1. Bernard Arnault has built LVMH into a luxury goods empire by making numerous acquisitions. Describe the strategy is being used here? Discuss why you agree or disagree with this type of strategy. If you disagree, what alternative tactics would you use?
Actually Mr. Bernard Arnault, one of the richest men in the world who took control of LVMH in 1990, has been snapping up luxury brands during past two decades one after another. He has build LVMH into a luxury good empire by conducting a selective acquisition strategy with which I agree. Now LVMH has more than 60 brands under control and is still pursuing some others including the old famous family business; Hermes.
LVMH structure is made up of Wines and Spirits, Fashion and Leather goods, Watches and Jewelry, Perfumes and Cosmetics and Selective Retailing. Although some may argue that there are issues such as lack of concentration on core business thereby exclusivity and rarity which are main characteristics of luxury brands can be faded, I firmly believe that not only has Mr. Arnault saved these special features of the business and is still focused on prestige, he has improved the profitability of each division by creating synergy between subsidiaries in terms of cost, corporate and management synergy.
“Synergy, in general may be defined as two or more agents working together to produce a result not obtainable by any of the agent independently. Corporate synergy occurs when corporations interact congruently. A corporate synergy refers to a financial benefit that a corporation expects to realize when it merges with or acquires another corporation” (Synergy). As result of corporate synergy and this partnership, LVMH now has a bigger market share, wider range of products and less competition because the competitors are now members of the group and are all working together in a coordinated way. On top of that, they can take advantage of the existing selective retailing
Cited: Management Study Guide Inc., 2011. Web. 22 Mar 2011 “Brand Extension” Wikipedia 5th Ed. Ottawa: FITT, 2009. Print Forum for International Trade Training Inc 5th Ed. Ottawa: FITT, 2009. Print Knowel, James