Fashion Business and Family Dynasties - Essay Example

?Fashion Business and Family Dynasties Table of Contents Introduction 3 Hermes Group (Family & Business) 3 Louis Vuitton (Family & Business) 4 Hermesand Louis Vuitton Share Holding Family and Business Issues 6 Louis Vuitton Tops Hermes 7 2011 Business Strategy of Hermes 8 2011 Business Strategy of Louis Vuitton 9 Business for Shareholders of Hermes and Louis Vuitton 10 Conclusion 12 References 13 Introduction The study is about two groups of family owned businesses who have been able to establish their brands globally and are now competitors to each other. Hermes Group and Louis Vuitton are the two groups present in the international market for a long time and have been able to capture the market with their different products and have simultaneously established their brands. The level of competition has increased between both the brands. The study will focus upon the business and families of Hermes and Louis Vuitton. Hermes Group (Family & Business) The Group of Hermes was established in 1837 and deals with designs along with developing and marketing high-quality merchandizes in various categories in order to perform their international business operations. Hermes is a French based company that has been developed and ruled by the families of Hermes (Hermes, “About Us”). Hermes has been associated with the most wonderful luxury brands and is related to the category of women’s handbags, perfumes and jewelries. Hermes is one of the oldest firms in France that has been owned and managed by the family of Hermes. Thierry Hermes is the founder of the Hermes Group. Until 2004, the business of Hermes had been controlled and managed by the family members of Hermes. The family owned group had controlled the family stake and had shown efficient leadership to retain control over the strategic decision of the business within the family. During the period of 1978 to 2004, the Hermes Group was managed under the leadership of Jean-Louis Dumas who was the great-grandson of Hermes. In the year 2006, Jean-Louis Dumas had passed away and Patrick Thomas became the manager in Hermes. He was the ‘first non-family manager’ in Hermes in their entire history of business operations. Patrick Thomas became the first CEO of Hermes but the control was with the family members of Hermes and they retained the control to maintain the family heritage of the business (Bhalla, “Disintegrating Family Firm: How Well Are You Prepared For the Ultimate”). Hermes is basically known as the bag and scarf maker. They have by no means aggressively pursued any kind off strategy to develop as a luxury conglomerate and constantly remained strong in their individual space of operations (Elite Choice, “Louis Vuitton Claims to be a Long Term Shareholder of Hermes, Raises Stake to 20%”). Louis Vuitton (Family & Business) Louis Vuitton is a French based company that deals with fashionable merchandizes. Louis Vuitton was established by the founder Louis Vuitton in the year 1854. It deals in the luxury merchandizes (Louis Vuitton, “About Us”). The Louis Vuitton brand had been famous for its LV logo that features upon most of the merchandizes of Louis Vuitton ranging from luxury chests and leather merchandize to shoes, ready-to-wear merchandizes, accessories, books, sunglasses, watches and jewellery. Louis Vuitton is known as the leading fashion house in the international market. The merchandizes of Louis Vuitton are sold through the model of standalone boutiques, e-commerce application and lease departments that are departmental stores which represent high-end values (Louis Vuitton. “The World of Louis Vuitton”). Louis Vuitton and family have managed their entire business in the world. They started in Paris and slowly gained acceptance due to their skillful work. Louis Vuitton had developed the brand uniquely as there was duplication of the products especially in the leather bags category for travelers. After the demise of Louis Vuitton, his son Georges Vuitton controlled the business and managed all its activities. Georges Vuitton developed the company as an international corporation that had represented different products in the international market and the brand VL became famous. It is still managed and controlled by the family members of Vuitton (Louis Vuitton, “Timeline”). Louis Vuitton Moet Hennessy (LVMH) is a luxury Merchandize Corporation that has been able to procure several brands over several years of their operation in the international market and became the largest unit in the luxury industry. The impressive portfolio of the brands of Louis Vuitton had created a deep impact on the minds of the customers. The portfolio of brands includes Christian Dior, Marc Jacobs, Fendi and Dom Perignon champagne. They have generally targeted family owned businesses with a well-known brand and acquired them in order to amplify their portfolio (Elite Choice, “Louis Vuitton Claims to be a Long Term Shareholder of Hermes, Raises Stake to 20%”). Hermes and Louis Vuitton Share Holding Family and Business Issues In the year 2010 during the month of October, Louis Vuitton led by Bernard Arnault had claimed that they had accumulated approximately 17.10% of stake in Hermes. Hermes, in the year 1993, had floated about 20% of their capital for funding the expansion of their retail segment. However, there was more than 73% of share capital that was with Hermes and controlled by the family members. There were rumors related to the holding of the share capital in the family business. There were no institutional shareholders to get involved in the process and the family of Hermes found that Louis Vuitton had shares that were not favorable for the company in terms of share holding (Bhalla, “Disintegrating Family Firm: How Well Are You Prepared For the Ultimate”). News of Louis Vuitton holding shares of Hermes was spread in France and international market. This news had generated lot of anxiety in the share market and the shareholders of Hermes were worried due to their holdings. To maintain confidence in the share market, Hermes had announced in public that the holding would not effect as there are strategies and planning to get back the acquired shares. Hermes had planned strategies and policies to fail the attempt of Vuitton and get back their shares. However, there was problem that was internal in nature in the Hermes’ stake holding structuring. More than 40 family members had the majority stake in Hermes and had become too big with too many family members. In the family members there were individual shareholders who were willing to liquidate their shares (Bhalla, “Disintegrating Family Firm: How Well Are You Prepared for the Ultimate”). The acquiring of the shares of Hermes by Luis Vuitton had generated consciousness about the operations and strategies for the sustainable family-owned business. Hermes is trying to maintain its shares and planning to get back the shares and enhance the current situation with different strategies. However, the regulation of shareholding in France by family owned business provides benefit to Hermes. The Societe en Commandite par Actions is a French corporate structure that enables family owned business to control the business in terms of decision-making even if they have turned out to be minority shareholders. The legal structuring of French shareholding family owned business offers this advantage and has made Hermes less worried of the stake holding and control of the business. Nevertheless, the battle between Hermes and Louis Vuitton continues in the luxury brand category in the international market that has led to develop both the businesses and offered consumers with choices (Bhalla, “Disintegrating Family Firm: How Well Are You Prepared For the Ultimate”). Louis Vuitton Tops Hermes Consecutively for five years Louis Vuitton had been outperforming in the luxury brand labels category. The French fashion brand Louis Vuitton renowned for its monogrammed luggage had been in the top in the ‘Millward Brown Optimor’s’ 2010 Brand’s ranking. The brand Louis Vuitton had a value of approximately US$ 19.80 billion in 2010 that had increased by 2% from 2009. The brand has ranked in the 29th position in the international market across all industries. It is estimated that the value of Louis Vuitton brands is more than that of combination of the brand value of Hermes and Gucci. Hermes stood second in the ‘Millward Brown Optimor’s’ 2010 Brand’s ranking and is positioned as 86th in the international market across all industries (Roberts, “Louis Vuitton Tops Hermes, Gucci as Most Valuable Luxury Brand”). There was decline of 3% in the value of the luxury sector, which included the brands such as Hermes and Louis Vuitton due to their emphasizing on aspects such as craftsmanship, maintenance of price level and heritage that the brands hold. As there is recovery in the economy Hermes and Louis Vuitton are concentrating upon their core customers (Roberts, “Louis Vuitton Tops Hermes, Gucci as Most Valuable Luxury Brand”). 2011 Business Strategy of Hermes Hermes has focused upon the long term strategies that are based upon the expert skills of knowledge and control of distribution network. Hermes has planned to open thirteen branches and for this purpose they are planning to invest in the distribution network in order to enhance and develop the business operations. For this purpose, the company is planning to recruit skilled as well as experienced personnel (Hermes, “Outlook 2011”). In 2011, Hermes will focus upon the development of craftsmanship for excellence and authentic outcomes. They have provided more emphasis upon the development of craftsmanship and enhance their skills because the craftsmanship is the foundation that assists in building the company’s success and its future as well. To support the ambition and creative inspiration of the virtuosity of their craftsmen, Hermes has focused upon the unique quality of the products (Hermes, “Outlook 2011”). The Hermes Group was not able to repurchase any share during the financial period of 2010 due to the liquidity contract that was present in the transfer of shares. For the investment purpose, the Group had raised 153.8 million Euros in 2010 for the investment in distribution network and to strengthen their capacity of production. The funds raised are for the investment in specified areas such as distribution and production to enhance their quality and uniqueness of merchandizes to make it available in new stores (Hermes, “Outlook 2011”). 2011 Business Strategy of Louis Vuitton Louis Vuitton is focused upon supporting their existing strategies from their business for the positive momentum of the business while maintaining the standards of creativity and quality that are the foundation of long term success of the company. The corporation is focused upon meeting the increasing demands of their various brands (Louis Vuitton, “Financial Results”). To support their growing strategy and enhance the skills of their craftsmanship, Louis Vuitton has planned to open new workshops in France. The corporation has planned to enter in new markets such as Sephora in Latin America and Hennessy in Asia along with other markets as well. The corporation is perfecting and expanding their global network of stores and flagship. The corporation is focused upon brand support, innovation, brand reputation and creative teams that are closely connected towards their recent work and that of the history of each brand (Louis Vuitton, “Financial Results”). Louis Vuitton is focused upon developing the stores that are more sophisticated in nature, designs that are based upon the spirit of the city. This is done in order to upscale the customers’ world and offer unique luxury experience to its customers (Louis Vuitton, “Financial Results”). In 2011, Louis Vuitton will focus upon innovation, momentum of the business, value of sophistication and perfection. They are planning to extend the personalization service of brands, upholding qualitative progresses in global networking and strengthening production capacity. The development of workshop is based upon high-end-jewellery section. Louis Vuitton will launch a committed boutique along with a workshop of jewellery artisans in Paris (Louis Vuitton, “Financial Results”). Business for Shareholders of Hermes and Louis Vuitton Hermes has been efficient enough to provide to its shareholders a return on investment of 18.08% over an average of five years period. The corporation has offered 18.75% of return on equity over an average of five year period. The return on investment (TTM) was 19.90% and return on equity (TTM) was 20.32% (Reuters “Hermes International”). Louis Vuitton has been efficient enough to provide to its shareholders a return on investment of 10.31% over an average of five years period. The corporation has offered 17.28% of return on equity over an average of five year of period. The return on investment (TTM) was 12.23% and return on equity (TTM) was 19.57% (Reuters, “Louis Vuitton”). As compared to Hermes and Luis Vuitton the return on investment for the Industry, Sector and S&P 500 was 13.69%, 5.86% and 7.31% respectively over an average of five years. Return on equity over an average of five years was 18.44%, 9.15% and 14.62% for Industry, Sector and S&P 500 respectively. Considering the return on investment (TTM) it was 8.52%, 0.97% and 7.71% for Industry, Sector and S&P 500 respectively. Considering the return on equity (TTM) it was 9.43%, 1.75% and 17.94% for Industry, Sector and S&P 500 respectively (Reuters, “Louis Vuitton”). From the overall analysis it can be determined that Hermes and Louis Vuitton, both had performed better in terms of offerings to its shareholders in different categories and had been able to raise funds for its future plans for long term strategies. This performance of the returns offers an opportunity to expand their business operations in global market with the innovative development of the uniqueness in product offering to the customers. For an average of five years the growth rate of sales has been 7.87% for Louis Vuitton (Reuters, “Louis Vuitton”). The growth rate of sales for an average of five years has been 7.53% for Hermes (Reuters “Hermes International”). This shows that there are potential for the growth of Hermes and Louis Vuitton in the international market and the strategy adopted for the business in 2011 might be successful as the economy is booming and there is demand for luxury merchandizes globally. Conclusion Louis Vuitton and Hermes, both belong to the luxury brand category that are operating in the international market and competing with each other. Both the corporations have highlighted different levels of business performance and are owned, managed and controlled by the family members. Louis Vuitton and Hermes family businesses have greater potential to compete with other brands in the global market with their family members controlling over their strategic decisions and strategies for business promotions. Thus, the control of ownership had led these two corporations to sustain and develop in the international market. References Bhalla, Ajay. “Disintegrating Family Firm: How Well Are You Prepared For the Ultimate”. March 29, 2011. Hermes Paris, 2010. Elite Choice. “Louis Vuitton Claims to be a Long Term Shareholder of Hermes, Raises Stake to 20%”. March 29, 2011. Hermes and Louis Vuitton, 2010. Hermes. “About Us”. March 29, 2011. Hermes Paris, 2011. Hermes. “Outlook 2011”. March 29, 2011. Results, 2010. Louis Vuitton. “About Us”. March 29, 2011. France, 2011. Louis Vuitton. “The World of Louis Vuitton”. March 29, 2011. Legal, 2010. Louis Vuitton. “Timeline”. March 29, 2011. France, 2011. Louis Vuitton. “Financial Results”. March 29, 2011. LVMH, 2010. Roberts, Andrew. “Louis Vuitton Tops Hermes, Gucci as Most Valuable Luxury Brand”. March 29, 2011. Bloomberg Business Week, 2010. Reuters. “Louis Vuitton”. March 29, 2011. Stocks, 2011. Reuters. “Hermes International”. March 29, 2011. 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