Financial Analysis Assignment: Corporate Strategy of LVMH

Question

Task: You are required to prepare a 3000 word report on financial analysis assignment addressing the value chain and VRIO for a company. Company chosen is LVMH. Provide financial years analysis for a company from 2017-2019. Your report must include the following parts:

Q1 Brief introduction about the company. External analysis carries out external analysis business environment and industry to identify a set off Opportunity and Threats and assess industry attractiveness. PESTEL AND 5 FORCES
Q2 Internal analysis, analyze the resources and key competences of the organization to identify a set of strength and weaknesses (at least 6) and identity core competences.
Q3 Evaluate the given strategy using SAF criteria

Answer

Introduction
The company LVMH Groups analysed in the segments of financial analysis assignment brings exceptional offerings and different unique products that actually embody the saviour faire and ensures dynamic engagement along with preserved heritage towards the era of modernity. Innovation and Creativity have been the most important two criteria that lead to their successful establishment and legitimacy. The entrepreneurial spirit of LVMH encourages both preservance and risk taking possibilities. Here based on the company’s yearly financial analysis external and internal strengths ad opportunities will be identified. The identified strengths and opportunities will help the company to take effective strategies. The study will encompass both external and internal analysis along with strategic intervention of the said organisation.

Financial Analysis

Figure 1: Consolidated Income Statement of 2017
(Source: R.lvmh-static.com. 2020)

In the year of 2017, the organisation has become able to record the organic revenue growth of 13% and the growth has mostly pertaining in the area of North America and Asia. In watches and jewellery the business group has become able to record its revenue growth upto 10% and there have been multiple possibilities of launching customized products in the year of 2017. The world’s foremost luxury crops group, logged income of €42.6 billion in 2017, and an increase of 13% ended the preceding year. Organic income development was 12%. All commercial collections logged double-digit carbon-based development with the exclusion of Wines and Spirits, whose development in the additional half was incomplete by source restraints.

Figure 2: Consolidated Balance Sheet of 2018
(Source: LVMH publishes 2018 Annual Report - LVMH, 2020)

After residual comparatively stable throughout the chief nine months of the year notwithstanding a climate of considerable indecision, souks slumped during the third sector to finish the year in a recession. The skill war amid the United States and China, the radical and economic setting in Italy and the problematic talks among the European Union and the United Kingdom nearby Brexit considered on presentation in the main indices. The finish of the year also adage the book of fewer positive pointers, fuelling saver fears of a go-slow in global financial growth. Illogically, the vicissitudes to financial rule in Europe and the United States, which had been extremely expected by savers, ended up having an incomplete influence on marketplaces. In contradiction of this background, the CAC 40 and Euro Stoxx 50 directories over 2018 down 11% and 14%, congruently. The LVMH final share value ended the year up 5%, at €258.20, afterward consuming a new best tall throughout the year. LVMH’s marketplace capitalization was €130 billion as of December 31, creating it the main business on the Paris standard argument.[Refer to Appendix 3].

Figure 3: Recorded Results of Financial Analysis in the year of 2019
(Source: R.lvmh-static.com. 2020)

The Wines & Spirits commercial collection attained organic income growth of 6%. Income after recurrent processes increased by 6%. The commercial collection sustained to follow its worth plan based on a strong invention policy, while emphasizing its ecological and social promise. The Fashion & Leather Goods commercial group attained organic income growth of 17% in 2019. Income from recurrent processes was up 24%. The Perfumes and Cosmetics commercial collection attained organic income growth of 9%, ambitious by the extraordinary impetus of its main brands, particularly Dior, Guerlain and Givenchy.

Answer 1: External Analysis
Discuss the business environment and identify a number of Opportunities
It is important to consider the present scenario that has developed due to the Covid-19 pandemic outbreak in the chosen industry. Owing to such an intense tenure of lockdown and stagnation of production of goods and services, the net activity of LVMH has been reduced to considerable extents which can be specifically summoned under a recessive prediction (LVMH, world leader in high-quality products, 2020). Further, the vitality of brand expansion and possibilities for marketing enhancement have been greatly affected owing to the concerns raised by the disease. However, on a general basis, the luxury products and deliverables are greatly influenced by the stakeholder groups which have been identified in terms of the consumers and workers located in Paris. This goes without considering the opportunities built in the sector from raising customer acquisitions which align chances of gaining potential sophisticated buyers in the locality and abroad. Alongside, a focus is to be issued to understand the influences of possessing large scale working capacities which allow new skills and ideas to be included in the workspace. This is a major opportunity as larger availability of workers implies that owners here can improvise their workforces by including people with required abilities in areas where it lacks in delivering up to the mark of expectations. The technological innovations are another device that can provide better opportunities at managing sales and marketing services within the communities being targeted by the company. There is a huge chance at improving the technical aspects owing to the location which is supposed to be an advanced nation in terms of knowledge and creative outsourcing. These altogether convey the need for financial stability which is a major determinant of the future of opportunities. Capital is the ultimate criteria which can effectively convey how LVMH can effectively manage resources. All these elements come together to fulfil the business objectives.

Figure 4: Revenue from ‘07 to ‘19
(Source: Nunthiphatprueksa, 2019)

PESTLE Analysis

Table 1: PESTLE Analysis
(Source: Created by Author)

Based on the findings issued in relation with the external aspects, it can be said that the PESTLE framework highlights a number of opportunities which can also be threatening if not handled sensibly. It is mostly mandatory in reference with the political and economic constructs and social influences.

Figure 5: PESTLE
(Source: Innocent et al. 2020)

Figure 6: Demand for Luxury Brands
(Source: Galli and Bassanini, 2020)

Identification and discussion of six most important issues
Based on the evaluations conducted on the external factors driving the industry of LVMH, a major set of problems probable for the organization can be underlined which are as follows:

Technological Challenges
Internet is recognised as a influential instrument for the increase of important liberties and ambition to party-political alteration. Lastly, it is a growth accelerator, causal 20% of worldwide GDP in 2030 through study predictions the formation of 450,000 ICT occupations in France by 2015. These skills also include dangers and hazards, for States, trades and countries like government and business info schemes are not excused from cyber-attacks. The Internet can also carry unlawful gratified or actions such as breaches of privacy, financial fraud, provocation of ethnic hatred. However, the threats of technical education and lack of know-how to consistently maintain various internal and external technological innovations like software systems to interact with customers or applications managing commercial activities can be a major concern for Venture in channelizing better performance locally. The company has become comparatively able to deal with these technological challenges with the privileges from Internet. France achieved to persuade its associates of the essential for global collaboration for the harmonious growth of a passive Internet secondary human privileges, equality and financial development.

Challenges in maintaining business relationships
Business relations depend upon the efficiency of stakeholders and company managers in retaining a consistent behaviour to handle important activities. These include management of customer grievances and processing employee needs to address their needs and expectations which in the long process determine the possibilities for growth.

Issues of creative development
Creative involvement is a key ingredient for producing premium quality services in the field being concerned. For instance, the company has to enhance its creative capacities to improvise their manufacturing and processing abilities for dealing with large scale orders that go unheard.

Financial Problems
The lack of financial stock-ages is a major problem for the company. Being a distributor of exclusive products to a clan that accounts for sophisticated groups, the company needs to be capable of maintaining cash flows to sustain research and innovations.

Lack of political support
Government organization and legislative involvement cannot be guaranteed to always help companies to enhance their activities. Cases of political disturbances constantly affect the businesses. Also, lack of government support through policies promoting their sales and services can hamper opportunities.

Figure 7: Customers’ Goods Sales Value in Supermarkets of France
(Souce: Consumer goods: sales value by type in France 2020 | Statista, 2020)

Rising networking consequences
Increasing networking has connected the world with many global companies which increase rivalry among similar distributors. Similarly, locally based Venture can face international competition from other efficient brands which have great influences on the price levels and production systems available.

Figure 8: Network Impact of Covid 19 Globally
(Source:)

Industry Analysis
Using the Porter's Five Forces, a detailed speculation of the significant environmental considerations affecting business conditions of luxury product deliveries:

Threats of New Entrants:
The risks of uprising brands selling similar products in the market are an intense factor which can affect the sales of goods and services. Venture is but rarely a victim of such risks owing to its concern which is focused on rare and luxury items which accounts for lower chances of entries.

Threats of Substitution of Products:
The fact that LVMH is a company that produces only those items that are in demand among the most affluent consumers is an indicator of the level of production being addressed. However, the threat of substitution does exist on a medium level among the existent contenders in the industry being considered here.

Threats of Rivalries:
Paris is a country where constantly new rivals raise their efficiencies among the available brands selling luxury items to the larger groups of buyers. Therefore, recognizing the pricing stakes prevalent in the market environment, it can be generalized that the uncertainties of market rivalry are not only intense but also generate implications.

Bargaining capacity of Suppliers:
The bargaining ability of supply chains used by Venture to deliver their products to the target groups is medium owing to the larger scale availability of suppliers beyond the local environment. However, it must be stated here that the company has to retain its relationships effectively in the groups delivering valuable materials.

Bargaining Capacity of Consumers:
The extension of customer dealings in the industry is high and requires addressability of the company. Consumers are the greatest assets whose preferences and choices determine the manners of production and promotions (Baherset al. 2020). Therefore, it is a very important indicator for developing suitable services. The influences of customers in manipulating businesses are inhibitors.

Answer 2: Internal Analysis
Discuss and identify the organisational unique resources along with distinctive capabilities The major resources and capacities of Venture allowing it to grow in the given market environment can be underlined as:

• The company possesses a prominent brand portfolio which is strong at enhancing market possibilities.

Figure 9: Segmentation as per the Revenue of Company
(Source: McColl et al. 2020)

• Venture has always focused on improving the technological attributes which offers better possibilities at marketing.
• The company includes international tracking of business perspectives in handling its supplies and production essentials (Laffin, 2019).
• LVMH is possessing good financial stability which is a major strength for handling various research and development undertakings (LVMH is the top luxury conglomerate in the world — from Dior to Givenchy, here are 17 of the most iconic brands it owns, 2020).
• There is a constant support of the local government to promote its services among the targets in free and secure trade ambience.
• The selection of target customers is apt to incorporate maximum revenue generation opportunities from affluent buyers.

Figure 10: SWOT Analysis
(Source: Zhang et al. 2020)

The weaknesses are:

• There is a lack of management of major market analytics which affects the evolution.
• The intense rivalry uprising in recent times has caused major losses.
• The pricing limitations are a major weakness for the company to improvise.
• There are not many chances at handling communication gaps.
• The selection of luxury items limits the opportunities at marketing.

Discussion of different competencies and resources
Identification of Unique Resources
The available resources of the company can be discussed under:

Financial Resources
These include revenue shares and investments of the brands collaborating with the organization which are operated by separate heads (Weiss, 2020). The availability of efficient financial shares and dividends is essential for the functioning of major operational undertakings.

Technological Resources
The technological innovations in software used to connect with consumers and those that help to retain the transactional activities in purchasing items are well maintained by the company in ensuring major advancements.

Stakeholders Resources
The stakeholders involved in conducting important activities of Venture are well trained and equipped as per the company's website dynamics. It maintains good relations with the contributing stakeholders like employees and suppliers.

Figure 11: Revenue Share of LVMH Company
(Source: Baziet al. 2020)

Locational Resources
The company distinctly identifies the advantages of marketable locations which are why it has the headquarters in Paris, the hub of extreme trendsetters and innovations. Also, Venture identifies prominent transportation amenities.

Market Resources
The marketing aspects are based on the available transformational and communicative technologies which are enriched with promotional efficacies of Venture. Therefore, market analysts always assess their targets and consequences

Valuable
The identified resources can prove valuable for Venture owing to its capacity to include many activities that can help them to expand their sales in prominent third world countries like the US and Canada. The valuable information and findings of the company's activities are altogether efficient.

Rare
The financial resources and technological capacities are not quite rare and they are mostly common among other contenders serving similar luxury items to sophisticated buyers. Also, the innovative and research facilities are rare as they are solely dependent on the ideas built by the creative managers in the concerned company (Dutotet al. 2019).

Imitable
The financial and technological resources are mostly imitable as the concerned actions in the United Kingdom depend on a few handful agencies that have the infrastructure and policies to allow luxury product distributors to reiterate agendas. However, the officials aspire to develop useful amenities that have good administrative and intimate construct for confidentiality.

Organized
The resources and competences are mostly organized in the sector as they require good capacities that allow expansion of services provided within Paris and in France. Therefore, it is essential for the company to organize major actions. The agendas are solely linked to achieve major improvisations in business (Crifoet al. 2019).

Demonstrate in what way the unique capabilities can be linked to competitive advantage
The capacities of Venture at enriching the major objectives of the business environment and retaining their competitive finesse in the current market depend on their strict understanding of the essential criteria that govern all influential stakeholders (Company Profiles, 2020). Employees and customers have to align their responses to various alterations in the employment of trained skills that add value to the available conditions of marketing. The capacities are sided by some limitations in initiating changes that adhere to the tasks issued to relate the consequences for which the company is concerned to analyse the competitive position in Paris and abroad. Globalization calls for major changes in the execution of marketing management using mixes which confer the need to understand the essential aspects of product, price and promotion. The abilities of technological advancements come to help here. The investment and financial services confirm the research and innovative funding which can help to produce good quality items that maintain the fashion or upgraded requirements of consumers. Furthermore, the involvement of financial resources stabilizes the company's performance in global and local positions while competing with others. From the above financial analysis it has been understood that the company has become able to gain competitive advantage with its gaining possibilities and marketplaces. The selection of organic goods has helped the company to sustain its profit growth in the yearly interval of 2017, 2018 and ‘19.

After the identification of one core competence provide a discussion
On one hand, the available resources allow Venture to expand itself in the larger markets, by issuing value added services and innovating the amount of production of relevant goods and services which can help to meet market agendas (Slaton and Linda, 2019). This is added by the levels of competences arising in the markets in recent times with the expansion of the customer's requirements and expectations from various luxury brands. On the other hand, France being a hub of extreme fashion and creative up gradations constantly calls for new deliverables in terms of quality and quantity which are maintained by the organization which faces modernization.

This also aligns certain issues faced by the company in retaining its effective market outputs. It also aligns the needs for communicative enhancement which are not being aligned as far as the needs are concerned. The company does not possess valuable information on the market orientation at international levels. It also does not incorporate main heads of global transport and export import of supplies from cheaper and manageable manufacturers which often make it difficult to process major undertakings of businesses.

Answer 3: Strategy Evaluation
SAF Tests

Table 2: SAF Tests
(Source: Created by Author)

Based on the findings evaluated here, it can be stated that the chosen company can make use of all the three objectives to strategize measures that can result in building acquisitiveness and improve their standard in the current market environment. Furthermore, the most adaptable strategy from this analysis is the infrastructure involvement and improvement of innovations to meet rising business demands while the most feasible technique is believed to be the merging of shareholders and stakeholders who can allow the company to expand its action plans with valuable feedback and opinions on various targeted proposals.

TWOS

Table 3: TWOS
(Source: Created by Author)

From this analysis, it is clear that the competitive strength of LVMH are solely indulged in local communities and rarely offer the scope of international relations which are being lately involved in its agendas, for instance the business dealings with Asian countries. All these must be addressed to ensure compactness. Based on the TWOS matrix it can be understood that the company needs to adopt the most suitable strategy that is the empowerment of financial reservoirs to contribute in innovative activities. With the help of effective communication a significant bond between the suppliers can be easily made, that can be taken as another major attribute of revenue growth.

Figure 12: Revenue by Business Groups in LVMH
(Source: Unesdoc.unesco.org. 2020)

Place the strategy that is going to be evaluated in one of the inner sections and building association The most compatible strategy for the company is the involvement of financial empowerment which is fundamental for expanding business activities in the current competitive environment. This strategy is focused on applying basic necessities at hand which include finance as one of the critical aspects into the current pandemic situation which has caused major loss in the revenue shares. The influence of marketplaces in the organizational growth, the company has created its growing revenue. From the year of 2017, the financial growth has surpassed all the constraints and obstacles that have aroused on the way of business growth. Revenue growth has reached the targeted milestones to some great extent.

Figure 13: GDP growth rate in the Country
(Source: Ministry for Europe and Foreign Affairs, 2020)

Construct Power/Interest matrix with a number of relevant stakeholders

Figure 14: Stakeholder Matrix
(Source: Created by Author)

Identifying the stakeholders of the organisation, it can be stated that the most regulatory contribution is noted in relation with the employees and the customers who are supposedly believed to be the greatest assets of Venture. This can be explained under the grounds of the major contribution given by the workers by enhancing the services and service quality of the company through better innovative production and infrastructural management to avail maximum acquisition of the target buyers. Both employees and customers play a major role in determining the future of this company as it is mainly concerned with selling luxury products to sophisticated ranges of buyers available in Paris and France.

Identification of Two Stakeholder Group that will be firmly affected
The most affected groups of stakeholders based on the analysis conducted in terms of the organisation will be the suppliers and the employees as these two groups are dependent on the organization at the maximum levels. The contribution of the company in determining the supply chains is rapidly guided by the factors that are governing the external and internal environments of the organisation. Being a luxury product distributor, it becomes essential for Venture to address materials available from the suppliers for export and for local usage alongside other factors of transportation and communication with the supply chains which are being used for manufacturing products. Changes in the overall construct can severely affect the supply chains that were dependent on ventures owing to their generations at a smaller scale on finances.

LVMH value chain

Figure 15: Value chain analysis of LVMH
(Source: https://app.creately.com/diagram/fm0B90wYaYI/edit)

LVMH VRIO analysis

Table: 4 VRIO analysis of LVMH
(Source: Created by the Learner)

Conclusion
It can be concluded that the utility of identified strategies lies in understanding the considerations where the need for improvisation is most urgent and important in order to retain the sales and marketing profitability for the company. From the financial analysis it has been identified that the revenue growth has been accounted since 2017 to 2019. Expected to enhance the possibilities of reducing other uncertainties, this scheme is supposed to create major changes in the regular activities which include installation of proper infrastructure and technologies to improve the customer acquisition and management of customer's queries, including the activities that can ensure user friendly shopping websites.

References
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Appendices
Appendix 1

Figure 16: Level of Real GDP in France

(Source: France GDP Growth Rate | 1949-2020 Data | 2021-2022 Forecast | Calendar | Historical, 2020)

Appendix 2

Figure 14: Global Market Share of Luxury Goods Industry

(Source: France - Market Entry Strategy, 2020)