LVMH Paper

Topics: LVMH, Luxury good, Gucci Pages: 79 (13208 words) Published: October 28, 2013
For the exclusive use of M. IRTIS

CASE: SM-123
DATE: 03/17/04

LVMH IN 2004: THE CHALLENGES OF
STRATEGIC INTEGRATION
The correct strategy is to know where a particular brand is headed and the managers and teams of each brand must imagine that. Then, we watch what is done at the group level and we extract a number of learnings: what are the businesses to acquire, where do we have to invest to develop this or that brand to benefit the group as a whole.

—Bernard Arnault, Chairman and CEO, LVMH Moët Hennessy Louis Vuitton1

INTRODUCTION
LVMH was created in 1987 in Paris, France through the merger of Louis Vuitton, the upscale luggage company and Moët Hennessy, leading producer of champagne and cognac. Since its merger, LVMH stood out as a leader in the $60 billion luxury goods industry. By early 2004, it had grown to over 50 brands sold in more than 100 countries around the world and generated more than ¼ ELOOLRQ LQ VDOHV ,Q WKH SDVW GHFDGH LWV VWUDWHJ\ KDG \LHOGHG  SHUFHQW \HDUO\ growth in revenue, of which 9 percent had been achieved through organic growth.2 The company had achieved a dominant position in champagne, cognac, fashion and leather goods, and selective retailing; and a top tier position in perfumes and cosmetics, as well as watches and jewelry.3

Despite facing the toughest environment for the luxury goods industry since its founding over 15 years ago, the company delivered strong results for 2003, reporting a 30 percent increase in net income in 2003 (Exhibit 1). Most of the increase was driven by efficiencies at the brand level, disposition of non-strategic brands and a successful hedging policy. Some groups performed well, including Moët Hennessy, the wines and spirits division, the perfume and cosmetics group and Louis Vuitton, the luggage group. (The performance of the latter was particularly impressive given that the rest of the industry—Hermes and Gucci in particular—were 1

Bernard Arnault, Interview with Yves Messarovitch, “La Passion Creative,” Plon, September 2001. “LVMH: Hardly Growth Through Acquisitions,” Lehman Brothers Global Equity Research, July 2002. 3
LVMH, Presentation to Shareholders, 2002.
2

Federico Antoni (MBA 2004) prepared this case under the supervision of Professor Robert A. Burgelman and Philip Meza as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2003 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, e-mail the Case Writing Office at: cwo@gsb.stanford.edu or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means –– electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate School of Business.

This document is authorized for use only by Mete Irtis in Business Policy and Strategy - Pack 2 - Fall 2013 taught by Petra Christmann from October 2013 to April 2014.

For the exclusive use of M. IRTIS
LVMH: The Challenge of Strategic Integration SM-123

p. 2

struggling.) However, LVMH’s fashion houses and the Watch and Jewelry businesses were still going through difficult times. Overall, the results showed signs of recovery in the American and Asian markets for the second half of the year in 2003, and perhaps the end of the global downturn for the industry.

Collectively, LVMH’s stars shone brightly, and profitably in early 2004. The Louis Vuitton luggage group, in particular, showed stellar results. Its sales were estimated to have grown by 16 percent to $3.8 billion in 2003, it enjoyed a 45 percent operating margin, and its performance was viewed as the major driver of the doubling of LVMH’s stock...
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