Lvmh - Moet Hennessy Louis Vuitton

LVMH Moet Hennessy Louis Vuitton is one of the world's leading luxury goods companies. It operates in wines, spirits, fashion goods, leather goods, perfumes, cosmetics, watches, jewelry and retailing. The company is the largest and most widely spread luxury goods company, with a strong brand portfolio and distribution skills. However, Mr. Arnault is not sure if LVHM is heading in the direction that he wants.

Strengths

LVMH's prestige brand focus is a key foundation of the group's strategy. It has built one of the strongest brand portfolios in the sector. LVMH started to pursue a strategy of organic growth of "star" brands in 2001 at the time of economic slowdown. These "star" brands include Louis Vuitton, Hennessy, Moet & Chandon and Parfums Christian Dior. In the female fashion clothing business, the company is backed by brands such as Donna Karen and Fendi. The company is the only player which has three of its brands featuring in top 100 brands list. These represent the key profit drivers of the group.

LVMH's strategy also aims to develop new "stars" within its brand portfolio, which could feature stronger growth potential and the potential to become future profit drivers. Presence of these strong brands ensures customer loyalty resulting in repeat purchase. Besides it also gives company a chance to leverage its brand strength to expand into new lines.

One of LVMH's strengths lies in its global distribution network, which comprises of about 1700 stores. It is a consequence of the new focus on cash generation, restructuring and selective capital investments. LVMH opened about 90 stores in 2004 and is further planning to open more stores in 2005. Strong distribution capability enables the company to reach its target market effectively.

LVMH's presence in wines and spirits constitutes an advantage for the group. Thanks to its strong position in champagne and cognac, its portfolio of prestigious brands and its excellent management, Moлt-Hennessy is a highly profitable asset offering strong visibility, presenting a strategic fit with the group's other activities. Moлt-Hennessy is the world's number four spirits brand in terms of value. This business is the most profitable business for the company. With its superior growth and distribution network, this division company has been main growth engine for the company.

Weaknesses

In order to finance its various luxury businesses such as high-end fashion retailing which require significant real estate expenditure, the company has incurred significant debt. Although the company has been reducing its long term indebtness, the current level is still far higher than the company's peer group. Although debt financing provides financial leverage which enhances shareholder wealth, but it can adversely affect the company's profitability in event of declining sales. As company's businesses are highly dependent on consumer spending and economic activity, any downturn in the company's sales can adversely affect its financial position.

Opportunities

With European and US markets getting matured with low growth rates, LVMH is increasingly emphasizing on international expansion. LVHM is keen on China where the brand has been present since 1992. The Chinese consumer already accounts as the fifth largest contributor to sales or the third after the Japanese and the US consumer. Management believes that the brand benefits from a clear competitive advantage in China given its "first mover" status