Luxury is artificial definition and cannot be easily transferred into real life. It is a notion of anything that is useless and superfluous in real life. However, it can be often associated with beauty (art, entertainment, design, decor or trend) and remains one of the driving forces behind society’s spending. It is true that luxury speaks and renown’s itself by big spending and indeed, outlandish expenditure is often associated with it. The world luxury market is worth more than $130 billions and France is the country which owns the largest number of companies in the luxury and historically always been trend setter in the luxury market.
Some of the world’s best symbol of lavish lifestyle is essentially French (such as Don Perignon champagne, Louis Vitton handbags or white truffles as a culinary ingredient). French is the language of choice for aristotles and diplomats. Shortly, France has long heritage in leading and dominating luxury market and therefore is an appropriate background for my analysis. 1. Luxury industry: presentation The luxury industry is based on prestige brands which dominate luxury market and its spectre e. g. Perfumes, fashion design called “Haute Couture”, jewellery, leather, shoes and accessories.
Fashion and luxury goods have an annual turnover of € 35 billion in France (campus. org 2006). Main players on the market are LVMH, Chanel and Hermes International. In the sector of luxury especially la Haute Couture, lavishness is a notion difficult to comprehend. The leading designers such as Jean Paul Gauthier kept the introvert and indeed humble image for years, before breaking the bank with their designs. We need to limit our seeking because there are 130 brands in France (Comite Colbert Website 2005) that one third is present on the market.
For this reason I have chosen to detail through of a committee in Paris which gathers 70 best houses in the luxury sector and later more precisely LVMH. In last century, the sector of the fashion of French economy underwent a profound change. Home-made brands started to gradually expand and explore wider audience, targeting not only Paris, but also rest of the France and later Europe, Asia, finally the whole world. Their domination on the global market was mainly achieved thanks to outstanding history and heritage of the brands, quality of the product, trend setting ability of Paris and social notion of luxury desire.
So, the big creators, both in the high fashion and in the perfume, were steadily replaced as dominating figures by designers. The marketing and the advertising become the most important in the sector – products became increasingly similar so the brand identity was essential. From the end of the 19TH century, some names have led, such as Guerlain in the flagrance or Worth in the “haute couture”. These designers are at the origin of a luxury depth change by contributing to expand, differentiate and create new background and clientele – from the elites to the masses.
This period was dated as the one of the birth of a new luxury and a blooming of the fashion arts. Everything in this section is based on the annual report on “Comite Colbert” Website 2007. To gather skills and the strengths of every luxury designers, Guerlain created “Comite Colbert” in 1954 with 70 houses from the luxury brands. This partnership reinforces know-how of each brand and they keep developing it. Furthermore Paris is the worldwide capital famous for its tourism and high quality products. They count 10. 5% of increase of turnover every year (2005).
Despite the international competition such as New-York or Milan Paris has to keep its leadership and to make the most to the influence of Paris. This “comite” or “Colbert committee” organizes events (catwalks and salons) and tries to make sure that Paris is regarded as a capital of luxury in the world. For the generation to come, they invest in the education of future designers or skilled workers to make the products of tomorrow. In Paris it is endowed with “couture” college; these have been in charge by the houses to learn traditional techniques.
Moreover they work closely with design schools in Paris organizing competition between design schools to choose the elite, the best students of this competitive examination. Every structure, knowledge and human resources is centred on Paris. All of these condition factors are concentrated in only one place in order to build every advantage and to get better and better. Capital resources are due to companies’ investments working in luxury sector and investing in bourse. MSCI World Textiles & Apparels & Luxury Goods index owns 1,500 securities on 23 international markets (Lefigaro website 2007).
It is a reference to investment funds return. Then their strategic setting-up in Paris attracts numerous foreign investors. 2 Demand conditions The second determinant of the diamond model mentions the demand more precisely the home demand, the size and the growth. France is formed by more than 60,000,000 citizens and it is one of the richest countries of the world. Concerning the home demand, Luxury goods such as perfumes and cosmetics, the sales keep their growth until 1989. After this period, the consumption has decreased because the demand has become more sophisticated and restrained.
The luxury industry does not work like the other industries. In fact, in luxury buyer needs do not exist. About the fashion design the buyers are interested in the designers’ creativity and they do not worry about their practical use or in fact their needs. Nowadays the clientele, the heart of target, presents very distinctive characteristics. Firstly, it is about consumers in financial ways much more important than average. This social category, elite, has a very particular motivation: it is necessary to answer their desires and not to their base needs.
Hedonistic, less and less faithful to the brands, they always expect more in terms of quality, safety and especially from immaterial added value: services, citizenship, ecology, environmental protection and most importantly, prestige and brand heritage… 3 Related and supporting industries According to the Minister of Industry French economy has to keep relationship between the suppliers near the designers. In fact, Porter talked about clusters that are means for interconnection and concentration between the companies participating in the making process.
In this case, luxury industry has kept a fundamental place: Paris. With 36 of its houses which are their head office in Paris, more than 100 shops and creation studios of 59 houses, workshop of excellence act for the economic dynamism of Paris. Moreover the houses support the local economy employing more than 20,000 people in upstream and downstream. Upstream I by parts manufacturers, wholesalers, art profession such designers, skilled workers. As regard downstream such as distribution or services (e. g. retailers and advising communication agency).
They ensure continued existence of professions in danger and invest in order to protect them. In the top 3 of the companies which dominate this market we find LVMH, Vendome and Gucci, both first ones are French what strengthens their luxury image. Moreover on 14 main companies on the luxury market, 5 are from France and 6 are Italian. We can notice that the straight competitor is with Italian luxury brand companies. Moreover French and Italian houses are considered as luxury pillars because they dominate the luxury market.
In terms of export we can note the evolution of emerging countries such as China and India which for these last years saw their imports becoming intensified in the sector of the “inexpensive” fashion. For example, the group of activities Wines and Spirit of LVMH centres its development on the up-market segments of the market. It is also the World leader of the champagne and cognac. This group also owns fashion and leather goods, perfumes and cosmetics, watch and jewellery and each of their portfolio channels dominate the market.
We can notice LVMH act in the wine market to expand itself in other markets. In an uncertain world economic context, Moet Hennessy (LVMH President) will pursue during the second half-year 2008 its creation strategy of value and innovation. Numerous novelties will be launched, which will aim at anchoring always more products in the luxury world and at seducing new customers. The firm strategy of luxury industry such as LVMH as we saw is to diversify its portfolio of activity, by adapting every product to every customer’s segment existing on the market.
Moet Hennessy continued to strengthen its distribution network in Central Europe by the establishment of subsidiaries in Poland and Czech Republic. Despite a temptation to go abroad to produce with low cost labour in emerging countries, the French groups carry on to invest enormously in luxury industry. This is relied on identity nature. For this reason companies keep in spite of national expensive labour, their know-how and the quality of their production is more important that cost. Conclusion This industry sends products of high quality, to concentrated, attractive, much targeted and much segmented market.
Certain brands rhyme with luxury and sensual delight. Behind these names are nevertheless powerful, very skilful groups, which compete ceaselessly in management of the brands, the creativity, the communication and the distribution. However there is factor in constant change such as home condition and factors condition. The issue in France and abroad is that the buyers are increasingly volatile and they can change brand easily because there are more and more factors and competition in this sector. Moreover most buyers are hard to please and competition is fierce.
In the other hand the factors conditions pose a problem because of emerging countries have low cost manufacture and can compete better with developed countries. But this country is both buyer both exporting country which is in constant increase. Now a day another issue to tackle: the counterfeiting. Luxury industry struggle against the knock off luxury goods which empoisons the luxury world, it is a struggling war which will probably never be resolved, however it needs to be kept at absolute minimum.