Diversification Key to the Future of LVMH

 

Recently released financial results for the 2013 calendar year highlight some of the major strategic issues facing LVMH. Overall company revenues rose by 4% compared to 2012 and the biggest business group, ‘Fashion & Leather Goods’, registered contracting sales over the year. While the company profile LVMH Moët Hennessy Louis Vuitton SA carries a detailed account of possible strategies, we discuss some underlying causes of the company’s weak performance as well as suggestions to counter them.

The Golden Egg Undergoing a Revamp

Flagship brand Louis Vuitton not only accounts for more than a third of LVMH’s personal accessories sales but is historically one of the company’s most profitable brands. As such, a slowdown in its global sales growth has affected the outlook for the entire company. Louis Vuitton’s strategy to return to high single-digit to double-digit growth includes an ongoing change in leadership, restricted outlet expansion and a focus on high-end luxury.

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In addition to the realignment of Louis Vuitton, smaller brands such as Fendi and Céline have started to drive growth of ‘Fashion and Leather Goods’. The multi-brand marketing approach should continue beyond 2014 as the company develops a diversified bags and apparel portfolio.

Restricted Investment in ‘Watches and Jewelry’

In 2013, LVMH’s profit from recurring operations declined by 4% for ‘Fashion and Leather Goods’, while rising by 12% for ‘Watches and Jewelry’. However, LVMH’s presence in jewellery and watches is limited compared to that in bags and luggage, where it holds a global market share of 10%. The contrast is especially stark due to the growth potential represented by the former. Real jewellery and high-priced watches, the categories drawing most of the company’s sales in jewellery and watches respectively, will be two of the fastest growing personal accessories over 2014-2018.

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Following its acquisition of Bvlgari in 2011, LVMH has been focused on enhancing its production capability and self-operated outlet network for watches. The January 2014 announcement that the existing ‘Watches and Jewelry’ business group will now be run as two separate groups is expected to help streamline operations and bring more focus to Bvlgari, a brand which is vital to the company’s future in jewellery.

China Not a Lone Ranger

China is the largest personal accessories market in the world and will be a major battleground for global players over 2014-2018. However, LVMH must identify new growth markets in order to sustain appreciable growth for its brands and ride out distinct slowdowns in the country’s luxury accessories consumption, as seen in 2013.

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Despite issues in their political and operating environments, India and Russia represent two of the biggest market opportunities for LVMH’s personal accessories portfolio. Both have a sizeable class of high net worth individuals who currently have a limited number of choices in terms of locally available luxury brands.

Purchase the full company profile here: http://www.euromonitor.com/lvmh-moet-hennessy-louis-vuitton-sa-in-luxury-goods/report