PORTER'S FIVE FORCES ON LOUIS VUITTON

PORTER’S FIVE FORCES OF LOUIS VUITTON

Competitive Rivalry within the Industry: MODERATE

v  The competitiveness in the industry can be qualified as relatively high, but given the high margins and the customer’s perception about the price, the competition is not on price, but rather on quality and image perception, as well as on the ability to attract the right designers with right abilities.
v  LV has gained many rivals in the luxury brand industry such as Versace, Hermes, Burberry, Chanel, Prada, Gucci, Versace, Hermes and so on.
v  We believe the rising competition handbags and accessories market is an overriding concern for Louis Vuitton’s stock in the near term.
v  Louis Vuitton is undertaking a transformation strategy to evolve into a global lifestyle brand anchored in accessories. However, we believe this transformation will take at least a few more quarters to reap the desired results.
v  Increased private label offerings by wholesale customers also increase the competition for Louis Vuitton.

 Bargaining Power of Customers: LOW

v  Louis Vuitton sells through both, the direct-to-consumer channel and the wholesale channel. The direct channel, which includes Louis Vuitton operated stores and e-commerce sales accounted for around 89% of its total sales in fiscal 2012.
v  Since wholesale customers account for only around 10% of the total sales, we believe their bargaining power is limited.
v  We think the bargaining power of end-customers is moderate. Louis Vuitton has positioned itself as an exclusive luxury brand and enjoys strong brand recognition due to its high quality products.
v  We believe that the customers’ bargaining power will remain low in the future as Louis Vuitton’s efforts to reinvigorate its brand appeal will be offset by rising competition in the market.

Threat of New Entrants: LOW                              

v  To start up a new brand, significant capital expenditure is required for marketing and floor space.
v  Brand recognition and loyalty are among the main factors that drive middle-to-high income earners towards luxury companies such as Louis Vuitton. A new player would find it difficult to achieve this position without making significant investments.
v  However, the internet business has low barriers to entry and new players selling apparel, accessories and footwear online can emerge in the online sector.

 Bargaining Power of Suppliers: LOW

v  Louis Vuitton does not manufacture its own products. Instead, it relies on manufacturers located in various countries such as China, Vietnam, India, Philippines, Thailand, Italy and the United States.
v  Louis Vuitton has recently taken over Les Tanneries Roux, a Romans-sure-Isere-based leather supplier.
v  With this move to acquire key suppliers will reduce the bargaining power of suppliers in terms of leather products. By limiting the capability to play suppliers contrary to each other, LV would be able to save costs on storage space and capable in making sure of the quality of products supplied. In the case of LV’s bargaining power of suppliers is relatively low.
v  This is because the company often purchases raw materials from suppliers in basis of consignment. With this method, it reduces the loss marking and establishes economies of scale.

Threat of Substitute Products: LOW

v Louis Vuitton’s products are purchased by people in the middle-to-high income group. As consumers in this income group like to wear high-end luxury brands to display affluence, the demand for brands like Louis Vuitton will continue.
v However, counterfeit products represent a grave threat for the company, especially in emerging markets such as China. As the quality of counterfeit products has been improving over the past few years, we believe this problem has the potential to dilute the company’s brand value. Hence, this is an area of concern for the company.

REFERENCES:

http://www.wikiwealth.com/five-forces:lv

http://www.slideshare.net/JessicaAllison/lvmh-decision-making-assignment

http://www.entrepreneurial-insights.com/bargaining-power-of-suppliers-porters-five-forces/