Comparison of three major European groups in the luxury industry - Louis Vuitton Moet Hennessy (LVMH), Pinault Printemps Redoute-Gucci (PPR), and Richemont

Résumé du document

What is luxury, and what is the luxury industry? According Jean de Mandeville, luxury is everything that represents more than what is strictly necessary. Luxury is about everything that we consider as superfluous and not necessary. Luxury is about sophistication and stylistic refinement of life styles. Luxury is affordable and is maintening through large expenses, that is why it used to be reviled by political thinkers.

We can consider luxury as an economic sector by itself since the XVII century in France. It emerged as an opposition from the Nobility with the industrial revolution. The luxury industry is defined by three criterion: the visibility of the brand or the House, the temporality (the cultural references of the brand) and the efficiency of the brand (quality). Global luxury group have been faced to a sharp change of their environment and markets.

2003 has been the first time the turnover of some luxury groups went down. Groups have been impacted by the unfavourable conjunction of circumstances. Profit margin are getting less important and debt are increasing as a result of the crisis. On the management level, luxury groups who are facing a complex environment and have to develop new strategies to change their way of development.

In this paper, we are going to have a look and compare three major European groups: LVMH, Gucci- PPR and Richemont. The point if here to analyze how major groups within the same sector present different structures and do not take consider the same opportunities and threats within the sector.

A complex environment In the 1990's, a concentration trend set up the luxury industry as it is still now. The market is dominated by multi-brand groups (LVMH, PPR-Gucci and Richemont) and a few specialiased operators mostly american or japanese. The beginning of the 2000's was the first period in which the luxury industry showed a sharp decrease. Here is a graph that show the grouth rate of the luxury industry.

Experts forecast an increasing growth rate for the coming years, however, the groups will have to pay attention to new strategic routes to keep increasing. First of all, to be bearable and more fruitful,groups have to develop their ability to extand their brands to the "middle-class". The "hyper luxury" for the "mega rich" must also be reinforced. Then, emerging countries represent the new challenge and is creating a lot of opportunities.

Finally, it is important for the groups to maintain the "brand capital". Any expanding strategy should respect the identity of the brand and its culture.

Extraits

[...] Turnover Billion euros Turnover Titre de l'axe Souce: Annual report LVMH 4 Variation of the turnover per year - Variation Source: LVMH, rapport annuel 2008. We can divide LVMH activities into 5 sectors. Wine and spirits: LVMH is the world leader in champagne and cognac. The group is developing high qualitity wine from the most famous place France. Brands: Moët & Chandon, Dom Pérignon, Mercier, Ruinart, Veuve Clicquot Ponsardin, Krug, Chandon Estates, Cloudy Bay, Cape Mentelle, Newton, MountAdam, Hennessy, Château d'Yquem. [...]

[...] Members of the management are empowered to conduct the day-to-day strategic and operational administration of the Group including, inter alia, financial management. The management is responsible for the management of the Group's underlying businesses and investments, subject at all times to an obligation to provide adequate information on 20 In addition, the management will provide the Board with such support as it may require in order to be able to consider and evaluate strategic alternatives. It is responsible for establishing financial controls and appropriate procedures for the management of risk within the Group as well as the overall supervision of the business. [...]

[...] The brand chloé and Lancel are two important maisons for the group in the leather industry. The group is present in all the continents: Europe Sales in European markets increased by 3 per cent and accounted for 44 per cent of total turnover. The 3 per cent increase reflects a modest increase in established markets and 19 double-digit sales growth in certain developing markets in the region, such as the Middle East. Asia-Pacific Sales growth in the region remained buoyant, although the rate of growth slowed during the course of the year. [...]

[...] In 1999, the group decied to invest in the luxury sector by buying 42% of Gucci Group. The grpud started a strategy aimed to be one of the first multi brand group. The main shareholder of PPR is Artemis (Holding) which got 40,3% of the capital. Nowadays, PPR has been focused in two main sector, which are the most profitable, the ditribution and the luxury sectors. There are now more than 29 brands divided in 6 mains groups: Gucci Group,Puma, CFAO, Redcats, Conforama and Fnac Source: Xerfi, PPR 10 Shareholders: The 31th of December 2007, individual shareholders had 10,8% of the capital of the group, les than 2006 of the capital is hold by institutional shareholders : by French companies and 28,8% by international ones. [...]

[...] The Group's luxury interests encompass several of the most prestigious names in the luxury industry including Cartier, Van Cleef & Arpels, Piaget, Vacheron Constantin, JaegerLeCoultre, IWC, Panerai and Montblanc. Source: Xerfi, Richemont Shareholders: Richemont's company has two different shares : Richemont ‘A' and ‘B' shares have equal rights to share in the dividends and capital of the Company: ‘B' shareholders are entitled to receive 10.0 per cent of the dividend per share paid to ‘A' shareholders and 9.1 per cent of the Company's capital.However, despite the differing nominal values of the ‘A' and ‘B' shares, each ‘B' share conveys the same right, in normal circumstances, to vote at meetings of shareholders as each ‘A' share Source: www.richemont.fr Richemont has as main shareholders Compagnie Financière Rupert. [...]