The star brand formula, according to Arnault himself, goes something like this: Sharply define the brand identity (or "DNA," as he calls it) by mining the brand's history and find the right designer to express it, create masterful marketing buzz, and tightly control quality and distribution.
The best example of this method is the brand responsible for at least 70 percent of the group's $16.47 billion in 2005 sales: Louis Vuitton. (The company also owns Fendi, Moët et Chandon, and Christian Dior, among many other brands.)
Louis Vuitton began in 1854 as a manufacturer of steamer trunks and flourished with the growth of travel by rail and ship at the beginning of the last century. By the 1980's, though, Louis Vuitton had become the brand your mother bought: expensive and well made, but boring and out of date. This changed in 1997, when Arnault hired Marc Jacobs, a young, hip designer from New York, as creative director. Jacobs studied Vuitton's history and developed several lines of bags, each with a modern twist.
As the bags got edgier, Arnault created crucial buzz via a combination of ads with famous spokespeople (singer/actress Jennifer Lopez, actress Uma Thurman, supermodel Gisele Bündchen), attention-grabbing artist collaborations (most recently with music producer Pharrell Williams), corporate sponsorships (LVMH Young Artists' Award, LVMH Discovery and Education), high-class events (Louis Vuitton Classic, Louis Vuitton Cup) and PR stunts like the $1.5 million scaffolding in the shape of two giant Vuitton suitcases around the renovation of Louis Vuitton's Paris store.
The best and most effective buzzmakers, though, are the highly priced and heavily promoted limited-edition bags Louis Vuitton creates each season. The aim of those fashion bags isn't to make money, but to make envy. Because if you cannot get a limited bag, chances are you will buy one of the 180 standard bags.
Finally, Arnault oversees Louis Vuitton's high-quality standards and distribution. A single purse can have up to 1,000 manufacturing tasks and almost every piece is made by hand. Original Louis Vuitton products are sold only at Louis Vuitton stores, in other luxury goods shops, and via eLUXURY.com, an online shop owned by Bernard Arnault.
Imitation Isn't Flattering
With such a flourishing empire, it's tempting to think there are no issues at LVMH. However, one of the bigger headaches is precisely due to how strong the LVMH actually is. With a good reputation comes imitation—and Louis Vuitton products are among the most pirated in the world. It may seem that buying a counterfeit Louis Vuitton bag won't really hurt anybody. But as brandchannel reported last month, counterfeiting is not a victimless crime. In addition to damaging the ripped-off brand, counterfeit sales often fund more dangerous criminal enterprises.
LVMH is one of a number of luxury brands fighting the spread of counterfeit items across the world. Despite the proliferation of piracy, the brands have enjoyed a few victories. In December 2005, a Beijing court ordered the Xiushui Haosen Clothing Market, operator of the Silk Market, a popular shopping pavilion in that city, to pay LVMH, Burberry, Chanel, Gucci, and Prada $14,000 in damages for selling fake products.
Networks for the manufacture and distribution of counterfeit Louis Vuitton products have been dismantled and counterfeit products have been seized in other Asian countries. Several plants have been shut down worldwide. In France, police operations led to the arrest of itinerant vendors of Louis Vuitton fakes. And in early 2005, 29 retailers from New York City's Chinatown neighborhood—a hotbed for pirated items—were ordered to pay LVMH $564 million in damages.
In a case reflecting a growing trend among designers, LVMH sued Chinatown landlord Richard E. Carroll for allowing the alleged sale of counterfeit goods at seven Canal Street retail locations. "The designers have gotten together and decided to make use of the landlord liability doctrine," says Joseph C. Gioconda, a partner with Kirkland & Ellis LLP. "The concept is that the landlord becomes a contributory infringer when the landlord provides what is essentially a safe haven for people to engage in the sale of couterfeit goods."
The injunction required Carroll to evict tenants who sold the fake Louis Vuitton goods, post signs that the sales were illegal, and allow random inspections of the property. In a different case, LVMH convinced landlords of 18 properties to sign agreements that require the landlords to crack down on sellers of knockoffs, post preventive signs, pay for a court-appointed monitor, and evict tenants who possess fake Louis Vuitton products.
LVMH says its 60-person anti-counterfeiting team and the collaborating network of 250 agents, investigators, and lawyers conducted 6,000 raids worldwide in 2004, resulting in 1,000 arrests. As part of its proactive brand protection strategy, LVMH is also pursuing a policy to raise public awareness of the counterfeiting problem, while also developing relations with authorities in different countries and worldwide organizations.
But while seeking assistance outside the company, there are steps that can be undertaken from within—and the company could look at the example set by Beiersdorf, a multinational company based in Germany.
Beiersdorf learned that 30 percent of all its NIVEA brand hair products on the Russian market were fakes. In April 2004 Beiersdorf began labeling the products with an intelligent security label—called the Holospot and manufactured by tesa, an adhesive tape brand owned by Beiersdorf—for comprehensive counterfeiting and gray-market protection. The effort was so successful that a year later there were virtually no more counterfeit NIVEA products in Russia.