Louis Vuitton Chain Value Analysis

The Louis Vuitton company was originally founded in 1854 by Louis Vuitton Malletier in Paris as a company producing trunks. Even in those early beginnings they were able to create their own name by coming up with unique and new design and innovation in materials. This made its position even among aristocracy, what really strengthened the business. In 1892 his son, Georges Vuitton, inherited the company, focused on innovation, brought the firm into handbag business and LV started global expansion. However the Second World War brought end to this expansion and at the end the profitability and revenues were very low.

Of this reason Renée Vuitton chose to bring in her son-in-law, Henri Racamier, the clever businessman, who put the company back to its feet. He started opening company-owned stores, pushed for rapid global expansion and stared acquiring another high-quality products companies. He also made an agreement with Moet Hennessy company and created Moet Hennessy Louis Vuitton group, but because of many disagreements about how to run the company, Racamier brought in a property developer Bernad Arnault to support his position.

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But rather than doing this, Arnault quickly acquired 45 percent of stakes in LVMH. After 18-month battle for control of LVMH control of LV slipped away from Vuitton family and Arnault became the CEO.

LVMH was a competitor in the global personal luxury goods industry and included products such as perfumes, cosmetics, shoes, clothes, leather goods – handbags and accessories and hard luxury goods – jewelry and watches. The largest markets for luxury goods were in Europe and the United States, however the highest growth rate was in China.

Customers were divided into three segments: absolute – individuals of high and ultra-high net worth, aspirational – top 10 per cent of income earners, and accessible – target customers for lower prices. Major growth role of the company was played by acquisitions, majority was in companies that produced high quality products, such as Givenchy or Sephora. After taking control of LVMH, Arnault brought in Wves Carcelle as CEO and under the partnership with Marc Jacobs LV flourished. The core of the company was in collection of leather product, but production included also a wide range of luxury fashion goods for women and men. Primary focus was on Absolute and Aspirational customer segments. INBOUND LOGISTICSEvery company consists of a collection of activities connected to every aspect of creating, designing, producing, delivering and selling its product. All of those activities can be represented by using the value chain by Michael Porter, which displays the total value and consists of value activities and margin.

Value activities can be divided into two broad types, primary activities and support activities, and those are subdivided into generic categories. By comparing the value chains of competitors the company can evaluate its competitive advantage. We are now going to analyze the company Louis Vuitton by using this example. The first of the primary activities is called the inbound logistics and consists of activities involving receiving, storing and disseminating inputs to the products. Louis Vuitton controls all of the activities concerning production and so it does in sourcing materials. Their effort to keep the standards and quality high involves also sourcing high quality materials. For instance, for top-end products the leather is imported from the Northern Europe because it less damaged by insect bites, than in other parts of the world. Most of the production is done in-house, therefore they are not dependent on suppliers. The only parts sourced externally are components like zippers or clasps. Their innovation in raw materials is one of the attributes that helps Louis Vuitton keep ahead of the competition and provide their customers with product that are special and unique.

OPERATIONSAll of their final products are manufactured in-house in order to limit the money spent on merchants. Their bags go through a lengthy process and are both hand and machine sewn. However, LV has to find a compromise between the improvement of manufacturing the products and the quality that stands beyond them. Hence, even though using modern technology in production would save both time and money, it is risky because clients believe that handcraft means high quality and luxury. Strict attention to detail is given to each and every bag, so that the final product is without reproach. In this case operations consist of turning raw material such as leather, zippers etc. into exclusive, impeccable, unique products desired for the heritage and tradition that stay behind them. Once the bags have been made, they are given further testing on the zippers and the wear-and-tear ability of each bag. OUTBOUND LOGISTICSLouis Vuitton’s outbound logistics sector is responsible for distribution, transportation and storage of finished goods. In 2004 the company decided to do its own distribution, which means they are less vulnerable to logistic problems. It allows them to oversee the movement of their wares to a much higher degree than companies who outsource distribution.

This in turn incurs them fewer losses from wares ‘magically’ disappearing during transport. For keeping track of stocks and sold products Louis Vuitton’s logistic sector had to implement stock tracking system. With its help, they can supervise what goes in and out to storehouses.Louis Vuitton distribute goods only to licensed stores in order to avoid brand digression, which means that they allocate their budget to specific shops rather than dealing with transportation to each individual shopping mall. Louis Vuitton expansion into e-commerce gives an inspiration on how to maintain high level of standards without corrupting their authenticity. LV chose FedEx delivering service to help them distribute goods sold with online shopping. FedEx service’s is accountable for keeping the correct products in stock in each specific location.In order to supply LV stores and make their goods available for customers they had to recruit a huge amount of workers in logistics and distribution departments. MARKETING AND SALESThis is a rather big area. Vuitton’s focus on customers is mainly on the market with Absolute and Aspirational (meaning no-holds-barred-rich and rich). For these customers they will go all out and offer a wide array of luxurious services.

These services include things like special show rooms, member’s only areas, showings on a yacht or in a private and fully staffed apartment, even flying out to meet a client and bringing a collection along for him or her to view. There is also extremely high focus on the brand exclusivity. In order to ensure this, they take some simple steps like no discounts. Ever. If they for some reason have excess bags, these are destroyed rather than sold cheaply or risk them being moved to the grey or black markets. Their price also brings exclusivity in itself, as regular people are not able to afford their goods. They have a high focus on their design and image. Wealthy customers can design their own bags, with the help of company designers if they so choose and the image all these things confer is that of luxurious exclusivity. At some point money no longer becomes a competing item and instead companies like Louis Vuitton allow customers to compete on things like buying experiences and limited stocks. Certain commodities will therefore command higher prices. E.g. if the item has been produced in France, or even the rest of EU, that alone will make it increasingly desirable. As are certain limited edition products.

Brand identification is also very important therefore all store designs are done by the HQ in France, so there is a common theme which runs across the globe. SERVICESUpon receiving the LV product, the customer now has a lifetime repair guarantee on it. This means that should the bag break in a way that is not down to negligence from the customer’s side, the company will repair it and/or refund it fully. The customer also has the possibility of becoming a member of Louis Vuitton, and through this gain access to certain areas of their stores - the member’s only part. A customer is only able to become a member upon recommendation from a current member. This adds to the exclusivity of the brand, and gives the customer the feeling of being taken care of. When visiting their website, the customer has the possibility of getting help from an online chat service. Not only do LV put employees in place to sit and be ready to answer questions, they also have people sitting on the social media sites Twitter and Facebook, where they are ready to answer any questions one might have as a customer.

When a customer orders a bag on the LV site, LV ship the order to the customer using the delivery company Fed Ex. Most companies now a day’s use a service called Track and Trace. This is where the customer can follow their order and where the product is in the process of sending. Summary of strengths and weakness’All in all, one could say that the main advantage LV has in the market, is that they control every aspect of their goods on their trip from manufacturers to customers. Seeing as they outsource very few parts of their products, they can in this way ensure that everything is of the highest possible quality, which therefore provides some of the exclusivity that their main customer segments, absolute and aspirational, demand from their products. Another strength the company has is that it has a long and illustrious history behind it. Back in the days of LV’s founding, their main product was trunks. As written in the case, trunks back then were oval shaped, and therefore not the easiest to stack. Louis Vuitton himself came up with the idea of making the trunks with a flat top, which became insanely popular at the time, due to the fast growing industry of train travel. Since then, LV has been a top end product, which the public connects with high quality and exclusive products. Because of their long history of being at the top end of the market in luxury goods, their brand alone is a competitive strength.

When one hears the name “Louis Vuitton”, the first thoughts that come to mind are high quality products, which are charged at expensive prices. Since their target customer group mostly applies to parts of the public that don’t have problems with paying the required amount, the prices themselves are not a weakness, but a strength. This is because their prices add to the exclusivity of the product for the customers. These high prices could also be perceived as a weakness for the company. By having bags costing up to US$ 100.000, they “scare” away the greatest part of the customer segment, the accessible part. This therefore means that their products can only be purchased by a low percentage of the population, which lowers their possibility of revenue. Another weakness they have as a company is the fact that they never outsource their products. For example, should one of the farms, where the leather comes from, contract foot-and-mouth disease, the cows would have to be slaughtered, which then would mean that they would have the problem of missing some of their leather production, which in turn could result in a drop in number of products produced.

This could also apply to their stores. If one of these stores were to burn down, this would mean that the people that live in the area around this store, and wish to buy a bag, now either must go quite far away (seeing as LV stores aren’t exactly everywhere), or might choose to go to a different luxury goods store - a competitor. As technology has gone forward, machines have started to do the jobs which people used to do. This applies to the stitching part of making bags, and this could mean that their customers suddenly don’t feel like they’re getting the ultimate exclusivity when buying a LV bag. Should the demand for luxury bags for some reason diminish, Louis Vuitton might want to change their image to the public. This would be an almighty challenge for them, since they have over 100 years of history behind them, where they would supply the elite part of the public with luxurious goods. People would still connect the Louis Vuitton name with high price, high quality goods, and this might not be what they want at that point. In the last few years, the market for counterfeit products has exploded. This includes fake copies of LV bags, which are now created in a way where it is extremely difficult to tell the difference between a real and the fake. This means, that the segment of the public that normally doesn’t have the possibility to have a Louis Vuitton bag, now can, because the price of it is so much lower than the real deal.

This has an effect on the absolute and aspirational segment of the public. They see that the average person now has a bag that is almost identical to theirs. This removes the uniqueness of having a LV bag, because it is suddenly a common thing. LVMH – Firm infrastructureThe organizational structure of LVMH is mechanistic, hierarchical and centralized what is convenient regarding the industry, the size and strategy of the company. This international company hires almost 110,000 employees in more than 3,000 stores worldwide and 17 big factories. The LVMH Group has over 60 luxury brands such as Givenchy, Celine fashion, Sephora etc. The Board of Directors (which must have the maximum number of 18 members) consists of Bernard Arnault - Chairman & Chief Executive Officer, Pierre Godé - Vice Chairman, Antonio Belloni - Group Managing Director, Advisory Board Members and Performance Audit Committee. The Arnault family holds about 50% of the control stake. The shareholder equity for LVMH in 2010 was 18,204 and in 2011 was 23,512 which indicates the development of the company. COMPETITIVE ADVANTAGEA company has to have an advantage over its competitors to generate greater sales and to gain more customers than its competition.

This competitive advantage depends largely on distinctiveness of capabilities that a firm has. Those strategic capabilities are needed for a long-term survival of a company and they are divided into two components: resources and competences. By looking at the Value chain of Louis Vuitton we can easily distinguish between them. Resources of LV can be described as “what they have” and there we can see two main groups: Tangible – buildings/factories, testing robots, distributors, licensed stores, private fitting places, apartments and yachts, trucks, machines, tools for leather processing, GPS, CEO, managers, partners, employees, suppliers for components, staff for yachts, customers, leather farms Intangible – knowledge of how to process leather, skills in manufacturing leather and luxury goods, design and creative talent, overview in trends, control of whole production, control of whole distribution, tracking stock system, web site, well-known brand name, VIP membership possibility, lifetime repair guarantee, knowledge of the target customer groups Competences of LV can be explained as “what they do well” and there are lot of good examples that we can see: By controlling the whole process of manufacturing their products LV make sure everything is manufactured according to high standards of the company Having contracts with private farms keeps the high level standards (no damages by insects)

They are not dependent on suppliers as many other companies, because most of their production is done in-house By implementing of new program of training employees, reorganizing the manufacturing line and involving machines into production they were able to improve efficiency in production. LV also took control over distribution, therefore everything is delivered on the right time at the right place and situations, when products get “lost” on their way from a factory to a store are avoided. By centralization of design in their stores LV communicates the company’s tradition and heritage and provides the unique experience of luxury which gives their customers exactly what they desire They handcraft most of their products

Dividing customers into three segments helps them clearly see their target groups

STRATEGIC CAPABILITIES
By connecting the resources and competences we get strategic capabilities that are important components in long-term survival and the competitive advantage of a company. An organization needs the ability to renew and recreate its strategic capabilities in order to meet the needs of a changing environment, which introduces us to the concept of strategic capabilities. In strategic capabilities we can distinguish two types. Threshold capabilities, which a company needs to meet the necessary requirements in a specific market and distinctive capabilities that are needed to achieve competitive advantage. In order to identify a competitive advantage of a company we have to analyze all of the capabilities by the VRIN framework Developing most of the raw materials and the whole production of LV is done in-house, that guarantees that the products don‘t loose on quality during the process. It gives customers a kind of guarantee and therefore brings more value. Not only is it rare among the industry but it also requires a lot of organization and financial outlays that most other companies are not capable of.

In order to remain on the same level we assume that it wouldn‘t make sense to change the procedure of production. Contracts with private farms makes it more certain that leather used for manufacturing is the best possible. Customers know that the products they buy are made from special materials and they know that high prices are worth it. This one of the things that differ LV from most of competitors. It may not be hard to imitate, but LV has the advantage of strong partnership with those private farms, what is not easy to achieve. Because of the partnership and so far great results of quality, we assume that this way of sourcing leather is not going to change without a serious reason. Innovative approaches in production meant the implementation of Toyota Motors System which increase the productivity and efficiency. Customers might find it valuable because it decreases the waiting time. As the technology is developing everywhere, it is not rare to have implemented such system anywhere else and the systems are easy to imitate. Because we don’t know about how old this system is, we can assume that this system can be substituted by new or better one Having this well-known brand name and logo brings huge value to all three customer segments and also big advantage to the company.

However LV is not the only international famous brand, e.g. Prada, Hermés, therefore we cannot claim that it is rare to have a well-known brand name. It wouldn’t’t bring an advantage to competitors if they imitated this logo or design, for it would be considered as plagiarism. We claim that from the point of view of the company it is something non-substitutable. LV has bought the distributors and took control over distribution channel. It is another example which assures customers of that LV covers everything. Not every company can afford to make such a step, because again, a huge budget is needed, therefore it is not common among competitors. Nevertheless if a company is able to collect enough money, they can do the same thing. This way of distribution has been successful for years, which is why in our opinion it is not going to be modified. To communicate a company’s tradition LV has centralized its design, which makes the brand recognizable, unique and consequently attractivee. However it is not rare nowadays for a brand to have designed its shops in a special way. Still the design of LV stores is so unique and original, that it would be hard to copy it.

This styling is an essential part of the brand itself, and it contributes to the customers’ experience of luxury, what is one of the main ideas of LV and in our opinion in cannot be substituted by some other concept The handcrafted products manufactured by LVMH are unique and extremely desirable. That technique calls for knowledge and skills valued by both the company and customers. The staff contains mostly masters of the art who are the best of the best. This fact settles LV at the top of the competition and makes it difficult to imitate, because even though there are other companies which have their own experts, it is still hard to beat the uniqueness of the brand. It makes the risk of substitution relatively low. Another competitive advantage is the outstanding selling environment. By that we mean private apartments, yachts, fitting places and stores where you need to be a member of. This exclusivities bring value to the customers mainly of the absolute and aspirational segments. Its uniqueness makes it rare and hard to imitate. This service creates a special experience of buying luxury products and this makes it non-substitutable.

Upstream and DownstreamIn a company, there are several activities that must take place, before a product can be bought by the consumer. These activities can be defined as upstream and downstream activities. To find out what these activities are, one must take a focal point somewhere in the middle of the primary activities, and from there one can work out which part of the supply chain is where and what this means for the production of the product for the certain company.For Louis Vuitton, we chose to use the operations activity as the focal point. The operations part of the supply chain, in this instance, is where the manufacturing of the actual bags happens. The upstream activity in this case would be on the farm where LV gets their leather from and the trip from the farm to the factory. After the bags have been produced, sewn together and tested, the downstream activities take hold. This describes the process of moving the bags from the factory into the hands of the consumer. The downstream activities consist of the transportation of the bags from the factory to the stores, the process of designing the store and showing these bags to the customers, and the actual purchase of the bags by the end user. This can be shown graphically.

Questions for Business LawThe driver asks you - who can claim damages and from whom? First thing to do in order to answer that question is to establish a basis of liability and score it according to severity. In regards to the glass door, we believe that culpa goes to the driver, as he is the one who broke the glass door, because he either carried the packages incorrectly, thus limiting his vision or he simply wasn’t paying attention to his surroundings.Since the case doesn’t describe specifically what and how things happened and we are unable to ask anyone to clarify this, we feel both examples give the driver culpa at a level of simple negligence. In regards to the dog and his owner, it becomes necessary to ask why was the dog in the store.Does Louis Vuitton allow dogs in the store? If so, it could be argued that they accept responsibility for them, in the same way that they accept responsibility for their customers.

If they don’t and the dog was there against regulations, the fault of damages done by and to the dog should lie with the owner of it. In either case, section 2.5 of chapter 12 talks about contributory negligence and here it could be argued, that allowing your dog to run loose over broken glass would probably be tantamount to allowing it to be damaged. In this case damages to the dog should be paid for by the owner, who chose not to control his dog. As for the door itself, we believe it should be Louis Vuitton who themselves pay for the damages incurred. This falls under section 3 of chapter 12, which deals with employer liability and says, that an employer is responsible for actions done by his employees. If however, the driver was an independent contractor who took on one job at a time, even if he is here on Louis Vuitton business, they would no longer be liable for the damages he caused. So it all comes down to exact circumstances and the ability to argue your case correctly, as this can sway a case either for or against you. Is the car company bound by Louis Vuitton’s acceptance?

In the described case, Louis Vuitton managed to write a letter of acceptance to the car company, saying that they accept their offer. This letter didn’t reach the car company in time of the deadline, so the car company had therefore written a letter to LV telling them that the offer had been rescinded. The car company received a receipt from the post office, but Louis Vuitton never received this letter. When the car company decided to pull back the offer and sent a resignation letter, they received the receipt of sending, yet this letter never arrived, as written. The offerer who wants to quit the offer, must immediately contact the recipient and inform them of this. Louis Vuitton was never informed of the car company’s lack of will to conclude the deal, and therefore think that they still are bound by the deal. Should the offerer fail to inform the recipient of the rejection of the deal, then both parties are still bound by it. This applies even though the car company received a receipt of confirmation of their sending of the letter. In other words, the car company still has to sell the three cars to Louis Vuitton, because they are bound by their offer. Explain briefly the various grounds of invalidity.

When talking about the factors that make a contract invalid, they are divided in to two groups, strong and weak invalidating factors. These two groups are defined by whether one is able to guard oneself against these factors. For the strong group, it is impossible, and therefore it invalidates the contract immediately. For the weak group, one is able to guard oneself against it, and therefore only invalidates the contract if the one who draws up the contract acted in bad faith doing so.

The strong factors are:

• Forgery
• Fraudulent alternation
• Duress
• Inaccuracy and/or misrepresentation

The weak factors are:

• Fraud
• Undue influence
• Own mistake
• Simple duress
• Strong

Should one sign a document using another person’s name, it is forgery, and therefore invalidates the contract immediately. Fraudulent alternation is when one of the parties involved decide to change the contents of the contract after it has been signed, meaning that the other party has not agreed to these terms. Duress is when one of the parties involved in the contract are in some way forced to sign the contract against their will. The contract is invalidated of this reason, but the forced party must inform the authorities of such a happening. Inaccuracy and/or misrepresentation is when either there is a technical mistake on the contract, or if one of the parties are misrepresented. However, should the mistake or the misrepresentation not be discovered, and acted upon immediately, the contract is deemed valid in its state.

If it is discovered that one of the parties lied on purpose, the contract is deemed invalid straight away, because he/she was acting in bad faith. Should one of the parties have acted in good faith, the contract is valid. This is dependent on whether the other party discovers the fraud. Should they do so, they then have the right to invalidate the deal.Undue influence is when one of the sides in the deal uses the others situation to their advantage. Own mistake is when the seller makes a mistake while selling his product, by for example pricing it wrong. The seller has the right to invalidate the contract if he realizes the mistake in the same way the buyer has the right to should he realize the mistake. The contract would be valid if the buyer acted in good faith, and the seller doesn’t notice the mistake.Simple duress is like the strong factor of duress, but without the inclusion of violence. This invalidates the contract.