TABLE OF CONTENTS 1.0 EXECUTIVE SUMMARY3 2.0 INTRODUCTION3 2.1 Background to Organization3 3.0 ANALYSIS3 3.1 Porters 5 Forces (Model of Competition)3 3.2 PESTEL (External Analysis)5 3.3 SWOT6 4.0 KEY FINDINGS OF ANALYSIS/PROBLEM IDENTIFICATION/ KEY STRATEGIC CONCERNS6 4.1 Vertical Integration6 4.2 Diversification7 5.0 POSSIBLE SOLUTIONS & STRATEGIES.8 7.0 CONCLUSION9 8.0 APPENDICES11 Appendix 1: Porters 5 Forces11 Appendix 3: Luxury Goods Group & Brands Top Ten Competitors13 Appendix 4: Industry Map*.14 Appendix 5: Financial Performance14 Appendix 6: PESTLE Analysis15 Appendix 7: SWOT Analysis16 Appendix 8: Evaluating industry Attractiveness and Competitive strength19 Appendix 9: A Nine Cell Industry Attractiveness-Competitive Matrix20 Appendix 10: Cross Business Strategic Fits20 Appendix 11: Evaluating the Strategy of a Diversified Company21 Appendix 12: LVMH's Timeline of Mergers and Acquisitions24 9.0 REFERENCES25 1.0 Executive Summary The aim of this paper is to discuss the key strategic issues that LVMH face and establish some future recommendations that can be implemented in order for LVMH to remain successful in the luxury industry. In order to determine the key strategic issues a number of analysis tools were applied to the case study; they include Porter's 5 forces model, SWOT analysis and PESTEL. It was found that the key strategic issues that LVMH face centred on diversification and vertical integration. A number of strategies have been proposed to offer some recommendations to LVMH, they namely in restructuring their retail sector, considering the concept of moderate diversification and focusing on the human resources side of acquisitions and mergers.
2.0 Introduction This report is based on the analysis of a case study 27 titled: LVMH's Diversification Strategy into Luxury Goods. The scope of this report is limited to the data contained in the case and additional supporting evidence that was sourced. In order to analyse this case LVMH's history and financial data has been discussed in terms of its internal environment, its resources and competitive position.
2.1 Background to Organization LVMH is an international group of companies that produces and sells luxury goods. It is associated with a number of product lines such as wines, cosmetics, fragrances, fashion, watches, jewellery and retail and with the most prestigious brands in those sectors. Since it conception in 1987, when Louis Vuitton merged with Moet & Chandon champagne and Hennessy cognac, LVMH was conceived to be a star group. It's business strategy was based on acquiring brands based on the premise that the reputation of such brands "would lead to a long-term corporate advantage" (Thompson, Strickland & Gamble 2005, p. C509). The rapid portfolio diversification took off when Bernard Arnault became president of LVMH in 1989. He expanded the company and acquired a number of specialty retail department stores in Paris.
3.0 Analysis 3.1 Porters 5 Forces (Model of Competition) Given the range of luxury sectors that LVMH has diversified into, the analysis is centred on the LUXURY industry where the game is played by few groups. The appendices illustrate the following: Appendix: 1 Porter's 5 forces diagram Appendix: 2 LVMH's sectors and subsequent brands Appendix: 3 Top 10 Competitors Appendix: 4 Industry Map Industry & Competitors The luxury industry operates in a high competitive environment. The need to maintain desirability and uniqueness of each product/brand puts pressure on cost savings and product life cycles, creating a volatile environment where only companies with strong brands, financial resources and the ability to integrate their activities can survive. Advertising, communication and R&D expenses are very high. This is evidenced by LVMH's expenditure on this to be approximately 11% of sales in 2002 (Antoni 2003).
Training manufacturing employees is another costly element in an industry where the quality is measured by the final...
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