LVMH Mot Hennessy Louis Vuitton SA in Beauty and Personal Care (World)

8/10/2019 LVMH Mot Hennessy Louis Vuitton SA in Beauty and Personal Care (World)

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LVMH MOT HENNESSY LOUIS VUITTON SA INBEAUTY AND PERSONAL CARE (WORLD)

November 2014


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Euromonitor International PASSPORT 2BEAUTY AND PERSONAL CARE: LVMH MOT HENNESSY LOUIS VUITTON SA

Disclaimer

Much of the information in thisbriefing is of a statistical nature and,while every attempt has been madeto ensure accuracy and reliability,Euromonitor International cannot beheld responsible for omissions orerrors.

Figures in tables and analyses arecalculated from unrounded data andmay not sum. Analyses found in thebriefings may not totally reflect thecompanies opinions, reader

discretion is advised.

LVMH is the worlds largest

luxury good s company. Despite

beauty being one of its smallest

div is ions, it has increased its

investment in the category, and

it aspires to become a top 10

beauty player global ly . While its

revenues derive primari ly from

fragrances and colour

cosmetics, skin care remainsthe category to watch as it wil l

be cont r ibut ing the highes t

revenue over the forecast

per iod. Expansion and

strengthening category

posit ion s remain key strategies

of the company.

ScopeSCOPE OF THE REPORT

All values expressed in this report are in US dollar terms, using a fixed

exchange rate (2013).2013 figures are based on part-year estimates.

All forecast data are expressed in constant terms; inflationary effects arediscounted. Conversely, all historical data are expressed in current terms;inflationary effects are taken into account.

JewelleryConfectionaryUS$185,477 mn

RefrigerationAppliances

144,010

Microwaves60,669Home

Laundry121,107

Large CookingAppliances132,745

Home LaundryAppliances121,107

Microwaves60,669

SmallAppliances1,724,022

Beauty and Personal CareUS$454.4 billion

Colour Cosmetics

US$55.5 billion

Fragrances

US$45.1 billion

Skin Care

US$107.3 billion

Sun CareUS$9.5 billion

Sets/Kits

US$17.9 billion
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STRATEGIC EVALUATION

COMPETITIVE POSITIONING

MARKET ASSESSMENT

GEOGRAPHIC AND CATEGORYOPPORTUNITIES

BRAND STRATEGY

OPERATIONS

RECOMMENDATIONS


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LVMH Mot Hennessy Louis Vuitton SA is the worlds

largest luxury goods company and operates five mainbusiness divisions: Wines and Spirits; Fashion andLeather Goods; Perfumes and Cosmetics; Watchesand Jewellery; and Selective Retailing.

Within beauty and personal care, LVMH is one of thetop 15 players in the global market. Its positioning isstrongest in fragrances, followed by colour cosmetics.However, it has significantly invested in innovation

with a new research centre and it is hoping to increaseits competitiveness in other categories such as skincare.

LVMH posted 3.7% revenue growth in 2013, driven bypositive performance across all geographies, including

Asia Pacific, Europe and the US. Within its Perfumesand Cosmetics division, the company highlightedChristian Dior fragrances as a key growth driver.

In 2014, LVMH and Google signed a cooperationagreement to tackle the advertising and sale ofcounterfeit products online. While the internet hasbeen a key tool for engaging with consumers, it hasalso been a two-edged sword as it has also been ahuge source of counterfeit luxury products.

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LVMH: Revenue vs Operating Profit2009-2013

Revenue Operating Profit

LVMH Mot Hennessy Louis Vuitton SA

Headquarters: Paris, France

Regional involvement: Global

Category involvement:Premium beauty andpersonal care

World BPC value share2013:

1.5%

World BPC valuegrowth 2012-2013:

5.9%

Key company factsSTRATEGIC EVALUATION


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France Europe(exc

France)

US Japan Asia(exc

Japan)

Other

Euromillion

Perfumes and Cosmetics: Revenue by

Geography H1 2013 vs H1 2014

Jun-13 Jun-14

Positive growth continues in 2014STRATEGIC EVALUATION

LVMH continued to report positive growth in 2014.

Consolidated revenue for the nine months toSeptember 2014 reached21.4 billion, up 4% overthe same period in 2013. In constant currencyterms, revenue increased by 8%.

Perfumes and Cosmetics revenue increased by8% on a constant consolidation scope andcurrency basis, and by 4% based on publishedfigures. The division reported particularly positive

growth in the Middle East and in Asia, specificallyChina.

LVMH highlighted its Christian Dior brand as aparticularly strong performer, specifically its Jadoreand Dior Addict lines. Diors make-up linesperformed strongly, especially in Asia. Guerlainalso contributed to the divisions growth, with thenew fragrance LHommeIdeal as well as growing

support for its skin care Abeille Royale line. LVMHs smaller BPC brands such as BeneFit alsoposted robust performance, driven by thecombination of product innovation and geographicexpansion. BeneFit successfully launched a neweyeliner They are Real.

LVMH: Perfumes and Cosmetics 9-Month Interim

Results 2013/2014million June 2013 June 2014 % growth

Revenue 2,683 2,800 4

Profit (recurringoperations)

200 204 2


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STRENGTHS

OPPORTUNITIES

WEAKNESSES

THREATS

LVMHs area of strengthis premium fragrances,particularly womens,where it ranks secondglobally, with ChristianDior by far its mostvaluable brand and its

most important growthdriver in the category.

Premium womensfragrances LVMHs enviable portfolioof premium brandscarries significant equity.It represents an excellentplatform for developingits presence in traditionaland newer marketplaces

with beauty increasinglybecoming a focus.

Global brand equity While Guerlain, ChristianDior, Ole Henriksen andFresh all have skin carelines, only the latter twoare known for skin care.LVMH with its newresearch centre Helios

aims to gain credibility inskin care and thusbecome more competitive.

Credibility in premium skincare LVMHs beautybrands have strongpresence infragrances andcolour cosmetics butless so in skin care,beauty and personal

cares largestcategory.

Small skin care portfolio

LVMHs heritage brandChristian Dior and its

youthful brands BeneFitand Make Up For Everhave strong potential in thefast-growing Asia Pacificand MEA regions which thecompany is exploringincreasingly

Premium colourcosmetics

LVMH is a small playerin premium skin care,

the largest premiumBPC category, and anti-agers, the key growthsubcategory withinpremium skin care overthe forecast period.

Premium skin care - anti-agers

LVMH faces strongcompetition from the likes

of Este Lauder andLOral. With a smallerbeauty portfolio, it isharder for LVMH tocompete.

Intense competition in US

Beyond the stronginternational premium

beauty companies ofEste Lauder andLOral, LVMH facesstrong competition fromsmaller private firmssuch as Chanel andClarins.

Fierce competitiveenvironment

SWOT: LVMH Mot Hennessy Louis Vuitton SASTRATEGIC EVALUATION


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In 2013, the company opened the Hlios researchcentre in Frances Cosmetic Valley. The centre isdesigned to foster synergy and accelerate the

development of innovative products. With over 250researchers carrying out studies and testingformulas, the company has made a significantinvestment in driving innovation across all of itsthree key categories and especially the morechallenging premium skin care market.

LVMH has focused in recent years on its own retailnetwork, reducing its presence in wholesale andinvesting in new store openings and development

of its stores in flagship markets. Examples rangefrom its Dior new store concept to Guerlainsreopening of its flagship store on the Champs-lyses in Paris. Furthermore, Sephoras rapidgrowth, primarily in emerging markets, has furtherallowed the company to manage its distribution.

The impact of the global recession has led LVMHto intensify its focus on its flagship brands, such asclassic labels Christian Dior, Givenchy andGuerlain. Christian Dior in particular has become akey growth driver for the company over 2008-2013,contributing one third of the companys total BPCgrowth globally. Guerlain has also been growing

and more investment has been going intodeveloping a stronger skin care portfolio for thebrand.

The companys portfolio of star brands iscomplemented by a number of smaller brands thatLVMH considers to have strong growth potential.BeneFit, Fresh and Make Up For Ever are alltargeted towards a younger demographic with afun image and more approachable prices. Thesebands together with Ole Henriksen are LVMHs

pure beauty brands, ie not fashion brands thatextended into beauty.

Flagship brands High potential brands

Own retail network Innovation to increase presence in skin care

Strategic objectives and challengesSTRATEGIC EVALUATION


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MARKET ASSESSMENT


BRAND STRATEGY

OPERATIONS

RECOMMENDATIONS


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The global BPC market is concentrated, with the

top three companies generating 29% of total salesin 2013. Characteristically, market share is basedon very large global brands; Dove, Axe, Olay,LOralParis, Garnier and Nivea are just a few ofthe worlds biggest BPC brands, all of which arepositioned in the mass segment.

With a primary focus on premium products, and amuch smaller portfolio than some of its

competitors, LVMH ranks just outside the top 10players in the global BPC market in 2013. Thecompanys growth slowed significantly during2008-2009, although its beauty division was amongthe less impacted.

However, it returned to strong growth in the latteryears of the review period and ranked among thestrongest performers in 2012, with near 10%growth as the company benefited from a revival indemand for premium products, specifically in theUS, as a result it moved up one place in theranking, a position it held on to in 2013. Whilegrowth in 2013 was more moderate, it still held itsposition due to strong growth in Asia and MEA.

LVMH remains outside the global top 10COMPETITIVE POSITIONING

Beauty and Personal Care: Leading Global

Companies by Value Share 2013 and Ranking2010-2013

Company

2010

2011

2012

2013

%company

share2013

Procter & Gamble Co, The 1 1 1 1 11.3

L'Oral Groupe 2 2 2 2 9.7

Unilever Group 3 3 3 3 8.1

Colgate-Palmolive Co 4 4 4 4 3.8

Beiersdorf AG 6 5 5 5 3.0

Este Lauder Cos Inc 8 8 6 6 2.9

Johnson & Johnson Inc 7 7 7 7 2.8

Avon Products Inc 5 6 8 8 2.4

Shiseido Co Ltd 9 9 9 9 2.1Henkel AG & Co KGaA 11 11 11 10 1.7

Kao Corp 10 10 10 11 1.7

Coty Inc 12 12 12 12 1.7LVMH Mot HennessyLouis Vuitton SA

14 14 13 13 1.5


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%y

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LVMH: Competitive Performance by Value vs Global Premium Beauty and Personal

Care Market 2008-2013

Premium BPC LVMH

A

BC

A: 2008-2009: Consumers down-trading behaviour as a result ofthe economic downturn

negatively impacts LVMHsperformance, with the companyposting just 2% growth, its worstresult in over half a decade.

C: 2012-2013: Company growthslows down slightly due to aslowdown in premium cosmetics

spending in North America and inparticular in the US. However, thecompany is taking a stronger holdin emerging markets such as

Asia Pacific and the Middle Eastand Africa.

B: 2010-2011: LVMH outperformsthe global premium BPC marketthanks to continued buoyant

demand for premium products inemerging markets. The companyalso benefits from a revival indemand for premium products inthe US, where it posts double-digit growth.

Company performance significantly improvesCOMPETITIVE POSITIONING


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MARKET ASSESSMENT


BRAND STRATEGY

OPERATIONS

RECOMMENDATIONS


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LVMH is only present in the premium segment of beauty and personal care. As the third largest premium

BPC player globally, LVMH will be among the main beneficiaries of the predicted US$14.7 billion increasein sales over the forecast period.

Fragrances is by far LVMHs most valuable category, accounting for more than half of the companys totalsales. LVMH is the second largest player, only marginally behind LOral. Through strong brands, mainlyChristian Dior and Guerlain, the company is well positioned to capitalise on the predicted US$3.3 billionincrease in global sales of premium fragrances, the second biggest contributor to absolute premium BPCvalue growth over 2013-2018.

LVMH is a smaller player in premium skin care - the biggest category within premium BPC, and the most

important growth contributor, expected to gain US$6.7 billion by 2018. More importantly Asia Pacific - thecompanys key regional growth contributor - is also skin cares key growth contributor by region. Thecompany is expanding Fresh in the region, whose natural positioning fits well with consumer demand, aswell as expanding Ole Henriksen another natural skin care brand with a spa positioning and strong anti-ageing offerings.

Premium baby and child-specific products

Premium bath and shower Premium colour cosmetics

Premium deodorants

Premium fragrances

Premium skin care

Premium sun carePremium sets/kits

01234567

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000%

CAGR2013

-2018

Market size 2013 (US$ million rsp)

LVMH: Premium BPC Presence 2013 and Growth Prospects 2013-2018 by Category

Note: Bubble size represents company value share of category in 2013, range displayed: 0.2-14.5%

Fragrances remain LVMHs main focus areaMARKET ASSESSMENT


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LVMH has a cross-regional presence, with Western Europe the largest contributor to its sales (accounting

for over 40% of the companys global BPC sales in 2013). Demand for premium BPC was subdued in thisregion over the review period, despite the company posting a respectable near US$200 increase in salesover 2008-2013. While the outlook for premium BPC in Western Europe remains poor (0.3% CAGR over2013-2018), the company is in a strong competitive position and growth through further share gain shouldbe achievable.

In terms of actual gains, premium BPC is expected to record the largest increase in Asia Pacific over 2013-2018, with China set to contribute nearly three quarters of the predicted US$7.8 billion category gain in theregion. LVMHs brands, which are both well known through their fashion heritage and have strong brand

image, are in a strong position to capitalise on the increasing number of consumers whose incomes arerising and have a high desire for luxury brands. LVMHs beauty offerings are expected to capitalise themost, being the entry price point into the brand for the majority of aspirational consumers.

Asia Pacific

Australasia

Eastern Europe

Latin America

Middle East/Africa

North America

Western Europe

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AGR2013-2018


LVMH: Premium BPC Presence 2013 and Growth Prospects 2013-2018 by Region

Note: Bubble size represents company value share of region in 2013, range displayed: 3.1-18.6%

Growing in Asia but Europe remains LVMHs money makerMARKET ASSESSMENT


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MARKET ASSESSMENT


BRAND STRATEGY

OPERATIONS

RECOMMENDATIONS


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Premium fragrances is LVMHs core area of business in beauty and

personal care. The company has a cross-regional presence butderives nearly half of premium fragrances sales from WesternEurope. While category growth is expected to be very moderate at0.5% CAGR, this will still translate into a significant gain of US$248million by 2018. Moreover, premium fragrances is expected tooutperform mass fragrances which is predicted to see a value declineover the forecast period. As the leading player in premium fragrancesin Western Europe, LVMH should be able to claim much of the

predicted category gain. Very strong growth is expected in the Middle East and Africa, wheresome 40% of global premium fragrances absolute value growth willcome from over 2013-2018. The leading market will be Saudi Arabiawith a contribution exceeding US$600 million. However, this is amarket where local players continue to dominate, although LVMH hasmade important inroads, reaching 6% of premium fragrances in 2013(ahead of its multinational rivals).

LVMH leads premium fragrances in Asia Pacific as a result of astrong cross-market presence, and its leadership position in theregions largest market of Japan. While growth prospects are poor inthe latter, opportunities exist specifically in the high-growth markets ofChina and India. Jadorereplaced Chanel N5 as the top-sellingfragrance in China in 2013.

Latin

America

Austra-lasia

EasternEurope

AsiaPacific

MiddleEast/

Africa

NorthAmerica

WesternEurope

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LVMH: Premium

Fragrances Presence 2013and Growth Prospects2013-2018 by Region

Note: Bubble size represents company value share

in region in 2013, range displayed: 5.9-32.0%

A multi-point battlefield in premium fragrancesGEOGRAPHIC AND CATEGORY OPPORTUNITIES


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Premium fragrances is highly consolidated with the top five playerscontrolling nearly 60% of global value sales in 2013. LVMH ranks first,with a 14.5% value share, having overtaken previous market leaderL'Oral in 2013. LVMH gained further share in 2013 due to the strongperformance of key brands, above all Christian Dior (specifically MissDior, Dior Homme and Jadore).

LVMHs strong portfolio in its classic range plays to its strength asconsumers are growing increasingly tired of celebrity lines andlooking for more sophisticated brands. It also aims to reach out to a

younger audience with products such as its new La Petite RobeNoire, part of the Guerlain brand family. The fragrance was sosuccessful in its home market France it quickly climbed the ranking tonumber two.

In contrast, leader L'Oral has been consistently losing value sharesince 2008, with most of the companys key brands losing share, suchas Giorgio Armani, Ralph Lauren and Lancme, despite the successof its La Vie est Belle which climbed to third position in France. A

stronger performer among the leading players was Chanel, whoseeponymous brand gained significant share in its key regions of North

America and Western Europe. Chanel remains LVMHs main rivalwith a similar fashion background and iconic fragrances such asChanel N5 and Coco Mademoiselle.

Strong competitive positioning in premium fragrancesGEOGRAPHIC AND CATEGORY OPPORTUNITIES

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Premium Fragrances:

Global Value Shares ofLeading Companies2008-2013

LVMHL'OralP&GCotyChanel


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Saudi Arabia is one of the largest premium fragrancesmarkets globally. While local and traditional Arabian brandswill remain the strongest in driving future growth, consumersare looking increasingly towards imported French-stylefragrances, which epitomises LVMHs portfolio. Moreover, aFatwa was issued in June 2012, which stated that Muslimscan use alcohol-based fragrances, due to the proportion ofalcohol in fragrances being low. This Fatwa thus encouragedmany Saudi consumers to expand their purchase of

fragrances to include alcohol-based fragrances fromprestigious global brands. LVMH is well positioned tocapitalise on this opportunity, as the largest multinationalplayer within premium fragrances.

A further challenge has been consumers preference forstrong deep scents with oud as a key ingredient. Manyfashion brands have been introducing oud- basedfragrances, especially Tom Ford, which although still niche

has been growing in the market. Despite consumers desire for luxury brands, which fits wellwith LVMH, catering to consumers olfactory tastes is alsonecessary. Thus the key challenge for international players isto convince consumers that they can create oud products aswell as locals do.

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UAE

South Korea

Israel

India

UK

South Africa

Brazil

China

US

Saudi Arabia

Premium Fragrances: Leading

Absolute Value Growth Markets2013/2018

Absolute value growth (US million) 2013/2018

Local competition keeps Saudi Arabia a challenging fieldGEOGRAPHIC AND CATEGORY OPPORTUNITIES


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LVMHs performance was also strong in premium colour cosmetics,where its global share steadily increased throughout the reviewperiod, reaching 8.9% in 2013 (from 7.8% in 2008). LVMH competesin the category with its Christian Dior, Givenchy and Guerlain brands,as well as colour cosmetics specialist brands BeneFit and Make UpFor Ever.

Premium colour cosmetics has recovered from the fall in demandduring the economic downturn, although growth is expected to remainmoderate, at 2% CAGR, over the forecast period. While growth will be

marginal in Western Europe, North America is expected to showpositive growth, at just above the global average (2.3% CAGR).Category growth in the latter will be driven by foundation/concealer,where Christian Diors latest launches have been concentrating on.

LVMH is particularly strong in Eastern Europe, where it dominatespremium colour cosmetics with a 27.6% share. LVMH is second witha 14.3% share of premium colour cosmetics in the Middle East and

Africa where Este Lauder has been increasing its presence,

launching in Nigeria in 2013. Finally, in Asia Pacific, the companyraised its competitive share from 4% in 2008 to 6% in 2013, indicatingthe region as a big white space for the company to expand in. Assuch, for LVMH, the eastern fast-growing regions remain the mostdynamic markets to expand its presence in.

LatinAmerica

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EasternEurope

AsiaPacific

MiddleEast/

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LVMH: Premium Colour

Cosmetics Presence 2013and Growth Prospects2013-2018 by Region

Note: Bubble size represents company value share

in region in 2013, range displayed: 4.6-27.6%

Opportunities in colour cosmetics remain East for LVMHGEOGRAPHIC AND CATEGORY OPPORTUNITIES


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LVMH is moving up the global premium colour cosmetics ranking, edging ahead of Shiseido in 2011, andapproaching LOral slowly but steadily. LVMH outperformed the premium colour cosmetics market byposting 7% value growth in 2013, significantly above the global average of 4.6%. Among the top leadingplayers, only AmorePacific Group grew stronger (17%) as the company continued its expansion beyondSouth Korea to the rest of Asia and North America where its brands have been very popular. Both EsteLauder and LOral grew weaker than the category overall, indicating that with continued strongperformance LVMH can close the gap to the two leading players.

LVMH benefits from a strong brand portfolio, ranging from its classic brands Dior, Givenchy and Guerlain,which have a well-established consumer base, to its youthful brands BeneFit, and Make Up For Ever.

In 2013, LVMH highlighted a particularly positive performance of Diorskin Star foundation and concealer.BeneFit also continued to perform strongly, specifically products such as Theyre Real! Mascara andEyeliner and Hello Flawless! Powder foundation, while key growth contributors within Make Up For Everwere HD (foundation) and Aqua (eye make-up).

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Premium Colour Cosmetics: Global Value Shares of Leading Companies 2008-2013

Este Lauder L'Oral LVMH Shiseido

Estee Lauders domination remains unchallengeableGEOGRAPHIC AND CATEGORY OPPORTUNITIES


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Skin care accounted for 15% of LVMHs total BPCsales in 2013, with sales of US$966 million. Yetthis category is set to add the most value sales ofover US$6.7 billion in premium BPC over 2013-2018, indicating even better growth potential thanLVMHs core fragrances.

Within premium skin care, anti-agers is the growthdriver - the category is expected to grow by US$3.6billion globally over 2013-2018, which represents

over half of total premium skin care growth.Demand for high-end products offering value-added benefits will continue to grow, benefitingLVMHs premium-positioned brands and products,such as Dior Capture Totale.

LVMH recorded positive growth in the key anti-agers category - its most valuable category withinskin care (36% of its total skin care sales).

However, the company remains a small player,ranking just 15th in 2013. To fully benefit frompremium skin care opportunities, a focus onstrengthening its position in the key anti-agerscategory would be wise.

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Face Masks

Liquid/Cream/Gel/Bar Cleansers

Toners

Facial Moisturisers

Anti-Agers

Absolute value growth (US$ million) 2013/2018

Premium Skin Care: Leading AbsoluteValue Growth Categories 2013/2018

Premium skin care growth to be driven by anti-agersGEOGRAPHIC AND CATEGORY OPPORTUNITIES

Anti-Agers: Global Value Shares 2013

L'OralP&GEste LauderShiseidoBeiersdorf

Avon

UnileverMary KayNu Skin Enterprises

AmorePacificAmwayJ&JLG Household & Health CareLVMHClarinsOthers


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In premium anti-agers, sales are very much skewedtowards Asia Pacific, Western Europe and North America,with the three regions combined accounting for 90% oftotal category sales in 2013. Asia Pacific and North

America will also remain the largest contributors tocategory growth over 2013-2018, while sales are expectedto increase only marginally in Western Europe, wheregrowth remains constrained by economic weakness.

Anti-agers is expected to lead premium BPC growth in the

US, in both percentage (8% CAGR) and absolute (US$900million) terms over 2013-2018. However, LVMH is a verysmall player in US premium anti-agers, which is dominatedby Este Lauder (37% share) and LOral(17%) -throughout the review period, LVMHs category sharehovered at around 2%. The company should prioritiseinvestment in this key growth category - a true bright spotin this mature market.

Within Asia Pacific, China is by far the most importantgrowth market, with a predicted 16% CAGR set to translateinto a category gain of over US$2 billion over 2013-2018.LVMH is active in this market, but needs to strengthen itscompetitive position, with its category share showing adownward trend over the review period.

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Asia Pacific

Australasia

Eastern Europe

Latin America

Middle East & Africa

North America

Western Europe

Absolute value growth (US$ million) 2013/2018

Premium Anti-Agers: GrowthProspects by Region 2013/2018

US and China key growth markets for premium anti-agersGEOGRAPHIC AND CATEGORY OPPORTUNITIES


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Apart from the core skin care categories, opportunities also exist to exploit within premium face masks.China is already one of the most valuable markets for the category globally, and is expected to see verydynamic growth, 12% CAGR, set to translate into a value gain of nearly US$194 million over 2013-2018.

LVMH is active in the category with its Christian Dior and Guerlain brands, as well as its Fresh brand, whichis positioned as combining ancient rituals with cutting-edge technology with a focus on natural ingredients- a positioning that should appeal to the Chinese market. Indeed, LVMH opened its first Fresh store inShanghai in 2013 to exploit the brands potential.

As in other skin care categories, LVMH also faces very strong competition from larger rivals in face masks.Over 2008-2013, the companys share steadily declined, while rivals LOral, Este Lauder and Procter &

Gamble all recorded share increases. LVMH needs to become more competitive if it is to fully capitalise onthe growth opportunity this category offers.

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Premium Skin Care in China: Top Five Categories 2013-2018

Anti-Agers Facial Moisturisers Toners Liquid/Cream/Gel/Bar Cleansers Face Masks

Premium face masks: A rising categoryGEOGRAPHIC AND CATEGORY OPPORTUNITIES


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MARKET ASSESSMENT


BRAND STRATEGY

OPERATIONS

RECOMMENDATIONS


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LVMH has maintained its status as a resolutely luxury beauty player despite core market recession-ledpressure to engage with the mass market, a strategy that many peers have employed.

The companys premium portfolio is led by Christian Dior, Guerlain and Givenchy, whose equity infragrances LVMH has used to build a strong profile in secondary categories, including colour cosmetics andskin care. Guerlain in particular launched LHomme Ideal in 2013 and increased focus on skin care with its

Abeille Royale line. Its Orchide Imperiale line is growing rapidly in Asia and Russia. Givenchy introducedDahlia Divin, a new fragrance for women in 2013, and Gentlemen Only.

In addition, its high potential brands, which include BeneFit and Make Up For Ever (colour cosmetics),Fresh (skin care), Acqua di Parma and Fendi (fragrances) and Parfums Loewe, are considered by the

company as an ideal complement to its timeless stars as they are offering new growth avenues for thecompany. Loewe is going through a period of transition with a new creative director, the young and much-acclaimed J.W. Anderson. The Spanish brands fragrance line is also expected to be influenced by theyoung director. Fendi also introduced new fragrances in 2013, Fan di Fendi pour Homme andL'Acquarossa, with an emphasis on its Italian heritage.

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Christian Dior Guerlain Givenchy Kenzo BeneFit Bvlgari LoeweValuesales(US

$million) LVMH: Sales of Leading Brands 2008/2013

2008 2013

A luxurious offering for everyone?BRAND STRATEGY


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Christian Dior is LVMHs leading BPC brand, with sales of US$2.9 billion in 2013 and the most importantgrowth contributor, with global sales increasing by just short of US$500 million over 2008-2013.

The brand derives the majority of its sales from fragrances (45% in 2013), where it operates with a varietyof lines including Jadore, Dior Addict and Miss Dior. In addition, Christian Diors colour cosmetics (28%)and skin care (21%) are growing rapidly. Christian Dior performed strongly in 2013, recording just over 4%growth, slightly lower from 2012 due to premium sales slowing in North America.

In terms of product lines, the company highlighted Jadore, which saw a new communication campaign,and Miss Dior, whose 67 years of history were celebrated with an exhibition devoted to it at the GrandPalais in Paris. This raised the image of both brand and fragrance. Dior Homme was a continued strong

performer in mens fragrances and Voile de Parfum was launched in womens fragrances. The Dior make-up lines were highlighted as making significant inroads in Asia. Their new product offerings from BB creamsto the light-boosting Diorskin Star foundation and concealer are catering to a younger demographic whoseobsession with social media makes them always want to be camera-ready.

Most importantly, Dior launched pop-up stores dedicated to its beauty offerings with a pop-up in SaintHonore in Paris where consumers can get engravings on their fragrances and facial massages amongothers. Diors takeover of Harrods in the UK in April 2013 also elevated the brands image.

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Sales(US$millio

n) Christian Dior: Sales and Growth 2009-2013

Retail Value (US$ million) Y-o-Y Growth (%)

Christian Dior the brightest starBRAND STRATEGY


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BeneFit is one of the companys high potential brands, withrapidly growing sales from a still relatively low base. In 2013, thebrand recorded sales of US$277 million, up 14% on the previousyear.

The BeneFit brand continues to derive the bulk of sales in theUS, however it has also established itself among the top fivepremium BPC brands in the UK, and is making inroads in AsiaPacific. In 2013, it also shook up its distribution with increasingpresence in several US airports in the form of Glam Up & Away

kiosks. These are vending machines in the shape of vintage pinkbuses offering beauty products.

BeneFitsfocus is on premium colour cosmetics, with a uniquepositioning among LVMHs brands, with a more offbeat andplayful glamour image, as well as strong innovation from itslatest make-up offering FakeUp, a moisturising concealer, andexpansion of its flagship products such as Theyre Real! mascaraand eyeliner and The POREfessional series. As such it perfectly

complements LVMHs traditional, classic brands and offers thecompany an opportunity to attract an entirely different audience.

Fashion collaborations are becoming part of the brands growthstrategy. In 2013, BeneFit collaborated with British designerMatthew Williamson for the launch of a 1970s inspired make-upkit called The Rich is Back.

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BeneFit: Sales and Growth2009-2013

Retail Value (US$ million) Y-o-Y Growth (%)

BeneFit: Unique positioning among LVMHs brandsBRAND STRATEGY


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Can Sephora make it in Brazils premium

market?Digital innovation and Asia expansion forSephora

Sephora arrived in Brazil in 2012, causing initialexcitement among consumers and since then it hasamassed 14 stores in the country, distributed throughSo Paulo, Rio de Janeiro, Paran and Braslia. ButBrazils high import taxes as well as the higher profitmargin applied in Brazil by retailers has placed theretailer above much of the populations budget. Onaverage, the same product is more than double theprice in Brazil than the US.

In 2014, Sephora decided to reduce prices ofproducts of its own range of cosmetics andaccessories imported from France, the SephoraCollection. By doing this, it will be directly competingwith local major players O Boticrio and Natura. Tomake its products even more affordable, Sephorahas also changed its pricing terms with purchases

over R$180 to be paid over six instalments in retailoutlets. Online, payments made by credit card canbe repaid in up to 10 instalments of as little as R$10.Thus Sephora hopes to convince Brazilians that theycan get good quality imported products as cheaplyas their local offerings.

Sephora, grew strongly in all key regions andcontinued to generate notable comparable-storerevenue growth in North America and the MiddleEast. Sephoras first stores opened in Indonesiaduring the last quarter in 2014, while it enteredThailand at the end of 2013 and online sales sawcontinued rapid progress. Furthermore, theChinese business is holding up extremely well withthe company claiming that it will break even muchfaster than anticipated.

New technologies such as SkincareIQ or ColorIQ,are adding to customer experience and thecompany has revamped its website formultichannel reach and launched a mobile appcalled My Sephora for its sales associates. MySephoras purpose is to help sales associates

provide stronger personalised recommendations toconsumers as it holds customers purchase history,tastes and habits. This way Sephora hopes to buildintimacy with customers and renew their in-storeshopping experience.

Sephora: LVMHs emerging market engineBRAND STRATEGY


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In 2014, it was announced that Kendo, Sephoras productdevelopment division, will go independent of the retailer whileremaining under LVMH leadership. This gives it the advantage ofchoosing the best strategy for each of its brands while still takingadvantage of Sephoras network.

Kendo is not only the manufacturer of Sephoras private labelcosmetics but also owns Marc Jacobs Beauty, Kat Von D Beauty,Formula X, Elizabeth and James fragrances, Ole Henriksen, and BiteBeauty which it acquired in November 2014.

Marc Jacobs Beauty has been the largest single brand launched inthe history of Sephora North America. Its global success beyondNorth America to Europe and Middle East showcases the potential forthe other brands.

Ole Henriksen has doubled in size since its acquisition in 2011. Thebrand will be updated with new product offerings and branding toprepare it for global distribution. With Asia key to global success forany skin care player, the brand, currently one of Sephoras top fiveskin care brands in North America, will be eyeing cross-regionalexpansion.

Kendos key strategy is to create offerings including brandsdeveloped specifically for markets outside North America andexpanding existing ones globally.

Kendo: Sephoras cosmetic product development divisionBRAND STRATEGY

Source: Ole Henriksen


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MARKET ASSESSMENT


BRAND STRATEGY

OPERATIONS

RECOMMENDATIONS


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Tightly controlled distribution Western Europe-focused manufacturing

As a leading global premium fragrances and colourcosmetics company, LVMHs distribution profile isvaried and multi-tiered. However, the company tightlycontrols the channels through which it retails itsbrands.

LVMH operates its own selective retail network,comprising the Sephora chain of specialist beautystores, the DFS Galleria chain of duty-free outletsand the Le Bon March chain of prestige department

stores. LVMHs total selective store network reached1,541 outlets in 2013, up from 1,368 outlets in 2011.

LVMHs specialist Sephora chain comprised over1,400 stores across over 30 countries in 2014, withthe majority located in Europe and the US.

Emerging market expansion forms a key part ofSephoras growth strategy, with a particular focus onChina. In 2012, Sephora also entered India and

Brazil. In 2014, it entered Indonesia, while inlaunched in Thailand at the end of 2013.

In terms of its cosmetics operations, it revampedGuerlainsflagship store on the Champs-lyses inParis, while it launched a series of pop-up stores forChristian Dior in London and Paris in 2013.

LVMH carries out the vast majority of its beautyand personal care product manufacturing inWestern Europe, reflecting the companys originsand regional sales bias, as well as the luxurynature of the brands. The company employed106,348 people in 2012, 12% of whom wereproduction workers. The number of productionworkers increased by 6% in 2012, as LVMHresponded to rising demand for its products.

In 2014, Guerlain opened a new cosmeticsproduction site La Ruche at Chartres in France,while in 2013 it also opened Hlios, its newperfumes and cosmetics research centre in Saint-Jean-de-Braye. Hlios is home to 250 researchersworking for Parfums Christian Dior, Guerlain,Parfums Givenchy and Fresh and covers an areaof 18,000 sq m, making it one of Frances largest

BPC R&D centres. While committed to developing cosmetics that offersafety assurances to consumers, LVMHsperfumes and cosmetics brands no longer test onanimals.

Production and operational strategiesOPERATIONS


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MARKET ASSESSMENT


BRAND STRATEGY

OPERATIONS

RECOMMENDATIONS


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LVMHs greatest asset is the strong heritage thatits brands carry. As disposable incomes rise,increasingly more consumers are looking for anentry into the aspirational lifestyle these brands

provide, LVMH is in a strong position to exploit anygrowth by offering affordable luxury. Furthermore,while consumers in mature markets have cut backon spending, premium beauty remains withinbudget and a strong brand heritage can capitaliseon this.

While LVMH has a wide portfolio of brands, theyare largely skewed towards fragrances and colourcosmetics. With premium skin care adding anotherUS$6.7 billion to global premium BPC, twice as

much as premium fragrances, it remains the keyBPC category.

An acquisition of a premium skin care brand withstrong anti-ageing offering and luxury brand imagewould make LVMHs Perfumes and Cosmeticsdivision more competitive in skin care.

Both Asia Pacific and MEA will be regions ofstrong premium growth over 2013-2018, especiallyfor skin care, colour cosmetics and fragrances.

As these remain LVMHs key categories,strengthening positions and expanding newerbrands such as Fresh, Ole Henriksen, BeneFit andKendos colour brands in Asia makes strategicsense. Furthermore, cementing Christian Dior and

Guerlain in the MEA fragrances market can help itbecome a top 10 beauty player.

With two new research centres built in France, onefor Guerlain, and Hlios, which will be home toover 250 scientists, LVMH can further develop itsproduct portfolio. Innovation in skin care remainsweak and niche but fast-growing categories suchas face masks, face mists and eye care arerelatively undeveloped. For LVMH to furthercompete with LOraland Este Lauder it shouldcontinue to diversify its product portfolio across allcategories.

Expand further into Asia Pacific and MEA Develop product portfolio

Acquire in skin care to fill gaps Exploit brand heritage

Expand, acquire, develop, exploitRECOMMENDATIONS


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FOR FURTHER INSIGHT PLEASE CONTACT

RELATED ANALYSIS

Nicole Tyrimou

AnalystBeauty and Personal Care

[email protected]

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The Parallel Trajectories of Apparel and Beauty, Part III: The Evolution fromFashion to Lifestyle Brand


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LVMH Mot Hennessy Louis Vuitton SA in Beauty and Personal Care (World)