LVMH: Managing A Multi-brand Conglomerate
Ilario Fulvio Giannetti
What does globalization mean to the luxury industry?
• Market expansion • Counterfeiting
• Low-cost raw materials, equipment and • “Grey” market
labor available in the local market • Vulnerable to PEST-EL Factors
• To achieve economies of scale and • Successive decrease in brand value
scope • Increased competition
• Increased margins due to pricing policy • Creation of new competition by
• New consumer groups available in the sharing know how
• Extension of the definition of luxury
• To adapt local and new trends for the
• To source talent globally
• Transfer of skills and strengths
Although there are significant number of threats to the luxury
industry, globalization is unavoidable for continuous growth.
Assessment of LVMH’s diversification
• Share operational resources and • Difficulty to manage various
competencies' across brands and divisions
divisions • Different organization structures in
• Maintaining exclusivity by multiple countries may cause problems in
brands under one division administration and coordination
• Strong Balance Sheets help to • Lack of attention and neglecting the
absorb losses from unprofitable smaller brands
divisions and maintain position • 98% of operating profits are
• Selective retailing complements generated by 2 major divisions
other brands by providing easy
access to all brands
Although diversification helps in leveraging the synergies, it creates difficulty
in the management of the various divisions. Disproportionate profit
generation is an evidence of under utilization of non – core division
What is the international strategy of LVMH?
The international strategy of LVMH is that of rapid expansion and
that of a first mover.
• It has focused most of its acquisition efforts on
Acquisitions brands within the luxury segment.
• LVMH in its acquisition phase seeks to purchase star
brands that evoke innovation and quality
• Focus on new product launches
Organic growth • Expand its retail network
• Increase expenditure on communications
International strategy of LVMH
Global Global Transnational
PPR-Gucci Puig L’OREAL
1 LVMH 3 LVMH
LOW HIGH Local Responsiveness
How does international strategy of LVMH differ from its
LVMH Richemont PPR Swatch Hermes
Both Acquisition and Acquisition Key priority: Organic Both acquisition and Organic Growth
Growth Organic Growth Growth Organic Growth
Strategy When required:
1.Wines & Spirits; 1.Fashion & 1.Fashion & Leather Watches Fashion & Leather
2.Fashion & Leather Leather Goods Goods Goods
Product Goods; 3. Perfumes & 2.Watches & 2.Perfumes & Cosmetics: Watches
Diversification Cosmetics Jewelry 3.Watches & Jewelry Perfumes
2.Watches & Jewelry Shoes
Expand target audience Elite and Expand target audience Present in all price Elite and Exclusive
when entering new Exclusive when entering new segments
Audience markets markets
Most brands Primarily in Europe and US Globally Primarily in
manufactured in Europe France
Manufacturing country of origin and
few brands moved to
low cost countries
100% exclusive Partly retail Partly retail and franchise Partly retail and 100% exclusive
and franchise franchise
Conclusion: LVMH has the most diverse international strategy in all functions. They are not
limiting themselves and they are trying to be the first to reach a broad product clientele by
LVMH’s core competence
Cost Control In
Top Designers Constraint on
LVMH’s core competence is managing creativity and this helps
in efficient management of the star brands.
How does LVMH manage creativity and its creative assets?
Creativity and/or creative assets are managed in the following manner:
Design Decentralized design (each brand is independent and
run by its own creative director)
Managers Small number of managers
Profitability Correlation between profitability and creative freedom
Talent Emphasis on retaining best talent (Marc Jacobs)
Quality Strict control on quality and strong cost control in
other areas (i.e. manufacturing)
Knowledge Knowledge sharing between parent company and
Differentiation from competitors:
LVMH are more equipped at crisis management when it comes to
How well has LVMH exploited its core competences in their
various diversification moves and strategic acquisitions?
LVMH integrates acquired company in the following way:
• The core assets of the acquired brand are assessed
• The creative team and management is preserved
• The resources and knowledge are shared but at the same time, the
culture of the company is maintained.
• LVMH maintains the essence of the company, giving them the
required freedom in creativity.
• LVMH keeps a check on the core competence in the acquired firm
However, LVMH gives too much attention to “Star Brands” and the
other brands feel neglected. On this basis, creative freedom is
granted mostly to the “star brands”. As a result of this, creative talent
is leaving LVMH because they feel abandoned.
Strategic acquisitions and diversification is driven by potential profitability which
depends on creativity. LVMH emphasizes on creative freedom, however, this
freedom is enjoyed only by the star brands. This results in the adulteration of their
core value. Hence, the core competence of LVMH is not utilized fully.
What are the factors influencing companies which seek
growth through acquisitions in this industry?
Companies which seek growth through acquisitions are influenced by the
• Available companies to buy in the market
• Saturation of the current market forcing companies to
External • Competitors’ activities in acquisitions
• Industry trends suggesting that all major brands are
turning into luxury conglomerates
• Eliminating potential threats via acquisitions
• Financial capabilities to acquire the target company
• Capability to integrate the acquired company into the existing
Internal • Plan to acquire targeted companies resources such as: local
knowledge and data base, brand value, R&D facilities, market
• Avoiding over exploiting star brands by adding fresh brands
into the family
How are they managing and integrating these acquisitions?
Ways to manage the acquisitions
Keep independent Partial integration 100% integration
Control by parent company
Acquisition of star creativity and
and strong brands independence of
activities such as Requirement of
marketing and profitability
Diversification in all Strict control over
luxury segments quality
Does LVMH’s structure support its strategy?
The structure model of LVMH is the matrix organization.
Paris New York Tokyo
LVMH LVMH Dior Fendi LV Dior Givenchy …
LV Dior Givenchy … LVMH Givenchy cre ati vity …
cre ati vity … cre ati vity … mar ket ing …
… … … … … … … … pro duc tion …
HR dis tri but ion
• In general, in the short term, it supports its strategy by putting emphasis on creativity of each
brand while taking advantage of functions including production, distribution and marketing.
• However, in the long run it will be harder to integrate new brands into the current structure.
Can this strategy be sustained?
What would you recommend LVMH do?
LVMH strategy can be sustained. However, certain changes
need to be made to optimize the trade off between
profitability and creativity.
• Pay equal attention to all brands and transform them into
• Better allocation of key resources like creative talent
We • Finding a suitable successor for Bernard Arnault
• Developing a system to find and retain top designers
• Trying to move towards a unified organization structure for
How is LVMH “cultivating” leaders for tomorrow?
• Best talent in the industry is hired
• These hired people are given “on the job” training
• Association with leading business schools and educational programs
• Hiring of people with diverse educational backgrounds
• Brand immersion and Inter company seminars to develop perfect
management, communication and leadership skills
• Giving opportunities for transfer to the global headquarters
• Introduction of different business games to simulate business culture and
LVMH is excellent at cultivating future leaders of tomorrow