lvmh vs gucci

8/11/2019 LVMH vs GUCCI

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End Term Assignment

Louis Vuitton Moët Hennessy

vs

Gucci

For requirements of the course

Systems, Strategy and bottlenecks

Date of Submission: 04th

August 2014



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Table of Contents

LUXURY GOODS INDUSTRY ............................................................................................ 4

CHOICE OF THE TWO FIRMS ............................................................................................ 4

LOUIS VUITTON .................................................................................................................. 5

EIGHT DIMENSIONAL ANALYSIS OF LOUIS VUITTON ............................................. 6

SALES, MARKETING AND DISTRIBUTION IN LVMH .................................................. 7

AUTOPOEISIS IN LVMH ..................................................................................................... 7

BOTTLENECK ...................................................................................................................... 8

GUCCI .................................................................................................................................... 8

EIGHT DIMENSIONAL ANALYSIS OF GUCCI................................................................ 9

SALES AND MARKETING IN GUCCI ............................................................................. 11

AUTOPOEISIS IN GUCCI .................................................................................................. 11

BOTTLENECK .................................................................................................................... 11

COMPARISON OF LOUIS VUITTON AND GUCCI ........................................................ 11

CONCLUSION ..................................................................................................................... 13

REFERENCES...................................................................................................................... 14

EXHIBITS ............................................................................................................................ 15



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EXECUTIVE SUMMARY

Luxury Industry is unique in the sense that it is highly driven by image, exclusivity and

high price. Luxury brands have to deliver on high levels of quality. However, there is a

great variability in demand across seasons. At the helm of any leading fashion house, the

designer is the creative force that provides the kick to the autopoeitic system of fashion

house. This deviation amplifying loop in the form of his creations/designs is then brought to

reality by a supply chain network.

In this report, World‟s leading luxury brands - Louis Vuitton and Gucci have been analysed

to identify the various deviation amplifying and deviation counteracting loops in action.

Even though both firms emerge to be artists, the mechanism of deviation counteracting

loops are different. Louis Vuitton has vertical integration whereas Gucci has an outsourced

agile supply chain network that enables the deviation counteracting loop.

Because of this inherent difference in the counteracting loops, it has been concluded that

Louis Vuitton is a “bull elephant” and an “Artist”. On the other hand, Gucci is a “cheetah”

and an “Artist”.

Further, it has been recommended that choice of bottleneck for both firms be capacity as

this would maintain the aura of exclusivity without leading to brand dilution. Also, for

Gucci to achieve its mission of becoming the leading luxury brand, it has to expand to other

categories.



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LUXURY GOODS INDUSTRY

The luxury goods differentiate themselves from other products by their extraordinariness,

symbolism, quality, aesthetics, rarity and high price. This lends uniqueness to the luxury industry as

it has to rely on marketing and promotion to sell products to a specified group of people. It is also an

industry that has high margins, domination by few players and is shrouded with very few insider

information in public domain. Although only a select few can afford luxury goods, the vast majority

of people who are exposed to advertisements for certain products generally have aspirations of

being able to own these products someday.

The target customers in this industry are high net worth individuals. Globally, China is witnessing

the highest increase in the luxury goods market (around 20% as per Euro monitor 2013). Leading

luxury brands like Hermes, Louis Vuitton, Gucci have opened up stores in China.

Luxury industry is led by fashion houses from Italy, France where they have access to highly skilled

craftsman. Apparel wear sales takes place seasonally wherein every fashion house would unveil

their design samples in fashion fairs. Based on the feedback, the creative team modify their samples

and unveil their collection in a sales campaign which lasts for 4-6 weeks. Within this period, direct

orders from key shops or distributor is received. The orders are delivered after around six months to

the shops, distributors and boutiques. Because of raw materials mismatch between forecasted and

actual orders, most of the times delivered quantity is always lower.

CHOICE OF THE TWO FIRMS

Louis Vuitton and Gucci are among the most widely respected brands in the luxury business. Louis

Vuitton group has been stable under stewardship of the Arnault family. Gucci on the other hand had

a tumultuous history when the group was negatively affected by family in fighting and had lost

strategic direction. It was only under the leadership of Tom Ford that the group had a resurgence

that was hailed as one of the biggest turnarounds in the fashion industry. Gucci also had faced the

threat of acquisition by LVMH which dragged in the court in the early 2000‟s.



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Today, the LVMH group commands eight times higher revenue than Gucci group, however in terms

of consumer perception of high end luxury, both are similarly positioned and face similar

challenges. In terms of advertisement campaigns, LVMH focuses on universal themes like the

adventure, travel, journey, time while Gucci focuses on imagery of raw sex appeal. Gucci scores

brownie points for its resilience. It has managed to rise above the factors that tormented it, and has

continued being one of the leading luxury brands in the world. In the highly dynamic environment

of luxury business, where these two firms currently stand in direct competition, this report seeks to

explore the strategies of both the firm.

LOUIS VUITTON

Louis Vuitton Moët Hennessy, referred to as Louis Vuitton is a French fashion house founded in

1854 by Louis Vuitton. Louis Vuitton is one of the world's leading international fashion houses; it

sells its products through lease departments in high-end department stores, standalone boutiques and

through its website. For six consecutive years (2006 – 2012), Louis Vuitton has been named the

world's most valuable luxury brand. Its brand valuation in 2013 was 28.4 billion USD with a sales

of 9.4 billion USD.

To maintain its aura of exclusivity. Vuitton has constantly pushed the limits. While it sells limited-

edition runway pieces, priced at thousands of euros, its iconic brown and gold monogram bags and

wallets is owned by millions of women. LVMH has also forayed into a wide category of products

ranging from designer apparel to super premium beauty and personal care, luxury jewellery and

timepieces and fine wines and spirits.

Mr Arnault is the chief executive, chairman and controlling shareholder of the LVMH group, the

world's largest luxury group. Over the past quarter-century he has transformed a small, almost

defunct clothing manufacturer into a conglomerate with control more than 60 luxury brands.

In Japan, where 15% of the group's sales were generated a decade ago, a startling 85% of women

own a Louis Vuitton product. Louis Vuitton is not set its sight on the emerging markets like China

where luxury market growth is expected to be around 20 %.

http://en.wikipedia.org/wiki/Louis_Vuitton_(designer)

http://en.wikipedia.org/wiki/Department_stores

http://en.wikipedia.org/wiki/Boutiques

http://en.wikipedia.org/wiki/Boutiques

http://en.wikipedia.org/wiki/Department_stores

http://en.wikipedia.org/wiki/Louis_Vuitton_(designer)



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EIGHT DIMENSIONAL ANALYSIS OF LOUIS VUITTON

Capacity: Based on extensive forecasting models, the production quantity is decided much prior to

sales campaign. There will be variations in demand from season to season which results in supply

chain problems.

Facility: The Company owns 17 factories that manufacture bags and accessories. Twelve factories

in France; in addition, there are three factories in Spain and two in California. The company only

manufactures components such as zippers in Asia.

Technology: Vuitton developed a computer program to help leather cutters identify the flaws in

the skins they receive. The program determines where to cut out the dozens of different pieces of a

bag, a process that has drastically reduced the amount of wasted leather.

At Vuitton's shoe factory in Italy, instead of workers walking back and forth from their workstation

to the shelves, now robots fetch the foot molds. The use of robots resulted in a "considerable"

reduction in production time.

Production Planning: Based on the forecasted demand by the logistics department, production

commences. Currently, LVMH is facing extremely high demand in many of its product wherein it is

losing a large number of potential sales. It has however been conservative in increasing its capacity

and opted for growth in small chunks.

Quality: Vuitton remains known for high quality, but the work isn't all artisan. Indeed, last year

two of its ads showing workers making things by hand were banned by Britain's advertising

watchdog for potentially misleading consumers.

Vuitton has implemented production improvement measures like reorganizing teams of about 10

workers in U-shaped clusters, which freed up 10% more floor space in its factories. This allowed

Vuitton to hire more production workers. It had also implemented a lean production process,

inspired by Japanese car makers.



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Further, it has undertaken quality focused initiatives

Extensive laboratory equipment test products (e.g. opening and closing zippers 5,000

times).

Leather is sourced from Northern Europe, as they tend to have fewer insect bites, thus are

less blemished.

The company offers a lifetime repair guarantee.

Integrate manufacturing initiatives such as “quality circles” in the production process.

Workforce: Majority of the workforce is composed of skilled operators called “maroquiniers”,

which represents the direct workforce. Traditional craftsmanship is one of the mainstays of LVMH.

Organisation: The Company is decentralized by design and has very small cadre of managers.

There is mix of centralised system and individual independence with each brand within LVMH fold

being stand-alone and autonomous.

Scope: Vuitton has vertically integrated towards suppliers and customers. Further, the scale in

production is matched by the demand through a wide-ranging category focus from designer apparel

to super premium beauty and personal care, luxury jewellery and timepieces and fine wines and

spirits.

SALES, MARKETING AND DISTRIBUTION IN LVMH

As of 2011, Vuitton had 456 stores around the globe, over 100 more than rival Gucci. Its

omnipresence has pushed it to be more selective in its openings.

AUTOPOEISIS IN LVMH

The mission statement of the LVMH group is to represent the most refined qualities of Western "Art

de Vivre" around the world. LVMH identifies itself synonymous with both elegance and creativity.



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Through their products, and the cultural values they embody, they want to blend tradition and

innovation, and kindle dream and fantasy.

In this regard, LVMH has given complete freedom to the creative directors and considers that

creativity should not be hampered by the short term view of profits. Further, to realise the vision of

creative team it has located its most of factories near France, where excellent craftsmen are

available. To steward the whole group together along the group‟s mission, Mr Arnault has designed

a system where both creation and execution work in tandem.

The autopoeisis of LVMH lies in creating an aura of exclusivity around its products that allows it to

command high margins from its products. This high margins allows the group‟s creative team to

innovate (deviation amplifying loop) along with an execution team of highly skilled craftsmen to

realise the creative vision (deviation counteracting loop). Further, autopoeisis for the group also

includes the acquisition of rival brands for consolidation and act as avenues for survival and growth

in case its flagship brands fails.

BOTTLENECK

Louis Vuitton has chosen capacity as its bottleneck by being extremely conservative on capacity

expansion despite the huge surge in demand. Many of its stores had to shut shop before closure of

season. This choice of bottleneck is appropriate as the autopoeisis of the group maintained through

an aura of elusiveness would remain unaffected. If LVMH tries to boost capacity, there is a

possibility of brand dilution which can jeopardise the autopoeisis of the system.

GUCCI

Gucci was founded by Guccio Gucci in Florence, Italy in 1921. Gucci generated about € 4.2 billion

in revenue worldwide in 2008 according to BusinessWeek magazine and was ranked 38 most

valuable brand in Forbes list 2013. Gucci is also the biggest-selling Italian brand. As of September

http://en.wikipedia.org/wiki/Guccio_Gucci

http://en.wikipedia.org/wiki/Florence

http://en.wikipedia.org/wiki/BusinessWeek

http://en.wikipedia.org/wiki/BusinessWeek

http://en.wikipedia.org/wiki/Florence

http://en.wikipedia.org/wiki/Guccio_Gucci



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2009, Gucci operates about 278 directly operated stores worldwide and wholesales its products

through upscale department stores and franchisees. In the year 2013 the brand valuation climbed to

$ 12.1 Billion USD with sales posted at $4.7 billion USD.

However, the company was perilously close to bankruptcy during the 1980‟s, plagued by years of

infighting among the Gucci family members. Recklessly selling goods, the once glamorous brand

name was .almost tarnished. Production deadlocks were aplenty, suppliers were lining up for

pending payments and the workforce was demotivated. When Domenico De Sole took the reins in

1994, the Gucci Group, soon staged the biggest brand renaissance and company turnaround in high-

fashion history within a very short span of time. Even two decades after, Gucci continues to be a

highly desired exclusive luxury brand.

EIGHT DIMENSIONAL ANALYSIS OF GUCCI

Capacity: Almost 90% of Gucci products are new each season in comparison to 70 % of the

competitors. The company develops 18,000 prototypes/year and manages some 4,000 different

stock keeping units (to facilitate distinctions to be made between product ranges, materials and

colours). To deal with this, Gucci has outsourced all its production. The supply network comprises

more than 600 firms providing employment to roughly 4,000 people. Gucci has more than 80 other

leather goods suppliers who provide the flexibility to increase and decrease production capacity

(and output) as necessary.

Facility: Gucci has assigned the operations task to a dedicated company - Gucci Logistica which

employs 320 people and is structured around five major areas: materials research & development,

operations, technical management, production and costing. While most production activities are

outsourced, production department plays a key role in monitoring workflow progress across the

supply chain. The department is responsible for order handling, procurement.

Technology: While such a decentralised network allows Gucci a high level of flexibility, it requires

significant coordination efforts. This is enabled by an MRP system via which planners can check

availability of components and processing times at suppliers, and then define production quantities.



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Loading at suppliers can subsequently be changed by up to ±15%. Gucci has also installed systems

to keep in track with its top ten suppliers. This has resulted in accuracy and speed in the distribution

process.

Production Planning: Once the customer order is received based on the seasonal trends, Gucci

purchases the raw materials including the hardware and stocks it at its own warehouses. Materials

are then checked and distributed to the various suppliers according the allocated production order.

Gucci retains ownership thus outsourcing only the pure production activities. With strong focus on

„craftmanship‟, product engineering is carried out in a detailed way in terms of both measures and

materials merging.

Quality: Gucci quality has to be consistently achieved from each of the 600 Gucci suppliers. In

order to help suppliers to comply with Gucci standards, there are technical advisors (that support the

supplier network in the definition and the start-up of the new collections. In addition to these

advisors acting at the beginning of the cycle to prevent defects, there are also QC inspectors that

check the quality of the finished products.

Workforce: Gucci Logistica employs 320 people and has five subdivisions: materials research &

development, operations, technical management, production and costing. It has incorporated

practices such as 360-degree feedback and coaching programme.

Organisation: There is tighter centralised control in Gucci relative to LVMH. All design related

issues have to be approved solely by the creative head.

Scope: Gucci supply network has two kinds of partnership - 70 first tier suppliers and roughly 500-

600 second tier companies. First tier relationship is governed by formal contracts. The suppliers

have to meet the standards as required by Gucci. Gucci also enjoys wide level of trust with suppliers

and involves in developing their production capabilities. This arrangements enable Gucci to respond

to the variable demand across seasons in agile manner without compromise on quality.



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SALES AND MARKETING IN GUCCI

Gucci operates more than 680 boutiques worldwide and wholesales its products through franchisees

and high -end department stores.

AUTOPOEISIS IN GUCCI

Gucci autopoeisis lies in its core competency of handling an agile supply chain system where in it

has outsourced all its production. However, for this autopoeitic system a kick in the form of

inspirational leadership at the helm is required. LVMH had the benefit of stable leadership. In

contrast, after years of identity crisis, Gucci got the strong vision of Tom Ford and Dominic De Sole

in 1990‟s that provided the kick to create revamped identity.

BOTTLENECK

Gucci right now faces growth bottlenecks in terms of capacity as well as number of categories. It is

recommended that Gucci also increase its product categories so that the sole bottleneck remains

capacity which is preferable in luxury goods industry. Gucci had been vulnerable to hostile takeover

by LVMH. Expanding product category wise with capacity as bottleneck can be a sustainable

strategy to attain its goal of being the leading luxury brand.

COMPARISON OF LOUIS VUITTON AND GUCCI

Louis Vuitton Gucci

Capacity Currently facing supply shortage due to

demand upsurge post-recession; however

LVMH conservative in capacity addition

Agile supply chain system to meet fluctuations in

demand

Facility Owns 17 facilities (12 in France, 3 in Outsourced all its production



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Spain and 2 in California); Located

mostly near centres of skilled

craftsmanship

Supply network of 600 firms mainly based in Italy

known for high quality artisanship

Technology Process layout improvements such as U

shaped layout; Use of robots to reduce

time

Interlinking with its top ten suppliers to revamp

production with accuracy and speed

Production

Planning

based on volumes forecasted by the

logistics department

based on volumes forecasted by the logistics

department

Quality Lean production processes; quality focus

circles; Process layout improvements

Quality checks and monitoring of suppliers

Workforce Craftsman, highly skilled;

Design decided by the creative

team/stylist

Production Coordination by Gucci Logistica with hr

practices such as 360 degree feedback; Outsourced to

highly skilled craftsmen in Florence ; Designs

decided by the creative team/stylist

Organisation Greater degree of independence to the

managers

Tighter centralised control

Scope Vertical integration towards both

suppliers and customers; Owns factories

and sells only via directly operated stores

Outsourced production and sells via directly operated

stores, franchisees, departmental stores

Bottleneck Capacity as demand is outstripping supply Capacity

Presence in limited product categories relative to

LVMH

Recommende

d Choice of

Bottleneck

The choice is apt. Gucci should increase its product categories and

choose capacity as the sole bottleneck to become

leading luxury brand.

Bottleneck Capacity as demand is outstripping supply Capacity

Presence in limited product categories relative to

LVMH



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CONCLUSION

LVMH can be considered as a bull elephant as it is extremely conservative on capacity

addition and has achieved economies of scale via both forward and backward integration.

At the same time, it has expanded itself in wide range of product categories. By delivering

highest levels of quality at the highest price it is one of the highest levels of artist.

Gucci on the other hand because of its agile supply chain and lower fixed costs can be

considered a cheetah. It is also an artist.



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REFERENCES

“Managing exclusivity and availability of fashion products: a supply chain perspective” -

Vittoria_Veronesi, http://aisberg.unibg.it/bitstream/10446/912/1/Vittoria_ Verone_PhD _Thesis .pdf

“Agile Supply Chain in the Fashion Business” - Corrada Cerruti, http://www.littoralis.info/iom/s

ecure/assets/iom20061030.372121_4545a4f9d571.pdf

Supply Chain Management, http://guccippr.blogspot.in/p/supply-chain-management.html

“Gucci – A case study” http://innovatingsustainablefashion.files.wordpress.com/2012/07/group _1_gucci. Pdf

“LVMH Supply Chain” - Dow Jones News Service, http://online.wsj.com/ad/upsarticle-2-7-4.html

http://aisberg.unibg.it/bitstream/10446/912/1/Vittoria_

http://www.littoralis.info/iom/s%20ecure/assets/iom20061030.372121_4545a4f9d571.pdf


http://guccippr.blogspot.in/p/supply-chain-management.html

http://innovatingsustainablefashion.files/

http://online.wsj.com/ad/upsarticle-2-7-4.html

http://online.wsj.com/ad/upsarticle-2-7-4.html

http://innovatingsustainablefashion.files/

http://guccippr.blogspot.in/p/supply-chain-management.html



http://aisberg.unibg.it/bitstream/10446/912/1/Vittoria_



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Media coverage of the show Valuable – cost of show

$500,000 with value of

media coverage into

millions of dollars

Special pre collection

briefing for the department

stores

Medium – useful for brand

promotion and aspiration

Brand associated products

like ready to wear and

accessories like shoes and

bags

Possibly highest value

added here

Service – exclusive and

discreet level of service to

the wealthy clients

Additional and important

service for clients wishing to

purchase

Through ownership of retail

outlets

High but small number of

clients for Haute Couture

Greater number of clients

for ready to wear

Source : Business of fashion



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Exhibit 2:

Exhibit 3:



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Exhibit 4:

lvmh vs gucci

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