Case Study

Competitive advantage at Louis Vuitton and Gucci

MEMO
The market of high fashion luxury goods presents US$165 billion of annual sales and gross
profit margins of over 50 per cent. The leader company seems to be LVMH fashion house, with
US$12billion of sales, followed by Richemont with US$3.6 billion and Gucci Group with US$2.4
billion. According to the text, the key activity of those companies is the preparation and
display of new collection for their bi-annual fashion show. Analysing each activity which
constitutes the value chain, I can say that:

Suppliers the co-ordinating company has a relatively important function, since it

works closely with the designer in determinant aspects (such as colours, patterns
among others) of the collections design. The Chinese and Italy co-ordinating
associated companys which supplies and dye, spin and weave the silk, respectively,are
not so important, because is the designers work at fashion house that creates the
main

value

final

collection

design

instead

of

components

supplied.

BALANCE=LOW/MEDIUM VALUE ADDED

Inbound Logistics there are many imports and the goods arrive at the fashion house
not using an exclusive method. BALANCE=LOW VALUE ADDED

Operations is about working on final product, which is design and manufacture of

each haute couture dress. Here, the name of the designer is a crucial element, since
the fact she or he is famous add a large value, but specialized seamstresses who cuts
and sews up finished dress are also an important element on value creation, although
there are a limited volume of them. BALANCE=HIGH VALUE ADDED

Outbound logistics the product is distributed mainly through the fashion houses
exclusive shops but sometimes they licence their brand name to outside companies
which

distribute

their

products

with

the

fashion

house

brand

names.

BALANCE=MEDIUM/HIGH VALUE ADDED

Marketing and sales the products are firstly presented to the public at Fashion
shows in Paris, Milan and New York with very high costs of media coverage.
Sometimes department stores receive a special pre-collection briefing with the
objective of brand promotion and aspiration, but even so are the ready-to-wear
products and accessories like shoes and bags which possible add the highest value,

since most of the people cant afford the price of a silk dress. BALANCE=VERY HIGH
VALUE ADDED

Service is exclusive and discreet to the wealthy clients, therefore as most of the
clients just wish to purchase prt--porter, fashion houses invest in an additional
service directed to them. BALANCE=HIGH VALUE ADDED

After that analysis I am able to conclude that those fashion houses are two core primary
activities which are Operations and Marketing&Sales.
Relatively to main sources of Competitive Advantage in the value chain, from my point of view
they are the Brand, Designer, Differentiated Products and Service.
Taking into account The Hierarchy of resources, I would say that the Peripheral resources are
suppliers and inbound logistics, because they appear to have a low impact on creating added
value, since they are many (suppliers) and there arent exclusive rights to fine materials.
Relatively to Base resources, I think this is the Fashion house structure itself, which is common
to many companies but it is nonetheless important to develop and keep a very wellestablished one (Here is important to mention that business manager who strongly support
Designer work is part of that structure). The Core resources are surely the Brand name and
Fashion Shows, where companies have the opportunity to gain public recognition and possibly
generate more future sales (these resources are definitely the basis of its sustainable
competitive advantage). Finally, the Breakthrough resources are the Famous Designers who
are a sustainable resource, since they cannot be substituted, bringing a major strategic shift for
those companies.
Before the final suggestions, I would still like to do the VRIO Framework test. Hence, relatively
to Designer, Brand and Service they are valuable, rare, costly to imitate and capable of being
exploited by the organisation, so they are a long term competitive advantage over the industry
average. Differentiation Products are also valuable and rare but they are costly to imitate,
becoming a short term competitive advantage, even above industry.
Ultimately and in conclusion, I think for both companies inside or outside the fashion industry,
a key aspect is undoubtedly Branding. This is about establishing a significant and differentiated
presence in market that attracts and retains loyal customers. The more value and rare the
brand is and less imitable, more are the opportunities to became a competitive advantage.
Relatively to the Branding and also to Levels of Service (strongly customized), seems that,
according to what I said previously, this industry makes a huge investment with successful

results, so it could be a useful lesson for the others. However, I think there are areas in which
the industry could improve. For example, it could be a good strategy, investing in distribution
locations not yet explored by direct competitors. Another aspect to take into consideration is
the Brand licensing. It is important adopt protective measures for this not dilute or be
associated with unsuitable products. However if the exploitation of the brand by third parties
is made in a controlled way, this could be also an opportunity to gain recognition with all the
associated to that positive consequences.

Daniela Almeida
150111114
S3