LVMH's current relationships with Dior, Fendi, Bulgari, and Tiffany represent the implementation of which corporate strategy?
-forward vertical integration
-corporate diversification
-horizontal integration
-backward vertical integration
-economies of scale
Exhibit MC9 2 breaks down LVMH Group's revenues by segment. In 2021 , about 48% of the 64.2 billion euros came from fashion and leather goods, 18% from selective retailing twhich makes certain products available only in specific stores and locations such as Sephora and Le Bon March), 10% from perfumes and cosmetics, 9% from wines and spirits, and 14% from watches and jewelry. EXHIBIT MC9.2 LVMH Group Revenues by Seament, 2008-2021 (billion euros) Fashion and Salnothua n.t. 2021 (b With almost all of its sales concentrated in retail stores and focused on the U.S. market, Tiffany had huge exposure to extemal events So, in due course, the Covid-19 pandernic hit Tiffany much harder than other competifors in the fuxcury business Tiffany's sales plunged as its stores closed for extended periods and international travel was suspended. The Wolf in Coshmere to the Rescue The "wolf in cashmere" refers to Bernard Arnaul, chairman and CEO of LVMH, the largest Itnoury conglomerate globally Arnault is the weathiest person in Europe, with a net worth or $150 billion. He eamed the moniker "wolf in cashmere" When he furned a family construction company from the gritty town of Roubab in northern France into a luxury behemom His first step was to acquire Dior, the French luxury fashion house, before gaining control of LVMH in the 19805 Louk Vutton is the flagship brand of France Moe t Hennessy Louis Vultton S. A. better known as LVMH. Iss most populat products are Louis Vuitton handbsgs. With the iconici LV monogram. The largest purveyor of luxury brands giobally. LVMH owns some 75 fuxury lines in tashion (Oior ond Fendi), jeweiry and watches (Bulgan and TAG Heuen, wine and spints Moet Hennessy and Armand de Brignac by fay-2). perfumes land cosmetics (Sephora, and Fenty fleaty by fihanro), and biliponin 2021 EXHIBIT MC9.1 IVMHGtoup Total Revenues, 2008-2021 (billon euros) 70 60 LVMH has grown by acquisition. By acquiring Tiffany, LVMH has engaged in horizontal integration, which is the process of merging with a competitor at the same stage of the industry value chain. Horizontal integration is a corporate strategy that can improve a firm's strategic position in a single industry. As a rule, firms should go ahead with horizontal integration ple. acquiring a competitor) if the target firm is more valuable inside the acquiring firm than as a continued standalone company. LVMH believes it can unlock more value from riffany within the conglomerate. For one, Tiffany helps strengthen its position in jewelry and watches. Since the Tiffany acquisition, LVMH's sales of jewelry and watches increased from 34 bilion curos (or 7% of total) in 2020 to 9 bilion euros (or 14% of total) in 2021 . As a standalone category. sales of jeweliry and watches increased by 265% (see Exhibit MC9.2), thus aiding in diversifying the conglomerate's product mix. Second, by owning THfany, LVMH can strengthen its presence in the US. market and enhance its geographic diversification, In contrast to Tiffany, LVMH earns over 90% of its reverues outside its home country of France, with about 65% of its sales in Asia, 25% in Europe, and only 10% in the United States. Third, by acquiring Tiffany, LVMH preempted rivals from doing so. The plobal fuxury inclustry is dominated by three conglomerates. LVMH. Kering (Gucci and Yves Saint Laurent), and Richemont (Cartier and Montbianc). LVMH is more than twice the size of Kering and Richemont combined. Tiffony Moves into the 21 st Century LVMH immediately set to work in attempung to unich value at Tifany by moving the company into the 2 tst century it brought in a new top manegemerot team from france, including a new CEO for Titlany. Anthony Ledu and Alexaodre Ambult the 29 year-old son of Bemoult Arnsult. Theyounger Amactrs official tite is executve vice president of product LVMH immediately set to work in attempting to unlock value at Tiffany by moving the comparny into the 2Ist century it brought in a new top management team from France, including a new CEO for Tiffany, Anthony Ledru, and Alexandre Amault, the 29-year-old son of Bernault Amault. The younger Arnault's official title is executive vice president of prodict and communications. Although Alexandre Arnault is supposed to report to the CEO per the new org chart, in meetings he often leverages his father's authority by stating. "I spoke with BA [Bernard Arnault] and this is what we agreed on 1 American employees bristled at the blatant nepotism. When asked during a town hall meeting shortly after the acquisition what LVMH would do to promote more women to leadership positions at Tiffany, the new CEO responded, Leave some jobs for us men, because we need to work, too," which he meant as a joke. Still, it was not well received in a post- $ MeToo world 2 The tight-knit French executives set to work immeciately to change Tiffany's strategy, structure, and culture. First, meetings were streamlined, with no more than 10 executives, rather than the more than 40 people common during Tiffany's days as an independent jeweler, Second, they implemented a clear hierarchical structure at Tiffany, which had been known more as an egalitarlan and consensus-oriented workplace. Third, the French leadership team required people to work in the offices during the pandemic and controlled attendance by checking the electronic swipe in/out records of employee batches. They argued that jeweiry could not be appraised or designed via Zoom calls Atter being replaced by French executves, Iong-time Ameican lesders quit. Rank-and-file employee turnover was also high during the pandemic as people sought out employers that allowed them to work from home. The remaining Tiffany employees joked that the ability to speak Fiench was a prerequiste for job security. Shortly after the acquisition, an unsanctioned memo titied Franco.American Cultural Nuances and Etiquette made its way around Tiffany, including tips on cultural differences between Fiench and American workpisce culture it counseled against discussing weekend plans as smali tak Employees should expect a much tess welcoming workplace, short on positive feedback but iong on critism. "French people share more negative feedback' and workers should "expect less warm and fuzzy 'amazing. Tabulous and excessively positive comments are not the norm 3 The new ceo firmly pushed back and indicated that the EXHiBir MC91 LVMH Group Total Revenues, 2008-2021 (billion euros) 40 30 20 17.26 10 42.66 46.86 53.76 64.2 'fabulous' and excessively positive comments are not the norm 3 The new CEO firmly pushed back and indicated that the memo was not representative of the values held by LVMH. Alexandre Amault designed new marketing campaigns to communicate Tiffanyss fresh approach. A Millennial himself, the younger Amault wants to make Tiffany attractive to a younger audience. To support this positioning. Thiffany released the ad campaign "Not Your Mother's Tiffany," The initiative received an immediate backlash, with many young women expressing outrage on social media, indicating that they look to their mothers for inspiration and view the new branding as degrading their mother's style. While negatively recelved, the campaign did intend to reach a broader audience by showing that there are other options besides the classic Tiffany style Next, Tiffany launched the "About Love" campaign featuring Beyonce and Jay-z. In addition to targeting a new audience for Tiffany products, LVMH is also ottempting to position Tiffany upmarket. Rather than selling entry-level items for a few hundred dollars, LVMH wants Tiffany to focus on the luxury segment. As a prime example of the new Tiffany, it introduced a 180 -carat diamond necklace as part of its fine-jeweiry collection. at an estimated price of $20$30 million. LVMH is attempting to move Tiffany upmarket while remaining attractive to the US consumet. Highend jewelry sales above $100,000 are up 50% at Tiffany's compared to 2019 . The more robust demand for high-end jewelry translated into a 35% increase in spending by the average consumer, particularly those under 40 . At the same time; LVMH wants Tiffany to increase its sales overseas, especially in Asia, which is home to alarge and wealthy middle class in China and other countries. The new CEO plans to open super-high-end Tiffany stores in Europe and Asla to provide a best-in.class customer experience. Making Tiffany more attractive internationally is a top prionty because most or ins sales have been in the United States. The new marching orders are: Go upmarket and go global while remaining strong in the home market. Endinotes In 2020, LVMH acquired Tiffany for $16 billion, the largest takeover in the industry. With little or no growth for a decade. Tiffary had fallen on hard times. Why did the American jeweler struggle? Why did LVMH acquire Tiffany? And how witr the merger impact a company that is an American cultural Icon? Titfany Feeling Blue Tiffany 8.Co. is the quintessential American jewelec, best known for its iconic blue box and romantic engagement rings it has been a imainstay in Amencan culture for aimost 200 years. Before the LVMH acquisition, Tiffany focused on providing affordable luxury for many Americans, including gifts for baby births, weddings, and graduations. Engagement rings: wedding bands, and other jeweliy are among its most popular items. For instance, entryilevel sterling silver pleces, such as the Elsa Peretti heart necklaces that are priced less than $300, are beloved by generations of teenagers. Tiffany/s reputation is one of understated, classic elegance. Since key scenes of the 1961 movie Breaklast at Titfany's were shot at Thfany's Fith Avenue flagship store in New York City, it has become a magnet for window shoppers and tourists, who often wait in long lines to enter the store. Tiffany certainly provided an unparalleled in-store shopping experience for customers looking to be part of an aspirational brand. indoed, niffany/s 330 retail outlets are the primary source of its revenues, generating aimos: 95% of its sales Compared to otherjewelers. Tiffany's online presence is underdeveloped Moreover, Trfany's business is heavly concentrated in its home market, where it eams roughly 45% of its reveaues, compared with 15% in Japan, 30% in the rest of Asia, and 10%5 in Europe Tiffanys sales were $4 bilion in 2019 , its last year as an independent company. Reisting on pust laulels. Tiftany stopped innovating and changing with the times. Its iconic brand had become stale and associated with an older generation Professiona Millennials and Gen Zers do not consider Tiffany oploce where they want to shop for lucury items. Ther believe high-tech gadgets such as an Apple Watch the latest IPhone or fashipn thems such as in Supterie hoodie are much more desirable than a diamond ring. Others prefer a Tesla vehicle over bling
