The worldwide expansion of luxury firms
Forms, objectives, effects
Franck Delpal
[email protected]
Institut Français de la Mode – PARIS
CONTENT
Luxury
3
1
Retail
Internationalization
2
1. European luxury on global markets
• Luxury and internationalization go hand in
hand systematically
• The international trade was structured
starting from the exchanges of luxury
goods for three reasons :
– When transportation costs are substantial,
only products enjoying a positive or
constant price elasticity of demand can be
exported
– The narrowness of interior markets
– The link of luxury goods with culture and the
fact that luxury goods have no equivalent
abroad
2. Internationalization and retail
The theoretical approaches :
– Vernon’s product lifecycle model
– The Uppsala Model (Johansson and Vahlne – 1977)
– The Eclectic Paradigm (Dunning – 1988)
The eclectic paradigm (Dunning – 1988)
Ownership-specific
advantages
• International
experience
• Marketing skills
• Unique knowhow
• Trademarks
Internalization
advantages
• Transaction costs
theory
Location
advantages
• Potential of the
host market
• Country risk
The eclectic paradigm
(Chan, Kim and Hwang – 1992)
Strategic
variables of the
industry
Variables linked
to the
environment of
the companies
Transactionspecific
variables
• Global concentration
• Strategic synergies and
motivations
• Country risk
• Uncertainty of demand
• Intensity of competition
• Level of firm specific
know-how
• Tacit nature of know-how
Companies tend to proceed to
integration of their subsidiaries
when :
1/ Country risk is weak
2/ They have experiment in the
country
3/ Global synergies and
concentration are strong
4/ Firm know-how is tacit
The eclectic paradigm adapted to the fashion
retail sector
(Lu, Karpova and Fiore, 2011)
The factors explaining a direct presence on global markets
Company
Environment
Market
• Specific assets
• Significant brand
equity
• High financial
capacities
• Strong
international
experience
• Weak country
risk
• Cultural proximity
• Weak
governmental
restrictions
• Strong potential
• Small competition
The various forms of global presence
Exchange
without
controlling
interest
Joint
ventures (instores
concessions)
Franchise
agreements
Merger or
takeover
Internal
expansion
Flagship
stores
(Doherty,
Moore and
Doyle, 2010)
Cases of luxury companies
Europe
Americas
Japan
Asia-Pacific
RoW
Total
LVMH – Fashion and
leather goods
29%
18%
16%
30%
7%
100%
Gucci
30%
18%
12%
36%
4%
100%
Hermès
38%
16%
19%
26%
1%
100%
Louis Vuitton in Japan
Before1977
Manufacturing
Importation
Wholesale
Retail
Louis Vuitton France
Mitsui & Co
Sann Bros
Retailers (Department stores)
Manufacturing
Importation
Wholesale
Retail
Louis Vuitton France
Louis Vuitton
Japan
Louis Vuitton
Japan
Retailers (Department stores)
Manufacturing
Importation
Wholesale
Retail
Louis Vuitton France
Louis Vuitton
Japan
Louis Vuitton
Japan
Louis Vuitton
Japan
1977-1978
Since the 1980’s
Source : Delpal, based on Hata (2004)
10
Hermès
78
77
97
67
77
98
1995
1996
1999
97
104
107
166
193
2008
2010
109
133
145
2001
2004
2006
Nb of directly operated stores
121
124
Nb of franchisees ("Concesionnaires")
Hermès
Europe
Nb of Directly Operated Stores
Nb of “Concessionnaires”
71
56
Of which France
15
20
Italy
11
11
Germany
10
8
Americas
34
Of which USA
Asia
15
25
81
9
45
Of which Japan
28
22
China
17
4
Middle East
0
6
Oceania
7
2
193
124
Total
Gucci
31
32
33
173
187
198
207
2002
2003
2004
2005
32
51
111
130
69
1996
1999
Nb of directly operated stores
Nb of franchisees
3. Retail and luxury
• Downstream integration is one of
the most important strategic
evolution experienced by luxury
companies since the late 1970’s
• Several advantages :
– A better capacity to differentiate the
product
– Suppression of bargaining power of the
purchaser
– Access to information concerning the
marjet
– Fixing of higher prices and margins
– Higher cost of market entry