Louis Vuitton Moët Hennessy (LVMH) is a diversified company with over 70 houses
ID: 360742 • Letter: L
Question
Louis Vuitton Moët Hennessy (LVMH) is a diversified company with over 70 houses or companies. They offer products and services that extend from fashion and leather goods, to perfumes and cosmetics, to watches and jewelry, to specialist retailing, and wines and spirits. One could make the argument that the company’s lines of business, which focus on luxury, qualify it as a related diversifier. See: https://www.lvmh.com/houses/ LVMH opened it upscale Cova Café and Tea Room concept in Asia and later North America. The rationale behind this move is captured by Luca Solca’s observation “Consumers worldwide are expanding their notion of what luxury is, moving beyond products and into experiences. Food is a great way, like travel, to build high quality experiences.” One might argue the move into coffee and tea shops extends beyond the company’s core focus on ultra luxury goods and makes it an unrelated diversifier. Michael Porter’s study of unrelated diversification notes companies making unrelated acquisitions divested 74% of the companies they bought.
Take a quick look at LVMH’s companies and the products and services they offer. Answer two questions.
1) Should LVMH keep the Cova Café and Tea Room chain? It is currently in the “other activities” category and offers no clear synergy. Give a rationale for your decision.
2) If keep, what businesses should it be aligned with? For example, it might be aligned with the wine and spirits or sold or folded into Le Bon Marché Rive Gauche. Give a rationale for your decision.
Explanation / Answer
1) LVMH should keep the Cova Café and Tea Room chain as it is necessary for a brand like Vuitton to have an equally niche brand surround its stores, botiques as that would only serve to add on to its aura of being the high- street fashion pioneer that it always has been. Cova Cafe has a rich sense of culture, heritage with it which can be combined tastefully with the offerings of Louis Vuitton to take it to an altogether new level.
2) It makes sense for LVMH to align this business with its current position under other activities as it cannot be truly folded into the wine and spirits unit as that is a totally different business line with its own heritage, history to boot. In the current scenario we can look at continuing with the existing arrangement, with a future positioning into a food category wherein newer acquisitions in that space can be accommodated.
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