Strategic Appraisal Report: Louis Vuitton's Business Analysis

This report provides a comprehensive strategic appraisal of Louis Vuitton, a prominent luxury fashion brand. It begins with an external analysis using PESTLE and Porter's Five Forces frameworks to assess the macro-environment and industry dynamics, identifying opportunities and threats. The internal analysis evaluates Louis Vuitton's resources and competencies using the value chain model and competency framework, distinguishing between threshold and distinctive capabilities. The report then examines the corporate and business strategies, including generic strategies. Key challenges and issues are highlighted, followed by a discussion of strategic options for growth and their evaluation, with implementation considerations. The analysis covers market trends, competitive landscape, and financial performance to provide a detailed understanding of Louis Vuitton's strategic position and recommendations for future development.

Strategic Appraisal of a Louis Vuitton

TABLE OF CONTENTS
Introduction......................................................................................................................................1
Part 1: External Analysis.................................................................................................................1
1.1 Macro environmental Analysis..............................................................................................1
1.2 Industry Analysis...................................................................................................................3
1.3 Opportunity and Threats on the basis of External Analysis..................................................4
Part 2: Internal Analysis..................................................................................................................5
2.1.1 Analysis of Louis Vuitton Resource and competencies.....................................................5
2.1.2 Distinction between Threshold and Distinctive Resources & Competencies....................7
2.1.3 Resources & Competencies................................................................................................9
Part 3: Corporate and Business Strategy.......................................................................................10
3.1 LV Corporate Strategy.........................................................................................................10
3.2 LV Generic Strategy............................................................................................................10
Part 4: LV main Issues and Challenges.........................................................................................11
4.1 Challenges and Issues of LV...............................................................................................11
Part 5: Strategic Options for Growth.............................................................................................12
5.1 What are the strategic growth options for LV.....................................................................12
5.2 Evaluating strategic options.................................................................................................12
5.3 Implementation....................................................................................................................13
Conclusion and Recommendation.................................................................................................13
References......................................................................................................................................15

LIST OF FIGURES
Figure 1: Value Chain Model..........................................................................................................6
Figure 2: Competency Framework..................................................................................................8
Figure 3: Generic strategies of Louis Vuitton...............................................................................11

INTRODUCTION
Strategic appraisal can be defined as quantify and qualify what is known and unknown by
regarding strategic environment in which an organisation operates. In the present study,
researcher aims at carrying out strategic appraisal of Louis Vuitton Company which consists of
generation, evaluation and selection of strategic options for the firm to grow and develop in
future contingency. It is French fashion giant house founded in the year 1854 by Mr Louis
Vuitton. Labelling the LV monogram on most of its portfolio ranging from luxury trunksleather
goods, shoes, watches, jewellery, accessories, sunglasses and books (Ahuja, 2014).. It is located
in almost every part of the world with 3708 stores and online presences Louis Vuitton has
changes the trends in fashion industry (Louis Vuitton: Company Analysis, 2014). Furthermore,
the mission of the LV is to represent the most refined quality of products and commodities
around the globe. There are many corporate value that guides the company to carry out is
operations within retail sector like: be creative and innovate, be best in all that company does,
product excellence and act as entrepreneurs (Cebreros, 2012).
Considering the LV Bags portfolio, top level management undertakes differentiation
strategy because it helps them to understand customer needs and preferences, provides
commitments to customers and brings innovation within the offerings. In order to carry out
business activities, company requires association of different stakeholders (Moth, 2015).
Similarly, there are several pillars such as employees, customers, suppliers, manufacturers,
business partners etc. of Louis Vuitton which indulge great efforts to carry out business
functioning and in return company provides them suitable and reliable returns of their interest.
PART 1: EXTERNAL ANALYSIS
1.1 Macro environmental Analysis
In general, macro environment can be defined as the external and uncontrollable factors
that effects the decision making process of the company and the performance of its strategies
employed. In order to carry out environmental analysis the most suitable and reliable framework
available for the senior authority of Louis Vuitton is Pestle analysis. By the means of this model,
manager can evaluate and analyse various external factors that affects the functioning of business
and create hindrance in success of employed tactics.
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 Political: Operating all around the globe, Louis Vuitton has to face different political
environment to function in the market. However, the global luxury commodities market
can be divided into different major countries such as America, Europe, Japan, Asia-
Pacific, and rest of the countries by their region. In this context, the countries which have
adequate consumption of luxury goods have relatively stable political environment. But
in Southern Europe financial chaos and severity has reduced the demand for luxury
products within the local people. But this gap has been fulfilled by the travellers from
around the globe. Along with this, import duty policy needs to be considered by the
senior authority of Louis Vuitton. It is because high import duty is the only reason behind
which prices of LV products differ from one country to another (Dionand Arnould,
2011).
 Economic: The major share of market of LV is based in Europe thus, the euro exchange
rate play an important role for the company in-fact for the industry as it is the hub of
fashion giants. Considering the present 15% nominal growth rate of luxury goods market,
LV has the greater chance of enhancing its business operations. Along with this,
constantly changing economic conditions of the countries is the major factor which can
affect the course of cited firm. Recession has great impact on functioning of LV as the
spending power of people reduces and company faces major downfall in business
volume.
 Social: With the changing market trends and environment, social factors are playing
significant role in influencing buying behaviour of the people. However, Louis Vuitton
being a biggest brand name in fashion industry, people buy the products to maintain their
level of standard. However, middle class people and disposable income generators are
unable to buy commodities of the company and this how company has differentiated its
class and level of quality from numerous other competitors.
 Technological: Technology is one of the biggest factors that are changing at a great pace.
However, top level management of LV mainly focuses on bringing innovation within the
range of company’s portfolio by employing latest technology. Further, high percentage of
R&D expenditure in different parts helps in understanding the needs and wants of market
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and target audience (Liuand Wang, 2014). Along with this, good presence of online
marketing services has enhanced the sales volume of business significantly.
 Environmental: Leather is obtained by the animals and it has considerable impact on the
environment. However, it is the duty of companies to control damages caused by meat
industry and pollution caused at the time of tanning the products through toxins. In order
to maintain the environmental sustainability, Louis Vuitton is engaged in CSR activities
like charity. Furthermore, carbon footprint due to emission of harmful gases by the
routine use of lighting, air conditioning in stores and transportation of goods etc.
 Legal: The legal environment and regulations of Asia-Pacific region are relatively strict
and creates several obstacles for the companies similar to LV operating in fashion retail
industry to enter into the market (Qi and Dandan, 2013). Along with this, increasing costs
of taxation is one of the major concerns for the cited firm.
1.2 Industry Analysis
The best possible way to analyse an industry is to use model Porter’s Five Forces.
However, the main purpose of this model is to provide holistic view on the competitive dynamics
of the industry as well as it helps in identifying where profits are being allocated. Through the
means of this model, managers can easily evaluate micro-environmental impact on the
functioning, strategies and operations of the business. Following are the five elements of the
selected model:
 Bargaining power of supplier: In luxury goods and especially in leather goods, quality of
raw material is considered as one of the most significant aspects. Due to this, companies
like Louis Vuitton have always maintain better and long term relationship with the
suppliers so as to acquire better quality raw materials. Considering this, the bargaining
power of supplier is low and the main reason behind this is that suppliers have vertical
integration with the companies which enforce them to produce raw materials of leather
which are scarce (Vogel, 2014).
 Bargaining power of buyers: In order to understand the bargaining power of customers in
luxury leather fashion industry where LV operates, the brand loyalty of individual
consumer towards brand is the determining point. There are several companies operating
in the industry which offers similar products due to which bargaining power of customer
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should be high. But the price range at which companies offering its products lower down
the bargaining power and differentiate one company from another.
 Threat of substitute goods: The products offered by Louis Vuitton are targeted towards
the middle to high income group. However, people of this class in order to maintain their
life style will buy the products and services of cited company (Millerand Mills, 2012).
Furthermore, the quality of counterfeit products is improving constantly and is creating
the threat for the company in emerging markets like China and India. But in terms of
originality or actual quality of products, the threat of substitute for Louis Vuitton is
relatively low.
 Threat of new Entrant: In order to start a new brand within fashion industry, it requires
significant capital expenditure. Furthermore, brand recognition and loyalty is one of the
major factors that drives target audience to buy the products thus and for a new
establishment it is not possible. Therefore, threat of new entrant is relatively low for
Louis Vuitton.
 Competitive rivalry within the industry: Looking at the present condition, competitions
within the industry can be defined as relatively high. There are several numbers of
brands operating in the same retail fashion industry and providing quality of products to
its customers that affect the brand loyalty of Louis Vuitton. Furthermore, Louis Vuitton
has gained several rivals within the luxury brand industry such as Hermes, Burberry,
Chanel, Prada, Gucci, Versace etc (Koand Megehee, 2012). In order to maintain the
competitive edge within the market, cited company has opted transformation strategy in
which it evolves global lifestyle brand with smart and attractive accessories.
1.3 Opportunity and Threats on the basis of External Analysis
On the basis of above macro environmental analysis it has been evaluated that, despite of
operating in such a competitive environment and with limited customer base to target; Louis
Vuitton has maintained its position in an effective and efficient manner. However, there are
several opportunities and threats available for the firm because of its large level of operations
that managers has to identify and take initiatives so that desired results and outcomes can be
generated.
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The major opportunity for Louis Vuitton is that it is having a powerful financial position
so it should invest high in its research and development department so that better analysis of
market can be made and expectations of customers can be understood in more effective manner
and suitable as well as reliable leather goods and accessories can be developed which matches
the demand for upper middle and high profile category of customers (Kapferer,2012).Along with
this, due to increasing competition several companies has faced decline in their business volume
and looking at the need of market, top level management of Louis Vuitton could provide
discount once in year for its customers so that they can be attracted and retained for long term .
Through the means of porter’s five forces and pestle analysis various threats for Louis
Vuitton has been identified which senior needs to understood and accordingly undertake
potential measures so that risks and uncertainties associated with the firm can be mitigated and
desired results and outcomes can be generated. One of the biggest threats for Louis Vuitton is the
counterfeit products especially in the developing nation like India and China. It is one of the
major setbacks for the company as people are shifting towards the first copy of products because
they are cheap in nature and are alike in appearance. In addition to it, economic crisis has been
hurting sales performance of Louis Vuitton significantly. Despite of targeting high income level
customers, company’s sales has shown decline due to recession and crisis. Mainly, spending
power in such period affects the course of Louis Vuitton badly (Francis,Burgessand Lu, 2015).
Furthermore, Louis Vuitton has gained several rivals within the luxury brand industry such as
Hermes, Burberry, Chanel, Prada, Gucci, Versace etc. is one of the biggest threat for the Louis
Vuitton within the industry.
PART 2: INTERNAL ANALYSIS
2.1.1 Analysis of Louis Vuitton Resource and competencies
Operating in such a competitive environment, it is essential for Louis Vuitton to make
adequate usage of resources so that competency can be maintained and enhanced. Being the
leading organisation in luxury fashion industry, it is essential for the firm to focus on its
competencies and accordingly mould its functioning to generate desired results and outcomes.
Therefore, rather focusing on departments or costs or expenditure, Porter’s value chain
model emphasis on how inputs can be converted into outputs for the end users. Undertaking this
point of view, Porter’s explained chain of activities that are common to the businesses and
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categorized them into primary and support activities (Gannon,Roperand Doherty, 2015). Herein,
through the means of value chain model, researcher will focus on evaluating and analysing
resources and competencies with the help of which Louis Vuitton maintain its position in such a
luxury and competitive market.
Figure 1: Value Chain Model
(Source:Sekhar, 2009)
Primary Activities:
 Inbound Logistics: This is the process of internal functioning which relates to receiving,
storing and distributing inputs internally. Along with this, Louis Vuitton designed and
manufactured its products in-house only however, only for the components like leather,
zippers and clasps are sources externally from suppliers. These are important aspects of
the manufacturing process thus; LV has to maintain relationship with its suppliers.
 Operations: LV is manufacturing bags in its own factories due to which in 2011, LV
owned 17 factories and is planning to expand. The workforce consists of teams which
include craftsmen, designers and artists which constantly focus on the innovation within
the products and services. Furthermore, organising teams in efficient manner helps in
saving the cost and enhances the profitability (Keiserand Garner, 2012).
 Outbound logistics: LV has its own DOS system through the means of which mangers
manages distribution process. Along with this, it uses FedEx for the transportation
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services by FedEx Express rush order are sent on international priority. Combination of
LV and FedEx is successful in every part of the world where company operates.
 Marketing & Sales: Promoting products through the involvement of celebrities has
always been the successful mantra for LV. With the help of different campaigns LV
encourages customers to enter into luxury world of products. They undertake
personalities from different world such as actors, film stars, rappers, supermodels etc.
Sales performance of the company has always satisfied the expectations of stakeholders
but in 2013 with the fall of 50% sale financial performance of the company was affected
and the main reason behind this was the duplicate goods from China which increased its
share of market.
 Service: LV is renowned for its customer service and it is highly supported with after
sales department regarding different products especially for bags (Kang, Shinand Shin,
2014). However, company offers lifetime guarantee which means there is no cost of
repairing.
Support Activities:
In order to carry out operations it is important for the firm to execute its each aspect in
effective and efficient manner. According to Porter’s value chain model, primary activities are
supported by secondary activities which need to be given greater importance. In case of LV,
human resource management focuses on acquiring talented pool of people who are willing to
work as well as creative and innovative in their functioning. Along with this, technological
aspect is given a great importance because it helps LV to always focus on innovation as well as it
encourages in adopting the changing trends effectively (Choi,2012). Lastly, infrastructure of the
company is built with mergers and acquisition with different suppliers or companies around the
global and it also helps LV in yielding brands to establish business in different parts of the world.
2.1.2 Distinction between Threshold and Distinctive Resources & Competencies
In general, competency framework helps in evaluating the actual position of business in
comparison to the level of competition and substitute products available in the market. There are
four major aspects of competency framework such as: threshold resources and competencies and
distinctive resources and competencies.
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Figure 2: Competency Framework
(Source:Matthewsand Brueggemann, 2015)
 Threshold Resources: These are the resources which are required by the company to be
able to compete within the target market. The basic resources that LV consists of are
human resources, technological equipment’s, infrastructure, stakeholders etc. that helps
the course of company to compete within the market.
 Threshold Competencies: LV is making optimum utilisation of its available resources
such as plant, equipment’s as well as constantly bringing efficiency and flexibility within
process and marketing to maintain competitive edge (Sekhar, 2009).
 Distinctive Resources: These are the resources which are critical in imparting it with
competitive advantage of the company. Quality of raw materials and the team of
craftsmen, artists and designers help in making distinctive use of available resources to
enhance competitive edge.
 Distinctive Competencies: Quality of products offered by LV and the wide range of
variety with design and attractive accessories helps in attaining competitive edge within
such a competitive environment (Matthewsand Brueggemann, 2015).
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2.1.3 Resources & Competencies
In order evaluate the strategic capabilities of LV’s resources, VRIN framework has been
used by the means of which strategic capabilities linked can be easily evaluated and analysed.
 Value: Considering the value, brand is one of the most valuable aspects of LV because it
helps in contributing towards the profit. Along with this, innovativeness and savoir-faire
has also helped LV to create value within its target market. Quality of products does
create great value for the money for consumers as well as for the company.
 Rare: Brand of LV is rare and there are very few companies that offer such quality of
craftsmanship and customer experience. Further, LV innovates in such a manner that
companies are unable to catch-up. Lastly, quality is rare and this is the reason which
differentiates LV from its competitors (Porter, 2008).
 Inimitability: Brand is the most difficult thing to imitate and LV operating since 1854 it
is heck of brand around the globe. The ability of LV is to adapt to the environmental
circumstances and accordingly bring modifications which are hard to imitate. There are
several tests that products of LV have to go through in order to ensure their lifetime
guarantee.
 Non-substitutability: There is no direct substitute of various products that LV offers thus,
the risk of being substituted is very low. But the brand image of LV has high risk of
getting substituted by the close competitors like Gucci, Prada etc (Cebreros, 2012).
Strengths and Weaknesses
On the basis of above evaluation of resources and competencies of Louis Vuitton various
strengths and weaknesses can be identified. In this regard, there are different strengths that help
the course of company in maintaining its position in such a competitive environment and
generating higher profitability. However, quality of materials and innovation is one of the major
strengths of LV. Being selective in raw materials helps LV in maintaining quality of raw
materials as well as constantly focusing on innovation leads to producing products as per the
changing trends and environment to satisfy different needs and wants of consumers.
Furthermore, infrastructure and teams of the company are the major strengths as they are
responsible for carrying out operations in an effective manner (Moth, 2015).
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