Vo"r t ", n"..v tou, v. -o- 5A r.

r e wo'd larseir rnarketerof uxury products and brandE Cha rman BernardArnault has assembled a dve6e emp re of nrore than 60 brands, sales of which totaled $24.2 billion (17.2 b lion) in 2008 (see Fiqure 1) Arnault, whom some refer to as "the pope of hlqh fashion," recentysummed upthe uxury businessasfo oM: "Weare here to sel drearns Whenyou seea coutureshowonryaround thewodd,
you dream. When you enter a Dior boutique and buy your lipstick, you buy something affordable, blt it has the dream n ir. ' Decades ago, the .ompan es that iod.y comprse LVN,IH were

r I:vvr

famiy-run enterprises focused more on pren ge ihan on profit. Fendl, Puc(i, and othe6 sold ma n y to a niche marker comprsed
of very ri(h dientele. However, as markets began ro globalize, rhe small uxury playe6 nruggled to cornpete When Arnaurserabout acquiinq smaller luxury brands. he had thre goa s in m nd. F ut, he hoped ihat the portfolo apprcach would redu.e the risk expo su.e to lashon cyces. A(.ord nq to this loqlc, if demand lor watches orjewe rf dec ned, dothins or accessory sales would off sei .ny osses second, he niended to cut costs by e minat nq redundan.ies n sourc nq and manufactu ng. Third, he hoped thar LVMHS (able ofbrandswo! d iranrate nto a srronger baBaining positon when manaqeu negotated eases for rerai space or
Sales ol luggage and leather fash on qoods, nc!d ng rhe 100 year-old Lou s Vu tton brand, a.count for 34 percent of revenues. The companyS specialty gro!p ncludes Dury Frce 5hoppers (DF5) and Sephora. DF5 operates stores in nternariona a rcorts around the worldj Sephora, wh (h LVN,1H acquired in 1997, is Europe3 second-argen chain of perfume and cosrneti.s nores. Drven by such we I known brands as Christ an D or, Givenchy, and Kenzo, perfumes and cosmet.s generare neary 20 per.eni of LvlvlHS revenues LVMHSwineandsprlsunr nc ldes such prenig ous Champagne brands as Dom perqnon, r,.roet & Chandon, and Veuve C cquor

Despite the h gh expenses associated with operar ng eeqant stores and purchasng adve.t s nq space in upE.ae magazines, rhe

prem um retail prl.es

that

uxury goods (ornmand transate inro

handsorne profits The Lou sVutton brand alone ..counts for abour 60 percent of LVM H5 operating prcfil. Ufscruputous operalors have

taken note of the hgh rnargns associared wirh Vuirton handbaqs, gun cases, and uqqage dsplayng the distnctve beige on brown attcework LV monoqra.n. Lous Vuitton 54 spends $tO mi on annualybattlnq countede ter5 in Tu.key, Thaiand, China, Morocco, south Korea, and ltaly. Someofthe moneyisspenton lobbyisrswho
rFp

e.pn rh4Lorpd,vs|.'6rp.\f nee( ^g! 6 '-

'orp

q.

qo\ e

ment offcias. Yves Carcele, chaman of Louis Vu tion SA, recenl y explained, "Almon every month, we qer a qovernnrenr somewhere in the world to destroy.anvas, or finished produ.c." Another probern is a flourishinq qray market. civenchy and Christian D orl Dune lragran.e arejun two ofthe uxury perfume brands ihat are sometimes d verted from aurhorzed channets for sale at mass-rnarket retal outets. LVMH and other luxury goods marketers re.enty found a new way to combat gray marker lmports lnto the United States. ln Mar.h 1995, rhe U.S Supreme Court etstand an appeahcourt r! ng proh bitinga dscolnr drug store cha n {rom se inq Glvenchy perfume wthoui permiss oi Pdrfums Given.hy USA had caimed that irs disr ncuve pa.kag n_o shou d be protected under U S copyrght aw. The ruiing mears thaiCostco, Walmart. and other discounterswil no onger be ac e to sel some impo.ted lraqrances without althorzanon

35%
5"/"

Oppotunities and Challenges in Asia Asa particulary lapan is a key region for

FIGURE

LVMH Operating l.rnits by 2008 Net Salee

LVr.rH 3.c competitors. The financ al tu rmoil of the late I99ot a.d rhe s!b!:qrent currenq deva uations and weaken n9 ol the ye. rrr.s aled into lowerdernand foriurury qoods. Be.ause pr.e oercepto.s are a crtica component of ururv qoods' apoeai, LMVH execuives made a number of adjunments in respon!e ro .han9 .q bLrs.ess condilions. For exampe, Patrck Choe, presdenr of ihe perfume

ii

395

and cosmetics d vsion, rased whoesa e

pr.es n

ndiv dual

Asrn

budaet! are limtd and televsion is viewed a!

n add tion,

markets The qoal was to dBcou raqe d scoun t retai ers lrorn nock iig up on desgner products and the. se i.q them to dowi market consumers Also, erpe.dit!res on perfLrme and.ormetics advert t nq were reduced to ma nt. n prcf tab ty n lhe f.]ce ol. He cance ed p anr for a new nore n ndones.r, .nd group managers r. sed pr.es 1().ountera.l the effect ofcurrencydevalu alions. Bec.use the DF5 chain depends o. Japa.esetourns in Asia .nd Hawa for 75 percnt ol sa e5, Lou s Vu tton managers a so work wih toLrr operators lo pred.i the fLow ol Japanese tourns When toursm s al a peak, pr.e r(eases from 10 to 22 per.ent he p max m ze profits on mer.hard se ta es Arnaull w.s conlde.t th:t ihe Aean.r s s wo! d not severely .ffect hr comp.ny5 perfo'ra..e n lhe long term As Arn.!t expa ned i lhe spr .q of 1998 one has to d n ng! sh between .l.p.n, wherc inon.r oJr bls.e$ s,andtherenofAs! lapan 5 n a growth s !r., brt t srt!onqtohavethesamedff.!l t e5.s Kore! or nd..e!. And oLrr bLrs ners l..lapan 5 do ng very we Be.arse:he Lou s V! ttor !n t contros ts own d str blton, mnnagemenl has elen been ibe to take advantage ol the .rts by Enegotat n9 nore eases n keyAsan.tes in some nstances, the company har ee.lred onqe, ease terms p !s reductions ln rales by rs mu.h as one thrd Arna!t! optmsm was wl .e.ord ows and a gloomy olt ook f ounded; wth intern rate! at for the nock rnarkl, lapaieie .oE!meE had lew other spendinq opt onl n 2001, recur vos actua ly ra sed pr.es ar Louis Vu tlonS Japanese norel. ''Ohe ftiehd af hihe has 1A Louis Vuittan bags. it\ a status symbol. lts very inpanant ta have Eurapeah luxuty gaods."
a Lou s Vu

some n the indunry be eve thatry3 siatls;i : rnarkelinq med um.an Lrnderc!1a uxurybraids aLrr. of..: However, Lou s Vu tlon execuliles hoped audien.es woL . ::

too...:
:

: :

^.1 aqe..y

.rab.a

lton cha rrnan

Yves C.r.elLe a 5(r

m.de .djLrnments

proposed buy ng l nre on new! channeh th.: : : traveers watch sLrch as cNN As Lous vLrirlon m.rker I : P etro Bec.ar .oted, t B lLrpposed to louch oLr vewers n yr.ys that perhaps other meda w not touch _ w.y to s.y Lou s Vu tton is diffe.ent lt s sorneth nq apha, : :
a

d ..a."t

-ragp.

Lolis Vlitton entered nda in 2002 wth a bollqle.r: o ,q I "u" ".d Do, d" opp. fo o I LVMH has a o.k on prme locatons at Emporio, an upi.. : : : : p n9 mal that opened rece.ty in New De hi. Be.alse LVr,l- :
qroup preseice n the ma ,

so someth ng that stays L .dl o

^, "

r.d

^,n, nd a On.e again. thanks to LVMH! d !er!. : porrfoio. the .ompany is able lo buy larqe blo.ks of ad,. spa.e from conda Nan ndia at d s.olnted pr.es.

po6

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t.an

negot ate lavorable lease

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laln.h ol Vogue

Trdgobi 6o.o. J',-. -d.dr

U.5 nrarket, sales towed n Russa and other emerq nq ' : as we Atholgh tota sales n the uxury segme.: o.p" ."d o "o I o r" o.o - -. b ron.5. 8 or or ndunry oblervers expected that trey wou d drop s 9n 1..

5"r 9.-"d a o o.du.ur gooo o no excepton Overa pu.chases ol uxury goods fe i : :

2009

ln lapan,

lg-yeaFo d fliqhtattendant bated ln Tokyo

Sraregic Decisions at LVMH

Over the pan de.ade, Arna! t has eleraged his mult brand nrately by broaden n9 the .ompany\ consumer base ln the late 19905, Arnau t sensed that .osmel.s buy nq h.bts were chang nq . key .iarkets He opened Sephora stores n New Yorl, chtrago. a.d 5an Fran.sco n conllnction lvith a new Web site, sephor:.om lod.y, there are neary 100 Sephora nores in the Un ted Siates; the chain a so has a prelen.e in more than one dozen olher .olntr es, nc ud ng Ch na and Rus a CunomeE who visrt Sephora UsA nore! are en.ou.aged to waider free y and sampe produ.ts oi an ope. floor wiiholt wa trng for sales cierks
2001. Arna! t pa d more than $600 millon for Donna Karai lnternatonal n. and ts lrddemarks Arnaut had tred wnholt success to acq! re Giorg o A,m.. I Donna Karan is LVMH! 1i6t Anrercan des qner abel As ArnaLr t.oled, Whatippeaedto!s is the fi.t that t it oie of the ben [.ow. brand names n the
n

good news the dolar was strengthening against tie e, : the 2008 ho day shopp n9 teason approa.hed, man! qood, makers redlced pnces in the Uniled States At a-: the .u1s ranged from 7 to l0 percent; as lohn G.: presdenl of chane 5 u5 !nt, noted, "The dolar;'::nrength h.s alowed us to pass on greatervaue to o- : tomers Lou r Vu tton was a nolable exceptron; in fa]:t, : : 2008, the .omp.iy ra sed prices tw.e, resull ig n an..:::n(ease of 1 0 per.e.t The price increases d d not damp..,: :
n fact. sa es cont.ued

For European-based

l!x!ry .ompanies, there w.i

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www vnl :: A.omp ete PowerPointpresentaton.'_: .urenr yea l I'nd',idlra,-lr\i.2. .. ON thE LVMH WEL! J
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Discussion Questions

Bern.rd Arnau t has bu t LV\4H nto a uxlry goods m.k nq nurneroLrs a.q! stons What nrategy is evdeii 2. What ale the poss b e rsks of Lo! s Vuitton! f 6t-eve

l.

er. . : .. i.. !
:

3.

son adlertE nq campaign? n Mar.h 2008. the euro/dolar ex.hanqe rate was 'l =
By November.

n lanlary 2008, ere.ltves at Lou s VLi tton a.nouncd a new colporate brand iq campa 9n usinq a 90 second ad that wou d appeir on cab e and satellite te ev s on and n on,A.n.! Thswis someth ig new rn the lx!ry qoods sectort qener. y, advert!nq

the dollar had strengthened to 1 = $l 2: Assume that a E!ropean !x!ry goods marketerculs the pr.e of an $8.000 tweed ruit by l0 percent io ma,.t.. hoiday saes ri De.embeL How wllrevenues be affecte. when dolar prcet are conlerted to euros)

396

4.

Lou s

v! tton
nued

.oit

io

executives raised pr.es in 2008, and sales nrcase What does th s sayaboutthe

demand curve oflhe

sbtr,rcsr R&hel D.des xnd

typ.a

LoulsVuitton cunomerT
Move. Luxtrr,

C@ds Make$ Trnn nrcn Prices in US. Th? tull st'".t Jo nal (November 1.1, 2m3). p B I i Eric Pfannei vuitton h Emb xcirg Medium ol the Ma$es, 7rz N?Lt va,l 7im?r (ianudr, 30. 2008). p. C3i Chri\lina Pa$anelb, LVMH Books PNs.se lo India ror vuiib.. Dior. Fendi. Celine,' 'the \rall Snra Jotntul \M\y 8.200r), pr. Bl. B2i Lisa Bmnon and Ale$andtu GJroni. "Bmnd Mlnlger Deluxe." 7/r. $'.111 5tre.1 J.utnl (Oclober 10,2001). p. BliJohn C,iielrou and Chri(opher LaMon. 'Napoleo. s Nighrce Cels ! Co.d Rrp liom Hip'llop SeL %. lvu l/ Srtz/

Chrijinr ersiriello, Ii Ra'c

_Despile wall St'"d Jaunntt (Mtch 2t,1002). pp. A1. A8i Deborah Bnll, Downlum- Japmese Arc StillHalirs Fil\ tuLuiury Goods." fl. wd/l t ??, ./o!,r, (April24.1001). pp. B1. B4i Bo.iic Tsui. Eye oithe Beh.lder: Sethora-s FnDnces l A.?rt,1irns ,4s. lMdch 9. 200 ). p. lq Luc ir van dcr P.n. Lita\ Bittle Ltr\urie\. Fid,.,'rr 7r,,r (.lLrl] 18 19. 1998), p.lrCail Edmo.dson. LVMIIT Life I\n'l All Champaene md C iarl' a,r,r1\5 ur.l (Novcmber 10. l99l). pp. 108+l Jontritcr Stinlxuer ''The King oiPoshl' 7i. N.tr ).r,* 7i,x?r (AuEU{ i7. 1997), sc l. pp. l- l0 l L: Ddvid ONen.
1

'A Caphin
1998).

Used 10 Storns.--

Fidr.r,

7t,?s (Jun

Brubach. And l-urury

hr Arr." Th. Nef vot* Tn

J,xz,(JLrly 14.2001),pp Al.

Oudisr Did LVMH Comnn
a

A7: Tc'i Aginsmd Deboah Bdll, Chancirs Frshion F.ux Pas Buyine Donna KMn l" flr.

pp.24 29+:A yBarci, LVMH\ Turbulence, flz w.// srt./ Jrrmal (Mdrdh 16, 1998). p. BliAmy Brmn. 'cud's Big M,rcoler Is Tunrins He.ds.'- ft? w,// Sr"d J,!,n/ (Augtrs 26. 19971. p. l2i Ste\vartTo,, 100 Yeas otLouis Vuilton," Cis,r //nn,rdd,
(AurLmn 1996). pp.178 379+.

1997): llolly MuNa.nl? 12. Chaiman RemaiN C.Lm De\Pn.

ll l:.

i\nt

397