ENGG954: Strategic Management for Engineers and

Technologists

Instructor: Dr. Ozan Koseoglu

Assignment 3: Fortune Company

« Louis Vuitton Moet Hennessy » 

Date of Submission: 14th of March 2022

Group Members:

Matthieu Bataille 6981720

Fanny Julie Giraud 6981495

ENGG958 Assignment 3 1
Executive Summary:

ENGG958 Assignment 3 2
Summary

1. ORGANIZATION DESCRIPTION.......................................................................................
2. EXTERNAL ANALYSIS........................................................................................................
3. INTERNAL ANALYSIS.........................................................................................................
4. FIVE-FORCES ANALYSIS...................................................................................................
5. Efficiency, quality, innovation, and customer responsiveness.............................................
6. CORE COMPETENCIES OF LVMH...................................................................................
7. LVMH STRATEGY................................................................................................................
8. LVMH ACQUISITIONS AND STRATEGIC ALLIANCES..............................................
9. LVMH POTENTIAL PROBLEM.........................................................................................
10. CONCLUSION AND RECOMMENDATIONS...................................................................
11. REFERENCES.........................................................................................................................

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1. ORGANIZATION DESCRIPTION

a) LVMH History & Culture

Louis Vuitton Moët Hennessy is a leader in the market of luxury industry between creativity,
tradition and innovation. Originally, Louis Vuitton, Moet and Hennessy were three different
companies. It is important to know their history in order to better understand how the group
succeeded.

Hennessy:
The Hennessy cognac company was created in 1765 by Richard Hennessy and developed by
his son Jacques. In 1794, Hennessey exported his first products to America, especially in
New York. Then, in 1817, at the request of the Prince of Wales, Hennessy created the VSOP
cognac that stands for "Very Superior Old Plate". This cognac is very prestigious even
nowadays. The 19th century was very important for the company as it extended its
international presence with the sale of products in China and Russia and created another
product called XO (extra old) which became a real success. In 1984, the company succeeded
in selling 2 million cases of cognac all around the world.

Moet:
The Moët house was founded in Epernay in 1743 by Claude Moët. The first success of Moet
began in 1792 when Jean-Rémy Moët started developing Champagne trading. Then, in 1833,
the company name changed to Moet & Chandon as Pierre-Gabriel Chandon became director.
The company developed strongly by acquiring Champagne Ruinart and Mercier in 1962 and
1970. The group then bought the perfume company, Christian Dior in 1971.

Louis Vuitton
The story of LV started in 1854 when a leather worker called Louis Vuitton decided to create
his own “Maison” in order to sell travel cases. The first success was the “Monogram” travel
case that was created in 1896 by the son of Louis Vuitton, Georges. At that time this product
was very practical since it was waterproof, and it could stack on top of each other. The main
functionality of the travel case was to put a maximum number of clothes in a small place. Its

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various awards, notably at the Paris World Exposition, enabled the brand to establish a
reputation among the high social classes. In 1913, Georges opened in Champs Elysées in
Paris the biggest luggage store in the world.

At the same time, with the beginning of the automobile era, journey times have been greatly
reduced. Thus, the demand for large travel cases has decreased. The company decided to
innovate by creating waterproof travel bags to resolve this problem. During the 50s, a lot of
famous actors used these bags and luggage for travelling. With the globalization of markets,
competitors increased for Louis Vuitton. Therefore, in 1987, Louis Vuitton merged with
Moet & Chandon and Hennessy to form the LVMH group. The CEO of LVMH is Bernard
Arnault and now the multinational is the biggest luxury company of the world.

b) Market positioning

LVMH has more than 5500 shops located around the globe. The main market of the group is
the American market which represents 38% of their total sales, then follows Asia (21%) and
Europe (18%). The luxury sector has evolved a lot in recent years. Indeed, companies have a
real desire to innovate and improve the image of luxury. Despite the decline in revenue for
some companies during the coronavirus crisis, the luxury industry is a sector that has not
really experienced the economic crisis.

Based on the 2021 report from Deloitte consulting, LVMH has consolidated its leading
position from its competitors in the luxury market with $33.976 M of luxury goods sales
(ANNEXE 1). The main competitors of LVMH are Calvin Klein, Chanel, Richemont,
L’Oréal and Kering.

The six divisions of LVMH are the following:

- Wines and spirits
- Fashion & Leather Goods
- Perfumes & Cosmetics
- Watches & Jewellery
- Selective Retailing
- Other activities (Media, press, etc…)

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With its 75 brands, LVMH has a strong position in each industry. This diversification
strategy allows the group to strengthen their position in each market.

Figure 1: LVMH International presence

c) Key figures

In 2021, LVMH reached $71 Billion revenue which represent an increase in 44% compared
to 2020. Concerning the net income, the company reported a total of $14.6 Billion. Several
reasons may explain this increase. Indeed, the slow recovery of the pandemic crisis and the
ability of LVMH to adapt their processes from the exceptional situation.

The table below shows the percentage of sale, 2021 and 2020 sales of each LVMH division.

Industry Percentage Sales (in $M, Sales (in $M,

of sales 2021) 2020)
Wines & Spirits 9% 6 855 5 457
Fashion & Leather Goods 48% 35 453 24 340
Perfumes & Cosmetics 10% 7 583 6 023
Watches & Jewellery 14% 8 964 3 853
Selective Retailing 19% 13 488 11 655
Other activities (Media, press, / / /
etc…)

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 d) Product and services

LVMH is operated in 6 sectors of activity as described before. Some of the famous brands for
each industry are presented below.

Wines & Spirits: Hennessy, Belveder, Cheval Blanc, Moet & Chandon, Dom Perignon

Perfumes & Cosmetics: Guerlain, Acqua di Parma, Fenty Beauty

Fashion & Leather Goods: Fendi, Berluti, Christian Dior, Givenchy, Kenzo, Loewe, Louis
Vuitton

Watches & Jewellery: Bulgari, Hublot, TAG Heuer, Tiffany & Co

Selective Retailing: La Samaritaine, Sephora, Le Bon Marché Rive Gauche

2. EXTERNAL ANALYSIS

When analyzing the strategy of a company, it is essential to focus on its environmental and
external aspects. The purpose of this analysis is to identify opportunities and threats likely to
happen to a company.

a) PESTEL Analysis

The PESTEL analysis provides a whole framework that enables to observe a company at a
macro-environmental level. The six factors identified in this analysis are the political,
economic, social, technological, ecological and legal factors. Each company operates in its
own macro-economic environment. Therefore, it is important to identify and prioritize as
accurate as possible, elements that may affect positively or negatively a company.

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Political factor:

LVMH is leading the luxury industry by operating in different regions of the world. Having
an international presence is essential in terms of optimizing operations, however, it may
present some risks. The political stability index is a useful way to evaluate these risks. In the
case of LVMH, the company operates mostly in Asia, America, and Europe. Some countries
may quickly change legislation and therefore, consumers and investors may change their
spending habits. Countries taxation is also an important factor that must be considered.

Moreover, political tension may result in a loss in sales for LVMH. For example, in 2020, a
French newspaper published a drawing that caused political tensions between certain Middle
Eastern countries and France. As a result, some countries like Kuwait decided to boycott
French products.

Civils may also have an influence on the company. For example, vegan association’s
campaign or militant association for animal’s defence aims to reduce and ban the production
of leather and the use of animals in favour of other materials.

However, LVMH can rely on important political support: the French government. Indeed, the
luxury market being of great importance in France, it is easy to understand that the French
state has economic and political interests. Thus, the government can favour strategic
decisions for LVMH so that it can operate in the best possible conditions. For example, in
2021, LVMH struggled in the process of buying the American jewellery company Tiffany &
Co. The company was not ready to finalize the acquisition of the American brand in time,
which led to a conflict between the two companies. The French government had to take
action to help lvmh to ease the tension and try to postpone the final acquisition date. By
being the biggest luxury group in the world, LVMH knows that it will always have the
support of the French government.

Economical factor:

The coronavirus crisis had a strong impact on the global economic situation. The risk of
infectious and biological diseases can at any time represent a significant risk for companies.
For LVMH, travel restrictions and lockdown imposed in some countries have limited tourists
from purchasing luxury goods in France. Asian customers are very important for LVMH.

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Indeed, many Chinese tourists travel to France every year to buy luxury goods that are hard
to find in their own countries. Despite a 17% drop in revenue compared to 2019, LVMH has
managed to stabilise its profit and thus limit the possible drop in financial risks.

The luxury counterfeit industry is taking a large share of the luxury industry. Indeed, based
on the 2018 Global Brand Counterfeiting Report, the value of high-end goods sold in one
year is approaching $100 billion. LVMH is very committed to the fight against
counterfeiting. In 2019, the company was awarded for its commitments at the 22nd Global
Anti-Counterfeiting Day.

With interest rates being very low at the moment, companies can take advantage of better
investment returns and thus increase their cash flow. Thanks to lower interest rates, they can
more easily invest and cover their debts. If interest rates increased, the company will need to
review its investment strategy.

Lastly, the high growth market in Asia is an opportunity for LVMH to expand their business.
According to a study made by Bain & Company, Chinese customers will increase drastically
their luxury consumption by 2025. With 21% of its total sales, LVMH must strengthen its
presence in this market.

Social factor:

The number of rich people in China has risen in recent years. The 2021 report by Hurun
explains that the number of Chinese billionaires has increased by 253 compared to 2020. This
increase is an opportunity for LVMH to improve their influence in the Chinese market.
Moreover, the pandemic has enlarged the gap between social classes. The rich increased their
wealth while poor people struggle to face the crisis.

One of the advantages of Louis Vuitton is its reputation and how it is perceived by
consumers. By being based in France, LVMH has built a reputation for luxury around the
world. Customers are loyal and are looking for a unique and quality product. However, due to
the high price of its products, LVMH segments its market towards wealthy people of all ages
from all over the world. The different brands of LVMH allow consumers to choose according
to their preferences. As a result, the company may get more demands and attract customers
from various cultures.

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LVMH cannot enter certain markets for religious reasons. Therefore, the company has to
propose new solutions such as for example, the creation of alcohol-free beverages in order to
reach new markets.

Technological factor:

The COVID-19 pandemic has completely changed organisations within companies. Travel
restrictions and lockdowns have caused people to buy their products differently. Companies
had to adapt to the situation by creating innovative solutions such as online sales platforms.
With the growth of e-commerce, companies have the opportunity to diversify into new sales
solutions. Also, remote working had to be adopted to limit contact between workers. As a
complement and due to the covid restriction, LVMH developed its online offering.

Nowadays, there are more and more data for companies to exploit. The number of online
sales has risen greatly during the health crisis, which in turn increases the amount of data to
be stored and managed. In addition, the modern world is moving towards a total and fully
integrated digitalisation of processes and operations. Companies are gradually starting to
implement systems that allow for full optimisation of product tracking (from creation to end-
of-life). Last year, LVMH entered a partnership with Google with the aim of creating new
innovative solutions such as the implementation of cloud-based artificial intelligence. Google
seems to be the best partner for this mission as it is one of the leaders in the technology
industry. Therefore, this shows that LVMH is clearly improving their technology years after
years.

Faced with the increase in demand and the desire to act internationally, LVMH creates new
production sites quite frequently. For example, CEO Bernard Arnault inaugurated a new site
for the textile division in Texas in the United States in 2018 in the presence of Donald
Trump. This new, fully equipped site will supply the American market. In 2019, the company
has also increased its production capacity by implementing new manufacturing machines.

Ecological factor:

Increasing pollution and rising temperatures are forcing companies to make their operations
more sustainable. LVMH is part of this effort by using more environmentally friendly
materials than before. In addition, the company has set up sustainable reports to justify its
commitment.

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In 2020, LVMH has developed an ambitious long-term environmental plan called LIFE360.
Through this program, the group has partnered with Weturn (a French startup that transforms
and recycles unsold textiles into new quality yarns). The aim of this partnership is to
eventually control the environmental footprint of all the brand's products.

The luxury industry is doing great in terms of ecological ways of production. In contrast to
the low-cost industry, luxury companies favour local manufacturing and production methods
without having to relocate their production to low-cost destinations that are less likely to
respect the environment.

However, the climate is a threat for LVMH and especially for the wine & spirit sector.
Natural disasters can damage the vineyards that enable the production of their products. In
2020, fires in the United States in California significantly impacted vineyards belonging to
the LVMH group.

Moreover, the environmental associations may also be a threat to companies. the pressure of
these organisations can destabilise some companies and push them to change their way of
working.

Legal factor:

Because of its diversity, LVMH must comply with many regulations. Indeed, luxury goods
are subject to several types of verification. The chemical composition of clothing, cosmetics
and other products must be reported by the brand. Products containing ingredients classified
as carcinogenic, mutagenic or reprotoxic are formally prohibited by the French labour code.
Other regulations such as the European textile regulation (verification of the composition of
clothing fibres) must also be respected.

Moreover, one of the major issues of the luxury brand is counterfeiting. Anti-Counterfeiting
Trade Agreement signed in 2011 between countries was a big step to help companies on this
matter. It is important to fight against this menace and to protect the actors of the luxury
industry.

Lastly, it is important for companies to follow policies stated by their government for several
reasons. Indeed, the management board need to ensure that employees are motivated, safe
and that they follow the procedures asked by their manager. In France, working hours and
conditions must be respected by the employer. He must also ensure that he pays a regular

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monthly salary. Other laws such as the implementation of a health and safety monitoring of
working conditions must be scrupulously respected. If these conditions are not fulfilled, the
company may risk fines.

b) Opportunity and threats

The PESTEL method enables us to analyze the external environment of LVMH. This analysis
reveals the external factors that have an impact on its business. Indeed, it offers a global
vision of the elements that govern the luxury market.
The following diagram resumes our findings of the PESTEL analysis.

Figure 2: Opportunities and Threats

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3. INTERNAL ANALYSIS
a) SWOT Analysis

4. FIVE-FORCES ANALYSIS
a) Threat of new entrants
b) Threat of substitution
c) Bargaining power of buyers
d) Bargaining power of suppliers
e) Rivalry between existing competitors

5. Efficiency, quality, innovation, and customer responsiveness

6. CORE COMPETENCIES OF LVMH

7. LVMH STRATEGY
a) LVMH Business Model
b) Business Strategy
c) Global Strategy

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8. LVMH ACQUISITIONS AND STRATEGIC ALLIANCES
a) Division & Brands
b) Acquisition #1
c) Acquisition #2
d) Acquisition #3
e) Acquisition #4
f) Benefits of theses acquisitions and alliances

9. LVMH POTENTIAL PROBLEM

10. CONCLUSION AND RECOMMENDATIONS

11. REFERENCES

12. APPENDIX

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