Louis Vuitton in Japan

Caroline Gras

70754163

28/09/2016

To: Yves Carcelle, chairman and CEO of Louis Vuitton From: Caroline Gras (70754163) Subject: Louis Vuitton in Japan Date: 28/09/2016

Over the past 10 years, Japan was the most profitable market for Louis Vuitton, the world’s leading luxury brand. Present on this market since the mid-70s, Louis Vuitton always paid an important attention to… However, due to the 2008-2009 economic crisis, LV’s sales in Japan have been declining. The purpose of this paper is to define what made Louis Vuitton’s success story in the Japanese luxury market in order to understand sales’ decline and to find out “what could be the key to Louis Vuitton’s continuing success in the Japanese market”.

ENTRY OF LOUIS VUITTON IN JAPAN The French luxury brand, decided to entry the Japanese market in 1977 with a challenging strategy: although other foreign firms had chosen to distribute their products via licensing, Louis Vuitton chose to enter the market without a local distributor, establishing its own subsidiary in Japan and exporting directly its products from France. LV so became the first international luxury brand to open its own shops-in-shops in Japan. This strategy allowed the company to have a strict control over their retail network and to adapt to Japanese consumers, relying on Japanese management who was more likely to understand Japanese consumers’ behavior.

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Caroline Gras

70754163

28/09/2016

After opening two stores in Tokyo and Osaka in 1977, Louis Vuitton inaugurated its first Japanese retail store in Tokyo, in 1981. Both shops-inshops and dedicated boutiques were based on interior design in order to provide “a French Luxury Experience” to local customers while controlling price, products, sales team... This approach had been successful since, in 1980, 20 million Japanese women owned a bag of the brand. By 2007, the French brand directly owned 54 stores in Japan. To strengthen its presence in Japan, Louis Vuitton utilized the Japanese market as a laboratory to test its marketing and retailing strategies. First, thanks to the few regulations in terms of architecture, Louis Vuitton has been able to design amazing stores that fully represent the brand unique vision of luxury. Secondly, Louis Vuitton has adapted itself at the Japanese culture in order to reach even more local consumers. To do so, Louis Vuitton launched in 2003 a limited edition in collaboration with a famous Japanese artist, Takashi Murakami. Finally, from a managerial point of view, the French brand decided to hire a new Japanese CEO in 2006, CEO who had had to be Japanese and aware of Japanese trends, culture, and ways of consuming.

LOUIS VUITTON AND THE JAPANESE FASHION LUXURY MARKET The Japanese fashion luxury market is a very mature and concentrated market as Japan has the highest luxury spending per capita in the world. Women were said to have “a psychological need to own something

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Caroline Gras

70754163

28/09/2016

considered to be beautiful” and faced a real pressure to own “luxury status-driven brands”. As Japanese consumers are very concerned by the quality and the uniqueness of their possessions, Louis Vuitton is facing a very competitive environment in Japan (see exhibit 7). Indeed, its competitors such as Gucci, Prada or Burberry, made more than 30% of their overall revenue in Japan in 2005. In this specific environment, what has made Louis Vuitton’s business model successful? One of the main reason that has made LV’s business successful in Japan is the way the brand managed to adapt to Japanese consumers culture, their needs and their wants. Indeed, Japanese market attached a great importance to the product quality and to their social status. Louis Vuitton, thanks to its marketing strategy, managed to match Japanese “grouporiented culture” with its products (see 4P’s appendix).

OPPORTUNITY AND CHALLENGES FACED BY LV IN JAPAN Louis Vuitton had lots of opportunities in Japan as it had been proved that 45% of luxury goods produced worldwide ended up in Japan. Moreover, in 2004, 55% of LV’s revenues came from Japanese consumers. However, as the market was growing, it was getting mature, bringing new challenges and opportunities to the French brand.

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Caroline Gras

70754163

28/09/2016

The first challenge faced by Louis Vuitton in Japan was the consumers’ preferences shifting because of the entrance of new competitors such as Zara and H&M. If Japanese consumers were still attached to high quality, the young generation was not demanding for high prices anymore and was looking for affordable good quality products. This phenomenon gave 2 opportunities to Louis Vuitton: first, the wealthy old generation that gained an increasing purchasing power as the Japanese population is aging, and secondly, the opportunity to offer the Japanese market inexpensive luxury products such as ready-to-wear collections. Another challenge faced by LV is brand dilution and loss of its luxury. Indeed, as in 2007, more than half of Japanese women was possessing a LV item, the brand had become ubiquitous, losing its luxury aspect. To overcome this problem, Louis Vuitton decided to launch “limited editions” in association with Japanese designers but this strategy began to lose its appeal as it had been overdone. To continue its expansion, Louis Vuitton saw new opportunities in either opening stores in middle-size cities or growing its consumers’ base by launching new lines such as children collections.

THE ECONOMIC CRISIS, NEW CHALLENGES AND HOW TO OVERCOME THEM The global financial crisis is going to bring new challenges for Louis Vuitton. Indeed, purchasing power and demand declined and people 4

Caroline Gras

70754163

28/09/2016

lowered their expenses in luxury products, favoring competitors such as Zara or H&M. To counter consumer loss and sales decline, Louis Vuitton can consider 3 options: lowering its prices in order to enlarge customers’ base, refocusing on high quality and on the essence of the luxury brand or extending the brand via new collections and new distribution places such as small cities and e-shop. The best solution for LV could be recreating a real luxury experience for its customers in order to make LV’s products shiny, exceptional and desirable again. The aim of this strategy won’t be to gain new customers but to keep the loyal customers and to make them willing to pay more. To do so, Louis Vuitton will have to focus on product development, CRM & customer experience, to provide customers as much satisfaction as possible, and to remind them about the quality, the values and the uniqueness of its products. To put those values back on stage and to regain its luxury aspects in Japan, Louis Vuitton will have to act on its products, on their promotions and on the distribution channels. First, limited editions should be less frequent and the brand should focus on worldwide collections. In Japan, Louis Vuitton could launch a dedicated product range to make Japanese consumers feel privileged. Then, to promote the new marketing direction, LV could consider doing a 360° marketing and advertising campaign with Japanese celebrities and fashion-bloggers to make the brand attractive and fancy again. Concerning the distribution channels, Louis Vuitton 5

Caroline Gras

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shouldn’t consider opening an online store, which is too “mainstream” and too “accessible” for a luxury brand. LV should focus on the in-store experience, providing customers new services that could involve them even more into Louis Vuitton experience (customized products…). Finally, we can see in exhibit 3 that share percentage of Japan in the total revenue has been decreasing between 2006 and 2008. It is time for Louis Vuitton to become less dependent of the Japanese market and to find other place to invest and to develop.

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APPENDIX SWOT OF LOUIS VUITTON IN JAPAN

STRENGHTS:

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World’s Number one luxury Brand Popular and profitable in Japanese market

WEAKNESSES

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Expensive: Brand product not affordable to the average consumer Large number of luxury 6

Caroline Gras

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70754163

Recognizable brand and logo Efficient management practices Quality products and Lifetime free repairs - High Productivity and quality control standard - Consumer loyalty - Collaboration with well-known Japanese Artists - Many Louis Vuitton stores in Japanese cities OPPORTUNITIES: - Evolution of ageing of Japanese population: wealthier older women - Socio Cultural relations with fashion - Constant innovation and support - Ready-to-wear collections - Important middle-class

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competitors Decline in sales due to global economic recession Strong reliance on Japanese market

THREATS: -

Worldwide Counterfeiting : falsification of brand logo and market dilution

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Rising costs of labour in Europe resulting in increased cost of production

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Sales are cyclical and have a correlation with Economic conditions

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Competitors: other luxury brands and lower range brands

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Over dependence on the Japanese market

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Changing taste of customer preferences

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Keeping control of multinational business

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Brand dilution

SWOT by Caroline Gras & Natalie Yap

4P’s PRODUCT:

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Absolute High quality French manufacturing No licensing

PRICE:

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Prestige price No bargaining sales Almost no discount

PLACE:

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Selective channel strategy Only a few original stores and shop-in-shops Strategic stores located in the prestigious sites

PROMOTION:

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Almost no LV advertisement on TV Fashion print magazines or catalogs 7

Caroline Gras

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Communication strategy built on brand prestigious image

4P’s by Caroline Gras Competitors

Positioning map by Aaron Lattimer

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