LV Embarrassed in China

The decreasing core busi- ness， as well the leaving of the key figure， Louis Vuitton （LV） is doubtlessly facing the tests of the transformation period.

Recently， LV， a luxury brand under France-based LVMH Group， tweeted that Nicolas Ghesquiere， the former designer of Balenciaga， was appointed creative director of LV， taking the place of Marc Jacobs. The sudden personnel change made people more worry about the development direction of LV.

In China， LV became offensive in the expansion in China again as it forgot the promise of stopping the fast expan- sion in this country made at the beginning of 2013. It once again sped up the establishment of outlets in the first-tier cities. However， when it is opening outlets more quickly in China and pursuing the maximized profits too much. The brand image was severely overdrawn， which put the company into a vicious circle of development.

The Lost Grace

The leaving of the key figure Marc Jacobs drew enough attention from the world. Having been the creative director of LV for 16 years， Jacobs won numerous awards and prizes. As many people believed， he was an important figure for the revival of LV.

On November 6， 2013， a source of LVMH China says that Ghesquiere has already taken the position as the creative director and Jacob did not leave LVMH. He is now devoted to Marc Jacobs International， another brand of the group. It is expected that the new brand will be in the market in the coming future.

The personnel change of this time is believed to be related with the senior executive change in LVMH. Delphine Arnault， daughter of LVMH board chairman Bernard Arnault， moved from Dior to LV as the executive vice president in August 2013. And Nicolas Ghesquiere， who was rumored to be the one succeeding Jacobs even when he was still the creative director of Balenciaga， was a close friend with Delphine.

It was reported that the appointment of Nicolas Ghesquiere as the creative director of LVMH is a hype speculation and a great campaign of brand marketing， which could improve the brand awareness of LV. Such an action is to end the descending trend of fashion clothes and leather products and to save the fast falling brand value. They are also expected to be catalysts for the dropping business.

According to the financial report of LV in the third quarter of 2013， the department of fashion clothes and leather products， which is the core department of the group， did not perform very well in that season. The department’s quarterly revenue amounted to US$3.3 billion， as the financial report showed， down 3.8% compared with a year before.

Then， according to the public data， the revenue of the department of fashion clothes and leather products amounted to 9.926 billion euros in 2012， up 14% compared with 2011. In the first half of 2013， the sales of this department only increased by 1.2% to 4.71 billion euros.

“The market demand for some brands under LVMH was depressed，”explained Jean-Jacques Guiony， CFO of LVMH when he was talking about the falling business. Meanwhile， he also blamed the decreasing business of LV on its strategy of increasing sales price in Japan and the short supply of highquality leather materials for its highclass products.

However， Ding Liguo， a senior analyst in the market of luxury goods， called LV’s explanations complete excuses. “The share of Japanese market is falling in the global map of LV. So the drop in the sales of that country is not significant enough to affect the global sales of LV. As for short supply leather materials， it was nothing but a useless excuse for the deteriorating brand of LV.”

According to the 2012 financial report of LVMH， the sales of this group in Japan only accounted for 8% of its global sales. In comparison， the sales in Asia outside Japan （mainland China， Hong Kong and Taiwan included） accounted for 28% of the world， only second to the European market. In addition， the strategy of increasing price also applied to the European and Asian markets and is not exclusive to the Japanese market.

“The modern technologies and the supply of materials can satisfy the production of the brands. It only depends on whether they are willing to produce. This is a common strategy of luxury brands to manually control the production， causing the scarce of the products to keep the lofty price，” says Ding Liguo. This is somewhat like the hunger marketing， which is common for the limited-edition things.

Zhou Ting， Dean of Fortune Qual-ity Institute， says that the depression of global market has certain influence over the luxury brands. But the market situation is not to be blamed for LVMH’s business. For a long while， the market is rampant with fake products， most of which are leather products. This is one reason for the fall of its leather product.

Vicious Circle in China

“LV now is busy opening more outlets and pursuing the maximal profits in China， but it forgot to maintain its brand image and is lazy in defending it against the fake products. These have put LV into a vicious circle of development in China，” says Ding Liguo. In his opinion， this is also the biggest problem for LV in China.

From 2007 to 2011 the luxury market of China could enjoy the doubledigit growth rate compound growth rate annually. However， such a figure dropped to 7% in 2012. The slowdown in the Asian luxury market has brought impact to the global luxury brands， which have announced about slowing their expansion in this area.

LV was one of them. At the beginning of 2013， Bernard Arnault announced LV would completely slow down the expansion in China. It would no longer open new outlets in the second- and third-tier cities in China.

But the truth is that LV indeed stopped the expansion in the lesser cities of China. But its efforts in that field are nullified by its faster expansion in the major cities of China. On November 7， a source from LV confirmed that the company had never slowed down the expansion in the major cities of China. The outlets in Shanghai， Beijing and Shenyang are all new ones. Such a strategy is said to serve the long-term goal of the company in China.

In addition， a flagship store in Beijing was reopened after the upgrade. The outlet increased from a one-floor building to a three-floor mansion. The first and second floors are the boutiques for women and the underground floor is for men’s products.

This outlet was the first outlet LV established in China. It was opened in 1992. Nowadays， LV has 47 exclusive stores in China. Such a number is believed to be a sign that LV’s expansion has gone away from the elitism and into the masses. Such a way is far from the positioning of high-end luxury products， which is overdrawing the brand value and cause great damages to it.

Zhou Ting says that LV accounts for half of LVMH’s business and LVMH is too much dependent on the LV’s good performance to have a glorious financial report. It also gives too much priority to LV when it comes to the marketing， which also turns LV into a brand for the masses.

The 2012 China Luxury Goods Report said that the 3754 respondents with the personal assets of more than 10 million yuan were favoring Chanel， Hermes， Cartier， BV and Dior. LV did not jump into the list of “Top 10 luxury brands that can show the taste of consumers”. Its name was just found in the list of“the luxury brands with most fake products”， and unfortunately， it was in the first place.

The report says that the fake LV products can be found in every part of China， including the purchasing through agencies， secondhand products， ecommerce and distributors. The rampancy of fake products made high-class consumers abandon it very quickly， and 94% of the respondent tycoons said that they would not spend a penny on brands with a lot of fake products and LV is in that black list.

Sharing the Cake

Though the luxury market of China slowed down its development in the past two years， the competition among luxury giants in the world never ceased.

Actually， LVMH is not the only top luxury company that is busy with the expansion in China. Its major competi- tors are also accelerating their expansion in China in different ways.

Richemont chose to enhance the investment into and cooperation with large brands. From 2011， the company began to intensify its support and investment into its Baume & Mercier， listing it into the category of fostering.

In September 2012， Baume & Mercier chose Shanghai as the place for the debut of its Chris series to show the importance of the Chinese market. At the beginning of 2013， Baume & Mercier also worked with Chou Tai Fu， a jewelry company in China， to found a joint venture taking charge of the marketing and promotion of Baume & Mercier’s watches in this country.

Though Kering and Ferragamo have announced the plan of slowing down their development in China， they still focus on providing better products and services based on the existing outlets.

Jean-Francois Palus， COO of Kering， says that the company is going to upgrade the existing outlets in the cities of China.

In Beijing and Shanghai， a lot of flagship stores of Hermes， Bvlgari and D&G are re-opened after being upgraded. Their new outlook is more appealing and eye-catching.

According to Ding Liguo， the increasing purchasing power of China once made many luxury bands mad at expansion. But now the “winter” has come， and those luxury brands have to make upgrades， which are considered to be a way of expansion， to improve their competitive advantages in China.