LVMH, known as Moët Hennessy • Louis Vuitton, is a French conglomerate and the largest producer of luxury goods in the world. LVMH was formed in 1987 with the merger of Moet et Chandon a champagne manufacturer, Hennessy a cognac manufacturer, and Louis Vuitton a fashion house. The LVMH group is comprised over five sectors: Fashion & Leather Goods, Wine & Spirits, Perfumes & Cosmetics, Watches & Jewelry, and Selective retailing. This external analysis will focus on the fashion and leather goods sector, which accounts for 30% of the company’s total revenue.
Analytical Tools To grasp a better understanding of the fashion and leather goods industry, this analysis will use the PESTEL and Michael Porter’s five forces methods to assess the external opportunities and threats. PESTEL is an effective analytical tool to determine the social and economical trends at a macro-level. Comprehending these factors can assist a company with its business strategies and vision. Porter’s five forces is a great tool when rivalry is so intense. It defines the competitive intensity and overall industry profitability. Louis Vuitton, Fendi, Loewe, Marc Jacobs, Donna Karen, Celine, Thomas Pink, and Givenchy are few popular brands that form the fashion and leather goods sector of LVMH. These brands have a total of 1,280 stores worldwide.
“The development of our fashion and leather goods brands is based on three inseparable principles: leading edge expertise, constantly cultivated creativity, and a search for excellence in distribution. (www.lvmh.com).” With LVMH’s major strategic priorities to continue developing Louis Vuitton, strengthening brand image, and projecting profitable growth of the other fashion brands, it is critical to understand the external factors that may affect them. Louis Vuitton had another year of double-digit revenue growth. The Fashion and leather goods showed an increase of 7% revenue in 2012. Louis Vuitton’s brand value has steadily increased since 2004 and has eroded its competitors. (Refer to two graphs below). Currently, LVMH has 9.5% of the market share in the fashion and leather goods industry.
* Luxury Goods * Louis Vuitton PESTEL Political Factor Politics does not play a large role in the fashion and leather industry. However, issues of policies and country regulations, such as customs, import VAT and consumption taxes can impact an industry. For example, country regulations such as the Lanham Act that protects the sale of counterfeit merchandise. This Act prohibits infringement activities such as false advertising and trademark copying. “Congress has passed the Sherman Antitrust Act, the Wilson Tariff Act, The Clayton Antitrust Act and the Robinson-Patman Act, along with various other regulations regarding unfair competition (IBISWorld, 2013, p. 36). “ In the US, the level of regulation is light and trends are steady.
Economic Factor Economic issues of late 2008 have led to what economists refer to as a recession. Despite the recession in the past five years, the IBISWorld estimates that there will be in annual increase in revenue of 1.2% to $9.2 billion. “As the economy rebounds during the next five years, industry revenue is forecast to grow at an even faster annualized rate of 4.6% to reach $11.5 billion by the end of 2018 (IBISWorld, 2013, p. 5).” According to IBISWorld, per capita disposable income is expected to increase in 2013. An increase in income usually increases consumer’s purchasing power; this will create multiple opportunities for this industry. In 2010, the purchasing power has slowly begun to rebound and sustained industry profits, estimating margins to account for 10.7% of revenue in 2013.
With an improvement in economy and unemployment rates, Generation Y (born between 1980-1995) is expected to increase their purchasing power. Sales of luxury goods rely heavily on Asian markets. According to IBISWorld, China is now the fastest growing foreign market. With the economic growth of China, the amount of disposable income is increasing which is causing an increase demand for luxury items. Nearly 25% of Louis Vuitton sales come from Asia. Sociocultural Factor
LVMH has a wide range of consumers from different backgrounds. It is imperative that they are aware of religion, race, culture, and buying habits in every country. For instance, worldwide people are more dependent on the Internet, signifying that the methods of how people purchase goods are changing. With high rates of travel within US and abroad, there is a greater demand for luggage and leather accessories. Technological Factor
Technological advances in machinery and management software can assist in forecasting demand, managing inventory, and speed up production. There are many tools that industry participant’s use: * Management information systems (MIS) and electronic data processing (EDP) * Consist of full range of retail, financial, and merchandising systems * PC-based point-of-sale (POS)
* Equipped with barcode readers * Electronic barcode scanning systems Ecological Factor With an increase awareness of animal cruelty and environmental issues, the luxury goods industry should be familiar with the ecological concerns. Ecological trends could influence consumers purchase decisions as well as the perception of the brand. Legal Factor
All fashion and leather goods industry will have to comply with rules and regulations. LVMH should be aware of laws that protect consumers, competitors, and corporations. For instance, comprehending labor laws and intellectual property laws.
Threat of Entry The Asian luxury goods market has shown strong rates of growth in recent years. Chinese and Indian retailers are making growing fast, which increases the industries attractiveness to new entrants. Nevertheless, old players in this industry have the advantage of sustaining brand loyalty. “New operators may find it difficult to enter the industry, as these large corporations already hold a substantial portion of the market (IBISWorld, 2013, p.24).” Power of Suppliers
The key suppliers in the luxury goods market are clothing manufacturers and wholesalers. Many companies are outsourcing to foreign manufacturers and increasing supplier options. Due to low-wage regions like China and India, supplier power has decreased through its competition. Power of Buyers
This industry has a wide range of buyers and each customer should be seen as an individual consumer, which weakens the buyer power. In fashion and leather goods, LVMH can differentiate themselves through the unique styles and exclusive products. Threat of Substitutes
There are many substitutes for luxury goods, including counterfeit and homemade goods. However, luxury goods are so highly differential, and consumers with disposable income will make the investment. Rivalry Among Existing Competitors
The fashion and leather goods market is divided, creating room for many smaller players. While the industry shows high margins, LVMH has outperformed its competitors. As an older player with a highly differentiated product line, LVMH has a competitive advantage, setting it apart from competition.
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