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The External and Global Environments
Case Study Analysis Paper:
Prepare a case study analysis on Case 14, Louis
Vuitton in Japan, found in the Cases section of your Pearce and Robinson
textbook.
Closely follow the Case Study Analysis Template by
clicking on the hyperlink. Please utilize this template format for this
Assignment. Use titles and subtitles per the format for readability purposes.
Focus upon the idea of conducting a SWOT analysis with respect to Louis
Vuitton’s external and global environment, which includes the remote, industry,
and operating environments. Please include the SWOT Analysis with the four
quadrants in the appendix of your paper (after the References page). You can
find the SWOT Analysis template in Doc Sharing.
Assignment Checklist:
• Conduct a SWOT Analysis on the case study company’s
external and global environment.
• Create a case study analysis on the company’s
external and global environmental issues while focusing upon the remote
industry, and operating environments.
Create at least two to three alternative solutions.
Conduct further research on the featured case study company on its website
relative to news and press releases, community involvement, and the like. Use
this information to help formulate your own original two to three Alternative
Solutions. After choosing one of the two to three Alternative Solutions,
discuss the Selected Solution. In the Implementation section, describe
how your Selected Solution will be implemented.
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Case 14
Louis Vuitton in Japan 1 Justin Paul
Charlotte Feroul
In Japan, whether you are in Tokyo, Osaka or Nagoya, just turn your head and Louis Vuitton
is everywhere. The celebration of the 30th anniversary of the presence of the illustrious,
glittering French multinational in Japan took place in Aoyama, one of Tokyo’s fashionable
districts. A unique vision of luxury took shape when Louis Vuitton opened yet another new
store inside Comme des Garçons on September 4, 2008, in the heart of Japan’s capital. The
pop-up store situated on the prestigious Omotesando Street was an illustration of Louis
Vuitton’s attachment to the Japanese luxury market.
Yves Carcelle, chairman and CEO of Louis Vuitton, said, “This project not only brings
a new meaning to luxury, but also speaks volumes about how the know-how and heritage
of Louis Vuitton have always been perceived in Japan, including by its foremost designers.
We are very proud to have been able to help Rei Kawakubo 2 relive her memories in such
an original and creative way.” 3 The Omotesando guerrilla marketing event reflected Louis
Vuitton’s success in Japan. Louis Vuitton had been following an aggressive marketing
strategy in the country, opening extravagant stores such as those in Ginza or Roppongi.
Take a walk on Ginza’s main street, Chuo Dori, the centre of a paradise for shoppers, with
long-established department stores, such as Mitsukoshi, Takashimaya and Matsuzakaya.
Continue through the high-end fashion street Namiki-dori. Stop. There it is. You have
reached the massive flagship Louis Vuitton store.
When Louis Vuitton, the world’s biggest luxury-goods firm, inaugurated its huge shop
in 2002 in the district of Omotesando, Tokyo, hundreds of people were queued outside.
During the first few days, sales exceeded the initial estimations by ¥1 million. 4 In the last
decade, Japan had been Louis Vuitton’s most profitable market, representing almost half of
its profits, but it seemed that with the 2008–2009 economic crisis, there might be the start
of a decline in sales.
Facing a weak economy and a shift in consumer preferences, Louis Vuitton started
adapting its strategy in the Japanese market. The days of charging a high price for products
with a proprietary logo seemed to be gone in Japan. The company had to launch relatively
low-priced collections to boost sales. The firm had also been taking steps to open stores in
other mid-size cities where the LV brand was not well known.
Louis Vuitton might be French, but Japan had become the land of Louis Vuitton lovers. Over
the years, Japanese consumers had demonstrated fascination and passion for the iconic brand.
What would be the key to Louis Vuitton’s continuing success in the Japanese market?
LOUIS VUITTON —THE HISTORY
The Foundation
Louis Vuitton Malletier, often referred to as Louis Vuitton, was an international, wellestablished brand mostly famous for its craftwork leather bags and trunks. The firm was
established in France in 1854 by Louis Vuitton and became known as one of the oldest
French luxury fashion houses.
Louis Vuitton, the company’s founder, was born in 1821 in Anchay, Jura, France. He
became a Layetier in Paris and earned a reputation while working for the Empress Eugénie de
Montijo, wife of Napoleon III. Learning from his work for the French aristocracy, he acquired
personal “savoir-faire” 5 about leather luggage. In 1854, he founded the firm, “Louis Vuitton:
Malletier à Paris.” 6 The flat-bottom trunks of Louis Vuitton with trianon canvases represented
a real revolution for travelling in those days as they combined lightness and storage capacity.
In 1885, the firm opened its first overseas store in London, England, on Oxford Street. In
1888, Louis Vuitton developed the Canvas Damier Pattern in order to make the Louis Vuitton
experience unique and recognizable by anybody. The logo “marque Louis Vuitton deposée,”
meaning “mark Louis Vuitton deposited,” was also created.
Following the death of Louis Vuitton in 1892, his son, Georges Vuitton, took over the
leadership of the firm. He was ambitious about taking Louis Vuitton to the next step—
building a global brand and setting up a multinational corporation. 7 He participated in the
Chicago World Fair in 1893, presenting the company’s product, and travelled all around the
United States to promote the brand. In 1896, Georges Vuitton created the Monogram Canvas and attained worldwide trademarks on it to limit counterfeiting. The LV monogram was
inspired by the Japanese and Oriental designs of the Victorian age. By 1914, the company
opened the Louis Vuitton Building of the Champs-Elysées, now a symbol of the success and
prestige of the company. Though World War I had begun, the firm initiated its global expansion strategy by opening stores in New York, Bombay, Washington, London, Alexandria and
Buenos Aires. In 1936, Gaston-Louis Vuitton took over the direction of the company when
his father, Georges Vuitton, passed away.
The Modern Age of Louis Vuitton
Gaston-Louis Vuitton guided the brand into its modern age. The company expanded its
product line by applying the craftwork and design of its leather to small leather goods,
such as purses and wallets, and to its whole luggage line. As a consequence, the Monogram
Canvas was redesigned in 1959 to fit the new range of products. The brand started its first
advertising strategy by handing bags to Hollywood celebrity actresses. Audrey Hepburn
carried a Louis Vuitton bag in 1963 in the film Charade , directed by Stanley Donan.
In the mid 1970s, Louis Vuitton had become the world’s biggest luxury brand in terms
of market share. The Vuitton-Racamier family, 8 owner of the brand, had focused mainly
on building a Japanese clientele. By 1977, the company owned two stores in Japan with
annual profits of US$10 million. It further tapped into the Asian market in 1983, in Taipei,
Taiwan and, in 1984, in Seoul, South Korea. The creation of Louis Vuitton Moët-Hennessy
(LVMH) in 1987 established the largest luxury-goods conglomerate in the world. Moët et
Chandon and Hennessy were the leading manufacturers of champagne and brandy. The
merger resulted in an increase in profits for Louis Vuitton of 49 per cent in 1988 compared
to 1987. By 1989, Louis Vuitton had entered into 130 countries across the world. 9
In 1990, Yves Carcelles was nominated for president of Louis Vuitton. He carried on
with an international expansion strategy, inaugurating the first Chinese store in the Palace
Hotel in Beijing. The Monogram Canvas centennial was celebrated in 1996. Seven cities
across the world held extravagant parties at stores and Louis Vuitton asked seven prestigious
designers to imagine new products featuring the LV monogram. Azzedine Alaia, Manolo
Blahnik, Romeo Gigli, Helmut Lang, Isaac Mizrahi, Syvilla and Vivienne Westwood created seven original and functional objects in a limited edition series. 10
Louis Vuitton in the 21st Century
In 1998, the American designer Marc Jacobs was appointed as Louis Vuitton’s art director.
Jacobs was already a highly successful international designer, who became distinguished as
the youngest fashion designer ever to be awarded the industry’s highest tribute, the Council
of Fashion Designers of America (CFDA) award for New Fashion Talent. The challenge was
huge, as Jacobs had to guide Vuitton’s first shoes and ready-to-wear collections. With this
nomination, Louis Vuitton aimed at establishing the brand as a consistent trendsetter in high
fashion.
Since the late 1990s, creating limited-edition collections had become Louis Vuitton’s
marketing strategy to capture consumers’ attention and reinvigorate the brand’s identity
while boosting the bottom line. In 2001, Stephen Sprouse and Jacobs collaborated to design
a limited edition series of Louis Vuitton bags. Sprouse was already a highly popular artist,
as he had collaborated with the extravagant Andy Warhol and with contemporary artists
and musicians such as Debbie Harry and Duran Duran. In line with what The New York
Times called Sprouse’s mix of “uptown sophistication in clothing with a downtown punk
and pop sensibility,” the collaboration with Jacobs resulted in a limited edition that featured
green and white graffiti written over the monogram pattern. All bags were made for Louis
Vuitton’s VIP list and were meant to be collector’s items. In 2001, following the success of
the Louis Vuitton limited edition, Jacobs designed Louis Vuitton’s first jewelry piece. In
2002, the Tambour watch collection was introduced.
Pursuing its globalization strategy in the 21st century, Louis Vuitton opened one of its
most famous stores on Fifth Avenue in New York City, then opened more stores in Sao Paulo,
Brazil, Johannesburg, South Africa, and Shanghai, China. The brand reopened its store on the
Champs-Elysées, which became the largest Louis Vuitton store in the world. Louis Vuitton
celebrated world wide its 150th anniversary in 2004. It had taken more than a century starting
with a family house to build a timeless image of class, luxury and elegance.
The industry-leading luxury conglomerate, LVMH, had been a major player in Louis
Vuitton’s success; it had been setting the tone and practices of the brand. The LVMH group
had divided itself into five business divisions: fashion and leather goods, selective retailing,
wines and spirits, perfumes and cosmetics, and watches and jewelry. There were 50 plus luxury
brands belonging to the group, which captured business in many countries. Louis Vuitton had
been returning the favour to its parent company, as it represented the group’s best-performing
brand due to continuous double-digit growth during the past years. Although LVMH did not
disclose sales for Louis Vuitton alone, analysts reckoned that in 2003, sales had grown at least
16 per cent worldwide and had repeated that growth in 2004. Thanks to Louis Vuitton’s rapid
growth, LVMH’s Paris-traded shares had almost doubled in price in 2004 to more than $75.
Exhibits 1 to 4 show LVMH’s financial results for 2008, LVMH’s Fashion & Leather Goods
Division’s 2008 financial statements and the division’s key figures. 11 The LVMH group’s
upward trend was said to be poised to continue as chairman Bernard Arnault’s expectations for
the future were very optimistic. At that time, Louis Vuitton had already quintupled sales and
increased margins six-fold since Bernard Arnault had bought the company in 1989, and the
brand was said to have the greatest potential for growth of all luxury brands (see Exhibit 5 ).
The Vuitton Machine: Inside the World’s Biggest Luxury Brand
Thinking of Louis Vuitton, what would come to mind? It would certainly be top model
celebrity ads in trendy fashion magazines, or fashionistas in new Louis Vuitton retail temples from the Champs Elysées to Tokyo’s high-end Omotesando shopping district. Behind
the glamorous image of Louis Vuitton, one could see what made it unique, and what made
it the most profitable luxury brand worldwide (see Exhibit 6 ).
As Louis Vuitton had been progressing smoothly for the past years, Yves Carcelle, the
charismatic textile executive who had been widely credited with masterminding Louis Vuitton’s everrising growth, had commented about the brand’s growth that “the sky’s the limit.” With $3.8 billion in
annual sales, Louis Vuitton represented in 2004 about twice the size of its two main competitors, Prada
and Gucci Group’s Gucci division. This fact was even more striking when LVMH announced a 30 per cent
increase in Louis Vuitton’s earnings in 2003 due to a record operating margin at 45 per cent. The
standard average margin in the luxury accessories business was 25 per cent. 12
Efficient Management Practices
Through the years, Louis Vuitton had established a strictly controlled distribution network
thanks to an efficient structuring of the company that relied on continuously increasing
productivity in design and manufacturing. Louis Vuitton owed much to its executives.
Emmanuel Mathieu, who had headed Louis Vuitton’s industrial operations since 2000, had
contributed to the boost in manufacturing productivity by five per cent a year, with more
productivity, efficiency and teamwork. In 1999, the firm took 12 months to launch a new
product; in 2004, the time was reduced to about six months. This continuous improvement
had been the theme of Louis Vuitton’s industrial operations and was facilitated by manufacturing methods from auto makers and other industries that had been adopted to boost
productivity.
Managers such as Emmanuel Mathieu had helped transform the brand from a family
business to a 21st-century business. 13 The manufacturing of Louis Vuitton products was
still a labour-intensive process. Each team of 24 workers was responsible for producing
about 120 handbags a day. Over a period of time, the brand seemed to have achieved perfect
equilibrium between machines and labour.
Quality Products
Louis Vuitton focused on constant improvement of quality and offered lifetime repair guarantees for its customers. The brand had been striving to increase both fidelity and endless
desire in its consumers. Louis Vuitton based its strategy on the loyalty of its consumers and
strove to attract more consumers to buy bags ranging from classic tan-and-brown monogrammed bags to newer lines, such as the Murakami line, which was priced at $1,000, and
Suhali, a line of goatskin bags priced at more than $2,000. As they bought Louis Vuitton
items, loyal shoppers stepped into the dream of the brand. The more the prices were raised,
the more they would come back.
When Jacobs joined Louis Vuitton, the New York designer had a challenge—attracting
young buyers. However, Jacobs happened to be the perfect match as the two product lines that
he had launched (ready-to-wear and shoe lines) tapped into a market of younger consumers,
even if those lines accounted for less than 15 per cent of the brand’s sales. The younger buyers
were attracted by brand image and older clients by quality and lifetime free repairs.
Production and Quality Control
The efficiency of the manufacturing facilities and employees helped Louis Vuitton compensate for its decision to keep most manufacturing plants in France, one of the most expensive
labour markets in the world. Eleven out of 13 factories that made Louis Vuitton bags were in
France. The brand had never planned to manufacture its products in a location where labour
was less expensive as the quality control standards in France were very high and customers
expected “un savoir-faire à la Française,” meaning the famous refined French know-how.
Quality control was conducted in the brand’s test laboratories. The leather raw material came from the hides of Northern European cattle. They were known for relatively few
blemishes from insect bites. Despite high-quality leather, the quality of the bags was tested
with mechanical arm hoists. The bags, loaded with weights, were lifted and dropped, again
and again, as part of quality checking. Then, ultraviolet rays were projected on the handbags
in order to determine their resistance to fading. Eventually, zippers were opened and shut
5,000 times. For other pieces, such as jewelry and bracelets, mechanized mannequin hands
were strongly shaken to make sure none of the charms would fall off.
In all Louis Vuitton factories, employees worked in teams of 20 to 30. Each team was
responsible for one product at a time and were encouraged to suggest improvements in
manufacturing. They were also briefed about the products, such as their price and how they
were selling. The aim was to have autonomous and multi-skilled employees.
The Boulogne Multicolor shoulder bag provided and example of how the whole production process worked. With the success of the Murakami line in 2003, 14 the marketing
executives thought that this line could be a source of further revenue. They questioned store
managers and found out that customers wanted a Murakami shoulder bag. A prototype of
this new Boulogne Multicolor bag went directly from the marketing department to top
executives. Straight away, they approved it. The prototype went to the factory in Ducey on
the Normandy coast of France. The teamwork efficiency of Louis Vuitton’s factory paid off.
When some workers were asked to test it, they discovered that decorative studs were causing
the zipper to bunch up. Following this discovery, managers were informed right away and
technicians managed to place the studs a few millimetres away from the zipper in less than
one or two days. The problem was solved.
Advertising
As Louis Vuitton had been going global, it had been able to develop a successful advertising
strategy in line with its global expansion strategy. The advertising strategy of the company
remained based on the idea that productivity would not sustain growth. Rather than cutting
its ad budget like most luxury groups, the company increased ad spending by 20 per cent in
2003. This figure might have seemed very high but in fact it only represented five per cent
of revenues, half the industry average.
The company meticulously cultivated a celebrity culture and employed famous models
and actresses, such as Jennifer Lopez and more recently Madonna, in its advertisement
campaigns. However, in 2007 the firm implemented a change in its strategy and announced
that former Soviet leader Mikhail Gorbachev would feature in an advertisement campaign
with sports stars Steffi Graf, Andre Agassi and Catherine Deneuve. The firm wanted a
shift from hiring traditional top models.
Louis Vuitton frequently used print ads in magazines and billboards in large cosmopolitan cities. The campaigns often involved famous stars like Gisele Bündchen, Eva
Herzigova, Sean Connery and Francis and Sofia Ford Coppola. Lot of customers were
attracted to the mind-boggling 90-second commercial advertisement on television with
the catchy question, “Where will life take you?” Translated into 13 different languages, it
helped LV to build brand. The media (communication) department was strategic in choosing the newspapers and magazines to reach out to the higher income group.
Future Challenges
The most serious issue that would remain for years to come was the question of whether Louis
Vuitton had reached its growth potential or not. One of its challenges would consist in reducing
its risky dependence on the Japanese market. In 2004, 55 per cent of revenues came from Japanese consumers. To reduce dependence on this market, the brand aspired to continue building
its sales in the United States as well as tapping new emerging markets, mainly China and India.
The second challenge would be to fight against worldwide counterfeiting. This was
important because Louis Vuitton had been itself synonymous with status, convincing customers that they belonged to a privileged club.
In the future, Louis Vuitton would have to face a shift that all fashion houses feared, the
possible departure of Jacobs. Yet, Jacobs had signed a contract as Louis Vuitton’s artistic director until 2018 and Marc Jacobs’s label 18 was one of the rising stars in LVMH’s portfolio.
However, the biggest challenge was in keeping control of the multinational business. As
brands went global, the temptation for many was to immediately find new outlets and new
channels of distribution and to decide on the price in different countries. However, Louis
Vuitton was highly disciplined and focused on quality.
JAPAN —A KEY MARKET
Overview of the Japanese Luxury Market
33 Over the past few years, Japan had become the capital of luxury and a mass market paradise
for luxury brands. According to an estimate by HSBC in February 2009, it was the final
destination of 45 per cent of luxury goods sold worldwide. 19 According to some luxury
analysts, the statistics were exaggerated. Indeed, Japan was consid …
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