Sunday, November 14, 2010

Growth strategies in the luxury industry: the case of LVMH

The author of this post is Erminia Monzo, an exchange student at IIM Ahmedabad. She hails from the University of Bocconi, Italy.
Growth is extremely difficult to manage in luxury companies, as they have to strike a balance between raking in the profits versus maintaining an exclusive aura around the brand and goods sold. Empirical research in literature shows that multi-brand companies dominate in the luxury industry from a dimensional point of view and all together retain a higher market share than mono-brand companies. Also, there seems to be no significant difference in terms of economic performance between mono- and multi-brand companies operating in different business segments of the luxury sectors. So, why is the general trend in the luxury goods industry towards the consolidation and the promotion of multi-brand conglomerates? The immediate answer lies in the importance of the intangible components of luxury goods: in order to maximize the company dimensions and allow it to achieve a dominant position in the market without destroying the brand equity, companies must accept the limits of brand extension and move to the next step, i.e. brand portfolio; therefore the intangible components strongly influence the decision to grow through the external acquisition of brands because of the need to find a balance between the firm’s necessity to grow and exclusivity, which creates high value for the final customer.
LVMH, known as the luxury industry best player, has managed to formulate and execute this strategy successfully. Headquartered in Paris, LVMH Mo√ęt Hennessy – Louis Vuitton is world leader in the luxury sector with a unique portfolio of over 60 prestigious brands. The sustainability of its strategy of growth through brand acquisition is mainly due to the following reasons:
  • Ability to grasp the sector specificities of the brand;
  • Creation of a balanced and attractive brand portfolio;
  • Management of the brand portfolio not just with a logic of maximizing financial results in the short term but also with a logic of creating symbolic value for customers in the medium/long term;
  • Ability to acquire the adequate managerial to tools to reach an appropriate balance between brand autonomy and integration, search for synergies and maintenance of the brand identity.
The resilience of the multi-brand strategy during the last financial crisis has shown its capability not solely confined to managing cyclical patterns of luxury goods during good times but also to be able to weather through extreme periods of down turn. LVMH as a group managed to recover from the crisis remarkably also because sales from a division or market could cross-subsidize losses made in another. The diversity of LVMH’s business allowed the possibility of LVMH to free resources to meet new challenges and also take on emerging opportunities whereas other competitors in the same industry were barely surviving. LVMH took advantage of this period to expand into the hotel industry, a move indirectly strengthening specific brands in its portfolio. Also, despite facing a complex market, LVMH has been able to discover the peculiarities of the Chinese consumer by leveraging on its existing brand capabilities and also developing new competences together with local Chinese managers. Up till date, LVMH has successfully managed the acquisition and positioning of the Chinese brand Wenjun, one of China’s top traditional spirits distilleries, because of the organization’s ability to adapt and learn. Accordingly, despite failed attempts at multi-channel marketing via the internet, LVMH shows no slowing down when it comes to e-shops and has recently launched separate e-stores for Kenzo and Loewe, two of the brands it owns. The point here is that, with an era of hyper-competition and rapid change, LVMH as large as it seems, is nimble when it comes to learning, adapting and reacting to contemporary challenges.
Overall, with LVMH’s fundamental values propelling it forward, and financial bottom lines restricting its parameters and overall direction, there is no doubt that LVMH has mastered the art of the multi-brand strategy. Although, this must be said with caution, that this strategy is not for the faint hearted or simply any aspiring conglomerate. Competitive advantages such as material scale advantage, a stellar brand portfolio, balanced categories of goods and a wide geographic exposure are built up over a long period of time, led by a strong leadership.

1 comment:

  1. Nice post. Thanks for sharing. Home to the immortal name of Gandhi, Ahmedabad (Amdavad) offers you delectable Gujarati food, vibrant and colorful textile prints, and Dandiya, which is one of the most extravagant dance festivals in the country. Check out all luxury hotels in Ahmedabad also.