Strategic Analysis of LVMH: Opportunities, Threats, and Internal Analysis

This report provides a strategic analysis of LVMH, including external analysis using PESTLE and Porter's five forces, internal analysis using value chain analysis and VRIO framework, and application of SAFe criteria on future strategies.

Report

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................4
External analysis to identify opportunities and threats and assess industry attractiveness.........4
Internal analysis of the company.................................................................................................7
Value chain analysis....................................................................................................................8
VRIO framework........................................................................................................................9
Evaluation.................................................................................................................................10
TOWS matrix............................................................................................................................10
Application of SAFe criteria on strategy execution of the firm................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Strategic analysis is defined as a procedure which involve researching a company's
business environment within which it function or operates. It is significant to develop strategic
planning for decision making & smooth functioning of that business entity. Strategic analysis
brings the relevant information about development and evaluation of environment outside and
inside the organisation & reveals possible opportunities and threats which required to be
undertaken within strategic decision making (Armitage, 2016). The strategic alignment of
organisation with its objectives and goals by manner of effective course of plans, action as well
as policies. In the present report LVMH (Louis Vuitton) is taken into consideration. It is a French
multinational corporation and conglomerate that specialise in luxury products such as watches,
jewellery, clothing, wine, fashion accessories and many more. The company was established in
the year 1987 and its head office is located in Paris, France. In the recent,LVMH is looking for
the way to expand its business in U.S. Market and for this, it offers to buy US jeweller Tiffany.
The report will cover external analysis of respective organisation using framework that is
PESTLE and Porter's five forces. In addition to this, internal analysis will be conducted with the
help of value chain analysis and VRIO analysis. In the last, it involve SAFe criteria applied to
one of the future strategies of organisation.
MAIN BODY
External analysis to identify opportunities and threats and assess industry attractiveness
It is important for every business entity to focus on evaluating the business environment
in order to decide strategic course of action for its improvement as well as betterment. In order to
conduct external analysis, PESTLE analysis is adopt by the higher authorities of LVMH, which
are as follows:
PESTLE analysis:
It is defined as a strategic tool that is used by organisation in order to know about the
factors that impact on their performance and operations as well. In addition to this, it help
business entities to gain insight about the threats and opportunities that is improved by
companies in enhance its performance level. LVMH is one of the renowned and large French

multinational organisation that offer luxury goods. It is important for company to conduct
external analysis that take place with the help of PESTLE analysis, which is given below:
Political factor: It involve the factors that is political stability, entry mode of policies, taxation
regulations and so on.
Opportunity: It is determined that the political condition of France is quite well that
support companies to expand their business operations who came up with innovation.
Threats: The factors such as political instability, trade wars, change in policies, adverse
political condition is consider as threat for the company and also fluctuate the demand of its
product (Barry, 2016)(Feller, 2017). In addition to this, in the present time the condition of U.S.
Is not good which is the country in which LVMH expand and might affect on its performance.
Economical factor: This factor plays an important role that include factors such as interest rate,
inflation rate, exchange rate and many more.
Opportunity: It is analysed that the economic growth of France is high that develop
number of opportunities for companies to enhance their market presence and share as it directly
impact on the growth and development of economy.
Threats: It is determined that the buying power of people living in U.S. is comparatively
low that impact on the overall performance and profitability of LVMH. In addition to this, the
company is required to adopt pricing strategy which is reasonable for every section of society as
it ensure growth as well as development of organisation.
Social factor: It involve the factors such as value, beliefs, opinions and attitude of people
towards the offerings. In addition to this, customer lifestyle, change in preferences and market
demand are also involved in the social factor.
Opportunity: It is determine that the requirements and preferences of customer is
changed and to meet with this is an opportunity for LVMH (Jin, 2017). Along with this, it
acquire Tiffany that is present in U.S market that is consider as an opportunity for LVMH to earn
higher profits and strengthen its market performance.
Threats: The product in which LVMH is constantly change and is tagged wit”outdated”
products. In addition to this, it offer luxury products that is of high cost and to sell such products
is a big challenge for LVMH.

Technological factor: Technology is changing rapidly and change the preferences and choice of
customer as they prefer to buy those goods and consume those services which is new and
innovative at marketplace.
Opportunity: LVMH make use of innovative technology in order to communicate with
its customers and solve their queries on time period. In addition to this, it has payment secure
system that tale place with a single click. LVMH has the opportunity to make use of digital
technology in order to promote its brand and offerings in U.S. Market that is where it recently
enters.
Threats: It is analysed that making use of new technology arise high cost to company
and decline its revenue level. In addition to this, it is vital for LVMH to make use of new
technology in order to sustain in market for longer time period.
Legal factor: There are various laws that is significant for an organisation to follow such as
employment law, health & safety law, import & export regulations and so on.
Opportunity: It is analysed that the company follow all the rules as well as legislations
of the country where it operates as it help them to avoid any kind of conflicts and legal penalties
as well. In addition to this, it also help in developing a brand image at marketplace.
Threats: Breach of any form of laws will suppress its goodwill and market positioning
which affect negatively on its productivity as well as profitability.
Environmental factor: It consist of waste disposal, energy consumption, pollution and so on.
Opportunity: In the present era, most of the consumers have awareness about
environmental concerns as they prefer to make use of those products that protect environment
and is consider as an opportunity for LVMH (Kim, 2020).
Threats: It is determine that if all the environmental concern is not taken into account by
LVMH then it arise conflicts and impact on its brand image negatively.
Porter's five force model:
It is defined as a strategic tool that help business entity to identify the level of
competition prevailing at marketplace. In addition to this, it consist of five competitive forces
that drive an organisation to know about its strength and weaknesses as well. The porter's five
force model of LVMH is given below:
Threat of new entrants: It is determine that the threat of new entrants is moderate for
LVMH as to enter in such kind of business requires high investment and time as well. It is

important for an organisation to maintain good relationship with its customers so that they did
not prefer for new brand that might be enter at marketplace.
Threat of substitute: This threat is high for respective organisation as there are lot of
competitors who provide same product and almost at the same price. For this, it is important for
LVMH to offer unique and innovative product that attract large number of people towards brand
and retain them for longer time period.
Bargaining power of buyers: LVMH offer luxury products that is mainly consumed by
middle and high class people who prefer to buy quality at any price. This state that bargaining
power of buyers is low which is an opportunity for an organisation to enhance its profitability as
well as revenue level in an appropriate manner.
Bargaining power of suppliers: LVMH mainly deals in luxury products and to develop
such it requires quality raw material that is given by its suppliers. It is determine that company
maintain good relationship with its suppliers that ensure on time deliver of raw materials which
in turn help in meting with the market demand effectively.
Competitive rivalry: There are number of competitors of LVMH and because of this
threat is high for the company. It is important for company to focus on the requirements of
customers as it help in retaining and satisfying them. In addition to this, it is significant to offer
something unique in market as it help company to fight with rivals and attain competitive
advantage at marketplace.
Internal analysis of the company
Internal analysis provides the company valuable information about their resources and
helps the company formulate strategies related to source allocation. LVMH ha various resources
which are described below:
Human resources: These resources include presence of competent and dedicated
employees in an organisation and play an important role in continuous development of the
organisation. LVMH has hired more than 40,000 employees in an organisation in 2019 and the
average age of their employees is below 34, the abundance of young and talented employees
from over 179 countries has given the company advantage in the form of diversified workforce
with expertise in different fields (Kozinets, 2020). The organisation has launched various
schemes such as INSIDE LVMH which aims to identify talented individuals from leading
universities across the globe and help them find career opportunities in the organisation. These

employees have helped the organisation modify their operations according to the current
business environment and have given the organisation competitive advantage in the form of high
quality and unique product construction . This practice has given the organisation strength of
passionate professionals with loyalty to the organisation.
Physical resources: These resources include presence of efficient channels for producing
quality products and delivering them to the consumer in time. LVMH has number of factories
across Europe which work with coordination to full-fill demands of the consumers in time. The
organisation has distilleries, wineries, public relation offices, manufacturing units and
showrooms in the most profitable and accessible locations across Europe, USA and Argentina.
The organisation has supply chain and distribution channels which help the company export their
products to global markets (Manlow, 2019). Apart from this the organisation has constructed
new showrooms in Vietnam, Dubai, Russia and has employees experts for effective management
of their resources.
The organisations test laboratories are equipped with best technology which has helped the
organisation create innovative and creative solutions for any problems faced during the
manufacturing stage and provide the consumers luxury products with modern and contemporary
designs while maintaining good quality. These physical resources have given the organisation
advantage to deliver their services and products with strong quality swiftly around the globe.
Intangible resources: These type of resources include the brand value, public perception
and goodwill of the organisation. Despite the organisation's huge brand equity as their products
status symbol among consumers, recent public perception towards the organisation has shifted as
a exploitative company. This is due to recent discovery of labour exploitation by the company in
Italy. It was found that the organisation hired workers from low income regions of Italy without
any official paperwork and paid them less than minimum wage for stitching luxury fashion
garments. The organisations practice of burning unsold products for maintaining eliteness of
their clothing lines has negatively impacted their image of sustainable and environmental
friendly luxury brand. This along with usage of exotic animal skin, fur for making their clothing,
make-up products and luxury perfumes weakened the firm's brand value and negatively affected
the perception of the company in the mind of the consumer.

Value chain analysis
This analysis provides the company systematic identification of various operations
undertaken by the in order to provide their products or services to the consumer. The value chain
analysis for the luxury organisation LVMH is provided below:
Primary Activities
Inbound logistics: The inbound logistics of the organisation include receiving high
quality raw materials such as fabrics for clothing and footwear brands or good quality fruits for
wine production from various parts of the world to associated factories for manufacturing luxury
goods. The organisation hires experts which determine the quality of raw materials, this ensures
production of high quality goods.
Operations: The organisation completes most of the procedure related to manufacture of
goods with the help of expert employees by hand crafting most parts of the clothing finished
products and supervising wine production by professional wine brewers. The organisation
ensures attractive and creative packaging of their products. This distinguishes the firm's products
from other mass produced goods and gives the organisation competitive edge over their rivals.
Outbound logistics: LVMH transports their goods to their showrooms across the globe
by using an effective distribution network which is managed by experts using advanced
technology and involves product transportation through all three travelling routes (Massaro,
2019). This ensures swift delivery of goods to all the outlets of the company.
Sales and marketing: LVMH uses social media platforms for digital marketing and
includes famous personalities in their promotional advertisements to maintain premium image
the brand. The organisation advertises their products by collaborating with famous magazines
and showcasing their products in international luxury events.
Support Activities
Human resource management: The organisation has implemented various policies in
their workplace which motivates employees to expand their skillet, develop abilities to take new
roles and move up in their career. LVHM encourages their employees to put forward their ideas
and has enforced regulation to maintain impartial working environment. These practices increase
employee satisfaction and enhance overall organisational performance.
VRIO framework
Basis Valuable Rare Inimitable Organised

Physical
resources
Yes Yes No Yes
Human resources Yes Yes Yes Yes
Brand No Yes No No
Technological
resources
Yes Yes Yes Yes
Marketing
resources
Yes No Yes Yes
Core competencies: One of the most valuable competency of the organisation is the
presence of highly talented and passionate employees in their workforce. These employees have
not only given unique solutions to various organisational problems but helped the organisation
build and execute policies for recruitment of fresh talent from different part of the world. The
human resources of LVMH are mostly millennials and have helped the organisation understand
the needs and preferences of younger consumer demographic along with constructing efficient
marketing techniques to capture attention from this demographic (Massot, 2020). The
craftsmanship of their employees is appreciated throughout the globe and is one of the factors
which give the company their premium image. The availability of exceptional talent along with
presence of professional supervisors at every facility of the organisation is the reason for high
productivity at the company.
Evaluation
TOWS matrix
TOWS Opportunities
Growing demand for luxury goods in
Asia allows company to gain
consumers.
Threats
Presence of cheaper counterfeited
products is lowering profits of the
company.
Strength SO ST

Effective global
distribution channels
With the help of global distribution
channels, the organisation is able to
effectively meet demands of Asian
markets.
Global expansion of the
organisation has increased
competition from local brands
with loyal consumers.
Weakness
High cost of
inventory and raw
material.
WO
With the help of skilled workers and
quality raw material the organisation
is able to charge high prices for their
products.
WT
The organisation needs to use
cheaper environment friendly
materials to reduce costs and
attract consumers.
Application of SAFe criteria on strategy execution of the firm
Suitability
It is determined that the luxury industry, in which the organisation works is an over
competitive industry with lower number of consumers, thus diversification of product range is a
suitable strategy for the organisation as it will help the organisation attract more consumers,
increase longevity of the enterprise and penetrate international market. The respective strategy
will increase their revenue generation sources and brand image because of high brand image of
Tiffany all around the world (Miles, 2017). This strategy can help the company reduce the costs
of their products by using new distribution channels and eliminate weakness related to high price
of products and help the organisation achieve their goals of gaining profits after the rise in
counterfeiting of various LVHM goods.
Acceptability
LVHM needs to require permissions from major stakeholders from the firms involved in
the strategy for gaining successful results. The organisation needs to seek the support of main
supervisors lower costs and reduce risks involved in this strategy. The presence of state of the art
technology at LVHM allows the organisation to satisfy the needs and preferences of the
consumers in time and enhance consumer satisfaction which will build loyal customers. This
helps the organisation as consumers are the most important contributors in the success of an
organisation. The formation of loyal consumers along with availability of skilled employees will
ensure maximum return on investment for this strategy and acquire favourable outcomes. The
organisation needs to keep all those individuals with high authority at low involvement in the

business conversant and examine their activities closely so that they work with the company
diligently for longer amount of time (Oldman, 2018). This strategy is beneficial for the
organisation as it will help the organisation gain loyal consumers and brand equity in the form of
heritage associated with these brands.
Feasibility
This strategy requires both the interested organisation to connect their distribution
channels, financial, physical, human resources and incorporate intangible resources such as
brand value associated heritage in order to lower the costs and cut down risk factors (Oliveira,
2020). The organisations need to elaborate their range of products according to the needs of
current consumers and after evaluation of trends such as rise in sales of sustainable and animal
friendly luxury products due to increase in climate change awareness.
CONCLUSION
From the above discussion, it has been concluded that it is important for an organisation
to conduct internal and external analysis as it help in dealing with any of the environmental
circumstances in a proper manner. PESTLE analysis assist business entity to know about the
external factors that affect on their operations and performance as well. Moreover, Value chain
analysis and VRIO analysis allow a business entity to know about its competencies and
weaknesses that is improved by the development of effective strategies.

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