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Louis Vuitton: Luxury Reigns in India*

CASE STUDY, MARKETING MANAGEMENT
ET Cases - GSMC, 18 Pages
AUTHOR(S) : Dr. Abha Rishi, Shreshth Goyal, Anwesha Singha Roy, Dhwanit Gupta - Birla Institute of Management Technology

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Louis Vuitton: Luxury Reigns in India

 

Louis Vuitton (LV) has always carried its image of elegance, exclusivity, royalty and heritage since its inception. LV has its presence in almost every fashion city across the globe with more than 400 stores worldwide. LV’s founder, Louis Vuitton, decided to be a trunk maker at the age of 16 and therefore joined a Persian box-maker and packer named Monsieur Marechal as an apprentice. He opened his first store on Rue Capucines after seven years and with his wood crafting skills improved the customer’s trunks, keeping in mind the practicality, security and appearances. He also revolutionized the baggage industry by finding an alternative to leather called the “Trianon grey” which was much lighter than leather and also odour-free and added a sense of luxury to the trunks.

In 1876, LV introduced its iconic beige and brown stripe designs and logos in the market. Its first UK store was opened at Oxford Street, London in 1885 which marked the beginning of the expansion stage of LV. With the invention of unpickable tumbler locks in 1890, the brand completely diversified its presence globally by providing the most secure lines of luggage in the market. With the change in the family generations taking over the LV legacy ahead, the company revamped its signature monogram and also introduced new product lines of purses, bags and wallets which contribute largely to the company’s revenue in developing luxury markets.

Global Presence of Louis Vuitton

Since its inception in 1854, LV has come far ahead from what its identity has been. From being a company whose value propositions were luxury and quality in its early years, it has emerged as the most desirable luxury brand keeping its exclusivity and heritage as it progresses in the luxury market. In the half-yearly results of the 2016, LV posted total revenue of 6655 million dollars (approx.) in fashion and leather goods category with a profit of 1843 million of dollars (approx.) from recurring operations. Today, 27% of the company’s revenue comes from the Asian market with 35% revenue coming from fashion and leather goods, primary business category for LV.

According to Bain & Company, Inc. (2015), $282.7 billion of business came from the continuous borderless consumers and the constant global currency fluctuations. LV holds a brand value of $27.3 billion and 19th most powerful brand globally as per Forbes. Today, LV is the 3<sup>rd</sup> most followed brand in the world after Nike and Adidas Originals....................

Asian Luxury Market

Today 27% of the company’s revenue comes from the Asian market with fashion and leather goods accounting to 35% of the total revenue for LV. A look into the country-wise luxury spending reveals that China contributes 31% followed by America and Europe with 24% and 18% respectively (Exhibit I).........

Luxury Market in India

While India is an emerging market for luxury goods, most of the purchases are likely to be made outside the country. “The reports on luxury retail tend to take into account goods bought in the country. But, in reality, almost 99 per cent of luxury goods are not bought in India. While the Indian psyche is driven towards value luxury and discounting, there is a fine line between what they aspire and the price they are willing to pay for their aspirations,’’ observes Vijay KG, Founder, Luxepolis, an online portal for selling pre-owned luxury goods.............

Louis Vuitton in India: Growth, Challenges and Opportunities

In India, there is a varying perception of luxury between those born into wealth and those of first generation wealth-creators. Various factors that define luxury apart from the aspiration are gratification, social assertion, ego fulfillment as well as exclusivity it creates include the self-image, brand image, the desire to seek consistency between the two.

LV had its presence in India between 1890-1940 prior to its re-entering the market in 2003. Its main customers were the royal families and maharajas for whom the company used to provide custom-made bags and accessories shipped form Paris and London.........

Competitive Landscape in India

Gucci, Hermes and LV have been competitors since ages in the global luxury market (Exhibit III). Hermes opened its first stand-alone store Mumbai in 2011 and was the first luxury brand to do so avoiding luxury malls or hotel. It entered into the Indian market with the offering of 27 limited edition saris inspired by Indian culture and ethnicity. Gucci is one of the most-known brand among Indians and entered India in 2007 in competition to LV. Along with its retail sales, Gucci also sources embroidery from the country for its worldwide operations.............

Challenges in India

Major challenges that the company faced during its initial years in the country were advertising platforms, credit cards and retail outlets. Although India has a thriving print and electronic media, it is highly fragmented. There were few lifestyle magazines and TV channels delivering focused readership and viewership to advertisers and the credit card culture was fairly new at that time. There was a lack of Luxury Retail Clusters and the luxury mall development was still at its nascent stages............

Counterfeit Products

Other major challenge that LV faces is that its products are the most counterfeited globally and have a huge market both online and offline.The global socio-economic impacts were estimated to cross $1.7 trillion by the end of 2015, according to 2011 report of the International Chamber of Commerce..........

Alternate Channels and Re-Used Goods

Another important challenge is the immergence of e-commerce making luxury affordable for many. New start-ups Envoged, Luxepolis and Confidential Couture are targeting ‘aspirational’ yet ‘value’ seeking Indian consumers for whom a Louis Vuitton bag or Jimmy Choo footwear will now be within reach, with discounts ranging from 50% to 70%. Ecommerce sites selling used luxury goods are well-known among fashion seekers who want affluent brands at cheaper prices. Indian re-selling sites like Confidential Couture, Evoged, Refashion and Zapyle following the steps of............

Growth Prospects

Luxury comes with price, but the amount of taxes being levied in India on luxury articles is exorbitant and is one of the prime reasons for the slow growth of luxury retail in India. In the recent budget proposed by the NDA government, there has been a proposal to impose tax of 1% on car purchases of more than 10 lakh and luxury goods exceeding 2 lakh. The luxury industry has not taken well the recommendation of the government and feels that for the luxury segment to be surviving and flourishing in India..........

Conclusion

LV has yet to spread its roots in India despite having its presence for more than a decade. The new customer segment of first generation of wealth creators are well-versed with the idea of luxury and know what they aspire form a brand. Though with increase in HNWI and the purchasing power of individuals, the concept of exclusivity and quality is gaining strength, the pace is still low............

Assignment Questions

I. How is the demand affected with regard to price for luxury goods?
II. What are the factors affecting entry strategies for luxury brand like LV in India?
III. ..............

Exhibits

Exhibit I: Personal Luxury Goods: Growth Contribution in Absolute Value, by Region and Top Contributing Market, 2009–2015E ( billions)

Exhibit II: Ranking Luxury Brands Based on Their Perceived Value, Price Point and Market Segment

Exhibit III: Luxury Brands: Competitive Landscape

Teaching Note Preview

Louis Vuitton: Luxury Reigns in India

 

Synopsis

The case study sheds light on the luxury markets in Asia, especially India, by taking Louis Vuitton as a company of focus. Through this case, the readers will be able to understand various concepts which when combined together help in understanding the development, opportunities, threats and failures of a luxury brand in a developing country like India. Concepts like Conspicuous consumption and Veblen goods highlight the concept of choice of a product by external or social influence as well as the demand elasticity with respect to the elasticity in prices of luxury goods. The importance of Omni-channel retailing as well as the various factors that influence the demand of luxury goods in India including the factors that influence the entry strategies of any luxury retailer in India are very important to understand the scope of international retailing in developing countries like India.

With the existing barriers in terms of low customer base, limited retail presence, lack of luxury malls, regulatory issues, untrained retail force, expensive real estate, and counterfeit market as well as the entry of major competitors such as Gucci, Hermes and Prada also pose a great threat to the revenue generation goals and target market acquisition goals of the company. Omni-channel retailing and concepts like reselling of used luxury products over e-commerce platforms are also important for acquiring new customer base and well as pose a threat in maintaining the exclusivity of the brand as a whole. Threatened by so many elements, should LV change its present strategy to encompass the new dimensions of competition and what can be the possible alternatives for modern day retailing?

Prerequisite Conceptual Understandings (PCUs)/Before the Classroom Discussion

An understanding of basic marketing and strategy is required as a prerequisite before classroom discussion. It has been designed for use in the 2nd year of Post-Graduation in Management or with experienced executives.

Case Positioning and Setting

For Post-Graduate programs and Executive Education programs in the domain areas of Retail Marketing, Strategy, International Business, Emerging Markets.

Expected Learning Outcomes

  • • To understand about Conspicuous Consumption and Veblen Goods
  • • To analyze the opportunities in Omni-channel Retailing
  • • To understand the concept of Collaborative Consumption
  • • To discuss about the luxury retail market opportunities and issues in emerging markets

 

Teaching Plan

The suggested teaching plan is to divide a ninety-minute class into five sections: an analysis of the company’s success factors and Veblen Goods (15 minutes), a critique of the issues and challenges before LV (20 minutes) a broader discussion about emerging market conditions (20 minutes), and an evaluation of possible paths forward (20 minutes). The last 15 minutes can be used to summarize the main points.

Assignment Questions

1. How is the demand affected with regard to price for luxury goods?
2. What are the factors affecting entry strategies for luxury brand like LV in India?
3............

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Abstract

In a country that perceives luxury as a reward and has 21.2%1 of the population under the poverty line, decision of Louis Vuitton (LV) to enter India seemed oxymoronical. Yet with a history of serving maharajahs and the Indian royalty, the company decided to take a plunge in 1999. But, the retail high street was not yet ready for luxury in India and thus the company decided to enter into the country only in 2003, through luxury hotels, by opening its first store in Delhi’s Oberoi hotel. Today there is an increasing number of high net worth individuals in India and the country’s luxury market is forecasted to reach $18.3 billion by the end of 2016, at a CAGR of about 20%, according to a new study released by the ASSOCHAM.2 The company’s long-term goals include opening stores in every city with the population of more than 10 million.

With the existing barriers in terms of low customer base, limited retail presence, lack of luxury malls, regulatory issues, untrained retail force, expensive real estate, and counterfeit market as well as the entry of major competitors such as Gucci, Hermes and Prada, all pose a great threat to the revenue generation goals and target market acquisition goals of the company. Omni-channel retailing and concepts like reselling of used luxury products over ecommerce platforms are also important for acquiring new customer base but at the same time pose a threat in maintaining the exclusivity of the brand as a whole. Threatened by so many elements, should LV change its present strategy to encompass the new dimensions of competition also like reselling of luxury goods, collaborative consumption, etc. or should it continue with its existing strategy?



Pedagogical Objectives

  • Conspicuous consumption and Veblen Goods
  • Omni channel retailing
  • Collaborative consumption
  • Luxury retail market opportunities and issues in emerging markets

Case Positioning and Setting
For Post Graduate programs and Executive Education programs In the domain areas of Retail, Strategy, International Business, Emerging markets



1 Vidya Venkat, “World Bank estimates show fall in India’s poverty rate”, http://www.thehindu.com/news/national/worldbank-estimates-show-fall-in-indias-poverty-rate/article7727591.ece, October 6th 2015 (accessed date: August 21st 2016)
2 “India’s luxury market to cross $18.3 B in 2016”, Enterprise Innovation, http://search.proquest.com/business/docview/1757751493/D0BA683195E746FAPQ/57?accountid=145616, January 18th 2015 (accessed date: August 13th 2016)



* GSMC 2017, IIM Raipur

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