Case Study 5

Case Study 5

The case study assignment for Module 6 draws on the following textbook case:

Case 22: LMVH in 2016: Its Diversification into Luxury Goods, by John E. Gamble (page C-290):

Case Summary: LVMH in 2016

By 2016, LVMH had grown from a 2.5 billion company in 1990 to a 35.7 billion empire. The case explores the “paradox” of managing 70 distinct luxury brands while maintaining the exclusivity of each.

1. The Portfolio Structure

Arnault organized the company into six distinct business groups to manage the diverse portfolio:

• Wines & Spirits: (Mot & Chandon, Hennessy, Krug)
• Fashion & Leather Goods: (Louis Vuitton, Fendi, Marc Jacobs)
• Perfumes & Cosmetics: (Christian Dior, Guerlain, Sephoras own brand)
• Watches & Jewelry: (Bulgari, TAG Heuer, Hublot)
• Selective Retailing: (Sephora, DFS/Duty-Free)
• Other Activities: (Royal Van Lent yachts, Belmond hotels, media)

2. Strategic Themes: “Star Brands” vs. “Rising Stars”

A central theme of the 2016 case is Arnault’s classification of his portfolio:

• Star Brands: These are the pillars like Louis Vuitton and Dior. They are “timeless,” highly profitable, and provide the cash flow needed to fuel the rest of the conglomerate.
• Rising Stars: Newer acquisitions or smaller houses (like Nicholas Kirkwood or Edun) that LVMH attempts to scale using the group’s massive distribution and marketing power.

3. The Diversification Strategy (Strategic Fit)

The case examines why LVMH is successful as a multi-business corporation. It highlights Related Diversification through:

• Shared Expertise: Transferring top designers and managers across different “Maisons.”
• Market Power: Using the size of the group to secure the best retail locations in global cities.
• Product Quality & Craftsmanship: A shared corporate value that ensures “Made in France” or “Made in Italy” prestige across all segments.

Key Financials & Challenges in the Case (2015-2016)

• Performance: In 2015, LVMH set records with a 16% growth in revenue and operating profit.
• Geopolitical Impact: The case notes a slowdown in early 2016 due to terrorism in Europe, which drastically reduced tourism and luxury spending in Paris and Brussels.
• Underperformers: The case discusses the rare decision to divest brands that did not meet the “Star Brand” criteria, such as the sale of Donna Karan (DKNY) in 2016 for $650 million.

Critical Thinking Questions for the Case

If you are preparing for your MBA at Eastern University, you will likely be asked to apply the “Three Tests of Diversification” from Chapter 8 to this case:

1. Attractiveness Test: Is the luxury goods industry structurally attractive?
2. Cost-of-Entry Test: Was the price paid for brands like Bulgari (or later, Tiffany) too high to allow for a good return?
3. Better-Off Test: Is a brand like Celine or Givenchy truly better off under LVMH than it would be on its own?

Read the case and then respond to the case questions given below.

In addition to using the case study provided in the textbook, research the company further to find any relevant events that have transpired since the writing of the case study. Use the company’s website, Internet search engines such as Google, online data services, or other sources to locate the latest articles about the company including press releases and current financial information. Be sure to cite all sources according to guidelines.

Note: For assistance with analyzing any financial data in this case, Table 4-1 (Key Financial Ratios: How to Calculate Them and What They Mean) in your textbook is a useful reference.

Please limit your analysis to 4 pages (1000 to 1100 words), double-spaced.

Students please note: Feel free to bring in any recent news or current events concerning this company into your answer.

Case Questions

1. As detailed in the case, LVMH has achieved business success leveraging a diversification strategy. What strategic approach do you think was the most influential contributor to LVMH success? Be both detailed and expansive in your response.
2. What is the relevance of shareholder value-chain activities in consideration of the acquisition of a related business diversification? Be descriptive and expansive in your response.
3. Discuss the advantages and disadvantages of achieving diversification by acquisition of an existing business. How did LVMH use this business acquisition strategy in efforts to expand and diversify the company portfolio?
4. While focused upon the luxury good marketplace, LVMH did not focus only on one product, but on a great number of products and services. In executing such perspectives did LVMH have a diversification strategy that was too broad in scope and/or potentially cumbersome? Why or why not?

For student papers written in APA format, the title page needs to include (1) the page number in the upper-right corner, as part of the running head, (2) the paper’s title, (3) the author’s name, (4) the author’s affiliation (school or institution), (5) the course name, (6) the course instructor, and (7) the due date. Please ensure these are all on the title page of future submissions. Also, remember that the word limit is 1100 words, use as close to that as possible.