15 Shocking Ways LVMH Can Take Even More Of Your Money

The designers are lit, the champagne is off the rails, but how can LVMH truly sustain superior performance?

1. Acquire jewelry brands to build out fine jewelry portfolio further

Source: Resources based view and VRIN Analysis

While LVMH is a leader in wines and spirits, fashion and leather goods, and perfumes, it is severely lacking in the high margin fine jewelry and watches industry, leaving it susceptible to its competitors. While its brand equity overall is a strong capability of LVMH, acquiring companies working within the fine jewelry space would create even stronger competitive advantage and drive LVMH’s currently strong portfolio of over 100 luxury brands as a core competency.

2. Unify all brand distribution to create a more efficient distribution system spanning the globe

Source: Resources based view and VRIN Analysis

Between LVMH’s many brands spanning across every continent in the world, there is a real opportunity to capitalize on an efficient distribution system streamlined across the entire company. Because it has acquired so many different brands and companies, it has become a powerhouse of production across luxury brands, but its distribution systems are severely lacking. If it were to use these capabilities and hire software engineers to map out an unparalleled distribution system, this would become a core competency for LVMH and easily defend its market position against other conglomerates.

3. Mirror Tiffany's supply chain integration to cut costs

Source: ABC Test Analysis

Tiffany is a brand recognized by all - both for its high price point and genius marketing pathos strategy to link the recognizable blue to feelings of love and luxury. Because Tiffany buys rough diamonds and polishes them in-house, it has some of the highest margins within any luxury brand in the world. With its acquisition of Tiffany, LVMH can be better-off building this model into its other brands to see greater profits. For example, buying leather for its purses and creating an in-house production facility to assemble the famous Louis Vuitton bags could cut the average cost per bag by a fourth.

4. What's old is new - Develop an online consignment platform to capitalize on sociocultural trends

Source: PEST Analysis

Sociocultural trends rooted in sustainability have prompted a movement towards cyclical second-hand purchasing of luxury goods on third-party platforms such as TheRealReal, Vestaire Collective, and Depop, cutting into potential LVMH sales of new products. An effective solution would be to develop and scale an online secondhand marketplace branded as “vintage”, where LVMH largely controls the brand, authenticity, and quality of secondhand products - all while making money from the same item twice.

5. Expand into emerging Asian markets

Source: PEST Analysis and Market Commonality

The Asian market is largely untapped by LVMH in terms of both revenue and storefronts. Booming population growth in Asia coupled with increases in income and wealth in major cities offer a prime opportunity to establish steady brand relationships with lucrative consumers before other luxury houses.

6. Too Much Power? Implement new corporate governance measures

Source: Corporate Governance Analysis

Mr. Bernard Arnault is the CEO and Chairman of the Board, and has maintained that position since 1989 (the same year Back to the Future II debuted). Furthermore, Arnault Family Group owns 46.84% of LVMH’s stock and 63.13% of voting rights. His company, his rules right now. Thus, given the recent $15.8 billion acquisition of Tiffany and other large deals (potentially for the sake of empire-building) and the deep entrenchment of Arnault, we recommend a small independent commission to investigate any conflicts of interest and deference to Mr. Arnault. No one wants to check on the boss, but the company needs to maintain strong, non-biased guidance.

7. Out with the old, in with the new - Divest from traditional watches

Source: BCG Matrix

Tag Heur’s traditional watches were once a staple of high fashion and prestige. Nowadays, with the growth of smart technology and athleisure, this once cash cow is turning into a dog for the company. In order to avoid irrelevance, LMMH should invest a substantial amount of money in research and development to develop a high-fashion smart watch. While competitors such as Apple have gotten out to an early lead with its Apple Watch, a market remains for smart watches targeted toward a high-end luxury audience.

8. Acquire more non-mega brands to differentiate from competitors (Non-mega can stand under my umbrella, ella, ella, eh, eh, eh)

Source: Porter’s 5 Forces

LVMH must differentiate from rivals, Kering and Richemont, by creating a reputation for buying high quality, niche brands with extremely creative designers, and turning them into mega brands. Having these extreme creative-type designers under the LVMH umbrella will result in highly-desired product offerings and will promote autonomy within the individual brands. The high-quality of these new product offerings, coupled with their unique designs will make the products difficult to replicate and will minimize the threat of substitutes and knockoffs.

9. Knocking off Knock-offs - Extreme emphasis on product quality

Source: Porter’s 5 Forces

LVMH must strive to hire a team and acquire brands that produce relevant, high-quality designs on a consistent basis. The focus should be on “one-of-a kind” items that appeal to trend-seekers and draw customers that are chasing the dream of exclusivity. Quality control is key to eliminating the threat of substitutes who do not have the same quality control capabilities. Relatedly, copyrights for specific designs should be a priority for most brands under the LVMH umbrella to minimize the presence of knockoffs.

10. All about the chase, no trouble - Create more value for customers by designing unique products

Source: Economic Value Created vs. Profit Earned

LVMH’s profit margins are astronomical for the retail sector and gross profit margin was 64.5% in 2020. This is higher than Richemont’s gross margin of 58.1% and lower than Kering’s 72.6% margin. LVMH’s return on capital declined from 13.2% in 2019 to 7.4% in 2020. Given the pandemic and the trends of Richemont and Kering’s return on capital, this is not overly concerning. Overall, LVMH turns over impressive profits on its products and has a healthy return on capital, given the current environment. The goal, therefore, is to create more value for customers through the innovation of products that have a “wow” factor. This can be done through innovating often and creating allure through mystery, exclusivity, and shock value.

11. Expand into the new, hip social media platforms and strategies

Source: Core Competencies and Strategy

LVMH pursues a product differentiation strategy targeting a niche consumer base that focuses on providing high-fashion and luxury goods. In order to achieve superior performance relative to competitors, LVMH must continue to leverage its already strong social media presence and expand into new mediums such as TikTok and continue partnerships with social media influencers. Social media both educates consumers on potential product offerings and increases consumer product demand especially when a particular product is used by a celebrity they actively follow.

12. Key to Mending a Rocky Relationship? Get Some Outside [Integration] Help

Source: Keys to Synergy Success, Impediments to Success

After years of poor performance with both American-based and European-based creative teams, Tiffany is floundering and will not easily integrate with LVMH’s “mood”. We recommend clearing house and building a completely new creative team at Tiffany to avoid past grudges and stubborn mindsets that would hamper growing into “relationship goals."

13. 99 Problems? Not Anymore, as Partnership with Jay-Z ushers in Era of Profitable Celebrity Alliances

Source: Synergies Drive it All

By buying a large equity stake in Jay-Z’s champagne brand “Armand de Brignac”, LVMH sang, “I’m a business, man”. Sequential synergies abound with Jay-Z making the liquor and the buzz and LVMH raking in the publicity and cash. It seems like everyone and their mother is starting a liquor brand now, so more celebrity partnerships would strengthen the LVMH portfolio, drive down market uncertainty, and really turn-up the company’s Christmas party.

14. LVMH finally put a ring on Tiffany. But corporate beefs threaten the marriage, necessitating a segment global move to strengthen the bond

Source: Relatedness and Synergies

Solely operational synergies (e.g. supply chain cost-cuts) only take you so far if you hope to reach Happily-Ever-After. Both sets of parents have voiced their displeasure, loudly, leading to management terminations and anger. We recommend moving the Watches/Jewelry segment management into the U.S. to improve horizontal integration and cut costs. Closer proximity to its largest segment in the category will spark more collaboration/skill sharing and begin a slow-dance into the sunset.

15. Create a line of sustainable fashion

Source: PEST Analysis

With a sociocultural shift in fashion towards consumers caring about the sustainability of their clothing and the companies they buy from, LVMH can create a line of new designs based on old materials. For example, LVMH can buy used bags from its brands and create a fashion line renovating these styles to fit present day trends. By doing this, LVMH will appeal to its customers wanting to save the environment while simultaneously cutting costs by not having to make new bags.

Source: PEST Analysis

Source: Porter's 5 Forces

Source: VRIN Analysis

Source: EVC Analysis

Source: BCG Matrix