Global Fashion Industry with a Focus on Moet Hennessy Louis Vuitton - Essay Example

?Introduction Moet Hennessy Louis Vuitton (LVMH group is the leading manufacturer of luxury goods ranging from personal accessories to luggage, perfumes and wines. LVMH was established in the year 1987 with the merger of Louis Vuitton (LV) and Moet Hennessy. LV has developed several global brands that have become a symbol of high class and quality. The company sells its products exclusively through its 2300 stores across the world, and through some high end departmental stores only (LVMH Annual Report 2008). It employs over 77000 people globally and its turnover increased by 9% to $20.32 billion in 2010 (LVHM, 2011). The company owns over sixty brands and some of them, like Veuve Clicquot Ponsardin (1772), Chateau d'Yquem (1593), , Guerlain in 1829, Louis Vuitton (1854), Hennessy (1765), Moet et Chandon (1743) the  have been in the market since the past two centuries (McCrone, 2006). It operates 5 different category of products including wines and spirits, fashion and leather goods, perfumes and cosmetics, watches and jewelry, and selective retailing. LV had been following a strategy of innovation, differentiation and strategic mergers to become a market leader in the fashion industry (Lent, Tour and Perrin, 2009). The company offers exclusivity and high quality and is driven by the motto of attention to detail to deliver the best quality.  It follows a policy of developing a brand image that is shared across its brands and supported by all the activities undertaken by the company. This report contains an analysis of the macro environment (using PESTEL framework) for the global fashion industry to assess the threats and opportunities that an organization like LV may face. It also contains a micro analysis or industry analysis of the fashion industry to evaluate the business environment and the challenges that LV faces. Finally, an internal strength and weakness analysis is conducted to assess how the strengths of LV can be used to capture the opportunities proffered by the macro and the micro environment, and what it needs to do to overcome its weaknesses in order to combat the threats posed by its business environment.  Finally, the report discusses the current strategy of LV in the light of the SWOT analysis and makes appropriate recommendations.   PESTEL Analysis   Political Environment The fashion industry has seen a revolution in terms of its penetration and reach across the diverse cultures and markets globally (Kapferer and Bastien, 2009). The advent of globalization and liberalization of economies across the world have made it possible for products from one end of the globe to be displayed and bought at the other end. The fashion industry too has seen a rapid proliferation across the borders owing to the political liberalization and increased acceptance of the Western lifestyle by the growing middle class in the developing countries (Kotler and Keller, 2011). The political liberalization on one hand has made it possible for brands like LV to be sold across diverse regions like China, India, Brazil and Africa, while on the other hand there has been an increased political activism at the grassroots level in several countries against high fashion and the trend of consumerism (British Standards Institution, 2011). Foreign brands, especially the luxury brands are often the target of censure and attacks in countries where movements are under way or where there is widespread resistance to liberalization. It can be seen that while there is scope for international expansion, there is also a need to understand the local sentiments and culture so that the brands can become acceptable and likable internationally.   Economic Environment The recent financial crisis of 2008-2009 saw the fashion industry too see a slow down in sales and business. Large and popular organizations like the Australian Hrringbone and Centro have posted large losses during the crisis period. In addition to loss of revenues, there was also a potent impact on the trends in the fashion – from more eccentric and artificial to a more basic and natural approach to fashion (Danziger, 2005).  Also, the focus changed to buying more staple and durable items than spending money on fads. The growth of luxury goods has however continued at a steady pace, as the industry has recovered from the credit crunch and the lack of buyers’ enthusiasm. There is a However, there is a rapid growth in the income and the purchasing power of the middle class in Asia, Latin America and several countries in Africa (Tungate, 2009). This means that there is a large market, as yet not fully explored by the large fashion organizations that have been catering mostly to the European or the North American customers. Socio-Cultural Environment There is a growing trend of consumerism  and spending on luxury and personal items across the globe. The customers worldwide are opening up to the idea of quality brands and are comfortable paying a premium for class and quality (Tungate, 2009). This growing acceptance and demand of luxury goods is a reflection of the changing socio-cultural landscape of the Asian and Latin American population and provides a great opportunity for fashion brands to make a foray into these emerging markets. Technological Environment There is an influx of technological development and innovation in design processes, supply chain management and overall production and marketing processes.  Organizations have the opportunity to make use of the media and communications technology like social networking sites to interact with partners and customers and remain abreast of the fashion trends and customers requirements (Kotler and Keller, 2011). The technological environment therefore poses the challenges for the organizations to invest in the latest technology so as to remain viable and profitable, but it also provides an opportunity for them to manage customer relationships and gauge the customer trends first hand.   Environmental The Fashion industry is often associated with the use of materials, dyes and chemicals that lead to a detrimental impact on the environment. Additional the sourcing of material like cotton for fabric is associated with the use of pesticides that  lead to environmental degradation as well as cause damage to the human reproductive system as well as cause foetal damage (Ethical Fashion Forum, 2011). There is therefore an increased pressure on the fashion industry to source its materials from organic origins and to phase out and ban the use of harmful chemicals.  This involves more financial investment and carefully constructed policies that adhere to the environmental standards. While there are no worldwide agencies that exclusively monitor the environmental impact, there is pressure from environmental activists and local communities for the organizations to adopt environmentally safe processes and procedures for their procurement and production.   Legal In addition, the Fashion industry also faces a typical issue regarding the sourcing  of its supplies. There is an increasing trend world wide to ban the use of fur and leather and other products that contain components  acquired through the killing of animals or process that are detrimental to the environment. This campaign for ethical fashion has gained favor in several sections of the society and even received attention from governments that have passed legislation to prevent atrocities to animals or to the environment.  The fact that global media makes it possible for the people from diverse corners of the world aware of what organizations are doing to procure their raw materials or where they are sourcing their processes from, makes it very difficult for  the fashion industry players to be caught doing any acts that can be perceived as unethical. There are several organizations, like the World Fair Trade Organization (WFTO),  EFTA (European Fair Trade Association), and BAFTS (British Association for Fair Trade Shops) that certify fair trade agreements between buyers and suppliers from the developing countries (Ethical Fashion Forum, 2011).  The fair trade ensures that the supplies are not produced in a manner that harms the environment or the local sustainability and the production is undertaken using humane work conditions. In  addition, there are also rules and regulations associated with labour management in countries where the fashion organizations may outsource their production. More than the regulations, there is also a constant watch of the public and the media about the labour and human resource policies, wages and the working conditions of the employees (Ethical Fashion Forum, 2011). The above political and legal environment makes it difficult for fashion industry to make foray into newer countries as well as requires them to be careful about their sourcing and employment issues. There is also a need for the fashion companies to maintain their image of being ethical and friendly, and having no intention to harm the local climate or interests of the local people.     Five  Forces Analysis Threat of Competitors: HIGH Pinault-Printemps-Redoute (PPR), the owner of luxury brands like Gucci and Yves Saint Lauren comprises of the major competitor for LV. PRR is similar in size and revenues to LV but, it does not cater to a global international market as does LV (PPR, 2009). Another competitor, though smaller is size, is Compagnie Financiere Richemont, that has brands like Azzedine Alaia, Chloe, Dunhill and Shanghai Tang in the same product line and pricing as LV (Luxury Consumer Tracking Study, 2011). Both PPR and Compagnie Financiere Richemont products are direct competitors of LV in the main fashion and leather goods market. A similar competitor is Valentino Fashion Group, that owns the Valentino luxury brand and uses diverse channels for sales.  In addition  to the main competitors, there are other brands like Hermes, PRADA and Vertu that cater to the luxury goods market with similar products and pricing ranges (Roberts, 2011). There are a few other brands, like Abercrombie & Fitch Company (ANF) and Nordstrom  who cater to the upper middle class with quality products at lower price ranges (Roberts, 2011). The competition in the segment is therefore intense due to a substantial number of large players in the market serving similar customer needs. This leads to challenges related to product innovation, customer relationship management and creating distinct competitive advantage for LV in order to appear different and unique.   Threat from New Entrants: LOW The threat from new entrants in the market is low as the fashion industry thrives on brand name and image and a new entrant has to work for years in order to develop a distinct image for itself. Moreover, the presence of large and powerful competitors leads to acquisitions and takeover of smaller firms or the new entrants easily (Kapferer and Bastien, 2009).  While the threat from new entrants is very less, the threat from existing and established fashion organizations’ launching newer products or brands is very tangible. While most of the existing competitors have a narrow product and brand range, there is always scope for inclusion of newer products in the competitors lines, which can cut into the profits of the LV products.   Threat from Substitutes: MEDIUM The substitutes for LV would constitute of counterfeit products that use the same brand name and sell at a cheaper price. While this comprises of illegal marketing, it is a fact and the enormity of the threat can be gauged from the statistics of counterfeit goods that are caught yearly. For example, in the year 2004, over 20% of all the counterfeit accessories captured in Europe consisted of Louis Vuitton fakes (McCrone, 2006).  In addition, there are also reputable brands like  Abercrombie & Fitch Company (ANF) and Nordstrom that produce high quality and durability products at a lower price, which can affect some of LV market. Bargaining Power of Suppliers The suppliers of the fashion industry largely consists of the suppliers of fibers, textiles, leather and fur and accessories components.  The bargaining power of the suppliers is small in the fashion industry as the buyers are large and they indulge in bulk buying across several smaller suppliers. The main criteria for the fashion industry players like LV is of quality, and hence the suppliers need to serve the quality standards as dictated by the buyer. Bargaining Power of Customers The customers of the Fashion industry are largely segregated by those who are able to afford high end products and those who like to indulge in a large variety of diverse quality products. LV, which falls in the first category where the customers prefer it for its quality, durability and exclusivity. However, this high end sector too offers several choices for the customers in the form of Gucci, Verta, Hermes among others. There are several established and reputable brands that cater for the same quality conscious and high end customers that are the target market for LV as well. This makes LV strive to project its unique image and hence attract the customers. The competition in the sector can therefore be said to be intense.   SWOT     The above PESTEL Analysis and the Industry Analysis revealed some of the opportunities and threats for LV, which are recapitulated below:                                                             Opportunities The rebounding world economies after the recession as well as the high growth rate in Asian and Latin American countries provides a lucrative opportunity for LV to target the international markets more aggressively. The changing lifestyle and the growing purchasing power of middle class and the upper middle class in highly populated countries offers a distinct opportunity for LV to enter the market with a lower end brand and products specifically designed for this customer group. The media explosion and the advances in communications technology provide great opportunity for LV to interact directly with international customers and to serve them in a more targeted manner.                                                             Threats Competitors  The main threats that LV faces is from competitors who serve the same market with similar goods. Counterfeits The threat from counterfeits especially in countries where IP and trademark rules and legislation are not sound Political, Environmental and Social Activism Threat from political activism against foreign goods Threat from environmental and social activism     Strengths Powerful and Recognizable Brand LV has a powerful band that is found to be worth USD 19.781 billion, and it is ranked at the 29th  position among the most valuable international brands as per the Millward Brown 2010 study. In addition, LV is also ranked as the number 1 most powerful brand among the 10 most powerful brands in the world by Millward Brown Optimor's 2011 BrandZ study (Luxury Diffusion, 2011). A strong brand with a distinct identy is therefore an asset for the organization as it has easy recognition and desirability inherent. The LV brand is well recognized across the world and this ensures that its products have easy acceptance globally. Latest Technology and Product Innovation Another strength of LV is that it uses the latest technology and machinery and extremely high quality material in the manufacture of its products.  Moreover, a lot of the inlay work in its shoes as well as trunks is undertaken manually and hence ads to the distinct image of quality and customization for LV (LVMH, 2011). Young, Innovative Designers In addition, the company uses highly talented and innovative designers like Marc Jacobs and Takashi Murakami to design its accessories. In addition, the products are of latest design as the company keeps abreast of the latest developments in the fashion industry, conducts exhaustive customer surveys and keeps up to date with customer preferences and industry trends (LVMH, 2011). The resultant of this information gathering is that the company is able to produce high quality products to suit the changing needs and requirements of the customers as well as in keeping with the fashion trends of the season.   Large Product Portfolio LV produces an array of luxury goods ranging from personal items to household goods. For example, it sells hand bags, garments, shoes, belts, time-pieces and luggage bags.  This gives it an opportunity to target diverse demographic segments and hence establish itself in multiple markets. High Quality, Durability and Customization The products of LV are known for their quality and durability. These are the distinct markers of the brand and differentiate it from the competitors as well as from the counterfeits (LVMH, 2011). LV also provides customization as well as repair service with the guarantee of restoring the damaged products to their original value. This is a unique after sales service for a fashion industry where the products are sold without much explicit guarantees and repairs are not provided as a part of the sales package. The company also offers exclusive customization for customers who want leather goods and baggage prepared exclusively for their own liking.   Customer Relationship Management LV also provides customer support at each stage of the purchase. The customers can get guidance and advice about choosing the perfect product that fits their requirement, and they can also get delivery support as well as after sales support (LVMH, 2011).  In keeping with its brand image, which is to serve the elite and the celebrity customers, LV trains and develops its staff to cater to the celebrity customers and provide them with the necessary support and service (Tungate, 2009). Professional Employees LV focuses on its employees as a means of delivering excellent customer service. As such, LV has targeted training and development programs and its employees reflect the unique image of the brand and reiterate the values and quality that are the symbol of the company. It can therefore be said that LV is able to present a combined and holistic picture of high quality and class through its products,  employees and customer service, through its marketing and promotional activities and through its stores (LVMH, 2011). This concerted effort helps LV to maintain its brand image and give out a sense of comfort and ease to the customers.  The ability to project itself as high quality combined with the ability to deliver that quality through products, service, stores, after sales support etc. is a marked strength of LV.   Weaknesses Lack of Media Focus LV nevertheless creates an elite celebrity niche for its products and hence targets only the high income groups.  Towards this there is restricted advertising, where the company uses print ads in exclusive  magazines or uses billboard advertising. LV has not traditionally employed television or electronic media for its promotional campaigns, and hence it leaves out on reaching to a larger audience across the world. Vulnerability to Counterfeiting While the company is well known and respected and its products highly acclaimed, the products are vulnerable to counterfeiting. The company has been plagued by fake products moving into its market and causing issues of quality that tend to tarnish the brand image (Agins, 2000). Limited Product Lines Another weakness of LV is that it does not offer a wider variety of choice for the customers.  It is slow on innovation and even its new products are easily imitated by competitors. For example, the company started using the Monogram Canvas to present itself as a distinct and elite product, but this too was quickly imitated and used extensively by the counterfeit industry (Agins, 2000). Moreover, its  style and design have been emulated by other luggage manufacturers. No Distinct Competitive Advantage While LV has created a distinct exclusivity and quality image for itself, it is highly imitable and does not provide a substantial advantage over competitor like Gucci and Hermes who too have created a similar image for themselves.   LV Current Strategy Analysis The strategy that LV follows is of differentiation on quality and price. The company develops high quality products and makes them available in a limited quantity thus creating an image of exclusivity. By following this strategy, the company is able to charge a premium and create a distinct brand image for itself. The differentiation policy is also exhibited by the choicve of the distribution channels as well as by the selection of media and advertising channels. LV sells its products across sixty countries over the globe, but it uses its own company-owned stores. It also uses high end departmental stores to display and sell the products, but it never uses franchise or independent retailers to carry the merchandise. It also uses only one online channel, eluxury.com to sell its products. This exclusivity is further enunciated by the fact that LV does not have any discount or any duty free stores where customers can avail of the products at a lower cost. For its promotional campaigns, LV has carefully cultivated an image of exclusivity, class and elite, by employing top models and actresses like Jeniffer Lopez, Steffi Graph, Andre Agassi  and Madonna to promote its products.  It also uses print ads in high society magazines and billboards that further project its exclusive and classy image. This strategy enables LV to get higher profit margins as the products with the exclusive image can be priced at a premium. However, LV faces intense competition due to lack of product or process differentiation. Customers are unable to differentiate between LV and its competitors as most of the competitors do carry similar exclusivity and high quality image. In addition, it also does not have a media presence and is unable to use communications media to promote itself as an ethical fashion organization. Recommendations Develop a Unique Competitive Advantage LV faces competition in both the home and the international market from competitors who serve the same market segment of luxury goods. The threat from competitors is tied to the inability of LV to develop a unique competitive advantage based on its sourcing, design, production process or marketing. The innovations in terms of design are easily copied, and there is no additional or clear value added in its production or supplies that can make it exceptionally better than the competitors. As such, there is no loyalty among customers between brands in the luxury segment.  LV therefore needs to spend on research and development in order to come up with unique materials, designs or production methods, that can give it a clear and distinct advantage over the competitors.  Target Emerging Economies with Focused Product Differentiation While LV has a global presence, most of its products and brands are developed and marketed with the focus on the North American and European customer profile.  The opportunity that economic growth in developing countries offers needs to be taken advantage of by focusing on the customer needs suited to the local regions. LV is a well known in international brand that is considered as reliable, and this reputation can help it win customers in the global market as well. In addition, its strengths in product innovation, using latest technology and  young designers as well as its quality and durability can enable LV to establish itself in local markets. LV can gain an increased market share and local acceptance if it formulates its designs and sizes to suit the local tastes. LV can still continue to market itself as a luxury brand for the very rich, but in order to gain more relevance in the local market, it can follow a strategy of focused differentiation in the diverse markets.   Product innovation for the specific markets is therefore recommended as the strategy for LV. Promote itself for Ethical Fashion There is scope to complement its exclusive image with ethical fashion for LV. The growing consumer awareness about environmental and social implications of the fashion industry, provide LV with the opportunity to project itself as not only high quality but also as a conscientious and ethical manufacturer. This self adherence to standards of ethical sourcing and production can also be used as a competitive advantage to a certain extent.   Use Media to Disseminate information on its Unique Competitive Advantage The analysis of the strategy of LV revealed that it does not take the full advantage of the potential of mass communication and the Internet technology. It is therefore recommended that LV enhance its online as well as TV presence, especially for reaching out to the international markets which it may target with local specific products. Media can also be used to make the company more approachable for the international customers who can interact with specialists online and get guidance.       References Agins, T. (2000). The End of Fashion: How Marketing Changed the Clothing Business Forever. BT: William Morrow Paperbacks British Standards Institution 2011. 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[Online] available at: http://www.ppr.com/sites/default/files/publications/FINANCIA_DOCUMENT.pdf Roberts, A. (2011, May 4). Hermes Reports 44% Profit Jump, Says Not Interested in LVMH Collaboration. Bloomburg Report [Online] available at: http://www.bloomberg.com/news/2011-03-04/hermes-profit-trails-estimates-says-it-will-maintain-control.html Tungate, M. (2009).Luxury World: The Past, Present and Future of Luxury Brands NY: Kogan Page Read More