LVMH - Building Star Brands

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Case Details:

Case Code : MKTA016
Case Length : 15 Pages
Period : 1987-2004
Pub Date : 2004
Teaching Note :Not Available
Organization : Moet Hennessy Louis Vuitton (LVMH)
Industry : Luxury Goods
Countries : Global

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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LVMH Moët Hennessy Louis Vuitton (LVMH), the world's largest luxury goods company, owned famous luxury brands like Dom Perignon, Christian Dior, Donna Karen and Louis Vuitton. Chairman Bernard Arnault and his family owned 48% of LVMH. LVMH had more than 1,500 retail outlets, including 280-plus Vuitton stores, some 150 DFS Group duty-free shops, Le Bon Marché and hundreds of designer boutiques. Its Sephora self-serve cosmetics and fragrance chain had nearly 500 stores worldwide. Over the past five years LVMH had grown at a fast pace, moving into activities ranging from airport duty-free shops to cosmetics retailing and art auctions.

Sales had nearly doubled to a projected $10.7 billion in 2004. This was more than four times the sales of its closest rival, the Gucci Group.

But many of these acquisitions had not started making profits. LVMH generated nearly all its profits from Louis Vuitton. The newer ventures, by contrast looked risky. DFS, acquired in 1997 for $2.5 billion, had increased LVMH's exposure to the downturn in travel. With sales down 35% since September 2004, analysts expected it to lose nearly $100 million by the end of the year. Sephora, acquired in 1998 for $260 million, was expected to lose another $100 million or so following a costly U.S. expansion.

Though Sephora might become profitable in a year or two, being a mass-market retailer it was unlikely to generate the high margins typical of LVMH's leading businesses. Arnault dismissed speculation that he was about to divest some of these businesses. He believed DFS was central to LVMH's strategy of tightly controlled distribution of its products.

And while he did not rule out an eventual sale of Sephora, he felt the chain was on track to produce 8% to 9% profit margins within three years. Far from weakening LVMH, Arnault maintained, diversification was a key strength1:

"We're the only group that has the ability to manage different activities that cover the entire range of the luxury business."

But LVMH had divested some non performing brands in 2003, including auction house Phillips, de Pury & Luxemborg, fashion brand Michael Kors and Bliss Spas in early 2004. The company had also sold its Hard Candy and Urban Decay cosmetics brands.

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1] Matlack, Carol. "Falling off the Lap of Luxury," Business Week, 3rd December 2001, Issue 3760, pp.50-51.


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