News Summaries

LVMH, Louis Vuitton Moet Hennessy, a $40 million conglomerate, is the dominant firm in the luxury goods industry. In 1999, LVMH's revenues were $8.4 billion, a 23% increase from the previous year. Its stock price was around $400 per share in April, 2000. Led by CEO Bernard Arnault, the company has grown to its current size by buying numerous, small, family-run businesses. LVMH's acquisitions include Christian Lacroix, Celine, and Kenzo, producers of designer clothes; Christian Dior, Givenchy, and Sephora, fragrances and cosmetics; TAG Heuer and Ebel, watches; Dom Perignon, champagne; Chandon and Pommery, wine; Berluti, men's shoes; and Louis Vuitton and Loewe, leather goods.

Smaller firms, such as Ralph Lauren, Calvin Klein, and Tommy Hilfiger, are finding it increasingly difficult to compete with LVMH. Gucci, with 1999 revenues of $1 billion, is LVMH's closest competitor. Gucci, whose acquisitions include Yves Saint Laurent and Sergio Rossio, also designs and produces high quality, personal luxury goods, including clothing, leather goods, watches, jewelry, and perfume.

Arnault and his rival, Gucci CEO Domenico De Sole, compete to hire young designers who are popular with the fashion press. Even if most people do not actually buy their newest, most daring creations featured in fashion magazines, the publicity that they generate has helped to advertise their mainstream apparel with the same label. Although both companies have websites, LVMH has taken the lead on the Internet. In addition to investing in eBay, a European Internet service provider called LibertySurf, and France's top Internet portal, Nomade, Arnault is developing eLuxury, LVMH's own luxury goods portal.

Both companies hope to avoid the mistake of overlicensing retailers to sell their products, the problem of the 1970's for designers such as Pierre Cardin and Yves Saint Laurent, whose goods began to show up in discount stores and pharmacies. Gucci and LVMH are cutting the number of licensing agreements for their products in order to maintain the value of their brands among luxury goods consumers. For many purchasers of these goods, the product is even more desirable if it is available only in exclusive stores.

Discussion Questions

1. Do LVMH and Gucci exhibit the characteristics of oligopoly firms? Explain.
2. Could licensing agreements be considered a form of restraint of trade? Why or why not?
3. What is the price effect? Can luxury goods producers avoid the price effect? Why or why not?

Key Words

Oligopoly, Game theory, Luxury goods, Nonprice competition

Sources

Greenfeld, Karl Taro. "Battle Deluxe." Time. May 1, 2000, pages 48-50.

www.LVMH.com

www.Gucci.com

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