STRATEGIC MANAGEMENT

CASE- III
LVMH
1.05.2014

Submitted to:
Sir. Ahsan Durrani
Submitted By:
Nida Fatima
Sarah Ashraf
Shumaila Kalar
Fauzia Kanwal

Question: 1
ATTRACTIVENESS OF INDUSTRIES DIVERSIFIED IN
WINE &
SPIRITS
INDUSTRY ATTRACTIVENESS
FACTOR
market size & projected growth
Intensity of competition
Emerging opportunities & threats
Seasonal cyclical factors
Resource requirements
Presence of cross industry strategic fits &
resource fits
Industry profitability
Social, regulatory and environmental factors
Industry uncertainty and business risks

INDUSTRY ATTRACTIVENESS
FACTOR
market size & projected growth
Intensity of competition
Emerging opportunities & threats
Seasonal cyclical factors
Resource requirements
Presence of cross industry strategic fits &
resource fits
Industry profitability
Social, regulatory and environmental
factors
Industry uncertainty and business risks

WEIGHT R

W.S

FASHION &
LEATHER
GOODS
R
W.S

PERFUME &
COSMETICS
R

W.S

0.15
0.15
0.10
0.05
0.17
0.08

3
2
4
3
4
4

0.45
0.30
0.40
0.15
0.68
0.32

4
2
3
4
4
4

0.60
0.30
0.30
0.20
0.68
0.32

4
1
4
3
4
3

0.60
0.15
0.40
0.15
0.68
0.24

0.10
0.13
0.07
1

4
3
3

0.40
0.39
0.21

4
4
3

0.40
0.52
0.21

2
4
3

0.20
0.52
0.21

3.30

3.53

3.15

0.15
0.15
0.10
0.05
0.17

WATCHES
&
JEWELRY
R
W.S
3
0.45
1
0.15
4
0.40
4
0.20
3
0.51

SELECTIVE
RETAILING
R
W.S
4
0.60
4
0.60
3
0.30
4
0.20
4
0.68

0.08
0.10

4
3

0.32
0.30

4
3

0.32
0.30

4
3

0.32
0.30

0.13
0.07
1

3
3

0.39
0.21
2.93

4
3

0.52
0.21
3.73

3
3

0.39
0.21
3.25

WEIGHT

OTHER
BUSINESSES
R
W.S
3
0.45
3
0.45
3
0.30
3
0.15
4
0.68

INDUSTRY ATTRACTIVENESS & COMPETITIVE STRENGHT MATRIX

4

W.J

S.R

F&
W&J

P&C
OB

1
DIVISION

SALES

% SALES

PROFIT

%
PROFIT

I.A.S

SBU

1
2
3
4
5
6

2232
3612
2231
548
3475
131

18
30
18
5
28
1

676
1274
149
27
(194)
(372)

43
82
10
1
(12.4)
(24)

3.30
3.53
3.15
2.93
3.73
3.25

3.66
3.7
3.79
3.43
3.54
3.6

Question: 2
Competitive Strength of Companys Business Units

WINE &
SPIRITS
COMPETITIVE STRENGTH MEASURE
Relative market share
Costs relative to competitors
Ability to match rivals on key product attributes
Bargaining leverage with suppliers/ buyers
strategic-fit relationships with sister businesses
Technology & innovation capabilities
How well resources are matched to industry key
success factors
Brand name reputation/ image
Degree of profitability relative to competitors

PERFUME
&
COSMETIC
S

WEIGH
T
0.13
0.12
0.05
0.14
0.18
0.10

R
4
3
4
3
4
4

W.S
0.52
0.36
0.20
0.42
0.72
0.40

R
3
3
3
4
4
4

W.S
0.39
0.36
0.15
0.56
0.72
0.40

R
3
4
4
4
4
4

W.S
0.39
0.48
0.20
0.56
0.72
0.40

0.11

0.44

0.44

0.44

0.09
0.08
1

4
3

0.36
0.24
3.66

4
4

0.36
0.32
3.7

4
3

0.36
0.24
3.79

WATCHE
S&
JEWELR
Y
C CMPETITIVE STRENGTH MEASURE
Relative market share
Costs relative to competitors
Ability to match rivals on key product attributes
Bargaining leverage with suppliers/ buyers
strategic-fit relationships with sister businesses
Technology & innovation capabilities
How well resources are matched to industry key
success factors
Brand name reputation/ image
Degree of profitability relative to competitors

FASHION &
LEATHER
GOODS

SELECTIVE
RETAILING

OTHER
BUSINESSE
S

WEIGT
0.13
0.12
0.05
0.14
0.18
0.10

R
3
3
4
3
4
3

W.S
0.39
0.36
0.20
0.42
0.72
0.30

R
2
4
4
4
4
2

W.S
0.26
0.48
0.20
0.56
0.72
0.20

R
3
3
3
4
4
3

W.S
0.39
0.36
0.15
0.56
0.72
0.30

0.11

0.44

0.44

0.44

0.09
0.08

4
3

0.36
0.24

4
4

0.36
0.32

4
4

0.36
0.32

3.43

3.54

*Since the Growth percentages were not found in the case study so formulating the BCG
matrix was not possible.

3.6

Question: 3

Value Chain Activities

Purchase
from
Supplier

Technology

Operations

Sales and
Marketing

Distribution

Services

Wine and
Spirits
Fashion
and
Leather
Goods
Perfumes
and
Cosmetics
Watches
and
Jewelry
Selective
Retailing
Other
Businesses
Operations:
Process Innovation has been taken place by using the most modern engineering technology
and planning the each and every production process.
The products were exclusively designed by the well known designers and well skilled
artisans by prioritizing the classic and distinctive designs that had been popular for
decades.
Technology:
Common communication system called LVMH pl@net was used that allowed the
businesses to share information through company interests.
Technical and managerial skills were being shared among managers with the help of inhouse training institution forum.
Business unit like Perfumes & cosmetics and Selective Retailing used a common ERP
system to reduce the obsolescence cost and ensure product availability and freshness.
Sales and Marketing:
All products are luxury products and tends to attract same target customers i.e. Premium
Price Tag including LVHMs other businesses that also targeted premium customers by
offering worlds exclusive brands via internet, offering leading fine art auction house and
print publications.

Distribution:
These all are luxury products and targeted luxurious customers and thus, were also
available at other outlets by a third party distributor or departmental store other than
LVHMs but, these products were also available at the company owned retail stores.
Companys selective retailing business also distributed its products.
Services:
LVMH created a CRM to entail ensure better communication with customers to know
more about the customer preferences and response.

Question: 4
On the basis of G.E Matrix, the Resource Fit has been analyzed. According to findings of
G.E Matrix. LVMH should prioritize its following businesses:

Fashion & leather goods business, Wine & Spirit business and Selective Retailing
Business.
Watches & jewelry, perfume & cosmetics business and Other Businesses

Wine and Spirit business is the only business that is making cash to some extent and that is
considered be to cash cow but it is also laying in the Cash Hog area. Therefore, the
company should invest in this business in a way that it will be generating more cash for the
company.
Therefore, the cash generated from Wine and Spirit business should be allocated to invest
in these prioritized business units. But, the company may feel lack of resource because
there exists only one business i.e. Wine Spirit that is earning to some extent.
LVMH should invest aggressively in Fashion & Leather goods business, watches &
jewelry, perfume & cosmetics business and Selective Retailing business because these
products are luxurious products and LVMH enjoys good brand image and reputation
therefore, with the help of further investments these products can be more differentiated
and versatile and can generate cash in future. LVMH also has skilled designers and artisans
to make the products of respective business units cash generating. These business units are
considered as Cash Hogs here.
LVMHs Selective Retailers and Other businesses are not generating sufficient cash to be
considered as Cash Cow, but Selective Retailer shows sufficient sales to be carried upon
while it is not generating profit. Therefore, this business should be invested in such manner
that it will become able to generate profit as well.
According to the G.E Matrix, Other businesses is not generating profits and sales but as it
comes in High priority business therefore, it should be invested in such way that it
generates profits and can become Cash Cow.
LVMH possess cash from Wine and Spirit Business to invest in its high priority businesses
and it also has skilled artisans, workers and designers who have passion to develop
creative luxury products for its targeted customers to generate profit.

Question: 5
Ranking of Business Units & Priority for Resource Allocation
Following is the chart that shows the divisional sales for the three recent years at LVMH.

DIVISIONAL SALES TREND

4000
3500
3000
2500
2000

1999

1500

2000

1000

2001

500
0
WINE &
SPIRITS

FASHION & PERFUMES WATCHES SELECTIVE OTHER

LEATHER
&
& JEWELRY RETAILING BUSINESS
GOODS COSMETICS

The graphical illustration for the three year data clearly signifies that in terms of sales the most
earning unit for LVMH is the Fashion & Leather goods, along with that the industry for the
particular unit is also more than mildly attractive (3.53) plus the strength for the business unit is
also highly attractive (3.7). All these factors makes Fashion & Leather goods number one in rank
for LVMH, also emphasizing that the unit is to be highly prioritize for the resource allocation.

DIVISIONAL O.P TREND

1400
1200
1000
800
600

1999

400

2000

200

2001

0
-200
-400
-600

WINE &
SPIRITS

FASHION & PERFUMES WATCHES SELECTIVE OTHER

LEATHER
&
& JEWELRY RETAILING BUSINESS
GOODS COSMETICS

Wine & Spirits is the second rated division for LVMH as again the industry is moderately
attractive while the business unit self is near to highly attractive. Both in terms of Sales and
operating profit growth, the division is good in comparison to other left out units although the
sales and operating profit both had experienced slight negative fluctuation in 2001. This business
unit too needs to be highly prioritized for resource allocation.

Third on the list for LVMH is Perfumes & Cosmetics business as this business lies on the third in
terms of operating profit margin although it contributes towards the company as fourth largest in
terms of sales. The industry attractiveness for the sector is moderate but the unit itself posses huge
strength (3.79).
The fourth in the list is the Selective Retailing business unit as this unit contributes through third
largest sales for LVMH although the operating profits may not seem to be positive but the growth
sales are significant in comparison to recent years that predicts the unit to be highly profitable in
the future as the industry is also highly attractive along with the business units strength. This unit
should also be prioritized in terms of resource allocation.
The fifth ranked business unit for LVMH is the Watches & Jewelry unit with fifth largest sales to
the company. The operating profit trends are fluctuating while the industry also seems to be less
attractive although the unit is mildly attractive, this is the reason that this division can be attributed
medium to high priority resource allocation status.
On the last is the other business unit, which besides of having moderate industry attractiveness and
business unit strengths still shows a decline in sales along with a negative impact on the operating
profits of LVMH.

Question: 5
STRATEGY OPTIONS FOR LVMH
The strategic option for LVMH is to Stick with the existing Business line up
LVMH should now stick with its present business portfolios and work on their improvement. The
business unit Selective Retailingshould be worked upon as the industry for the particular unit
shows great potential that can benefit LVMH in the future.
The industry for Wine and Spirits division also shows promising returns for the company so
LVMH should work on the enhancement of it particular SBUs strength so as to get maximum
benefits.