What Would You Do? Case Assignment

Louis Vuitton Headquarters
Paris, France

Louis Vuitton Moët Hennessy (LVMH) is the world’s leading luxury goods company. Louis Vuitton, who was employed by wealthy women to pack their clothes, started his company in 1854 and revolutionized travel by offering flat-topped, waterproof trunks that replaced curved, domed-top trunks. Made by hand and with a lifetime guarantee (still so today), Vuitton’s expensive trunks were purchased by royalty and well-to-do travelers. Counterfeiters soon produced fakes, forcing the company in 1876 to release a brown and beige striped trunk that was initially difficult to duplicate. By 1888, because of more counterfeiting, Vuitton introduced a patented checkered material that was the forerunner of the distinctive bags it sells today.

LVMH, however, is much more than Louis Vuitton. Among its best known brands, Kenzo, Givenchy, and Celine make up its fashion and leather goods division; Christian Dior, Givenchy, and Guerlain in perfumes and cosmetics; Dom Pérignon, Hennessy, Krug, and Moët & Chandon in wine and spirits; TAG Heuer, Chaumet, and Hublot in watches and jewelry; along with Sephora (perfume and cosmetics) and DFS group (duty-free stores).

Over the last decade, the worldwide luxury market has doubled to $220 billion a year, with much of that growth coming from China. Louis Vuitton’s CEO, Yves Carcelle, said about China: “There are 1.4 billion people there who suddenly want to treat themselves, and it will continue.” That growth has attracted fierce competition, and disagreements about what constitutes luxury. Coach, for example, with its $300 handcrafted bags, considers itself in the “accessible luxury” business. Peter Marino, who designs Louis Vuitton retail stores counters that, “Coach has nothing to do with luxury. It could be selling iron ore, but it just happens to sell handbags. This is not about girls in China with a sewing machine, but about workmanship, exclusivity, and the sheer gloriousness of the materials.” Coach CEO Lew Frankfort responds, “When did they last speak to a consumer? Luxury has been democratized.” He insists that Coach bags, “are as well made as products anywhere. We even source from some of the same tanneries as European houses. But because we manufacture in low-cost countries, we can pass the savings on to consumers.”

In practice, LVMH, Coach, and their competitors all walk a tightrope between exclusivity and reaching out to a broader market through diversification. Francesco Trapani, CEO of Bulgari, a luxury Italian jeweler and watchmaker, says, “Diversification is the rule of the game, but you can’t do everything. The danger is, you do something badly, and then you don’t just lose money but your reputation.” Or, you overexpose your product by selling so broadly that it no longer seems like a luxury item.

Louis Vuitton expands production of its most popular products to meet demand, but also produces small numbers or limited editions of a large variety of high-quality luxury items. CEO Yves Carcelle says that “über-luxury” items are a small part of sales, but are growing quickly. He says, “There is demand for things that are incredible and unique. Our paradox is how to grow without diluting our image.”

From a production standpoint, this creates a number of challenges. First, don’t run out of the most popular products, yet also have the flexibility to produce small batches (i.e., limited editions) of a large number of different luxury goods. But how do you design factories to do both, and increase productivity? Second, because workers complete just one task, such as cutting leather, gluing and sewing, or stitching the lining, it generally takes 30 craftsmen eight days to produce just one Louis Vuitton bag. Production bottlenecks are common as the faster workers are forced to wait on the slower workers. So, how can you restructure production process to add more capacity without building any more factories?

If you were in charge of Louis Vuitton’s factories and production system, what would you do?