Time for Louis Vuitton to come home
"The whole problem that we all have, and Louis Vuitton is the leader of the industry – is to manage what I call the 'paradox of luxury.' How can you grow year after year, and give the satisfaction to many more customers, in many more countries, and at the same time keep this sort of exclusivity of luxury?" -- Yves Carcelle, February 2008
By Swecha Bhavana, Rodrigo Castillo, Sampad Das, Noah Emery, Estella He and Ho Young Kim
In an interview with Yves Carcelle, the president and CEO of Louis Vuitton (LV), he touched on a unique strategic issue faced by LV and other luxury brands equally. The interview was given during LV’s expansion into Turkey in February 2008. He used a phrase, “the paradox of luxury,” to describe the expansion and growth of the luxury market. The paradox, according to Mr. Carcelle is aiming to increase the opportunities for growth while attempting to maintain the exclusivity of the brand. LV’s current strategy is focused on geographic expansion into emerging markets where the levels of disposable income have risen, creating new customers for the luxury goods market. At such a juncture, it becomes paramount for LV to avoid risk of diluted brand image. The fact that LV’s products are sold at only the 390 stores all over the world is one of the strategies around the paradox.
LV’s push for expansion and dominance in the luxury goods segment is not limited to just geographical expansion. The brand that was once only making trunks and luggage is now much more than just a ‘travel bag company’. In 1998, LV diversified into ready-to-wear clothing line after appointing Marc Jacobs as its Artistic Director. This move has been widely discussed to varied ends, but this turned out to be LV’s new lifeline. Not that LV was a dying brand, but it has truly leveraged it market presence and brand equity to make the natural transition into the next logical territory in the fashion industry. Mr Carcelle says in his interview “After all we enter in a period where lifestyle counts and we knew by all the studies that people were ready to wear, one day, Louis Vuitton shoes, or ready-to-wear, or carry Louis Vuitton watches.” LV’s product line now boasts ready-to-wear clothes and accessories like shoes, sun glasses, belts, jewelry, watches, scarves apart from their iconic and unmatchable monogrammed bags and luggage trunks. The greatest advantage LV had aiding their diversification was not just the brand logo LV itself but also maintaining the classic style and design of LV’s bags in all the other products launched. The complementing products reinstated LV’s pursuits of providing complete luxury brand lifestyle.
It may seem an evolutionary step for LV to apply their knowledge of the fashion industry and expand to their clothing line as they continue to grow. However, is this move really utilizing their core competencies combined with the historical strength of the brand? LV has entered into a highly competitive and volatile market of seasonal trends. And, more importantly, it has opened itself for competition from stronger clothing brands that up until this point LV has not been in direct competition with. It will now be coming face to face competitors such as Armani and Gucci who have their own long histories, reputations, and loyal customers. LV will need to build new competencies with new materials and costumer expectations that they have not traditionally worked with. Being part of the LVMH group will give them a large amount of support with this process but LV will still face a difficult struggle as other brands will react quickly to the expansion of a well-known brand such as LV into a new market segment.
During Ralph Lauren’s third quarter conference, an executive’s comments clearly demonstrate the current difficulties faced by already established luxury clothing lines. He said, “customers have demonstrated a greater willingness to spend, they remain extremely selective, and traffic trends are inconsistent.” One should wonder what the possibilities are of a non-clothing fashion house to succeed in an industry where popularity and recognition are the main drivers of the industry. Are the any possibilities of an already fashion icon that specializes in luxury bags and accessories to succeed in the main driver of fashion such as clothing. While the instant answer is yes, we have to consider the ramifications of failing. This would be disastrous to LV because failing in the main product of fashion, clothing, would undermine the great reputation it has created over the past 150 years, going all the way back to Emperor Napoleon the III’s wife.
Historically, LV had distinguished its trunks because of its fine leather, wood, craftsmanship and signature of elegance. Their designs were always practical without ever sacrificing style which resulted in the creation of timeless pieces of fashion. LV still maintains the fine leather in its products while utilizing technological innovations to ensure all their products follow the zero-defect policy. In conclusion, the further they move away from this image of quality leather within a historical context, the lower the barriers of entry become and the less powerful their brand image becomes in relation to their competitors.
The question then is what other products LV should choose to grow with. To this end LV must carefully plan for their future to protect their past. Considering their core competencies, LV might want to consider expanding into luxury furniture industry.
Aspiring high net wealth individual and celebrities in emerging countries are hunting for everything that defines luxury, from handbags, wines, cars, yachts, private jets, houses, hotels, art to entertainment. They are the hope for luxury goods industry as the demand in the West weakens. Will luxury furniture be next global luxury powerhouse? And how is LV aligned with this future? An insider of LVMH shared, “LVMH is considering launching furniture in all brands, led by LV, simultaneously to create synergy”. Entry into luxury furniture market could potentially be LV’s ‘golden egg’, with profit margins as high as 60%. And the brand value of LV can help create an exclusive and unassailable market share - just like they were able to do in the past. James Lee, HR development and training Manager at LV Asia Regional corporate, echoes this opinion. He comments that, “While there are many companies that produce luxury furniture there is no brand that easily stands out”.
In emerging markets, as real estate booms again and purchasing power increases continuously, luxury furniture is doubtlessly the next big status symbol. In Asia, home is not only the safe harbor from external chaos, but also a showcase to business partners, relatives and friends. Qin Han, a sales manager for Lamborghini furniture in China, remarked that “People want to buy it (luxury furniture) because it is a symbol of wealth and high social status”, even though one piece of such high-end furniture may cost more than $45,000. Apart from home furniture, LV should look at designing themed suites at high-end hotels and cruises.
It is time that LV takes its luxury travel to one yet uncharted destination - the home or the resting place. The most recent advertisement campaigns of LV question the process of self-discovery, and home plays a very important part of the journey because it is the place that enables the process the self-discovery. A journeying man needs to be provided with restful luxury that inspires travel.
LV has been consistently providing accents of elegance and luxury to its customers to showcase as they travel, why not provide them with the same qualities while at home? An expansion into the luxury furniture market is one example of ways in which LV can continue to grow their product lines while maintaining the value and prestige of their brand. Through carefully planned and executed limited expansions into markets that match their image and are ripe for a dominant presence LV will not only continue to grow as a brand but also solidify their position as the most recognized and powerful luxury brand in the world.
- Polo Ralph Lauren: Customers remain "extremely" selective,10 November 2010. Theflyonthewall.com FLYWAL,English
- Cem, Ipeck “Global Leaders Interview Yves Carcelle, Chairmen and CEO Louis Vuitton” http://www.global-leaders.tv N.p. Feb 6, 2008.
- Lux, Elizabeth “Brand Value” http://online.wsj.com/article/SB10001424052748704206804575467690964993952.html N.p. October 6th, 2010
- Luxury Furniture Industry Looks at Emerging Markets for Growth. http://www.reportlinker.com/p099518/Luxury-Furniture-Industry-Looks-at-Emerging-Markets-for-Growth.html
- 2009 Annual Report of LVMH, Page7. http://www.lvmh.com/comfi/pg_rapports.asp?rub=10&srub=3&str_annee=2009
- Luxury furniture about to become capital's next big status symbol http://www.chinadaily.com.cn/metro/2010-04/06/content_9689304.htm
- Three Italian Furniture Makers Hope To Create a Global Luxury Powerhouse, Gabriel Kahn. Wall Street Journal. (Eastern edition). New York, N.Y.: Oct 30, 2006. pg. B.1
This report was a group project for the Global Strategy class of Thunderbird School of Global Management Professor Nathan Washburn, Ph.D.