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LVMH: Hand Crafted Diversification Essay Sample

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LVMH: Hand Crafted Diversification Essay Sample

Moët Hennessy – Louis Vuitton S.A, better known as LVMH, has developed an interesting corporation composed of numerous subsidiaries. Its corporate strategy is focused on diversification, primarily in the luxury goods sector. (Gamble) Their famous brands include Louis Vuitton handbags, TAG Heurer watches, and Sephora cosmetic stores. LVMH’s primary business group consists of Fashion and Leather Goods, and is presently responsible for about 36% of their revenue. (2011 LVMH Annual Report). Other business groups include Wine and Spirits, Perfumes and Cosmetics, Watches and Jewelry, and Selective Retailing. LVMH uses these business groups not only to provide value to its shareholders, but to also expand its initiative of developing quality, luxurious products and services. Portfolio of Businesses

LVMH participates in numerous industries, and therefore each industry has a different level of attractiveness. The Wine and Spirit industry for instance is highly competitive and has only allowed LVMH to have an 8% revenue growth from 2010 to 2011. (2011 LVMH Annual Report) On the contrary, the Watches and Jewelry industry, which has less competition, allowed LVMH to have a 98% revenue increase in this business group. (2011 LVMH Annual Report) LVMH breaks down its revenue growth into two categories, recurring and organic revenue. Recurring revenue is revenue that is from repeat customers, and is responsible for the largest percentage of growth for LVMH. However it is important to note that while the organic revenue growth percentage is less, that revenue makes up about 75% of LVMH’s total revenue. (2011 LVMH Annual Report) Synergy Amongst its Brands

While LVMH maintains each brand individually with its own corporate structure, there are numerous synergies that are common amongst the brands. All of their brands put a high emphasis on exceptional quality. LVMH’s desires aren’t for low cost and mass production, but for having durable products that are both timeless and can “speak to the ages, but at the same time, feel intensely modern”. There are numerous brands that complement each other very well, and offer a fantastic strategic fit for LVMH. An example would be the numerous different watch and jewelry brands as well as the fashion brands. LVMH is able to market these to consumers differently, but able to distribute and market them to retail outlets together. By leveraging the unique craftsmanship and variety with its vast global distribution network, it’s able to effectively create demand for its products while having the resources to keep up with supply. Impact of the Diversification Strategy

Almost all of LVMH’s business groups have shown to be true winners, with every major business group producing solid growth and net income. There is an “Other” business group listed on LVMH’s Annual Report, and that includes their interests in the media industry, luxury yacht industry, and real estate industry. LVMH’s true “cash cow” is the Louis Vuitton line of luxury hand bags. This accounts for about 37% of the business group’s sales and most of its profits. (Here are 10 Things We Learned about LVMH, 2012). With a €157 million loss last year, businesses in the “Other” category are the cash hogs of LVMH. LVMH is best positioned to invest in other brands in its primary business groups, and divest in the others. Changes in Financial Performance

Over the years, LVMH’s commitment towards high quality products has not changed. It continually tries to create the highest quality luxury goods available. What has changed however is the percentage of revenue by business group. LVMH has increased its revenue in the Fashion and Leather Goods category significantly. This is a result of both organic and recurring revenue growth, and partially thanks to the dominant Louis Vuitton brand of hand bags. Source: Data from LVMH Annual Reports, Chart created by Robbie Kibler Source: Data from LVMH Annual Reports, Chart created by Robbie Kibler [Type a quote from the document or the summary of an interesting point. You can position the text box anywhere in the document. Use the Drawing Tools tab to change the formatting of the pull quote text box.] [Type a quote from the document or the summary of an interesting point. You can position the text box anywhere in the document. Use the Drawing Tools tab to change the formatting of the pull quote text box.] [Type a quote from the document or the summary of an interesting point. You can position the text box anywhere in the document. Use the Drawing Tools tab to change the formatting of the pull quote text box.] [Type a quote from the document or the summary of an interesting point. You can position the text box anywhere in the document. Use the Drawing Tools tab to change the formatting of the pull quote text box.]

Recommendations to Improve “Shareholder Value”
To improve shareholder value, I would recommend LVMH divest all of its interests in media, real estate, and luxury yachts. I would also recommend that LVMH continue to promote its synergy amongst its brands. Furthermore, LVMH could continue to benefit from its large economies of scale by leveraging its distribution network and internal resources. With its recent acquisitions, LVMH is able to increase its shareholder value by continually creating exceptional products that are high in demand. These acquisitions also reduce the number of competitors, and increase the attractiveness of the industry by holding a larger market share.

LVMH’s biggest lesson learned is to continue doing what it does best in the business groups where it has a significant share. LVMH should continue to diversify in its primary business groups, and divest in the other groups. By continually diversifying into other business groups, it’s decreasing its shareholder value as these business groups are either losing money, or having growth and profits that are not on par with the core LVMH business groups. Source: Robbie Kibler

Source: Robbie Kibler
LVMH Recommendation
LVMH Recommendation

Works Cited

2001 LVMH Annual Report. (2001). Retrieved July 23, 2012, from LVMH: http://www.lvmh.com/comfi/pdf_gbr/2001ra_part1_gbr.pdf 2011 LVMH Annual Report. (n.d.). Retrieved July 22, 2012, from LVMH: http://www.lvmh.com/uploads/assets/Com-fi/Documents/en/Reports/Reports_2011/Documentsfinanciers31122011VA.pdf Here are 10 Things We Learned about LVMH. (2012, June 12). Retrieved July 2012, 22, from Spice TV: http://www.myspice.tv/music/544/Here-Are-10-Things-We-Learned-About-LVMH- Gamble, J. E. (n.d.). LVMH’s Diversification Strategy into Luxury Goods. Retrieved July 22, 2012, from https://oncourse.iu.edu/access/content/group/SU12-IN-BUS-J401-9864/Case%20Questions/7.%20LVMH/http%3A__home.kelley.iupui.edu_kwendeln_J402F07_LVMH14eCASE27.pdf

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