Meeting 4 – Global Strategy
Case Study 4.1 – High Fashion Fights Recession
Consider the following question:
1. Using the Five Forces Framework, how would you characterize the competition in the luxury goods industry? 2. Why was discounting looked down upon by industry peers, all of which were differentiated or focus competitors? 3. What would be the likely challenges in emerging markets for luxury goods firms?
Pumping out fancy clothing, handbags, jewelry, perfumes, and watches, the high end of the fashion industry—otherwise known as the luxury goods industry—had a challenging time in the Great Recession. In 2008, banks were falling left and right, unemployment rates sky high, and consumer confidence at an all-time low. In 2009, total luxury goods industry sales fell by 20%. The high-end fashion industry was dominated by the Big Three: LVMH (with more than 50 brands such as Louis Vuitton handbags, Moët Hennessy liquor, Christian Dior cosmetics, TAG Heuer watches, and Bulgari jewelry), Gucci Group (with nine brands such as Gucci handbags, Yves Saint Laurent clothing, and Sergio Rossi shoes), and Burberry (famous for raincoats and handbags). Next were a number of more specialized players such as king of menswear Ermenegildo Zegna and queen of womenswear Christian Lacroix. By definition, high fashion means high prices. An informal code of conduct (or norm) permeates the industry: no discount, no coupons, no price wars please—in theory at least. But during the Great Recession many firms cut prices—but quietly. The only firm that stood rock solid was the industry leader LVMH, which claimed that it never puts its products on sales at a discount. The bloodbath in the Great Recession forced the weaker players such as Christian Lacroix and Escada to file for bankruptcy. But it made stronger players such as LVMH even more formidable. They benefitted from an established pattern in high fashion: the flight to quality. In...
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