Evan Matthews, 103 285 065
April 14th, 2014
Louis Vuitton has been experiencing strong growth over the past few years, caused by a number of factors, both internally and externally. But, can this growth remain constant, or will Louis Vuitton have to change its expectations on performance for the upcoming years? The issue faced by Louis Vuitton and its managers is where to take the company from here. Should they continue with the current plan for expansion, or should they alter it because the current plan will become unfeasible?
Can Growth Be Sustained?
For management at LVMH to decide where to take the company, they must evaluate whether their growth can remain constant, or in which direction the market will move. During 2010 and 2011 they experienced great growth, but for the following reasons we can see that it will not continue. The market will slow, and LV will have to find a way to increase profits internally while the market levels out.
Customer behaviour is a reason why growth cannot remain constant. Part of a luxury brand is exclusivity, and being one of a select few to own a product. As more and more LV items are sold, they become less exclusive and the price drops just like the supply and demand model everyone understands. In order for LV to retain their perceived value, they will have to restrict their sales.
As the case states, the absolute market and the aspirational markets were expected to have growth at or above market rates, while the accessible markets growth was below market. With an expected market growth of 6-8%, LV will have to continue to increase market share to meet the 15% increase in revenue from the 2010 to the 2011 balance sheet.
The growth is also different in different geographical areas. In Japan, where luxury markets have been developed, their growth is declining yearly. Comparing it to that of Asia, a relatively new market for luxury goods, has been increasing steadily for the past 6 years. As with other products, as the industry reach maturity, sales begin to steady or decline, which happened in Japan, and will eventually happen in Asia.
Looking at the 5 forces model (Appendix 1) we can see that Louis Vuitton has a strong position in the market. There is a low threat of new entrants, and a moderate threat of substitutes. Along with the case information given that “especially at the high end of the market, players tend to compete more through product design, the buying experience and brand image rather than price”, Louis Vuitton can be considered a price maker. Another thing to note from this model is that there is low supplier power, indicating that LV can create a large difference between the selling price and the cost of materials for a product. This will be important as the market slows down, because the profit will be made not from the larger quantities of product sold, but from the higher prices paid to have a quality product.
The PESTEL analysis (Appendix 2) highlights that currently Louis Vuitton is sitting in a good position in the industry. One of the interesting pieces of information is the environmental aspect, which shows that there is a lot of purchasing from tourism. Though sales can be shown where the products are consumed, it doesn’t expressly show where the consumers are from. The economy that LV functions in is worldwide, but specifically in the richer markets of the world. Louis Vuitton operates in developed countries, in larger metropolitans but also online. The political aspect greatly affects LV. Because of varying tax laws, LV must set their prices to avoid an arbitrage opportunity. To avoid the purchase of products from a cheaper country and resell it in another, LV must closely watch interest rates, tax rates, and exporting to ensure that they are...
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