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Table of Contents
Value Chain analysis of LV..................................................................................................................3
Support activities...............................................................................................................................3
Firm infrastructure........................................................................................................................3
Human Resource Management.....................................................................................................4
Procurement..................................................................................................................................4
Technology development..............................................................................................................5
Primary activities...............................................................................................................................6
Inbound Logistics..........................................................................................................................6
Operations.....................................................................................................................................6
Outbound logistics........................................................................................................................7
Marketing & Sales........................................................................................................................8
Service...........................................................................................................................................9
Strengths.............................................................................................................................................10
Weaknesses.........................................................................................................................................10
Strengths long term.............................................................................................................................11
Weaknesses long term........................................................................................................................11
VRIN Innovation and savoir-faire...................................................................................................12
Sustainable competitive advantages...................................................................................................13
Business Law questions......................................................................................................................14
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Support activities
Firm infrastructure
If we look at the firm infrastructure, we should mention general management. One of LVMHs key
strategic advantages is its strong leadership LVMHs chairman Bernard Arnault (controls a total of
43.5% of LVMH and 35% of voting rights)2 led the company through a great development plan,
turning it into one of the largest luxury companies in the world. His style of management focuses on
the radical innovation and limitless. LVHM is an organic company with a decentralized
organizational structure with focus on efficiency, productivity, creativity, and dynamic motivation.
Since A.B. became CEO of the company, LVMHs value has been multiplied by fifteen.
LVMH has adopted a global product structure where the businesss different product categories are
managed separately. This structure places brand experts at the helm, and that helps LVMH build and
maintain the link between product development personnel and customers. Because of this, the firm
has been successful in keeping up with global trends. The structure has also been a disadvantage as
LVMHs product categories are independently managed (pricing, location and decisions) there is
for ex. a duplication of employees and facilities which adds to LVMHs operating costs and it takes
1http://www.cogmap.com/chart/louis-vuitton,(2013)
2 http://en.wikipedia.org/wiki/Bernard_Arnault, (2014)
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longer to train professional managers to meet the criterion for global product structure, which also
means to understand local and foreign markets well. For example if the company would move its
manufacturing to Asia to take the advantage of cheap labour, this would not match the purpose of
LVMH to provide high- quality luxury products, and could damage the brand image, which is the
most important part to gain high profits.
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Procurement
LVHM design and manufacture their products in-house so as to have full control of production and
to limit dependency on suppliers. Seventeen leather goods manufacturing shops of LouisVuitton
(twelve in France, three in Spain and two in the United States) provide most of the brands
production. The company uses third parties only to supplement its manufacturing and achieve
production flexibility in terms of volumes. LV purchases its materials from suppliers located around
the world.
For example LV made an agreement with Tannerie Masure which is exclusively supplying LV with
hides, which are being tanned in Tanneries de la Comte. Another example would be Tanneries
Roux, a French supplier, who helped LV to access strategic supplies. For LV, the leading supplier of
hides and leather represents about 16% of its total supplies of these products. Overall, the use of
subcontractors for Fashion and Leather Goods operations represented about 41% of the cost of sales
in 2013.6
LVHM make deals with the best fashion magazines, such as Vogue, Vanity Fair, and Elle to
advertise their products. From 2001 till 2009 LVHM preferably collaborated with famous
supermodels, actresses and singers.
Technology development
LV has its own Vuitton's test laboratory, a high-tech torture chamber for its luxury goods. In this
laboratory LV put their products through rigorous testing. Some of the techniques that LV practices
are to ensure the durability of the bags is the use of a robot that continuously drops a bag containing
a 3.5 kilogram weight, a machine that tests bags for fading by shooting ultraviolet rays at the bag,
and machine that opens and closes a zipper 5,000 times.7 There's even a mechanized mannequin
hand, with a Vuitton charm bracelet around its wrist, being shaken vigorously to make sure none of
the charms fall off.
Moreover, LV has developed a computer program to help leather cutters identify the flaws in the
skins they receive. The program is also useful in another sense, since it determines where exactly to
cut the bags to avoiding waste, leading to drastically increased efficiency.
6 LVHM Reference Document (2013), p.16
7 LVHM case, p.12
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A very important part of LVs technology is the online ordering system. Besides direct owned stores
they also send their products online in order to make it more convenient. As it is never possible to
get a discount on a product or buy an outlet bag, it is still keeping its luxury inside. LV is trying to
find a balance between maximum of sold products with saving its value and that is what makes it
really hard to implement new technologies and not break the craftsmen story.
Primary activities
Inbound Logistics
LV uses high quality materials and are very selective about their materials to ensure that the quality
lives up to the expectations of their costomers. Leather, zippers and clasps are sourced from external
suppliers.8 The more expensive products uses high quality leather from Northern Europe, as there
are less visible insect bites on the skin of the animals.9
Operations
LV is designing their bags in their own factories. In 2011 LV owned 17 factories, and they are still
planning on expanding. 10
LV used to have employees rather specialized in their own individual tasks. However, recently LV
invented a new factory system. In this new system LV reorganised its teams, so now they consist of
about 10 workers. By doing this, LV made it possible to free up 10 % more floor space in its
factories, resulting in the hiring of 300 new employees without adding a single factory. 11
In the new factory system, assembling bags takes less time, since factory workers do not have to
wait for goods to be moved from one workstation to another. This makes it possible for the
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company to ship collections to its boutiques every six weeks, which is more than twice as frequent
as in the past. 12
The employees in the factories consist of a team of craftsmen, designers, and artists.13 Ever since the
company was founded in 1854, LV has been innovative in its production. Although competitors
have been copying LVs design, the company held on to its innovativeness and its savoir faire
(being adaptable in any situation), which LV has certainly been14. Alone in 2012, LV initiated
13.800 raids and 33 258 anti-counterfeiting procedures worldwide. 15
The passion of the employes in LVs factories can be seen as one of LVs strenghts and is illustrated
in the following saying of some of the employees: Its the heart of the business, its the image of
the business leather goods are the core of the company. Working on the fashion leather goods
was amazing training and experience.... and ,,.Its about how to release things, how things are
evolving creatively and implementing that within the business. If the bags are getting more
sophisticated how do you speak about that? How do you treat the bags? So theres lots going on
there.16 The employees recognize how important it is to create value through the whole chain, and
this is one of the things that are crucial to the companys success.
LV has put a lot focus on saving costs in their operations division. By reorganising their teams in a
more efficient matter they are able to save costs, which contribute to the profit of the firm.
Outbound logistics
LV owns its own stores (DOS stores) 17 In this way the company can control its distribution and
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image.18 Excess stock was destroyed rather than discounted, and products were not sold through
outlet stores.19
LV uses a combination of FedEx tranportation services. The most popular, fast-selling products are
shipped directly from the factories to LV stores worldwide by FedEx Express. Rush orders are sent
by FedEx International Priority. For restocking its classic stock, LV uses FedEx Express from its
international logistics and information processing center located in Vergy, France. The individual
shops uses FedEx Insight, which is a web-based application used to recieve information about
critical shipments and view the status of the shipment without having to type in a tracking number.
Accodring to Vincent Barale, director og Logistics and Transportation for LV One of LVs main
aims is to be more responsive to its logistic operations. He expresses the following: The services
provided by FedEx enable us to reduce lead times while optimizing stock levels within our retail
network. FedEx is an integral part of our remarkable, ongoing story of innovative luxury.20
By using a combination of transportation services, LV is saving costs on activities that dont
contribute much value to the consumer, which in effect contribute to the companys profit. Also LV
manages the stocks of their goods in a more cost-efficient way. By outsourcing part of the
companys outbound logistics to a transportation firm as FedEx, LV can focus on its core
competencies of proving quality, handcrafted luxury leather goods and At the same time, LV holds
down transactions costs by relying on one supplier instead of various suppliers.
21
LV wants to show your life is a journey. They do this by using different personalities from different
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worlds, for example actors, film stars, rappers, supermodels, and even austrounts.22 One of the
campaings LV has done is the Spring/Summer 2014 campaign, where their focus is the young
generation who likes to travel and discover the world. The photosection takes place in South Africa
and the campaings main purpose is to show how practical and easy travelling is, when you are in
possesion in one of LVs bags.
LV is aiming towards all three consumer segments in the luxury goods industry, but according to the
companys new strategy LV is trying to move more towards the absolute segment. The main reason
for this is that the sales in the luxury goods industry has been increasing in Asia-pacific.23 In doing
this the company has introduced new more subtle, less logo flashing bags, the so-called Cappucine
bags, with higher price tags, reflecting the preferences of the absolute consumer segment. At the
same time the price of the classical Monogram and Damier range will increase a fair amount. With
the introduction of the new strategy, LV hopes to loose just enough of the accesible consumers, yet
not withdrawing these consumers entirely, since afterall these consumers could end up buying the
companys more expensive bags later in life through loyalty to the brand. LVs goal is to their image
a bit and thereby improve their profit. Their move is going in the same direction as their main
competitors Bottega Veneta, Hermes and Chanel, who have their main focus on the two upper
segments. 24
Looking into LVs marketing campaigns gives a clear indication of what they are trying to do. By
relying on their well-established heritage brand they are trying to keep consumers in the lower
segment, while putting more focus on the two upper segments. Through clever marketing LV has
managed to target all three consumer segments. LVs offering already corresponds well with what
the aspirational consumer segment expects, namely high quality goods, an exclusive buying
experience and brands based on tradition and heritage.25 The absolute segment is to be reached
through the introduction of the new capucines and lockit bags, respetively sold at $4,850.00 and
$5,600.00. LV underlines their focus on savoir-faire by describing the making of each bag.26
A click at their webpage is revealing the companys changed focus from their well-known,
22 LV, "The spirit and travel and Campain.
23 LVMH case, page 17.
24 The Richest (2013) Andrea DiVirgilio
25 LVMH case, page 5
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traditonal Monogram and Damier handbags towards more subtle, soft leather bags 27Going with the
accesible segment, consumers of this segment hopefully will stay loyal to the company despite the
price increases.
By changing their focus more towards the two upper segments, LV wants to stay a brand of luxury
and exclusivity and not to be associated with mass-market consumerism 28 and at the same time
regenerate more profit from by relying on the upper segments.
Although LV is a strong well-established brand, the company has to adapt to the trends going on. In
2013 LVs sales growth was reduced by 50 % as it failed to anticipate consumers' move away from
logo-branded luxury goods. This resulted in the Chinese demand to fall and it put a stopper to the
expansion of more shops.29
If LV doesnt adapt to the consumer trends of the absolute consumer segment, and especially the
Chinese, the companys position in the market may be at risk.
Service
LV is known for their excellent service for their customers. The company has invested in having an
asssistent to bring the bag from the backroom for the sales person, so the consumer isn't alone at
anytime.
LV has an after-sales department that manages repairs of the bags. LV offers a lifetime guarantee.
This means that the consumer can get goods repaired for free.
If you wish to personalize your bag and thereby making it more unique, LV offers a number of
different services. For example you can get your product stamped with your personal initials.
For the absolute segment LV furthermore offers a designing consultation on a yacht with a private
butler and specific areas in the store services specifically made for this consumer segment.
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Strengths
Their size: LV has the most stores worldwide compared to other brands in the industry. The
company has about 440 stores worldwide and compared to most their competitors, LV already has
expanded to China. The size of LV gives the company a strong position in the luxury goods
industry.
Innovation and savoir-faire: LV has managed to keep up their innovation throughout time.
Although they are an easy target for counterfeiting they have through their innovation and raids and
anti counterfeiting-procedures managed to thrive their business.
High quality materials: As mentioned, LV use high quality materials and very selective about the
materials they use.
Their brand: The brand is based on a tradition of heritage and quality craftsmanship that dates
back to year 1854. People still think of LV as a company producing a high quality craftsmanship.
Strong leadership (Bernard Arnault): Bernard Arnault (Arnault) reorganized the structure of the
firm and made the decision to enter the Asian market, which was a clever move that benefited the
company profits. Arnault has transformed a LVMH into a conglomerate that controls more than 60
luxury brands. Arnault is driven by the belief that he can take any luxury brand and make it bigger
and more profitable, and his record is pretty good.
The factory system and the teams: Each team works on one product and team members are not
encouraged to suggest improvements in manufacturing, but also briefed in details about the product
like its retail price and how well the product is. Also, the modernized factory techniques have
improved the companys efficiency, leading to higher profits.
Their marketing: LV is doing very clever marketing and is good at adapting to the market. As
mentioned, they have been using several different celebrities in their campaigns. LVs marketing is
aimed at different consumer segments, and their innovativeness and savoir-faire is reflected in their
marketing.
Weaknesses
The modernized factory techniques: LVs consumers pay hundreds of dollars for its logo canvas
bags, because they have bought into the notion that skilled craftsmen make them the old-fashioned
way. Although the company has been modernizing gradually for some time, that reputation is still
vital to the company's success. LV is trying to improve their logistics by mechanizing the process of
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making their leather good. However, they have to be careful not doing this too much, since they are
known for their quality handcrafted leather goods. LV ran into a problem in regards to their
consumer perceived image of making all their leather goods by handcraft, when in fact this was not
the fact. This created a structural problem in the communication.
Price sensitive in slumps: LVs products are in the expensive end, and since they are positioned in
the luxury goods industry, many consumers will not buy the products, when there is a slump in the
economy.
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VRIN Brand
Value: The brand is valuable, since it does provide value to the consumers and at the same time the
brand contributes highly to the companys profit.
Rarity: The brand is rare. Few other companies are based on heritage and quality, but no other
company posses the same brand perception of quality craftsmanship.
Inimitability: The brand is difficult to imitate, since the brand is based on a tradition of heritage
and quality craftsmanship that dates back to year 1854. It is hard to know exactly what contributes
to the success of the brand.
Non-substitutability: LVs brand is at risk from substitution. Some consumers that are less loyal to
the brand will be inclined to buy from other brands in the luxury goods industry. In this aspect the
brand can be substituted to some extent.
VRIN Quality
Value: The quality of LVs product does create value for the consumers as well as for the company.
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Rarity: The quality of LVs products is rare, since they are very selective about the use of their raw
materials and do pick out their suppliers carefully.
Inimitability: LVs products go through a lot of testing to ensure the quality and durability of the
products. There is a lifetime guarantee on the products, and the co-workers in the factories posses
a lot of expertice and experience in crafting the products.
Non-substitutability: The quality of LVs bag is not at risk of being substituted. There is no direct
substitute for quality.
In the following a description of LVs sustainable competitive advantages will follow. The purpose
of the section is to explain how these correlate and together form LVs sustainable competitive
advantages.
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Fortuitous accident: A fortuitous accident is, when the person could not expect the act to
happen. This will not be perceived as a negligent act.
Simple negligence: Simple negligence refers to when a person has acted fairly negligent,
thus it will be perceived as a negligent act.
Gross negligence: Gross negligence refers to when a person has acted highly negligent,
this it will be perceived as a negligent act.
With intent (a deliberate act): A deliberate act refers to when a person has done the act
on purpose, thus it will be perceived as e negligent act.
1.2 Strict liability: In the case of strict liability, the tortfeasor is responsible no matter what.
This is for example the case for the employer.
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2
Economic loss: An economic loss must be suffered. The economic loss must be of financial
value. Losses of sentimental value cannot be claimed (see above).
Answer: If a master gives his servant, or another, authority to perform a duty on his behalf, then
the master shall answer for whatever offence may be given by the man he has given authority, and
then seek repayment from him. If an employee acts in the working time, the employer will be
responsible for the employees act. Therefore, according to the law, employers are carrying the
responsibility for the act of the employee. In this case, it is therefore not necessary to look at the
degree of culpa. However, if the employee acted outside his working hours, you could look at the
degree of culpa committed. In this case, the employee would have committed simple negligence and
would thus carry the liability.
In the case it is not clear, whether the dog is in a leach or not. Let's assume the dog is not in a leach.
According to the dog Act (section 8 of the dog Act), strict liability also applies to those of
possession of a dog. It is the dog owners own responsibility and fault, since he decides to take the
dog into the store. The act of the dog would be consequence of the delivery mans act, at it would be
seen as a fortuitous accident. Therefore neither the deliveryman nor the deliverymans employer is
to blame.
A dog doesnt really belong in the shop. However, lets assume the shop had a section for dogs.
Then the case would be different. In this case it would be the responsibility of LV that the dog
didnt ran out to the broken glass.
2) Answer: The consultant of LV (LV), who has the responsibility for the purchase of company cars,
was interested in car an offer, which was sent to the company on 29th of November. A letter of
acceptance for this offer was sent on 5th of December and it arrived on 8th of December, although
the deadline was the day before (7th of December). As there was a fixed time for acceptance, the
answer must had appeared before the deadline to be accepted ( 2 Danish Contracts Act). In
accordance to 4,1, an accepting answer arriving after time shall be considered as a new offer.
However LV thought that the letter had arrived in due time, so the previous section cannot be
applied. The car company gave a notice to LV that their offer was no longer valid. If the car
company did not send the notice, the contract would be considered as being concluded. The notice
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was sent, however it did not reach other party, but the car company followed the law it shall not
suffer as it is not responsible for delays or delivery.
The car company acted in accordance with law, as they gave a notice to LV and they expected them
to be aware of contract being invalid. The fault is neither on the side of LV or the car company, so
the car company is not bound to LVs acceptance, and LV cannot claim any refunds.
3) Explain briefly the various grounds of invalidity.
Answer: An agreement is binding if there has been given a binding offer, which has been read.
Nevertheless, an agreement can be cancelled if certain circumstances are at place.
When speaking of invalidity, one distinguishes between strong invalidating factors and potentially
invalidating factors. Also, one is distinguishing between good and bad faith.
If we start with the potentially invalidating factors, the one of the parties must have acted in bad
faith. This means that if a person knows that he is doing something wrong, he is acting in bad faith.
For example if a man were threatening a woman to sign an agreement, it would be a potentially
invalidating factor, since the man who is threatening the woman is acting in bad faith.
When speaking of strong invalidating factors it is about factors that a person cannot protect himself
against. For example if one is using another mans name when signing an agreement, the agreement
can be cancelled and is thus not binding. Also if you are forced to sign a contract, it can be
cancelled. The same is the case if the content of an agreement is changed after the agreement has
already been signed. If an error has occurred in the agreement, the agreement can be cancelled. Also
if another person is making an unconscious person sign the agreement, it can be cancelled.
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Sources
The Richest (2013) "Regaining Exclusivity: LV To Become More Expensive", Andrea DiVirgilio
(http://www.therichest.com/expensive-lifestyle/fashion/louis-vuitton-thinks-their-bags-arentexpensive-enough/)
Reuters (2013) "Analysis: Brand-hungry LVMH seeks new niche as Vuitton flags", 3rd October
2014, Astrid Wendlandt & Pascale Denis (http://www.reuters.com/article/2013/10/06/us-lvmhgrowth-analysis-idUSBRE99503820131006)
Matlack, C. (2004): The Vuitton Machine, 21. March 2004, BusinessWeek,
file:///C:/Users/Admin/Downloads/ContentServer%20(1).pdf
Passariello, Ch. (2011), At Vuitton, Growth in Small Batches, 27. June 2011, The Wall Street
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Tatjana (2012), Fashion marketing secrets, The many faces of LV
http://fashionmarketingsecrets.com/2012/12/27/the-many-faces-of-louis-vuitton/
Keshia Mae Jeantel (2012), LV Mot Hennessy Company Analysis & Investment Recommendation
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df
LVHM Press releases (2014), LVMH and Google join forces to fight fakes and commit to innovate
for a more engaging Internet, 4.September 2014 http://www.lvmh.com/press/718
Henley Business Review (2013), LVMH: the strategy of style, 22. January 2013,
https://henleybusinessreview.wordpress.com/tag/louis-vuitton/
LVHM (2014), LHVM website: Design- Involving suppliers http://www.lvmh.com/the-group/lvmhand-the-environment/design/involving-suppliers
LVHM (2014), LHVM website: Manufacturing http://www.lvmh.com/the-group/lvmh-and-theenvironment/manufacture/saving-the-planet-s-ressources
LVHM (2014) LVHM website: LockIt: http://us.louisvuitton.com/eng-us/stories/lockit#/knowhow
LVHM (2014) LVHM website: The Spirit of travel Campaign: http://eu.louisvuitton.com/engSide 18 af 19
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e1/articles/the-spirit-of-travel-ad-campaign
LVHM (2014) LVHM website: Capcuines: http://us.louisvuitton.com/engus/stories/capucines#/knowhow),
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(http://www.fedex.com/us/investorrelations/financialinfo/2005annualreport/online/louis_vuitton.ht
ml)
LVHM (2014), LHVM website: LVHM Group http://www.lvmh.com/the-group/lvmh-group
Wikipedia (2014), LVHM, 2. October 2014, http://en.wikipedia.org/wiki/LVMH
Wikipedia (2014), Bernard Arnault, 29. September 2014
http://en.wikipedia.org/wiki/Bernard_Arnault
LVHM Annual Report (2012), 31. December 2012
LVHM Reference Document (2013), 31. December 2013
Mahbubani, M. (2013), LV case, Richard Ivey School of Business, 4. April 2013
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