costs E.g. LVMH acquired two watch dial manufacturers Leman Cadran and ArteCad SA, French artisan shoemaker Delos Bottier & Cie and haute couture manufacturer Arnys. Le Bon march and desire to be present in the distribution More and more distribution access points are available to brands Contemporary areas like The Bund in Shanghai brings a multi- sensory experience to luxury

22Potential retaliation from the existing companies Small luxury brands do not have high barriers of distribution Pressure from powerful groups to prevent them from having access to multi-brand retailers

23Threat of substitutesPrice of substituesQuality if substitutesSwitching costs to customers 24Price of substitutesRising popularity of middle price brands Consumers tend to trade down during economic crises Worldwide shipping of counterfeit goods from Turkey, China, North Africa,

25Quality of subsitutesIncreased Internet accessibility of top luxury brand designs allow fast fashion brands to respond and copy trends within weeks after fashion shows e.g. Zara, Steve Madden

26Switching cost to customerNo monetary switching costs Loss of prestige if switch to high street or fast fashion brands

27Buyers bargaining power Number of buyers relative to suppliersLevel of dependence on a buyerSwitching costsPossibility of buyers vertical integration28Number of buyers Decreasing buyer concentration Increasing number of buyers relative to suppliers Example: Chinas emerging middle- class buyers Concept of affordable luxuries spreading in second-tier cities & satellite towns Increasing number of wealthy households Of the 1.6 million wealthy households, about 50 percent were not rich four years ago

29Level of dependence on a buyer Luxury industry depends heavily on top-tier customers Average spending by luxury consumers rose by 30% in 2009 MOST driven by small groups of super- affluent top-tier consumers Top-tier customers eg. celebrities are usually early adopters and can drive consumption But not one single buyer can determine prices

30Switching costsBuyers who develop an emotional attachment to t

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