VUITTON: A QUALITY HARVEST
Byline: Katherine Weisman
PARIS — Few executives in France have as little to complain about as Yves Carcelle: As president of Louis Vuitton Malletier, Carcelle runs a company whose largely vertical integration allows for operating profit margins of 40 percent.
And since 1990, when Bernard Arnault gained control of luxury conglomerate LVMH Mot Hennessy Louis Vuitton, Vuitton’s sales have grown 54 percent, reaching nearly $1.3 billion in 1994, the last year for which figures are available.
This represents a quarter of LVMH’s total sales, making Vuitton a driving force of the group, whose brands include everything from Mot & Chandon champagne and Guiness stout to Christian Lacroix and Christian Dior.
“We do over $1 billion [in sales] in one category,” Carcelle boasts. “We are the specialist.”
Not bad for the accessories company whose founder, Louis Vuitton, was first a packer of luggage for the rich and a personal favorite of Empress Eugenie, the wife of Napoleon III.
This year, the 142-year-old company is celebrating the 100th anniversary of its gold and brown monogram canvas bag. But unlike some other firms that plan retrospectives, Vuitton is looking forward.
On Tuesday, Vuitton inaugurated its new boutique on Place St. Germain des Pres, boasting a sleek yet warm concept by British designer and hotelier Anouska Hempel. The shop features Vuitton’s usual range of accessories, plus limited editions made for the store in exotic skins like lizard and crocodile, materials normally reserved for Vuitton’s custom order department.
On Jan. 20, Vuitton will unveil exclusive designs developed by Helmut Lang, Vivienne Westwood, Romeo Gigli, Isaac Mizrahi, Azzedine Alaia, Sybilla and Manolo Blahnik using the monogram canvas. These will be produced in strictly limited quantities and sold in a select number of Vuitton stores worldwide.
Overall, sales for products using the monogram canvas represent roughly 60 percent of the company’s revenues.
While Vuitton observers may praise current management’s savvy, Carcelle is quick to point out that the success of the company today is based in part on the strategy established by founder Louis Vuitton.
“Vuitton had two key ideas: To control quality, he decided to produce in his own factory in Asnieres. If he couldn’t make the goods himself, he felt he couldn’t guarantee quality,” Carcelle explains.
“Vuitton’s other idea was to sell his goods in his own store, to control distribution. His first wholly owned store opened in Paris in 1854 on what is now rue Scribe. He then opened a store on New Bond Street in London.”
That move in 1885 was a revolutionary idea, Carcelle notes. “[Vertical integration] is a heavy constraint and investment, but it’s the only way to guarantee quality and image,” Carcelle concludes. “We are able to consolidate margins at every level.”
One of the constraints is limited production capacity. The company, for the last few years, has not been able to meet demand, and this represents lost sales of roughly 4 to 5 percent of total revenue, Carcelle estimates.
“This is not a marketing scheme,” he asserts, explaining that expanding production is difficult. Between 10 and 20 percent of production is subcontracted out in France annually to various companies, including Charles Jourdan. But, he adds, “I’d prefer to lose sales than to lose quality.”
“It takes time to train new employees, or to expand facilities and get them fully operational. One helpful step was a plant extension at its Saint-Pourcain site in France, which became operational late last year. The original Asnieres factory, just outside Paris, is still producing today.
In total, Vuitton has 10 of its own factories worldwide, including a unit in San Dimas, Calif., whose production supplies the U.S. market, only using French raw materials and components. Vuitton’s other factories also produce for the U.S.
In the production process, quality control is assured at several levels. During a recent visit to the AsniAres site, a visitor learns that Vuitton ships about 3.5 million skins to its tanners for finishing. Quality checks are undertaken at precise steps in the tanning process, allowing the tanners to sell those skins rejected by Vuitton to other makers. Roughly half the original quantity is shipped to Vuitton factories.
Finally, a third of that is cut for bags, wallets and other products, explains Patrick-Louis Vuitton, responsible for custom orders and the only member of the Vuitton family who chose to stay aboard following Bernard Arnault’s power play for control of the company in 1990.
Quality manufacturing is also nurtured through employee incentives. Unlike other companies, however, Vuitton factory employees do not get bonuses related to how much they produce, but are rewarded for technical improvements in productivity.
“Every worker in any factory has the obligation to improve productivity. If we put one of their ideas (for reorganization) into production, the worker will get a percentage of company profits,” Carcelle explains.
This attention to detail is also carried out at the retail level, where Vuitton has been able to create a solidly identifiable network of stores worldwide, with a uniform interior decor and level of service. There are 189 sales outlets: 130 freestanding stores, either wholly owned or controlled by Vuitton, and 59 in-store shops in stores like Harrods in London.
In the U.S., Vuitton has 45 corners in branches of stores like Saks Fifth Avenue, Neiman Marcus and Macy’s.
Every year, 250 salespeople from around the world come for training sessions at a mock boutique set up at Asnieres.
As for product development, Louis Vuitton has a flexible approach and disdains the theory of bringing out new shapes, lines or colors every season. The company brings out new things when the time is right, Carcelle notes.
This approach harkens back to the company’s roots, when founder Louis Vuitton observed that round-topped trunks were not practical for stacking on the new forms of transportation like the steam railroad and steamship.
His decision to flatten off the trunk tops, revolutionary at the time, put him in business. “We have product meetings roughly every two weeks,” he says, noting that his team of executives analyze what is selling in the stores, what colors are moving, what is not working so well, and worldwide trends. Carcelle gives the example of the Taiga men’s line of luggage and small leather goods launched in 1994. “It took us three years to finalize the product,” he explains. “We examined the leather, the color and we tested it. Finally, in 1994, we felt we were ready, and we launched it.”
But when the company spots a trend, like backpacks, it moves quickly to get goods into stores. “Last year, we introduced backpacks in the monogram canvas and the Epi [a relief grain] leather line,” Carcelle notes.
A new women’s line is in the works for this year or next, but Carcelle would not discuss details. Vertical integration, however, can sometimes work against a company, Carcelle notes. “If we control everything, we might be a little far away from the market,” he observes.
“We need to avoid decision-making from the center,” and operate in an efficient, decentralized manner.
And, even with riskier ideas like the 1993 introduction of Tassili yellow in the Epi line, the company surprised itself as the color, traditionally bought only for summer months, sold briskly throughout the year. The Epi line had sales in 1994 of about $460 million, up 37 percent from 1993, thanks mainly to Tassili, in addition to some new shapes, the company reported in its 1994 annual report.
Not all is rosy, however.
One of the company’s biggest challenges is fighting counterfeits, a problem Vuitton has encountered since its founding. In fact, the monogram canvas using Louis Vuitton’s initials was developed by Vuitton’s son Georges as a way to combat copies.
Carcelle says he believes that there are more counterfeit products than genuine circulating in the world, with culprit manufacturers coming mainly from Korea, Italy and Morocco. Vuitton spends roughly $10 million annually combating fakes. He notes that another advantage of vertical integration is the knowledge that any Vuitton-looking bags bought outside Vuitton stores are fakes.
Looking forward, Carcelle said 1995 yearend sales will be up across all markets, including Japan, a market where sales have increased roughly 15 percent, in spite of the earthquake that rocked the country early last year. Vuitton’s home market sales will have “sinister” results, however, thanks to the strikes that paralyzed France at the end of the year. “But everyone will be down here.”
The U.S. is one of Vuitton’s fastest-growing markets, and North America represents roughly one-quarter of company sales.
“The allure of luxury goods doesn’t touch the whole population, but the potential is great,” Carcelle observes, adding that “1996 will be an opportunity to communicate in the U.S.” He said, “It will be a real mission. Vuitton has been present there since the beginning of the century,” and the company wants to grow and consolidate its position. A new New York flagship measuring about 4,600 square feet is slated to open in 1997 on 57th Street in a building that will also house the company’s new U.S. headquarters.
Overall, Carcelle said that sales growth for the year would be at least the same as the 16 percent increase that leather goods registered for the first half of 1995. What convinces Carcelle that Vuitton products will be perennially popular?
“We have the capacity to make elegantly classic things that most people would not consider classic,” Carcelle says. “We are timeless yet timely.”