LVMH

Balanced
Scorecard
Accounting, Finance & Control

Project work

Mattia Moro 838993

Lenka Jedlickova 835634
Harish Lakshmi Narasimhan 836928
Sandeep Kumar Mishra 835298

Academic year: 2014/2015

Contents
1 LVMH: DESCRIPTION OF THE COMPANY .................................................................................................... 1
1.2 GLOBAL COMPETITIVENESS................................................................................................................. 2
1.3 STRATEGIES FOLLOWED BY LVMH ...................................................................................................... 4
1.4 SWOT ANALYSIS .................................................................................................................................. 6
1.5 PORTER'S 5 FORCES ANALYSIS............................................................................................................. 9
2 BALANCED SCORECARD ............................................................................................................................ 11
2.1 FINANCIAL PERSPECTIVE ................................................................................................................... 12
2.2 CUSTOMER PERSPECTIVE .................................................................................................................. 16
2.3 INTERNAL BUSINESS PERSPECTIVE.................................................................................................... 18
2.4 LEARNING & GROWTH PERSPECTIVE ................................................................................................ 21
3 DESCRIPTION OF THE METHODOLOGY ADOPTED .................................................................................... 26
4 CRITICAL ANALYSIS .................................................................................................................................... 29

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1 LVMH: DESCRIPTION OF THE COMPANY
French coroporation LVMH is a world leader in high-quality products, LVMH Moët Hennessy -
Louis Vuitton possesses a unique portfolio of over 60 prestigious brands. The Group is active in
five different sectors:

 Wines & Spirits

 Fashion & Leather Goods
 Perfumes & Cosmetics
 Watches & Jewelry
 Selective retailing

Thanks to its brand development strategy, and the expansion of its international retail network
(more than 3,000 stores worldwide), LVMH has had a strong growth dynamic since its creation in
1987.

Today, almost 110,000 employees, 81% of whom are based outside France, share the Group's
values. Besides its community action for human development - for example LVMH House and the
LVMH-ESSEC Chair - LVMH carries out a number of initiatives through its commitment to
protecting the environment. Faithful to its vocation as a patron, the Group is also involved in culture
and heritage, humanitarian action, education and supporting young artists and designers.

Wines & Spirits

The world leader in champagne, LVMH also produces still and sparkling wines grown in the
world's most famous wine regions. The world leader in cognac with Hennessy, the Group is
developing its presence in the luxury spirits segment in addition to its historical business. The
portfolio of wines and spirits brands, composed of products positioned in the high-end segments of
their market, is served by a powerful international distribution network.

Fashion & Leather Goods

Louis Vuitton, Fendi, Donna Karan, Loewe, Marc Jacobs, Céline, Kenzo, Givenchy, Thomas Pink,
Pucci, Berluti, and Rossimoda are the brands that form the fashion and leather goods business
group. LVMH supports the growth of these brands by respecting their identity and their creative
positioning.

1
Perfumes & Cosmetics

LVMH, a major player in the perfumes, make-up and skincare sector, relies primarily on a portfolio
of brands representing French companies with an international presence. Christian Dior, Guerlain,
Givenchy and Kenzo. The group also supports the development of high-potential brands: Benefit
and Fresh, two rapidly growing American brands; Acqua di Parma, whose perfumes symbolize
Italian elegance; Parfums Loewe, one of the leaders in the Spanish market; and make up for ever, a
firm favorite of professional make-up artists which recorded outstanding growth by opening up to
the general public.

Watches & Jewelry

The most recent of the LVMH business groups holds a portfolio of luxury brands with highly
complementary market positions. This business group benefits in particular from TAG Heuer’s
stature as the world leader in high-precision chronographs and from the solid vitality of the Hublot
brand. The business group also relies on the watch making expertise of Zenith, a member of the
select group of true Swiss Manufactures, the development and transition to high-end products of
Dior timepieces and the creativity and productivity of the jewelry collections from Chaumet, Fred
and De Beers.

Selective Retailing

The LVMH Selective Retailing companies operate in Europe, North America, Asia and the Middle
East. Their businesses are conducted in two segments: retailing designed for customers who are
international travellers (“travel retail”), the business of DFS and Miami Cruiseline, leaders in their
markets; and the selective retailing concepts represented by Sephora, the most innovative company
in the beauty segment, and Le Bon Marché, the department store with a unique atmosphere located
on the Left Bank in Paris.

1.2 GLOBAL COMPETITIVENESS

According to the Forbes, LVMH was ranked as 75th Innovative Company. LVMH competes in the
luxury market with an array of small private and publicly held companies that make designer
clothing, wine, watches, and other luxury goods. Unlike LVMH, most of these companies usually
have only one brand in their portfolios. The most direct competitors to LVMH are Kering
(previously PPR), a French luxury holdings company that includes such brands as Yves Saint

2
Laurent and Gucci, and Compagnie Financière Richemont, a Swiss luxury company that includes
such brands as Cartier and Montblanc.

Keirng is very similar to LVMH in both size and earnings. One distinct advantage LVMH holds
over Kering is international diversification. The luxury brands that directly compete with LVMH
fall under Gucci Group and are: Alexander McQueen, Bottega Veneta, Balenciaga, Yves Saint
Laurent, Stella McCartney, Gucci, Boucheron and Sergio Rossi.

Compagnie Financière Richemont is much smaller than LVMH in terms of revenue, but earned a
similar operating margin on its revenue. Richemont is primarily focused on watches and jewelry.
Therefore, in its main business Richemont does not face stiff competition from either company. The
most competition comes from the fashion and leather goods divisions, namely Dunhill, Azzedine
Alaïa, Shanghai Tang, Chloé and the leather goods brand Lancel. All are luxury brands and
compete directly with LVMH.

In the following graphs we have analyzed the comparison with the competitors from a financial
point of view.

Legend:

Keiring

Compagnie Financière Richemont

LVMH

Table 1: Competitor´s analysis – ROE & ROA

As can be seen, Daimler obtained a
Return on Equity & Return on Assets
good result concerning the
20,00%
profitability for shareholders and
15,00%
the return on asset (in particular,
ROE

10,00%
even though ROA has lower value,
5,00%
it is highly above the market
0,00%
0% 5% 10% 15% 20% average). The main threats are
ROA represented by the competitors
(Keiring and Compagnie
Financière Richemont), which shows how the sector is fundamental for the generation of profit for
these Groups.

3
Table 2: Competitor´s analysis – Revenues & ROS

Regarding measures more related

Revenues & ROS to the operational performance,
40 000 €
Revenues (€ milion)

LVMH achieved the highest

30 000 €
revenues in 2013 but nevertheless
20 000 €
the ROS was only in 11,79%
10 000 €
Therefore, the group has not been
0€
0% 5% 10% 15% 20% 25% able to exploit its operational
ROS capabilities as well as its main
rival, Keiring.

Table 3: Competitor´s analysis – Total debt & D/E

Regarding the capital structure,
Total Debt & D/E apparently LVMH reaches the best
30 000 € values for the D/E ratio. Moreover,
Total Debt (€ million)

25 000 €
20 000 € LVMH is by far the group with the
15 000 € highest level of debt.
10 000 €
5 000 €
0€
0,00% 0,20% 0,40% 0,60% 0,80% 1,00% 1,20%
D/E

In conclusion, by looking at this overall picture, we can see that LVMH performed quite well (as far
as concern the 2013) and faced the harshest competition against Keiring and Compagnie Financière
Richemont. The current levels of the analyzed indicator can be considered as proxy of how LVMH
is travelling this path and can help the Group to understand which levers to act on.

1.3 STRATEGIES FOLLOWED BY LVMH

The priority objectives of the Board of Directors, i.e. the strategic body of LVMH, are to increase
the value of the company and defend its social interest. Its principal missions are to adopt the major
strategies of the company and the Group, monitor the implementation of those strategies, verify the
fair and accurate presentation of information about the company and the Group, and protect its
corporate assets.
 Pursue value creation strategy
 Target balanced and sustainable growth

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  Develop production capacities
 Further strengthen efficiency of distribution

The different Strategies followed by the company in their Different Portfolios are as follows:
Fashion and Leather:
 Fashion and Leather are the flagship of the company and provide outlet for the creative
expression and company innovation.
 Some of the brands in Fashion and Leather are Louis Vuitton, Fendi, Donna Karan, Céline,
Marc Jacobs, Pucci. By reaffirming their strong, distinct identity to best express their
development potential. Creative collections and excellence in retail will remain their core
objectives thereby strengthening their positions in their strategic markets.

Jewellery and Watches:

 Reinforcing the brands’ coverage of more affordable segments, in order to penetrate the
market and widen their customer base
 Focusing on quality of distribution, increasing watch and jewellery production capacity are
also the some of the activities that are to be implemented.

Champagnes, Wines:
 The main reason the company exists in these sectors is to develop their brand image.
 In 2014, Wines and Spirits will extended their brands ‘ever-increasing reach and appeal
throughout the world, backed by a reputation for excellence and a vigorous policy of
innovation. Substantial investments in communication, devoted to the most promising
markets and segments, will support the brands’ initiatives. These elements are the keys to a
value-creation strategy based on moving the product mix upscale and increasing prices.

Fragrances, Cosmetics:
 Maintain strong policy in terms of innovation and media investment
 Mantian an offensive position in terms of innovation and advertising investments

Selective Retailing:
 They have incorporated Travel Retailing as one of the important strategy to improve the
brand name and to attract new customers.
 Diversification of clients and geographical footprint

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1.4 SWOT ANALYSIS
In order to obtain a complete overall view on the group LVMH, it is necessary to develop a SWOT
analysis. In this way, we can obtain a clear model that represents which are the main points
(regarding both positive and negative aspects) that guide the brand through its decisions.

Concentrating our attention on the strengths, the first thing we need to underline is the fact that
LVMH is the leading group in luxury. This is an important point, because this means that they have
created strong brand awareness. All the smaller brands included in LVMH focus their attention on
quality, and this is the value that the customers perceive about the group. Its international and
various portfolios allow the company to obtain revenues from several countries, adopting different
policies in order to reach the single objectives of the five major areas of interest (leather, jewelry,
clothing, perfumes and wines). These are the reasons why we decided to find out these main points
of strength of LVMH, concerning to the official documents released by the group:

 Leading position in luxury market: LVMH is the first group in the world in the field of
luxury. For sure this represents one of its most important characteristic.
 Strong brand awareness: of course, being the leading group means that the name of
LVMH is well known all over the globe, and customers know what that name means.
 Symbol of high quality and control: LVMH is perceived by the customers as a high
quality producer.
 Long term experience: it is several years they are acting in the luxury market and there is
not another group that has got their same experience in the field.
 Multi-brand portfolio: they can compete on five different main areas of luxury, a
possibility that brings them big opportunities and strategy decisions.
 Famous people marketing: a lot of stars has been chosen in order to promote LVMH
products. But the biggest part of the marketing is simply made by famous people that just
buy and uses their products, leading them to a fashion trend position.

Analyzing now the weaknesses of LVMH, the first key point is the diversification of the brands
owned by the group: of course it is not easy to manage such different realities because every single
brand could have particular necessities and objectives. This can also lead to internal conflicts that
go against the global strategy of LVMH. Then, another problem is represented by the price of its
products: being a luxury and high quality manufacturer, and also having large costs for maintaining
the supply chain, the price of the final good is high. This could be a problem in particular during

6
this crisis period that could convince people in spending less money on luxury. Regarding
weaknesses, we decide to report:

 Diversification of the brands: different sectors which may require different strategies.
 Internal conflicts: they may rise because of the large number of brands in the portfolio,
which has usually got interests and objective that go against other brand’s ones.
 High cost of the structure: managing all the facilities and let them be operating and
producing requires a high cost that LVMH wants to reduce.
 Low production elasticity: the group needs to improve this factor in order to be even more
competitive, consolidating its leading position.
 High price of goods: the crisis may bring out less economical possibilities of buying for the
customers.

As the leading group, LVMH has also got several opportunities in order to maintain its position. It
is necessary in fact for every company to establish and maintain the competitive advantage on its
competitors. Even if you are the biggest group you have to do this, otherwise you can have troubles.
In particular, the new opportunities of LVMH refer to acquisitions or mergers of new companies
and to the possibilities of new opportunities in the growing markets. Last but not for importance,
there is also the intention of LVMH of improving its system of production and distribution: there
will be new channels of distribution, able to sell better their large product line. The opportunities
are the following:

 New potential markets: there possibilities offered by the growing economies in developing
countries represent an objective for LVMH.
 Acquisitions and mergers: including new companies in the group always represents an
important starting point for introducing new opportunities of growth.
 Improvement of distribution channels: there will be more facilities and new developments
that will bring easily the goods to the customers.
 Fashion trends: customers could be pushed by the trend to invest more in LVMH because
of following fashion. But this is not a sure opportunity because of the crisis.

The last part of the SWOT analysis, before reporting all the results of our studies into a chart, is the
part which refers to the threats. Of course, the main problem is given by the competition, both of
big and small realities. LVMH is the leading group, but all the brands that it includes have got other
small realities that suffer other same-dimension competitors. A second threat is the crisis: as we said

7
before, in this period it is not easy to sell as many products as before, because customers have not
got the same purchasing power as they had. For this reason the results of this part are:

 Crisis: less purchasing power of customers.

 Competition: Kering (PPR) is the main competitor on a big reality, but there are also
competitors on a smaller level (referring to the single brands).
 Changes in fashion: fashion could drive customers to other purchasing choices because of
new trends

Table 4: SWOT Analysis of LVMH

Strenghts
•Strong brand awareness
•Symbol of high quality and
control
•Long term experience
•Leading position in luxury
market
•Famous people marketing
•Multi-brand portfolio
Weaknesses
•Diversification of the brands
•Internal conflicts
•High cost of the structure
•Low production elasticity
•High price of goods

Opportunities Threats
•New potential markets •Crisis
•Acquisitions and mergers •Competition
•Improvement of distr. •Changes in fashion
channels
•Fashion trends

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1.5 PORTER'S 5 FORCES ANALYSIS
Porter’s five forces model is used not only for analysing the company’s Micro-environment factors
but also on the large scale, such as understanding both the strength at current competitive position,
and the strength of a position the company considering moving into.

The five forces of LVMH are:

1) Supplier Power: Here we assessed how easy it is for suppliers to drive up prices. The fewer the
supplier choices LVMH has, and the more the company need suppliers' help, the more powerful the
suppliers are.

2) Buyer Power: Here we tried to find out how easy it is for buyers to drive prices down. If LVMH
deals with few, powerful buyers, then they are often able to dictate terms to the firm.

3) Competitive Rivalry: What is important here is the number and capability of competitors. LVMH
has many competitors, and they offer almost equally attractive products and services. On the other
hand, no-one else can do what LVMH does, therefore LVMH has tremendous strength in this area.
Overall the level of the Competitive Rivalty is moderate.

4) Threat of Substitution: This is affected by the ability of customers to find a different way of
doing what LVMH does. The substitution is not so easy and viable.

5) Threat of New Entry: Profitable markets that yield high returns will attract new firms. This
results in many new entrants, which eventually will decrease profitability for all firms in the
industry.

The Porters 5 forces analysis can be found on the next page.

9
 1) Less fear of Substitutes
2) Because of low switching cost, products are
differentiated i.e. target customers

Substitues
LOW
1) Strict in choosing the
1) customers are the loyal and
Suppliers
prime reason for the
2) Frequent acquisitions Industry
Supplier Power company’s development till
with suppliers
competitors Buyer Power date
3) Many suppliers with just LOW
on LVMH
LOW MODERATE
2) There is no direct sale of
Louis-Vuitton products.
4) Because of Low
3) LVMH destroys their outdated
Switching cost Low
products rather selling them
Supplier Power
on discounts.
New Entrants
LOW

1) Longstanding Commitment to
Quality
2) Extremely Loyal Customers
3) Investment in this type of Industry is
extremely large

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2 BALANCED SCORECARD
In the following part we are going to develop a balanced scorecard of LVMH, both taking into
consideration all the elements we have analyzed until now and focusing with more detail on
the areas interested by the analysis.

Table 5 shows Strategy map, which is the initial step in creating Balanced Scorecard.

Table 5: Strategy map

Value
Financial Creation
Perspective Leadership & Increase in
Market Share Profitability

New Investment
Customer Customer in Market
Perspective Loyalty &
Satisfaction

Improving
Increase
Internal Integration
Offer
Process
Perspective Increase in Improving
Labor Force Quality

Meeting in
Learning & Growth Staff
New Market
Increase in
Perspective Satisfaction Sills
Demand

The balanced scorecard is subdivided in four macro-areas:

A. Financial Perspective

B. Customer Perspective

C. Internal Perspective

D. Learning & Growth Perspective

For each one of these points there will be an explanation of the decisions we had taken in
order to develop our final balanced scorecard. The objectives of the company will be reported

11
and showed, and the same has been done for the Key Performance Indicators (KPIs) we had
chosen for representing each single objective.

2.1 FINANCIAL PERSPECTIVE

The financial perspective is the last level, where the arrows of the Strategic Map arrive,
starting from the lowest level (L&G). In this part we have found out that LVMH has got three
main objectives, which are:

1. Increasing in Profitability: of course, being a profit-focused company, it is necessary

to create money from the activities in which the group acts. For this reason, one of the
most important points, from a financial point of view, is to increase year by year the
profitability

2. Value Creation: It is important for all the stakeholders of the company the creation of
value. And most important, the data in this part are primary taken into consideration
by the investors.

3. Maintaining the leadership & increasing market share: as LVMH is the leader
group in the luxury sector, it has got the biggest market share. It is important for them
to maintain this leadership, in order of not to lose reliability around the world.

In order to analyze the current situation and obtain the targets for the following years, we have
decided to focus our attentions on the following KPIs, trying to better represent the objective
we found out.

1. Increase in Profitability

1.1 EBIT

The EBIT is the Earnings Before Interest and Taxes, or Operating Income, and it is directly a
row of the income statement of every company following the IAS/IFRS standards. So it was
possible to find out its values from the Consolidated Income Statement of LVMH, a document
available on the official website of the group. The actual value is 5894 € millions (Table 3),
and in the following chart we can see how it grew to this value in the last five years:

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Table 6: Evolution of Revenues and EBIT

Evolution of Revenues and EBIT

40000

30000
€ millions

20000 Revenues

10000 EBIT

0
2009 2010 2011 2012 2013

We can see that the value has constantly increased (Table 6), reaching the actual value, which
is about 186% the value obtained in 2009. For these reasons, we can assume that the target
value for the company in the short term is to grow up again, even if slower than in the last
years.

In the table below, we can see how the EBIT values were obtained:

Table 7: EBIT values

Formula Row of the Income Statement, Operating Profit
Result 2013 5894 € millions
Target 6054 € millions
Initiatives New technologies for the machinery, re-evaluating marketing expenses
Source Consolidated Income Statement of LVMH

2. Value Creation

2.1 ROI

The Return on Investment is used to evaluate the efficiency of an investment and to compare
the number obtained with all the possible alternatives of investment in order to understand
which one is the best, of course taking also into consideration the risk involved. For this
reason it is a value constantly analyzed by the investors and it is used to represent the value
creation for stakeholders.

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Table 8: ROI and ROE

ROI and ROE

20,00%

15,00%

10,00% ROE
ROI
5,00%

0,00%
2009 2010 2011 2012 2013

Table 9: ROI values

𝐸𝐵𝐼𝑇
Formula 𝑅𝑂𝐼 ∗= 𝐶𝐴𝑃𝐼𝑇𝐴𝐿 𝐼𝑁𝑉𝐸𝑆𝑇𝐸𝐷

Result 2013 10.59%

Target 11.12%
Initiatives Adjust the financial budget
Source Consolidated Income Statement and Consolidated Balance Sheet of LVMH
* We had assumed that the Capital Invested is the Total of Activities: doing this way our ROI becomes the ROA.

2.2 ROE

The Return on Equity measures the rate of return on the shareholder’s equity, and for this
reason we have decided to report it in as a KPI for the objective of value creation. It measures
how profitably a company employs its equity. A higher ROE is better as it means that the
company is efficient about using its equity. Using the formula we could derive from the
official documents all the data reported in Table 3. In conclusion what we obtained on ROE:

Table 10: ROE values

𝑁𝐸𝑇 𝑃𝑅𝑂𝐹𝐼𝑇
Formula 𝑅𝑂𝐸 =
𝐸𝑄𝑈𝐼𝑇𝑌

Result 2013 12.39%

Target 12.94%
Initiatives Reducing financial costs
Source Consolidated Income Statement and Consolidated Balance Sheet of LVMH

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3. Maintaining the leadership & increasing market share

3.1 Revenues

In order to provide further information that could give a more detailed idea on the leadership
and the market share, the first indicator we have decided to report is the value of the revenue,
which is the first line of the Consolidated Income Statement.

It is possible to see that the value has increased in all the last five years, but the growth rate of
the last year (Table 6) has been quite low (3.7%) if compared to the previous one (18.8%).
This is why we expect the company to have a higher target of increasing the revenues at least
for a value of 6% more than 2014.

Table 11: Revenues values

Formula First Row of Income Statement.

Result 2013 29149 € millions
Target 30178 € millions

Initiatives Acquisitions of new companies, extending the market to new cities or

countries
Source Consolidated Income Statement of LVMH

3.2 Market Share

The last Key Performance Indicator we decided to use in the financial part is the market share.
It is important because it represents a good indicator of the leadership of the group in their
sector. Being the leader, the main objective of LVMH is to maintain the position and confirm
it more and more year by year. In the following chart it is possible to see the results the group
has obtained:

Table 12: Market Share

Formula (Company’s sale) / (Total Sales in the Industry)

Result 2013 Increase of 4%
Target Twice that of the current increase
Initiatives Opening new companies
Source LVMH Annual Report 2013

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2.2 CUSTOMER PERSPECTIVE
Three main objectives:

1. New Customer
2. Loyalty and Satisfaction
3. Investment in Market

1 New Customer

1.1 Acquiring new brands

This is one of the marketing strategies that can be adopted by an organization to attract new
customers, this type of strategy is mostly adopted by the companies that are having good
profit in all of their existing fields.

This factor can be expressed as a percentage inorder to track the progress of the organization
in acquiring new brands.

Table 13: Acquiring new brands

Formula Total number of new brands / Number of Existing brands

Result 2013 3.3%
Target 6%
Understanding the current market situation and acquiring only the required
Initiatives
company.
Source Annual Report of Chairman 2013

2 Loyalty and Satisfaction

2.1 Customer Satisfaction

This is one of the main criteria that has to be fulfilled by the organization and this the prime
goal for them, without which there will be any sales and the existing customers will start to
decrease.

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Table 14: Customer satisfaction values
Number of people who stated they were overall satisfied /Total number of
Formula
people who fulfilled survey(or) Ranks
In a recent survey LVMH ranked 6th amongst the top employers of different
Result 2013
industries
Target Reach the top not only in their industry but in all markets.
Initiatives Acquiring more brands as possible to reach more people
Source Surveys

2.2 Customer Loyalty

Gaining the Customer Loyalty will be the Organization’s first success, which is the result of
Satisfaction of the customers. This is obtained only on a long run, hence becoming the Market
leader and sustaining in the market will create a brand value amongst the customers, which is
also one of the parameters that makes the customer loyal to a specific brand.

Table 15: Customer loyalty values

Formula (Regular Customers/Total Number customers) for a year
Result 2013 90%
Target 94%
Regular customers data can be acquired by issuing a Loyalty Card to each
Initiatives
one of the customers, hence when they use that, Company can get the counts
Source Loyalty Card Reports

3 Investment in Market

3.1 Market Expenses

In order to be a part of the market in which the company exits they need to invest in the
market to improve their quality and make aware about their existence both to the customers
and competitors. Apart of advertising the company invests for internal development such as
Surveying and Analysing the present market trend from time to time.

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Table 16: Market Expenses
Sum of the all the investment (or) Expenses made by the company for
Formula
marketing.
Result 2013 856 € millions
Around 1 Billion Euros (Because Marketing is one of the way to create Brand
Target
Awareness)
Initiatives acquiring Ad Agencies
Source Annual Report 2013

2.3 INTERNAL BUSINESS PERSPECTIVE

Internal Perspective has four main objectives:

1. Increase offer
2. Increase in Labour Force
3. Improving the quality
4. Improving integration process

1. Increase Offer

1.1 Average development time of a new product

Average development time of new products or services is innovation KPI that shows the
average time from the moment a product is envisioned or defined until it is available for sale.

Table 17: Values of Average development time of a new product

Formula Production start date - End date production

Result 2013 34 days
Target Decrease the average time to 32 days
Initiatives Increase number of employees
Source LVMH Report of the Chairman of the Board of Directors

1.2 Supply Chain Performance

Time period within which analysis of the supplier performance is redone. May vary by
supplier and commodity category.

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Table 18: Supply Chain Performance Values

Formula N° of orders delivered with tolerated quality/ total N° of material orders

Result 2013 69.98 %
Target Average key supplier performance score of greater or equal to 60%
Initiatives Negotiations with suppliers
Source LVMH Report of the Chairman of the Board of Directors

2. Increase in Labor Force

2.1 Average product labor-output ratio

Measures the utilization, performance, and quality of the workforce and its impact on
productivity in minutes.

Table 19: Values of Average product labor-output ratio

Formula Actual output of the workers / the expected output
Result 2013 89.74%
Target Reach 93%
Initiatives Implement effective trainings for employees
Source LVMH Human Resources Report

2.2 Average decision-making time

Real-time decision-making continuously involves making a decision within the available

time. Such decision-making trades off time against quality: generally, the more deliberation
time, the higher the decision quality. However, too much deliberation time can have drastic
con-sequences. Ideal average time should be in range of 40 – 60% of available time.

Table 20: Values of Average decision-making time

Formula Actual deliberating time / Available time

Result 2013 47.61%
Target Decision making time may vary in horizon of 40% - 60%
Initiatives Coordinate number of meetings of top management
Source LVMH Report of the Chairman of the Board of Directors

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3 Improving the quality

3.1 Product quality

Measures the quality on the basis of the number of returned products.

Table 21: Product quality values

Formula N° of returns/ total N° of orders
Result 2013 14,11%
Target Decrease number of returned products to 12,5%
Initiatives Increase the controlling process
LVMH Report of the Chairman of the Board of Directors, LVMH Annual
Source
Report 2013

4 Improving integration process

4.1 Delivery

Delivery shows the ability of the LVMH corporation to meet customer expectations with
respect to the time it takes to satisfy a specific order request.

Table 22: Delivery values

Formula N° of orders delivered on time/Total number of orders

Result 2013 97,54%
Target 98.5%
Initiatives Automation of Service dispatch
LVMH Report of the Chairman of the Board of Directors, LVMH Annual
Source
Report 2013

4.2 Service

Meeting customer expactations with respect to the number of approved orders.

Table 23: Service values

Formula N° of orders approved/ Total number of orders

Result 2013 95.21%
Target 97.2%
Initiatives Implementation of EDI
LVMH Report of the Chairman of the Board of Directors, LVMH Annual
Source
Report 2013

20
2.4 LEARNING & GROWTH PERSPECTIVE
Studying this part, and analyzing what the group LVMH is aiming at, we have found out that
there are three main objectives, in a short-term horizon, which are considered crucial. These
are:

1. Improve staff’s satisfaction and communication between parts: the feelings of

people working for LVMH are always under control through questionnaires or asking
directly to them. If there are some problems or something that does not go in the right
direction along the chain, it is important to solve it as soon as possible in order to not
become a dangerous situation. Communication is also crucial in the group, being a
fundamental element for every single company which wants to grow.

2. R&D: LVMH wants to maintain its leadership, and for this reason it is important to
invest continuously in research and development of new products or new technologies.

3. Increase personnel’s skills: being the group future-oriented, the development and
enrichment of the skills of the employees is important to insert easily new
technologies and being much more flexible in case of changing.

So, for all the objectives we have found out all the KPIs which were necessary to describe the
situation and to represent the aspects of the group.

1. Improve staff’s satisfaction and communication between parts

1.1 Investments in health and safety

This kind of investments is particularly appreciated by the workers, and by the companies that
guarantee quality. In particular, LVMH wants to recreate an optimal work environment, in
which all the workers feel a good grade of satisfaction. Health and safety, as we can directly
understand from Table 24, has increased a lot in the last three years, increasing of 44% and
reaching the actual value of 20.6 € million.

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Table 24: Investments in health and safety

Investments in health and safety

€ millions

19,4 20,6
14,3

2011 2012 2013

It was possible to find out these data on LVMH Human Resources Report of 2013, document
in which it has also been written that the company is going to increase a little the value
invested, but the percentage is quite near the target.

Table 25: Investments in health and safety values

Formula /
Result 2013 20.6 € millions
Target 21.3 € millions
Purchasing of new tools of control, creation of an high quality workspace all
Initiatives
along the chain
Source LVMH Human Resources Report

1.2 Staff satisfaction (questionnaires)

The questionnaire is one of the forms of having an idea of the grade of satisfaction of the
workers asking directly to them. It is completely anonymous, so it could give a quite well-
representative image of the impressions of people. Last year it has reached a value of 89.2%
and for the next year LVMH has post a target value of 91.1%, as a result of all the
investments. For this KPI the main points are the following ones:

Table 26: Staff satisfaction values

Formula Positive questionnaires / Total questionnaires
Result 2013 89.2%
Target 91.2%
Initiatives New systems, more detail-oriented analysis
Source LVMH Human Resources Report

22
1.3 Number of meetings (communication)

The number of meetings represents the number of time the high levels of LVMH meets in
order to define the strategy and discuss about which should be the objectives and the decisions
of the group. It is a crucial point for the communication and the strategy planning. Last year
and in 2012 there have been 36 meetings, and for the next years the company seems that it
wants to maintain the same number.

Table 27: Number of meetings values

Formula number of annual meeting
Result 2013 36
Target 36
Initiatives /
Source LVMH Annual Report 2013

2. R&D

2.1 R&D investments

LVMH needs to maintain its leadership, and in order to do that it has to invest in new
technologies and new product for the satisfaction of the market and for its own growth and
competitiveness. From the following Table 28 it is possible to see how much the group has
invested in R&D:

Table 28: Investments in R&D

R&D Investments
R&D investments (€ billions)
3,1
2,9

2,6

2011 2012 2013

For this point we can finally derive the next information:

23
Table 29: R&D Investments values

Formula € billions invested in R&D

Result 2013 3.1 € billions
Target 3.4 € billions
Initiatives Investing more in sustainability
Source LVMH Annual Report 2013

3. Increase personnel’s skills

3.1 Average days of training per worker

A good way for calculating the investments of LVMH in increasing the skills of its personnel
is to calculate the average days of training per worker. Of course, as the group wants its
employees to be every year more capable and flexible, the training for improving their skills
and their behavior is a starting point for every company which invests on its personnel in
order to gain more results in the future. In Table 30 we can see how it changes in the last
years.

Table 30: Average days of training per worker

Formula /
Result 2013 4.1 days
Target 4.6 days
Initiatives New courses, higher quality formation
Source LVMH Human Resources Report and Sustainability Report

3.2 Staff turnover rate

The last KPI we have decided to consider in this area was the staff turnover. It is important to
know the percentage of senior worker on the total, because it gives the quantity of new
workers introduced into the group.

Table 31: Staff turnover rate

Formula number of senior workers / total number of workers

Result 2013 0.84%
Target 0.80%
Initiatives /
Source LVMH Human Resources Report and Sustainability Report

24
Table 32: LVMH Balanced Scorecard
FINANCIAL PERSPECTIVE
Obje ctive Me a s ure Tra ge t Initia tive
New technologies for the
Increase in Profitability EBIT 6054 mil. € machinery, re-evaluating marketing
expenses
Increase in Profitability ROI 11.12% Adjust the financial budget
Increase in Profitability ROE 12.94% Reducing financial costs
Acquisitions of new companies,
Leadership & Market Share Revenues 30178 mil. € extending the market to new cities
or countries
Leadership & Market Share Market Share 4% Opening new companies

FINANCIAL PERSPECTIVE FINANCIAL PERSPECTIVE

CUSTOMER PERSPECTIVE INTERNAL PERSPECTIVE
O b je ct ive Me a s u re Tra g e t In it ia t ive
O b je ctive Me a s ure Tra g e t Initia tive
Increase Offer Avg. 32 days Increase number of employees
Understanding the current market
Acquiring Development
New Customer 6% situation and acquiring only the time of New offer
New Brands Vision
required company. Increase Offer Supply Chain 60% Negotiation w ith suppliers

Customer Acquiring more brands as possible

& Performance
Loyalty & Satisfaction No. 1
Satisfaciton to reach more people Strategy Increase in Labor Force Avg. Product 93% Trainings for employees
labor-output ratio
Customer Improving the quality Product Quality 12,50% Increase colntrolling process
Loyalty & Satisfaction 94% Loyalty Card
Loyalty Improving integration Delivery 99% Automation of Service Dispatch
process
Market
Investment in Market 1 bln € Acquiring Ad agencies Improving integration Service 97,20% Implementation of EDI
Expenses process

FINANCIAL
LEARNING PERSPECTIVE
& GROWTH PERSPECTIVE
O b je ct ive Me a s u re Tra g e t In it ia t ive
Investments
Improve staff satisfaciton &
in health and 21,3 mil € Control tools, quality w orkspace
communication
safety

Improve staff satisfaciton & Staff New systems, more detail-oriented

91%
communication Satisfaction analysis

Improve staff satisfaciton & Number of

36% Not necessary to improve
communication meetins
R&D
R&D 3,4 bil € Investing more in sustainability
Investments
Avg. Days of 25
New courses, higher quality
Increase personel´s skills training per 4,6 days
formation
w orker

Increase personel´s skills Staff turnover 0,80% Not necessary to improve

3 DESCRIPTION OF THE METHODOLOGY ADOPTED
In order to create our Balanced Scorecard of the group LVMH, we have first studied the company
from a general point of view. It was necessary to know the main important characteristics of the
group, like the fields of its business, the number of companies it owns, the way it changed during
the years. Knowing a main trace of the historical evolution of a business helped us to better
understand the current situation. After having obtained a general view of LVMH, we focused on the
strategy, trying to find out which are the most important objectives and targets for the company.
This was crucial because the results have allowed us to understand in which way the company is
acting, what kind of business actions are strategic. In order to derive this we found out:

 Values
 Critical success factors
 Strategies followed by the group (general)
 Strategies followed by each section of the group

Of course in the rest of our work we have decided to go on studying the group in general,
concentrating on the main strategies that interest all the sections in which its business is subdivided.
In order to clarify and better identify all these elements we have put inside the first part of our work,
we have decided to develop two models that well represent the competitive situation of the
company and the points of strengths and weaknesses:

 Porter’s five forces model

 SWOT Analysis

With these two models, we almost had a complete idea of the group and its strategy and also of the
global competitiveness. After having considered and found out all these elements, we were able to
develop the balanced scorecard, starting from the objectives.

First of all, we had subdivided, as for the classical Balanced Scorecard model, the analysis in the
four principal areas: Learning & Growth, Internal, Customer and Financial. For each one of this part
we derived the particular objectives, with the following reasons:

Learning & Growth perspective:

Improve Staff’s Satisfaction and Increasing Communication, R&D, Increase Personnel’s Skills.

We have decided to choose these objectives because we thought that they could better represent the
wonder of the company from the point of view of the growth. Staff satisfaction is usually post in an

26
high importance role because LVMH is a luxury group, and the ideals of luxury and quality need to
pass through all the levels of the company. R&D is fundamental for the main objective of the
company of acquiring new customers and new markets, in particular with the launch of new
products. Last of all, the fact of increasing personnel’s skills was chosen in order to show the
importance that LVMH reverses in the development of new techniques, advanced and sustainable,
and the way in which it is necessary for the group to train its workers.

In order to better represent these performances we had chosen the following indicators:

1. Investments in health and security; Staff’s satisfaction (questionnaires); Number of

meetings
2. R&D investments
3. Average days of training per worker, Staff turnover rate

Internal perspective

1. Increasing Offer; 2.Increase in Labor Force; 3.Improving the Quality; 4. Improving

Integration processes.

All the internal perspective is centered on the values of offer and quality, which are the two cardinal
points for the production of LVMH. As said before, the offer is important in order to satisfy the
market and to reach new customers. Quality and tradition are the two main ideals of the group, and
for this we have decided to consider the performance of improving the quality. Improving
integration processes has been chosen because it is fundamental the developing of internal
processes in order to reach the highest world level of quality.

In order to better represent these performances we had chosen the following indicators:

2. Average development time of new products, Supply Chain performance

3. Average product labor-output ratio, Average decision making time
4. Product quality
5. Delivery ratio, Service ratio

Customer perspective

1. New Customers; 2. Loyalty and Satisfaction; 3. Investments in New Markets.

Of course, being the leader of the market, LVMH wants to maintain its positions, and for this
reason, being the luxury market always evolving, it is required to try to satisfy always new

27
customers. For these reasons, we have decided to analyze how the company performs in finding
new customers and in entering in new markets. Of course, for being the leader of the market, it is
necessary to invest also in the loyalty and in the satisfaction of the actual clients, and this is why we
have chosen the last objective.

In order to better represent these performances we had chosen the following indicators:

1. % of new brands acquisition

2. Customer’s satisfaction, Customer’s Loyalty
3. Market Expenses, Market Share

Financial perspective

1.Increasing in Profitability; 2. Value Creation; 3. Maintaining the Leadership and Increasing

Market Share.

The objective of the financial perspective we had chosen are the most important from our point of
view for two reasons. First, being a profit-company, profitability and value creation are crucial in
order to create money and attract new investors, which is the aim of every profit-company. Then,
we wanted to focus on the leadership of the company, showing the market share it covers, as this is
a very important point for LVMH.

In order to better represent these performances we had chosen the following indicators:

1. EBIT
2. ROE, ROI
3. Revenues, Market share

All the explanations for each single indicator is specified in the single studies in the previous
paragraphs.

After all these steps we obtained all the data we needed and we linked all the several objectives and
performances creating the strategic map, which is reported into the previous paragraph. Then, the
final part was to analyze for each indicator the value target and the possible initiatives that LVMH
have started or has to start in order to reach those values. When we had all the information we were
looking for, we were finally able to report all into the final chart, the Balanced Scorecard, which
represents the final creation of our work (in the previous paragraph too).

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4 CRITICAL ANALYSIS
The Balanced Scorecard we had created represents the final output of our works. We had decided to
operate subdividing it in the four main parts: financial, customer, internal, learning and growth. This
model could be applied to the reality, and for this reason it was created, but as every model it has
got some potentialities and some weaknesses that characterize. Analyzing the positive aspects:

 We had created a model which represents the strategy of LVMH in one single chart,
subdividing it in the four areas. It is easy to read and understand and it gives quite
immediately an overall image of the company.
 The Balanced Scorecard, the SWOT Analysis and Porter’s Model give an easily way of
identifying causes of problems and solving them. There is also a higher possibility of find
out possible points of difficulties and solve them before they become serious problems.
 The analysis helped us to divide the company in different levels, and of course it is easier to
act on a single level, knowing targets, strengths and weaknesses of it, than acting on the
whole company, which could be almost impossible. Each unit should focus on the main
strategy of the company and resize its targets in order to order them in the same directions of
the main objectives. Sometimes this could not be easy for sure, because every single unit has
got its own decisions and problems, but if LVMH wants to perform better and better, it is
important that everyone goes in the same directions.
 The connections between KPIs and strategy are crucial. We tried to find out the KPIs that
we considered the most suitable for our analysis. The connection of goals, performances and
measures is again an optimal starting point for analyzing the causes for discontinuities and
difficulties inside the company. This is a perfect tool to separate the connections and the
levels of the company; this is the reason why it is such useful.

Of course these were the positive aspects in the application of the model we had created, but as we
said before, unfortunately there are also some things which should be taken into consideration in
order to avoid making mistakes or misunderstanding the real meaning of our Balanced Scorecard of
LVMH.

And these are the difficulties we found out in applying our model:

 First of all, the biggest problem is the point of view external from the company. Of course,
working from outside, it is impossible to find out some data with the precision of people
working inside the company, who has got the availability of all the material they required. In
fact, all financial documents of the company are available online and everyone can visualize

29
 them, but for example it’s harder to find out news and data in the internal part. This because
of course LVMH will never post everything online, also for the security of the company
itself.
 Like it was expressed in the previous part, there is a part of subjectivity that characterize the
Balanced Scorecard. It of course derives from the personal interpretation of some data the
companies itself shared, and it does not represent the only way it could be interpreted.
 Subjectivity also was registered in the phase of choosing the KPIs that for us were the best.
Of course it was easy to find out a lot of indicators, and we had to decide which ones best
suited to our analysis, avoiding including the others. This was necessary because
considering too many indicators would have brought us to a final Balanced Scorecard of
hard interpretation. So what it is possible to see in the previous paragraphs is the result of
our selection, and when applying this model it is important to verify that the things you are
looking for are present in the analysis. For this reason the method does not provide a unique
outcome, but the it may depends on the entity in charge of drafting the document.
 The causality connections in the BSC are based on assumptions. But to assess the
effectiveness of the model, these assumptions should be tested on field to prove their
accuracy.

Nowadays LVMH is pursuing an aggressive strategy and according to our analysis we can provide
these outlooks:
 Further development in the emerging markets which will reinforce the strength of the brand
and the global competitiveness of the Group.
 The acquisition of new companies will enlarge its power in the luxury sector. As they have
always done, in order to become the best in a lot of different aspects of luxury sector, they
have bought the companies which were better perform, in tradition and quality, in that
specific aspects.
 Given the heavy R&D efforts, we can expect that LVMH will maintain the leadership and
will extend its products even to more customers, confirming the fact of being the biggest
luxury group.

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