Case 14: Louis Vuitton in Japan1
Justin Paul
Charlotte Feroul
1 In Japan, whether you are in Tokyo, Osaka or Nagoya, just turn your head and Louis Vuitton is
everywhere. The celebration of the 30th anniversary of the presence of the illustrious, glittering French
multinational in Japan took place in Aoyama, one of Tokyo’s fashionable districts. A unique vision of
luxury took shape when Louis Vuitton opened yet another new store inside Comme des Garçons on
September 4, 2008, in the heart of Japan’s capital. The pop-up store situated on the prestigious
Omotesando Street was an illustration of Louis Vuitton’s attachment to the Japanese luxury market.
2 Yves Carcelle, chairman and CEO of Louis Vuitton, said, “This project not only brings a new meaning
to luxury, but also speaks volumes about how the know-how and heritage of Louis Vuitton have always
been perceived in Japan, including by its foremost designers. We are very proud to have been able to
help Rei Kawakubo2 relive her memories in such an original and creative way.”3 The Omotesando
guerrilla marketing event reflected Louis Vuitton’s success in Japan. Louis Vuitton had been following an
aggressive marketing strategy in the country, opening extravagant stores such as those in Ginza or
Roppongi. Take a walk on Ginza’s main street, Chuo Dori, the centre of a paradise for shoppers, with
long-established department stores, such as Mitsukoshi, Takashimaya and Matsuzakaya. Continue
through the high-end fashion street Namiki-dori. Stop. There it is. You have reached the massive flagship
Louis Vuitton store.
3 When Louis Vuitton, the world’s biggest luxury-goods firm, inaugurated its huge shop in 2002 in the
district of Omotesando, Tokyo, hundreds of people were queued outside. During the first few days, sales
exceeded the initial estimations by ¥1 million.4 In the last decade, Japan had been Louis Vuitton’s most
profitable market, representing almost half of its profits, but it seemed that with the 2008–2009
economic crisis, there might be the start of a decline in sales.
4 Facing a weak economy and a shift in consumer preferences, Louis Vuitton started adapting its
strategy in the Japanese market. The days of charging a high price for products with a proprietary logo
seemed to be gone in Japan. The company had to launch relatively low-priced collections to boost sales.
The firm had also been taking steps to open stores in other mid-size cities where the LV brand was not
well known.
5 Louis Vuitton might be French, but Japan had become the land of Louis Vuitton lovers. Over the
years, Japanese consumers had demonstrated fascination and passion for the iconic brand. What would
be the key to Louis Vuitton’s continuing success in the Japanese market?
LOUIS VUITTON—THE HISTORY
The Foundation
6 Louis Vuitton Malletier, often referred to as Louis Vuitton, was an international, well-established
brand mostly famous for its craftwork leather bags and trunks. The firm was established in France in
1854 by Louis Vuitton and became known as one of the oldest French luxury fashion houses.
7 Louis Vuitton, the company’s founder, was born in 1821 in Anchay, Jura, France. He became a
Layetier in Paris and earned a reputation while working for the Empress Eugénie de Montijo, wife of
Napoleon III. Learning from his work for the French aristocracy, he acquired personal “savoir-faire”5
about leather luggage. In 1854, he founded the firm, “Louis Vuitton: Malletier à Paris.”6 The flat-bottom
trunks of Louis Vuitton with trianon canvases represented a real revolution for travelling in those days as
they combined lightness and storage capacity. In 1885, the firm opened its first overseas store in
London, England, on Oxford Street. In 1888, Louis Vuitton developed the Canvas Damier Pattern in order
to make the Louis Vuitton experience unique and recognizable by anybody. The logo “marque Louis
Vuitton deposée,” meaning “mark Louis Vuitton deposited,” was also created.
8 Following the death of Louis Vuitton in 1892, his son, Georges Vuitton, took over the leadership of
the firm. He was ambitious about taking Louis Vuitton to the next step—building a global brand and
setting up a multinational corporation.7 He participated in the Chicago World Fair in 1893, presenting
the company’s product, and travelled all around the United States to promote the brand. In 1896,
Georges Vuitton created the Monogram Canvas and attained worldwide trademarks on it to limit
counterfeiting. The LV monogram was inspired by the Japanese and Oriental designs of the Victorian
age. By 1914, the company opened the Louis Vuitton Building of the Champs-Elysées, now a symbol of
the success and prestige of the company. Though World War I had begun, the firm initiated its global
expansion strategy by opening stores in New York, Bombay, Washington, London, Alexandria and
Buenos Aires. In 1936, Gaston-Louis Vuitton took over the direction of the company when his father,
Georges Vuitton, passed away.
The Modern Age of Louis Vuitton
9 Gaston-Louis Vuitton guided the brand into its modern age. The company expanded its product line
by applying the craftwork and design of its leather to small leather goods, such as purses and wallets,
and to its whole luggage line. As a consequence, the Monogram Canvas was redesigned in 1959 to fit
the new range of products. The brand started its first advertising strategy by handing bags to Hollywood
celebrity actresses. Audrey Hepburn carried a Louis Vuitton bag in 1963 in the film Charade, directed by
Stanley Donan.
10 In the mid 1970s, Louis Vuitton had become the world’s biggest luxury brand in terms of market
share. The Vuitton-Racamier family,8 owner of the brand, had focused mainly on building a Japanese
clientele. By 1977, the company owned two stores in Japan with annual profits of US$10 million. It
further tapped into the Asian market in 1983, in Taipei, Taiwan and, in 1984, in Seoul, South Korea. The
creation of Louis Vuitton Moët-Hennessy (LVMH) in 1987 established the largest luxury-goods
conglomerate in the world. Moët et Chandon and Hennessy were the leading manufacturers of
champagne and brandy. The merger resulted in an increase in profits for Louis Vuitton of 49 per cent in
1988 compared to 1987. By 1989, Louis Vuitton had entered into 130 countries across the world.9
11 In 1990, Yves Carcelles was nominated for president of Louis Vuitton. He carried on with an
international expansion strategy, inaugurating the first Chinese store in the Palace Hotel in Beijing. The
Monogram Canvas centennial was celebrated in 1996. Seven cities across the world held extravagant
parties at stores and Louis Vuitton asked seven prestigious designers to imagine new products featuring
the LV monogram. Azzedine Alaia, Manolo Blahnik, Romeo Gigli, Helmut Lang, Isaac Mizrahi, Syvilla and
Vivienne Westwood created seven original and functional objects in a limited edition series.10
Louis Vuitton in the 21st Century
12 In 1998, the American designer Marc Jacobs was appointed as Louis Vuitton’s art director. Jacobs
was already a highly successful international designer, who became distinguished as the youngest
fashion designer ever to be awarded the industry’s highest tribute, the Council of Fashion Designers of
America (CFDA) award for New Fashion Talent. The challenge was huge, as Jacobs had to guide Vuitton’s
first shoes and ready-to-wear collections. With this nomination, Louis Vuitton aimed at establishing the
brand as a consistent trendsetter in high fashion.
13 Since the late 1990s, creating limited-edition collections had become Louis Vuitton’s marketing
strategy to capture consumers’ attention and reinvigorate the brand’s identity while boosting the
bottom line. In 2001, Stephen Sprouse and Jacobs collaborated to design a limited edition series of Louis
Vuitton bags. Sprouse was already a highly popular artist, as he had collaborated with the extravagant
Andy Warhol and with contemporary artists and musicians such as Debbie Harry and Duran Duran. In
line with what The New York Times called Sprouse’s mix of “uptown sophistication in clothing with a
downtown punk and pop sensibility,” the collaboration with Jacobs resulted in a limited edition that
featured green and white graffiti written over the monogram pattern. All bags were made for Louis
Vuitton’s VIP list and were meant to be collector’s items. In 2001, following the success of the Louis
Vuitton limited edition, Jacobs designed Louis Vuitton’s first jewelry piece. In 2002, the Tambour watch
collection was introduced.
14 Pursuing its globalization strategy in the 21st century, Louis Vuitton opened one of its most famous
stores on Fifth Avenue in New York City, then opened more stores in Sao Paulo, Brazil, Johannesburg,
South Africa, and Shanghai, China. The brand reopened its store on the Champs-Elysées, which became
the largest Louis Vuitton store in the world. Louis Vuitton celebrated world wide its 150th anniversary in
2004. It had taken more than a century starting with a family house to build a timeless image of class,
luxury and elegance.
15 The industry-leading luxury conglomerate, LVMH, had been a major player in Louis Vuitton’s
success; it had been setting the tone and practices of the brand. The LVMH group had divided itself into
five business divisions: fashion and leather goods, selective retailing, wines and spirits, perfumes and
cosmetics, and watches and jewelry. There were 50 plus luxury brands belonging to the group, which
captured business in many countries. Louis Vuitton had been returning the favour to its parent
company, as it represented the group’s best-performing brand due to continuous double-digit growth
during the past years. Although LVMH did not disclose sales for Louis Vuitton alone, analysts reckoned
that in 2003, sales had grown at least 16 per cent worldwide and had repeated that growth in 2004.
Thanks to Louis Vuitton’s rapid growth, LVMH’s Paris-traded shares had almost doubled in price in 2004
to more than $75. Exhibits 1 to 4 show LVMH’s financial results for 2008, LVMH’s Fashion & Leather
Goods Division’s 2008 financial statements and the division’s key figures.11 The LVMH group’s upward
trend was said to be poised to continue as chairman Bernard Arnault’s expectations for the future were
very optimistic. At that time, Louis Vuitton had already quintupled sales and increased margins six-fold
since Bernard Arnault had bought the company in 1989, and the brand was said to have the greatest
potential for growth of all luxury brands (see Exhibit 5).
The Vuitton Machine: Inside the World’s Biggest Luxury Brand
16 Thinking of Louis Vuitton, what would come to mind? It would certainly be top model celebrity ads
in trendy fashion magazines, or fashionistas in new Louis Vuitton retail temples from the Champs
Elysées to Tokyo’s high-end Omotesando shopping district. Behind the glamorous image of Louis
Vuitton, one could see what made it unique, and what made it the most profitable luxury brand
worldwide (see Exhibit 6).
17 As Louis Vuitton had been progressing smoothly for the past years, Yves Carcelle, the charismatic
textile executive who had been widely credited with masterminding Louis Vuitton’s ever-rising growth,
had commented about the brand’s growth that “the sky’s the limit.” With $3.8 billion in annual sales,
Louis Vuitton represented in 2004 about twice the size of its two main competitors, Prada and Gucci
Group’s Gucci division. This fact was even more striking when LVMH announced a 30 per cent increase
in Louis Vuitton’s earnings in 2003 due to a record operating margin at 45 per cent. The standard
average margin in the luxury accessories business was 25 per cent.12
Efficient Management Practices
18 Through the years, Louis Vuitton had established a strictly controlled distribution network thanks
to an efficient structuring of the company that relied on continuously increasing productivity in design
and manufacturing. Louis Vuitton owed much to its executives. Emmanuel Mathieu, who had headed
Louis Vuitton’s industrial operations since 2000, had contributed to the boost in manufacturing
productivity by five per cent a year, with more productivity, efficiency and teamwork. In 1999, the firm
took 12 months to launch a new product; in 2004, the time was reduced to about six months. This
continuous improvement had been the theme of Louis Vuitton’s industrial operations and was
facilitated by manufacturing methods from auto makers and other industries that had been adopted to
boost productivity.
19 Managers such as Emmanuel Mathieu had helped transform the brand from a family business to a
21st-century business.13 The manufacturing of Louis Vuitton products was still a labour-intensive
process. Each team of 24 workers was responsible for producing about 120 handbags a day. Over a
period of time, the brand seemed to have achieved perfect equilibrium between machines and labour.
Quality Products
20 Louis Vuitton focused on constant improvement of quality and offered lifetime repair guarantees
for its customers. The brand had been striving to increase both fidelity and endless desire in its
consumers. Louis Vuitton based its strategy on the loyalty of its consumers and strove to attract more
consumers to buy bags ranging from classic tan-and-brown monogrammed bags to newer lines, such as
the Murakami line, which was priced at $1,000, and Suhali, a line of goatskin bags priced at more than
$2,000. As they bought Louis Vuitton items, loyal shoppers stepped into the dream of the brand. The
more the prices were raised, the more they would come back.
21 When Jacobs joined Louis Vuitton, the New York designer had a challenge—attracting young
buyers. However, Jacobs happened to be the perfect match as the two product lines that he had
launched (ready-to-wear and shoe lines) tapped into a market of younger consumers, even if those lines
accounted for less than 15 per cent of the brand’s sales. The younger buyers were attracted by brand
image and older clients by quality and lifetime free repairs.
Production and Quality Control
22 The efficiency of the manufacturing facilities and employees helped Louis Vuitton compensate for
its decision to keep most manufacturing plants in France, one of the most expensive labour markets in
the world. Eleven out of 13 factories that made Louis Vuitton bags were in France. The brand had never
planned to manufacture its products in a location where labour was less expensive as the quality control
standards in France were very high and customers expected “un savoir-faire à la Française,” meaning
the famous refined French know-how.
23 Quality control was conducted in the brand’s test laboratories. The leather raw material came from
the hides of Northern European cattle. They were known for relatively few blemishes from insect bites.
Despite high-quality leather, the quality of the bags was tested with mechanical arm hoists. The bags,
loaded with weights, were lifted and dropped, again and again, as part of quality checking. Then,
ultraviolet rays were projected on the handbags in order to determine their resistance to fading.
Eventually, zippers were opened and shut 5,000 times. For other pieces, such as jewelry and bracelets,
mechanized mannequin hands were strongly shaken to make sure none of the charms would fall off.
24 In all Louis Vuitton factories, employees worked in teams of 20 to 30. Each team was responsible
for one product at a time and were encouraged to suggest improvements in manufacturing. They were
also briefed about the products, such as their price and how they were selling. The aim was to have
autonomous and multiskilled employees.
25 The Boulogne Multicolor shoulder bag provided and example of how the whole production process
worked. With the success of the Murakami line in 2003,14 the marketing executives thought that this
line could be a source of further revenue. They questioned store managers and found out that
customers wanted a Murakami shoulder bag. A prototype of this new Boulogne Multicolor bag went
directly from the marketing department to top executives. Straight away, they approved it. The
prototype went to the factory in Ducey on the Normandy coast of France. The teamwork efficiency of
Louis Vuitton’s factory paid off. When some workers were asked to test it, they discovered that
decorative studs were causing the zipper to bunch up. Following this discovery, managers were
informed right away and technicians managed to place the studs a few millimetres away from the zipper
in less than one or two days. The problem was solved.15
Advertising
26 As Louis Vuitton had been going global, it had been able to develop a successful advertising
strategy in line with its global expansion strategy. The advertising strategy of the company remained
based on the idea that productivity would not sustain growth. Rather than cutting its ad budget like
most luxury groups, the company increased ad spending by 20 per cent in 2003. This figure might have
seemed very high but in fact it only represented five per cent of revenues, half the industry average.16
27 The company meticulously cultivated a celebrity culture and employed famous models and
actresses, such as Jennifer Lopez and more recently Madonna, in its advertisement campaigns.
However, in 2007 the firm implemented a change in its strategy and announced that former Soviet
leader Mikhail Gorbachev would feature in an advertisement campaign with sports stars Steffi Graf,
Andre Agassi and Catherine Deneuve.17 The firm wanted a shift from hiring traditional top models.
28 Louis Vuitton frequently used print ads in magazines and billboards in large cosmopolitan cities.
The campaigns often involved famous stars like Gisele Bündchen, Eva Herzigova, Sean Connery and
Francis and Sofia Ford Coppola. Lot of customers were attracted to the mind-boggling 90-second
commercial advertisement on television with the catchy question, “Where will life take you?” Translated
into 13 different languages, it helped LV to build brand. The media (communication) department was
strategic in choosing the newspapers and magazines to reach out to the higher income group.
Future Challenges
29 The most serious issue that would remain for years to come was the question of whether Louis
Vuitton had reached its growth potential or not. One of its challenges would consist in reducing its risky
dependence on the Japanese market. In 2004, 55 per cent of revenues came from Japanese consumers.
To reduce dependence on this market, the brand aspired to continue building its sales in the United
States as well as tapping new emerging markets, mainly China and India.
30 The second challenge would be to fight against worldwide counterfeiting. This was important
because Louis Vuitton had been itself synonymous with status, convincing customers that they belonged
to a privileged club.
31 In the future, Louis Vuitton would have to face a shift that all fashion houses feared, the possible
departure of Jacobs. Yet, Jacobs had signed a contract as Louis Vuitton’s artistic director until 2018 and
Marc Jacobs’s label18 was one of the rising stars in LVMH’s portfolio.
32 However, the biggest challenge was in keeping control of the multinational business. As brands
went global, the temptation for many was to immediately find new outlets and new channels of
distribution and to decide on the price in different countries. However, Louis Vuitton was highly
disciplined and focused on quality.
JAPAN—A KEY MARKET
Overview of the Japanese Luxury Market
33 Over the past few years, Japan had become the capital of luxury and a mass market paradise for
luxury brands. According to an estimate by HSBC in February 2009, it was the final destination of 45 per
cent of luxury goods sold worldwide.19 According to some luxury analysts, the statistics were
exaggerated. Indeed, Japan was considered the world’s largest market for luxury brands but statistics
said that Japan represented between 12 and 40 per cent of worldwide sales. The rate would vary
according to the definition of the market.
34 Claudia D’Arpizio upheld that, “Japan is the world’s largest market, and has the highest per capita
spending for luxury goods.” She added, “Much of that volume is from Japanese purchases while on trips
to Hawaii, the US or Asia.”20
Competition
35 Japan was the world’s most concentrated source of revenue for luxury brands. It represented the
mass market and consequently the first source of profit for many international luxury brands. Exhibit 7
shows the percentages of several companies’ overall revenues generated in Japan.
36 The CEO of Bulgari, Francesco Trapani, revealed, “Accounting for 26 per cent of total revenues,
Japan is for Bulgari the first and most important market.” In 2006, Japan represented the biggest market
for other luxury brands such as Baccarat, Burberry, the Gucci Group, Louis Vuitton and Salvatore
Ferragamo. In addition, Japan was the second biggest market for Coach and Tiffany & Co.21
37 Comparing Japan’s geography to the U.S. geography, the former was equivalent in size to the
region of Montana. Within its tiny territory, Japan was sprinkled with 34 Bulgari stores, 37 Chanel stores,
115 Coach stores, 49 Gucci stores, 64 Salvatore Ferragamo boutiques, 50 Tiffany & Co. boutiques and
252 stores of the LVMH group, including leading brands such as Louis Vuitton, Donna Karan, Marc
Jacobs, Berluti, Moet & Chandon, TAG Heuer and De Beers LV.22
38 Quality had always been a key factor for successful brands in the Japanese market, especially for
smaller brands or niche brands that did not enjoy the same success as larger brands, such as Louis
Vuitton. But new, foreign brands were trying to shake up the market share of existing luxury companies
in Japan by offering high quality at competitive prices. The popular worldwide Swedish brand H&M
tapped into the Japanese market in 2008 with its fast fashion concept. The entry of H&M into the
market completely revolutionized it. As a consequence, the effectiveness of the business models of
brands like Zara, H&M or Uniqlo enabled them to compete with quality brands amazingly quickly.
Affordability was a new concept that was radically changing the mind set of Japanese customers, who
were always eager to resemble top fashion models from famous catwalk shows.
Consumer Behaviour in Japan
39 Japan had been known for a group-oriented culture in which there was a real pressure to possess
luxury status-driven brands. Successful brands such as Prada, Hermès or Louis Vuitton had made the
Japanese luxury market the mass market.
40 The Japanese way of consumption was different from the Western one. In Japan, young women
were more beauty-conscious. The proportion of the urban population in Japan that possessed a famous,
expensive luxury brand item was immense, reflecting a tendency not as deeply ingrained in other
developed cities such as New York, Sydney or even Paris, the high-end capital of luxury fashion. The
Japanese way of consuming cosmetics and luxury brands seemed more like a compulsory form of social
expression.
41 According to Davide Sesia, the president of Prada Japan, Japanese women, to a much greater
extent than Europeans, had a “psychological need to own something considered to be beautiful.”23 In
Western societies, luxury shopaholics were not very well perceived among society. However, the
cultural and social homogeneity among Japanese society helped explain its attachment to luxury items.
The existence of a large middle class and a high population density affected Japanese habits. Japanese
people were used to spending more time out of their homes than people in any other culture. Japanese
society could be described as an “impersonal” society in which looks were very important, and people
were supposed to dress in a way that corresponded to their social position.
42 Yet, times had changed and Japanese consumers were becoming less inclined to tolerate high
prices that had formerly created desirability. Although young Japanese women would still be eager to
save money for the “it” brands, they had become more aware of the value of money. The lower-priced
accessories and small leather items, such as wallets, travellers or clutches, had reported a huge increase
in sales in the recent past.
43 Since 2000, luxury goods had held a different position in the consumer mindset. As the market had
evolved towards more sophistication, luxury brands were no longer purchased as badges of membership
in the new urban class. The norms of mature brand behaviour and consumer habits seen in the Western
world were about to be reflected in the Japanese luxury market. Davide Sesia had advocated that, “The
increased attitude of Japanese women in their 20s and 30s understanding themselves much better than
in the past was a key phenomenon.”24 As a consequence, in the luxury market, the ready-to-wear
segment had most incontestably been affected by the new trends in Japanese women’s choices.
New Perspectives
44 In response to the sluggish economy and appreciation of the Japanese yen, foreign luxury brands
were lowering their prices. Louis Vuitton and Christian Dior had lowered their prices the week before
Christmas in 2008. Louis Vuitton had made a seven per cent price reduction on leather goods,
accessories, ready-to-wear, shoes, watches and jewelry. The decrease in prices was justified by “a policy
of offering its products at appropriate prices.”25 This policy relied on the exchange rate fluctuation,
manufacturing costs and quality considerations as the yen had strengthened against the euro in 2008.26
45 Although sales of luxury products had notably decreased due to the global financial crisis, which
originated in the United States and spread all over the world during 2008–2009, a new, curious
phenomenon had taken over—the rental of bags. Nonetheless, many luxury brands were aiming for the
return of better days, like the luxury Belgian chocolatier Godiva, which was carrying on with plans to
open two new cafés in Tokyo, or the luxury mobile phone company Vertu, which planned to open a shop
in Ginza. Characteristics of the evolution of the ageing Japanese population, such as wealthier families
and older women with increased purchasing power, represented new perspectives for the future of the
Japanese luxury market.
46 Though there was sustained slowdown in the demand for luxury goods in 2008 and 2009 due to
the adverse consequences of the global recession, the Japanese luxury market would remain a healthy
and growing industry. There had never been an annual sales decline and the growth for the next few
years was still expected to be around six per cent.27
47 The Japanese market was defined as cyclical in the sense that there were periods of huge spending
often followed by periods of slow growth and moderation. In order to compete, brands would have to
rethink their decisions and strategies in a more complex way than in past years. Milton Pedraza, the
chief executive officer of the Luxury Institute of New York, upheld that, “Luxury has to reinvent itself
every few years, and I believe it will return to the traditional meaning of something unique and
exclusive.”28 In the near future, prices of goods and lines of products would oscillate but the average
price would be considered the crucial issue in the luxury market.
Louis Vuitton in the Japanese Market
48 The year 1977 saw the opening of the first stores of Louis Vuitton in Japan in Tokyo and Osaka. In
the 1980s, with the economic boom in Japan, there was “Vuittonmania” in Japan. Around 20 million
Japanese women (out of a population of 127 million people in Japan) owned a bag of the brand and
each year, Louis Vuitton sold more than five million units of “Keepall” and “Speedy,” the classic leather
monogram bags.29 The famous Malletier made more than a third of its profit in Japan. What had been
the key to its successful strategy?
The Entry into the Japanese Market
49 Louis Vuitton was the first multinational luxury house to open its own shop-in-shops in Japan,
without the help of a Japanese distributor. This strategy had become an efficient economic and
commercial business model in the luxury market. In the 1970s and 1980s, foreign firms had
manufactured and distributed their products by licensing. When Louis Vuitton decided to opt for a
controversial strategy and to establish its own subsidiary, the company turned out to be a pioneer. It
decided to export products from France to Japan.
50 Kyojiro Hata had been the CEO of Louis Vuitton Japan for 28 years. Louis Vuitton’s headquarters’
management style meant strict control of the selective retail store network across the globe. Each
subsidiary was, to a certain extent, extremely autonomous. The French headquarters had been relying
on the Japanese business savoir-faire, believing Japanese managers to be more likely to make efficient
market-driven decisions as they understood the local people.
51 Louis Vuitton entered into the Japanese market at first through department stores with a single
brand of its portfolio. The company offered its Japanese partners, like Seibu or Mitsukoshi, an interior
design comparable to that found in its flagship stores in Paris. The purpose remained making a French
luxury purchasing experience and controlling entirely the shop-in-shops (prices, products, sales teams,
etc.).
52 A few years later, in 1981, Louis Vuitton opened its first retail store in Namiki Dori, Ginza, in Tokyo.
The company followed its expansion strategy and, by 2007, controlled 54 stores through a directly
owned shop network in Japan.30 LVMH as a group had more than 250 stores in Japan. Some of them
were stores opened as franchisees during the last decade. New generations of shops opened in Nagoya,
Osaka, Sapporo, Tokyo and elsewhere, revolutionizing the whole purchasing experience of luxury goods.
The architecture of the stores had become part of the brand’s identity. A perfect illustration of this was
the architecture of the Louis Vuitton building in Omotesando, Tokyo, built by Jun Aoki, which looked as
if several trunks were piled up. Louis Vuitton had shifted towards a new approach in which the
experience in a store would accord with the emotion brought out by the products.
53 Louis Vuitton took advantage of the Japanese demand for high fashion. Japan had been and
remained a source of creative ideas and trends. In a sense, Japan represented a fantastic laboratory to
test new selling methods and to inaugurate innovative Louis Vuitton stores. Contrary to Europe, there
were few rules and standards to follow in terms of urbanization and architecture. This enabled Louis
Vuitton to design audacious and amazing stores like the ones in Ginza, Ometesando and Roppongi in
Tokyo, or even one of the latest stores inaugurated in February 2007 in Nagoya’s Midland Square, just
below the Toyota headquarters. The Japanese clientele were receptive to Louis Vuitton, as they were
truly avid for new products and very demanding of the quality of products they bought.
Strategic Approach
54 Louis Vuitton had always been a trend-setting brand strategist in Japan, a country that revolved
around tradition and culture. Since the designation of Jacobs as the artistic director of the brand, Louis
Vuitton had successfully entered the Japanese ready-to-wear market. Jacobs had strived to combine his
own artistic universe with the tradition and heritage of the brand. The designer had created a new
energy and enthusiasm for each ready-to-wear runway collection, mixing tradition and innovation.
55 Since 1995, the worldwide luxury market had been growing by 10 per cent each year.31 In 2002,
the global economy faced a slowdown due to the recession caused by the September 11, 2001 terrorist
attacks in the United States. The direct consequence was a decrease in sales, such as luxury shopping in
duty free zones in international airports and prestigious luxury destinations like Tokyo’s Ginza Namiki
Dori, the Place Vendôme in Paris and Madison Avenue in New York. The September 11th attacks had
caused a major decline in tourist flows and in the luxury market. In Europe, foreign tourists accounted
for 60 per cent of customers of luxury items.32 Louis Vuitton in Japan had to redefine its strategy
because the sluggishness in the United States had an adverse impact on the purchasing power of the
Japanese consumers as Japan was relying on export income from the United States. At that time, Louis
Vuitton realized that it had to focus on local consumers rather than tourists. Luxury started to go
local.33
56 Louis Vuitton reacted early to proceed with this major shift in strategy. The brand realized that for
the past years it had been setting the trend as a brand leader but that the guarantee of future growth
would depend on adapting to and understanding local customers. To do so, the company tried to adjust
its approach and products to reach local customers. A revelation came from the Japanese market.
Limited Editions: A New Marketing Strategy
57 After Jacobs had seen an exhibition at the Fondation Cartier pour l’art contemporain in Paris by
Takashi Murakami, Louis Vuitton decided to collaborate with the Japanese artist for its 2003
spring/summer collection. Takashi Murakami, who was known as the “Japanese Andy Warhol,” recreated a colourful pop version of Louis Vuitton’s monogram in 33 colours on a black and white
background. In stores, Louis Vuitton’s handbags with smiling blossom designs became huge sellers in
Japan. The strategy appeared to be a huge success for the leading luxury conglomerate LVMH, as the
Murakami line increased Louis Vuitton’s profits by 10 per cent.34 The success was not only in the
Japanese market but also in the European and American markets, which showed true admiration for
Japanese culture.
58 Following the massive success of the line, in 2003 and 2005 collaborations between Murakami and
Jacobs resulted in the Monogram Cherry Blossom line, featuring a trendy motif inspired by the fruit of
the cherry blossom—Japanese art wedded to Louis Vuitton’s perfection—and the Monogram Cerise line,
with a new pattern that gave freshness and cheerfulness to the monogram.
59 While announcing the exclusive Louis Vuitton store at the Murakami Exhibition in the Brooklyn
Museum in April 2008, Jacobs had commented on their collaboration. “Our collaboration has produced
a lot of work, and has been a huge influence and inspiration to many. It has been and continues to be a
monumental marriage of art and commerce. The ultimate cross-over, one for both the fashion and art
history books.”35 He had it spot on—it was indeed “commerce” and strategy, as Takashi Murakami had
been the starting point of Louis Vuitton’s success in Japan.
The Limits of Limited Editions
60 For the past years, Louis Vuitton had boosted its sales with continuous limited editions in the
Japanese market. Once again, in June 2008, Louis Vuitton had launched a major new accessory line
called Monogram Ouflage, which combined the iconic brand’s monogram canvas with a new camouflage
print designed by Takashi Murakami and Jacobs. It was unveiled at the pop-up Louis Vuitton shop
opened at the Brooklyn Museum of Art. However, limited editions were under threat. The company had
used them to market several lines of bags. In the end, the flood of mass-market interest would end up
robbing the brand of some of its cachet and overdoing the profitable “limited edition” strategy would
confuse consumers as they would no longer be able to differentiate between a real limited edition and a
marketing ploy. Democratized luxury for all was good, but with precautions.
Market Dilution: A Luxury Brand is Dead, a Fashion Brand is Born
61 How did the brand that had been synonymous with luxury and exclusivity grow while retaining its
cachet? Though Louis Vuitton had been an enduring status symbol in Japan, it had to face a major
challenge: brand dilution as it moved into offering new product lines. As a leader of the sector, the
challenge was to continue growing in the Japanese market and still preserve the exclusivity and great
quality the brand had always offered.
62 There were two stages in luxury culture—the “show off “ stage and the “fit in” stage—and Japan
had already passed the two stages. The “fit in” stage was represented by Louis Vuitton. As an example,
more than three-quarters of women in Tokyo of about twenty years of age possessed an item of the
brand. This phenomenon was considered normal as luxury goods symbolized membership of the
“acceptable” group of society. Accordingly, mass expansion and mass distribution had become a real
issue.
63 In 2007, in the sulphurous book “Deluxe: How Luxury Lost Its Luster,” journalist Dana Thomas
reported that 40 per cent of all Japanese owned a Louis Vuitton-monogrammed item. She compared
Louis Vuitton’s expansive growth over the past decade to that of McDonald’s, suggesting that the “LV”
logo had become almost as ubiquitous as the Golden Arches.36 These declarations damaged Louis
Vuitton’s image. In addition, constant questioning over the origins of Louis Vuitton’s products and the
repetition of limited editions over the past years had marked a new era for Louis Vuitton—an era
characterized by disposable “it” bags with shelf lives of two fashion seasons at most. This climate
seemed to be contrary to what was the essence of Louis Vuitton: tradition and longevity.
Counterfeiting
64 The LV branded bags were priced high in Japan (see Exhibit 8) as in other countries. Therefore, the
firm had to face challenges from fake bags. Louis Vuitton had been trying to battle against issues such as
the falsification of the logo and market dilution. Since the end of the 1990s and the Asian Financial
Crisis, there had been a flood of fake Louis Vuitton products coming from Seoul, Hong Kong, Tokyo and
Los Angeles. Though China was the largest producer of Louis Vuitton counterfeited bags, South Korea
was the largest producer in terms of high-quality bags. Most South Korean Louis Vuitton counterfeits
were exported to Japan.
65 Louis Vuitton had been fighting this issue and remained optimistic. In 2001, at an International
Herald Tribune conference in Paris, Christophe Girard, director of fashion strategy at LVMH, declared
that when the economy is bad, consumers still wish to turn to luxury products as their value is reliable
and long-lasting. He added that “the quest for pleasure” did not fade away and “it even happens in war.
People want to enjoy themselves.”37 This statement appeared to be accurate in Japan, which had been
suffering from the Asian Financial Crisis and facing 10 years of economic slowdown, but in which women
still had a “cult” for luxury brands. In 2000, Louis Vuitton sales in Japan had increased by 16 per cent,
reaching ¥100 billion for the first time in the company’s history.38
66 However, Japanese consumers had been eager to buy Louis Vuitton bags at inexpensive prices.
According to Hidehiko Sekizawa, the executive director of the Hakuhodo Institute of Life and Living in
Tokyo, “Japanese shoppers have always been very fussy about quality. Now that the counterfeits are
hard to distinguish from authentic products, they no longer mind buying fakes, even though they
probably own a couple of authentic bags. They save the genuine articles for formal events like weddings
and parties, and dinners and dates, and use counterfeits on rainy days, or to go to the supermarket for
milk.”39
67 The Japanese laws regarding intellectual property had been modified in 1985 and had become
similar to Western laws. These rules did not really diminish counterfeiting, which remained a gigantic
issue in the following years.
68 In 2008, a scandal went public. It was alleged that more than 90 per cent of the Louis Vuitton
branded products sold on the Japanese “Super Girls Auction” website (Girl-Oku) were counterfeit.40 The
website, which targeted mobile phone users, was an auction site of Media Matrix Inc, a member
company of the XAVEL group. Louis Vuitton reacted through the Union des Fabricants Tokyo (UDFT). A
federal inspection was led in order to prove that the auction site had indeed broken the law. Following
the investigation, there was a noticeable decline in sales due to Girl-Oku’s countermeasures, but the
issue remained unsolved.
Louis Vuitton’s Further Growth in Japan—Change in Management
69 Even though there were doubts about future opportunities for Louis Vuitton in Japan, Kiyotaka
Fujii, the new chief executive officer (CEO) of Louis Vuitton Japan, announced that this was not the case
in December 2006. The designation of Fujii as the new CEO appeared to be the first change in the
Japanese management team of the firm.41
70 Fujii, a 49-year-old businessman, had previous work experience in consulting and information
technology. He had served as the director and an executive committee member of Quintiles
Transnational Japan K.K., a leading pharmaceutical services organization providing professional services
and information and partnering solutions to the pharmaceutical, biotechnology and healthcare
industries. He had also worked at McKinsey & Co. at the New York headquarters. He had graduated from
Tokyo University and had obtained an MBA from the Harvard Business School.
71 His vision was to steer the Japanese subsidiary of Louis Vuitton to the next level, relying on the
company’s long-term vision and high-quality business. When Yves Carcelles had revealed the
appointment of the new CEO, he had pointed out that the person who was chosen as CEO had had to
necessarily be Japanese with a clear vision of Japanese culture. Fujii’s term of office was an absolute
success. Among his remarkable acts, the creative collaboration with the Japanese architect Jun Aoki and
the artist Takashi Murakami had resulted in smash hits, boosting Louis Vuitton’s sales in the market. He
had also introduced Kabuki, or Japanese dance-drama, in Paris. Through the years, one of the strengths
of the firm’s global strategy had been to take the best practices from certain cultures and implement
them in selected markets. To continue to do so, Fujii would have to face the challenge of exporting the
originality of Japanese artists and best practices internationally.
Next Steps for Further Growth
72 After his designation as CEO of Louis Vuitton in Japan, Fujii announced that the priorities for the
brand would be establishing an Internet business and expanding the range of Louis Vuitton’s products
for children. Sales of smaller leather goods and other products, such as jewelry and eyewear, had
outstripped initial sales objectives. Fujii said that, “Ready-to-wear is another category to grow, and this
communicates the message from Louis Vuitton to consumers and increases the brand value of Louis
Vuitton. Business on the web is another possible approach to consumers.”42
73 The marketing strategy had been one of the key points of Louis Vuitton’s success in Japan. The
brand was now expanding its strategy towards mid-size and smaller cities. By 2006, Louis Vuitton
already had 52 stores and 40 shops-in-shops and was reconsidering its strategy in terms of adapting to
Japanese demographic changes and rethinking the range of products offered.
74 Despite changes in Japanese society, Louis Vuitton was still confident about its future. In 2006, an
analyst from Mitsubishi UFJ Securities’ research division assessed that, “The Japanese market is not
considered saturated yet; the strength of Louis Vuitton is its high recognition among people of wide
generations, so opening more shops in middle-size cities makes sense. That’s the integrated power of
the brand that includes product development and image management.”43 Louis Vuitton’s power was
not about to fade away.
CONCLUSION
75 The after-shocks of the global recession were a threat to Louis Vuitton’s luxury business in Japan
since its products were priced very high. There were signs that young Japanese women did not have the
same vision as the previous generation. They were no longer eager to buy Louis Vuitton products. This
represented a real change in the Japanese mindset and Louis Vuitton was already suffering the
consequences.
76 Japan had always been the luxury mass market symbol of Louis Vuitton’s golden age. Over the
years, Louis Vuitton had been building its global strategy thanks to the experiences and lessons learned
from Japan. In a gloomy economic context, the market was tending towards saturation, sales were
declining, and competition was fiercer than ever. How could Louis Vuitton reinvent itself and regain
what used to be its well-attested fame in Japan?
1 This case has been written on the basis of published sources only. Consequently, the interpretation
and perspectives presented in this case are not necessarily those of Louis Vuitton or any of its
employees.
2 Rei Kawakubo was a famous Japanese fashion designer. She founded the fashion house Comme des
Garçons Co. Ltd in 1973. The designer, known for her anti-fashion, austere and conceptual universe, was
the guest designer of Louis Vuitton for one of its collections in 2008.
3 Lesley Scott, “Louis Vuitton at Comme des Garcons in Tokyo,” http://fashiontribes.typepad.com.
Accessed July 11, 2008.
4 “Japan’s luxury-goods market—Losing its shine,” The Economist, September 18, 2008,
www.economist.com. US$1 was equivalent to approximately ¥150 (yen) in 2002.
5 “Know-how.”
6 “Louis Vuitton: Luggage maker in Paris.”
7 Official Louis Vuitton MySpace, www.myspace.com/louisvuittonmyspace, accessed June 25, 2010.
8 Henri Racamier married a descendant of Louis Vuitton. He was asked at the age of 65 by the family of
his wife, Odile Vuitton, the great-granddaughter of Louis Vuitton, to run the family’s leather goods
business.
9 Official Louis Vuitton MySpace, www.myspace.com/louisvuittonmyspace, accessed June 25, 2010.
10 Diana Prince, “Louis Vuitton: The history behind the purse,” www.associatedcontent.com, accessed
July 26, 2008.
11 The Louis Vuitton Company was part of the Fashion & Leathers Goods Division of LVMH.
12 Carol Matlack, “The Vuitton Money Machine,” Business Week, www.businessweek.com, accessed
March 22, 2004.
13 Ibid.
14 In 2003, Takashi Murakami, in collaboration with Marc Jacobs, created the Monogram Multicolor
canvas range of handbags and accessories. First designed for the Japanese market, the line was a
worldwide success.
15 Carol Matlack, “The Vuitton Money Machine,” Business Week, www.businessweek.com, accessed
March 22, 2004.
16 Carol Matlack, “The Vuitton Money Machine,” Business Week, www.businessweek.com, accessed
March 22, 2004.
17 Official Louis Vuitton MySpace, www.myspace.com/louisvuittonmyspace, accessed June 25, 2010.
18 Marc Jacob created his own label, Marc Jacobs Co. Ltd, in 1994. The company was part of LVMH.
19 Glenn Smith, “Luxury sector loses its recession-proof status,” Media, February 12, 2009, p. 19.
20 Ibid.
21 “Japan is the world’s most concentrated source of revenue for luxury brands,” Japan External Trade
Organization, www.jetro.org, accessed May 8, 2006.
22 Louis Vuitton had settled an agreement for a joint venture with the diamond company De Beers for
the Japanese market. “Japan is the world’s most concentrated source of revenue for luxury brands,”
Japan External Trade Organization, www.jetro.org, accessed May 2006.
23 “The State of Luxury in Japan,” Carter Associates,
http://carterassociates.net/aboutJapan/view_04_Luxury.html, accessed February 12, 2008.
24 “The State of Luxury in Japan,” Carter Associates,
http://carterassociates.net/aboutJapan/view_04_Luxury.html, accessed February 12, 2008.
25 Miles Socha, “Vuitton, Dior to Lower Prices in Japan,” Women’s Wear Daily, February 12, 2008.
26 Ibid.
27 “The State of Luxury in Japan,” Carter Associates,
http://carterassociates.net/aboutJapan/view_04_Luxury.html, accessed Feb 26, 2008
28 Glenn Smith, “Luxury sector loses its recession-proof status,” Media, February 12, 2009, p. 19.
29 Phillipe Adam, “La passion japonaisede Louis Vuitton,” International Commerce, www.actu-cci.com,
accessed July 9, 2007.
30 Ibid.
31 Claudia D’Arpizio, “Luxury goes local,” The Wall Street Journal Europe,
www.bain.com/bainweb/home.asp, accessed May 1, 2004.
32 Ibid.
33 Ibid.
34 Ibid.
35 Sally Williams and Mona Sharf, “The Brooklyn Museum announces the inclusion of an exclusive Louis
Vuitton store within the retrospective of Japanese artist Takashi Murakami,”
www.brooklynmuseum.org, accessed March 21, 2008.
36 Dana Thomas, Deluxe: How Luxury Lost Its Luster, The Penguin Press, 2007.
37 Velisarios Kattoulas, “Counterfeiting bags of trouble,” Far Eastern Economic Review, March 21, 2002.
38 Ibid.
39 Ibid.
40 Kenji Toda, “Mobile-phone auction sites flooded with fake brand products,” Nikkei Business, August
20, 2008.
41 Koji Hirano, “Vuitton Sees Further Growth in Japan,” Women’s Wear Daily, December 6, 2006.
42 Koji Hirano, “Vuitton Sees Further Growth in Japan,” Women’s Wear Daily, December 6, 2006.
43 Ibid.
Running head:
Unit Case Study Analysis
School of Business
MT460 Management Policy and Strategy
Author:
Professor: Dr.
Date: ,
1
2
Name of Case Study
Company Name:
Topic of the Week:
Synopsis of the Situation
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Alternative Solutions
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Selected Solution to the Problem
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Implementation
Recommendations and Conclusion
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4
References
5
Appendix
Figure 1. SWOT Analysis based upon the topic of the week for the company case.
Strengths
1.
2.
3.
Weaknesses
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3.
Opportunities
1.
2.
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Threats
1.
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