LVMH
Identification Evaluation of the main problems.
Sometimes, the best laid plans of mice and men go awry. The case of Bernard Arnault's involvement in LVMH is one of dazzling brilliance on one hand and intractable egotism on the other.
Arnault's stated strategy seems to make sense: acquire brands epitomizing the combination of classically tasteful luxury with forward-looking modernism. He looks for brands that are traditional in feel, but constantly renewing and reinventing themselves. However, some of his acquisitions for LVMH have seemingly deviated from this otherwise successful strategy. So, first of all, these deviations are problematic for the LVMH cachet.
Secondly, when even seemingly sensible acquisitions have failed to deliver value to the firm and its investors, Arnault has been reticent in divesting them. It is unclear why someone seemingly gifted with such business savvy would fail to unload an unprofitable, burdensome brand. This is an issue which needs explication.
The firm has also had bad luck, along with countless others. The zeitgeist in the United States and abroad undertook at least a temporary detour after the sobering September 11th terrorist attacks, and purveyors of luxury goods instantly found themselves facing growing mountains of inventory. Of course, it would be absurd to imagine there was any way LVMH could have planned for or prevented the attacks, but the company's response to the subsequent economic and cultural reaction could have been different. This was another problem.
Finally, LVMH seems to have stalled in its merger/acquisition mania. It is past time for some new growth.
II. Analysis of the problems
Clearly gifted with foresight, vision, and remarkable business savvy, Bernard Arnault has been LVMH's greatest blessing, but also a major contributor to its woes. Arnault could not have achieved so much in so little time were he not possessed of a strong and resolute character, but the downside of possessing such character (and so much of it) is that Arnault has sometimes proven himself more headstrong than wise concerning LVMH's acquisitions. Acquisitions are what have driven growth for LVMH, but many of the firm's acquisitions are puzzling given Arnault's aforementioned premise in choosing his targets.
The acquisition of Donna Karan is very representative of this kind of exception to the rule. Donna Karan's brand was a solid performer in the 1980s and early 1990s, but long before Arnault acquired it, Karan had moved the brand's image so down-market that it no longer commanded its former prestige. Further, there simply is no way one could compare Donna Karan with Givenchy (Audrey Hepburn wore his haute couture in Sabrina) or Louis Vuitton, especially after Karan's fashions were displayed in bins at discounter TJ Maxx. Arnault's response that it makes sense to acquire Karan's brand because she is so fabulously well-known seems very unsatisfying; McDonald's is also a fabulously well-known brand.
So why would Arnault acquire such a questionable horse for his firm's stable? Given the unlikelihood that he is being truthful in his stated reason, the most reasonable conclusion that suggests itself is "personal reasons." In decision-making, whether personal or business, few people are possessed of the wherewithal to exclude their feelings from the decision-making process. Something about the Donna Karan brand was important to Arnault; similarly for his other puzzling acquisitions, such as DFS. No matter what DFS sells, the name itself suggests something less than luxurious excess; "Duty Free Shops" conveys a sense of luxury approximately equivalent to "Home Shopping Network." These off-center acquisitions seem simply to be favored by Arnault for inexplicable reasons of his own.
However, when even sensible acquisitions fail to deliver value, can there be any serious reason for keeping them? Arnault's purchase of Phillips, de Pury, and Luxembourg, though criticized by some, made at least as much sense as his move into retail, which was not initially criticized. Yet when the auction house ended up costing LVMH several fortunes, he was very hesitant to divest himself of what the BCG would certainly characterize as a dog.
Arnault has been criticized as someone unwilling to admit when he is wrong. Of course, no one can be right 100% of the time, so he must be making mistakes sometimes. When has he admitted making any? Even when he seems to be admitting a mistake, as in the case of Christian Lacroix, (which Arnault did ultimately divest), it is amazing how he manages to avoid conveying any sense of his own culpability in the debacle. Perhaps this is further...
Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.
Get Started Now