Case Study
Competitive advantage at Louis Vuitton and Gucci
MEMO
The market of high fashion luxury goods presents US$165 billion of annual sales and gross profit margins of over 50 per cent. The leader company seems to be LVMH fashion house, with US$12billion of sales, followed by Richemont with US$3.6 billion and Gucci Group with US$2.4 billion. According to the text, the key activity of those companies is the preparation and display of new collection for their bi-annual fashion show. Analysing each activity which constitutes the value chain, I can say that: * Suppliers – the co-ordinating company has a relatively important function, since it works closely with the designer in determinant aspects (such as colours, patterns among others) of the collection’s design. The Chinese and Italy co-ordinating associated company’s which supplies and dye, spin and weave the silk, respectively,are not so important, because is the designer’s work at fashion house that creates the main value – final collection design instead of components supplied. BALANCE=LOW/MEDIUM VALUE ADDED * Inbound Logistics – there are many imports and the goods arrive at the fashion house not using an exclusive method. BALANCE=LOW VALUE ADDED * Operations – is about working on final product, which is design and manufacture of each haute couture dress. Here, the name of the designer is a crucial element, since the fact she or he is famous add a large value, but specialized seamstresses who cuts and sews up finished dress are also an important element on value creation, although there are a limited volume of them. BALANCE=HIGH VALUE ADDED * Outbound logistics – the product is distributed mainly through the fashion house’s exclusive shops but sometimes they licence their brand name to outside companies which distribute their products with the fashion house brand names. BALANCE=MEDIUM/HIGH VALUE ADDED * Marketing and sales – the products are firstly presented to the public at Fashion shows in Paris, Milan and New York with very high costs of media coverage. Sometimes department stores receive a special pre-collection briefing with the objective of brand promotion and aspiration, but even so are the ready-to-wear products and accessories like shoes and bags which possible add the highest value, since most of the people can’t afford the price of a ‘silk dress’. BALANCE=VERY HIGH VALUE ADDED * Service – is exclusive and discreet to the wealthy clients, therefore as most of the clients just wish to purchase prêt-à-porter, fashion houses invest in an additional service directed to them. BALANCE=HIGH VALUE ADDED
After that analysis I am able to conclude that those fashion houses are two core primary activities which are Operations and Marketing&Sales.
Relatively to main sources of Competitive Advantage in the value chain, from my point of view they are the Brand, Designer, Differentiated Products and Service.
Taking into account ‘The Hierarchy of resources’, I would say that the Peripheral resources are suppliers and inbound logistics, because they appear to have a low impact on creating added value, since they are many (suppliers) and there aren’t exclusive rights to fine materials. Relatively to Base resources, I think this is the Fashion house structure itself, which is common to many companies but it is nonetheless important to develop and keep a very well-established one (Here is important to mention that business manager who strongly support Designer work is part of that structure). The Core resources are surely the Brand name and Fashion Shows, where companies have the opportunity to gain public recognition and possibly generate more future sales (these resources are definitely the basis of its sustainable competitive advantage). Finally, the Breakthrough resources are the Famous Designers who are a sustainable resource, since they cannot be substituted, bringing a major strategic shift for those companies.
Before the final suggestions, I would still like to do the VRIO Framework test. Hence, relatively to Designer, Brand and Service they are valuable, rare, costly to imitate and capable of being exploited by the organisation, so they are a long term competitive advantage over the industry average. Differentiation Products are also valuable and rare but they are costly to imitate, becoming a short term competitive advantage, even above industry.
Ultimately and in conclusion, I think for both companies inside or outside the fashion industry, a key aspect is undoubtedly Branding. This is about establishing a significant and differentiated presence in market that attracts and retains loyal customers. The more value and rare the brand is and less imitable, more are the opportunities to became a competitive advantage. Relatively to the Branding and also to Levels of Service (strongly customized), seems that, according to what I said previously, this industry makes a huge investment with successful results, so it could be a useful lesson for the others. However, I think there are areas in which the industry could improve. For example, it could be a good strategy, investing in distribution locations not yet explored by direct competitors. Another aspect to take into consideration is the Brand licensing. It is important adopt protective measures for this not dilute or be associated with unsuitable products. However if the exploitation of the brand by third parties is made in a controlled way, this could be also an opportunity to gain recognition with all the associated to that positive consequences.

Daniela Almeida
150111114
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