Introduction to Louis Vuitton
Louis Vuitton, one of the oldest fashion houses in the world was established in France in the year 1854. It became famous for its impeccably handcrafted leather bags and trunks which were handcrafted to perfection. The brand opened its first overseas store in London in 1885 and has not looked back since. Since its early stages, the brand was inspired by Japanese and Oriental designs which is evident by the trademark design of the LV Monogram canvas. Georges Vuitton; Louis Vuitton’s son; initiated the brands global outreach by opening international stores and participating in World Fairs to showcase their products and expand their recognition. Gaston- Louis Vuitton; the third family member to head the firm; was the one behind initiating the expansion of the product line to small leather goods. By the mid 1970’s Louis Vuitton had seen tremendous growth and went on to become the largest luxury brand in the world in terms of market share.
They became a brand synonymous with luxury, high class, high quality and a must have status symbol amongst the rich and famous. One of the most significant event for the brand was the creation of Louis Vuitton Motet-Hennessy (LVMH) in 1987; a merger between Louis Vuitton, Moet et Chandon and Hennessy; making it the largest luxury goods company in the world. The appointment of designer Marc Jacobs, as the art director of Louis Vuitton, took the brand to an all new high. He created limited editions, infused the brand with a fresh new energy and also launched a new jewelry division and shoes & ready to wear collections. In 2008, the group’s revenue had reached €17.1 billion, out of which fashion and leather good accounted for €6 billion (Exhibit 1 & 2).
Louis Vuitton and Japan: Changing trends
Since the mid 1970’s, the company mainly focused on establishing a large Japanese clientele and by 2005 Japan accounted for 26% of global revenue. The brand not only represented luxury, but it had a whole experience weaved into the shopping process. The Japanese market is a very fashion conscious market and also has one of the highest per capita spending on luxury fashion goods. According to an estimate by HSBC Bank in 2009, Japan was the final destination of 45 per cent of the total luxury goods sold worldwide; making Japan one of the biggest markets for all major luxury brands. In Japan, Louis Vuitton grew at such a rapid rate that within a decade of opening stores, roughly 20million Japanese women owned a bag of the brand. The Japanese psychological and traditional culture of status driven pressures and the women being more beauty conscious than their European counterparts helped ignite the rage of luxury shopping.
Even during the economic crisis of 2008-2009, there was no noted slump in consumer spending on luxury items and the market was expected to keep growing at a steady pace. Louis Vuitton roped in famous Japanese artists like Murakami to create new lines of merchandise and also launched various limited edition ranges which boosted profits and were successful all over the world and not just in Japan. Although Louis Vuitton enjoyed a long successful run in Japan, changing country trends and consumer mindset put the brand at risk. The current risks which the brand faces are: 1. Consumers becoming increasingly price conscious. They wanted affordability and wanted the in-style trendy designs that brands such as Zara and H&M were able to offer. 2. Extensive use of limited editions and the mass expansion and distribution of the brand had created a doubt in the mind of the consumers about the exclusivity of the brand.
It began to be interpreted as a disposable item instead of tradition and longevity; the true essence of the brand. 3. The extent of the population which owned a Louis Vuitton product (more than three quarters of the women aged 20 years), the brand logo had become as common as the Mc Donald’s golden arches. This phenomenon combined with the new epidemic of easily available counterfeit products diluted the brand essence from a luxury product for the ‘privileged few’ to a common mass market product.
Diagnosis of the problems faced by the brand
The greatest questions the brand now faces and needs to overcome are- 1. How to reinvent itself and regain the fame and prestige value it enjoyed in Japan. 2- How to deal with counterfeiting. 3- Even though a huge chunk of their revenues and profits still come from Japan, has there been way too much over dependence on the Japanese market (according to exhibit 3; percentage of total revenue generated from Japan has reduced from 26% in 2006 to 20% in 2008) and whether the brand needs to seriously look to explore new markets and line extension of products while still keeping the brand value of Louis Vuitton intact.
Suggestions and Plan of Action
To remind the customers of the brand’s tradition, luxurious and intrinsic value of their products, LV needs to recreate the whole experience of shopping at their store and owning a LV product. This will require a 360 degree marketing and advertising campaign with the use of all forms of media which will enable the brand to reach out to the market with hopes to rekindle the experience of LV which can only be experienced in its true form by purchasing genuine products and remind the consumers about the quality, value and promise of the fashion house. Since Louis Vuitton has the absolute advantage of higher budgets for marketing& advertising amongst its rivals; it can go all out without taking a hit on their profit margins. A campaign using their previously used tagline “where will life take you” can be weaved around the whole shopping experience of genuine products. They can also look at country specific ads where they incorporate the culture of the country and use some local celebrities. Again, the positioning and targeting of these advertisements needs to kept under strict control.
In terms of product lines, the brand should continue with its image of having consistent global collections, they can look into creating specific product ranges exclusively for a market- this will show that the brand respects and values the market and has a true understanding of the market (eg. Hermes launched a range of sarees exclusively for the Indian women and targeted the high net worth families since the product price started at $8000. The product is a hot seller in the local market.) This can counter the marketing gimmick of frequent limited editions. However, to boost sales and increase profit margins, limited editions are necessary from time to time as they help increase the exclusivity and brand value of a product. They definitely need to look into expansion into kids clothing and accessories and also further expand their smaller and more affordable product, and also their jewelry line where they can command high prices and earn higher margins based on their pre established image of high quality and craftsmanship.
The sales of these divisions and other products like eyewear were much higher than initial sales forecasts; this clearly stated that the demand of the brand’s products was still hot! I do not think that the brand should get too much into e-commerce considering how much the Japanese love being outdoors and go shopping. While the brand can start to leverage itself and the products using the web and e-commerce space, it should not really engage in direct online selling since I feel the whole shopping experience of buying a Louis Vuitton product will be lost; which is essentially what LV is trying to rekindle. One will not be able to experience the glam of an LV showroom, the display, touch and feel of the product. While Japan still continues to represent 20% of the groups revenue, through exhibit 3 & 4 we can see that the share percentage has been declining over the period of 3 years while it has been increasing in other areas as Europe (excluding France) and Asia (excluding Japan); LV needs to also put focus on emerging economies like India, China, East Europe Russia etc to reduce its dependence on the Japanese market.
It has also been getting increased revenue percentages from wholesale format, thus reducing its investments in 2008 and earning more revenues. They have also begun to tap the secondary cities of Japan which I feel offer a huge potential. To take full advantage of this market expansion, I think the brand can follow similar steps to those of Giorgio Armani and create sub brands while maintaining the overall aesthetics. A ultra high range showroom- flagship stores at the most prime locations which offer the most expensive products targeted at the rich and aristocrat families; a mid brand which will have all the usual designs and global collections of all product ranges and a third sub brand which is more vibrant and quirky and can focus on the younger generation who are about to begin/ have just started their luxury shopping experience and get them to become loyal LV customers.
They need to continue and build alliances with people like Jan Aoki and Murakami to boost sales and also prepare themselves for a possible exit of Marc Jacobs by training more designers under him and could also look into hiring different designers who would be region specific. They however need to ensure that they do in way that the brand value does not get diluted to a mass market product. Ultimately they need to remind the public that brands like H&M and Zara don’t have the sophistication, class, value and experience which Louis Vuitton commands and how it feels a class apart to own a genuine LV product. Louis Vuitton is here to stay!