Memo to Bernard Arnault Chairman and CEO of LVMH (1st Draft)

Memo to Bernard Arnault Chairman and CEO of LVMH

Introduction

LVMH is composed of a fashion side (LV) and a spirits side (MH). This recommendation pertains to the fashion side of LVMH, though could easily be expanded to incorporate the spirits side as well. The LV side of LVMH is made up of:

Louis Vuitton, Marc Jacobs, Pucci, Fendi, StefanoBi, Thomas Pink, Donna Karen, eluxury, Dior, Loewe, Celine, Berluti, Kenzo, Givenchy, Guerlian, Benefit, Fresh, Make Up For Ever, Acqua di Parma, Tag, Zenith, HUBLOT, Fred, Chaumet, De Beers, DSF, Sephora, MCS, La Bon Marche, Samaritaine and Groupe Les Echos along with various other sub brands within these companies, such as Dior Watches.

The future of retailing is of course uncertain, but there is certainty in that the industry is evolving in multiple different directions and no one can predict exactly what path it will follow.
Without an options strategy LV will not be poised to maintain their leadership in the ever-changing retail world, as their company is a behemoth without the ability to move in one cohesive direction. Whether it is Facebook apps, RFID, mirrors that talk to your friends and make fashion recommendations, or some unforeseen game changer, LVMH is not poised to successfully operate in the future.

Basis for Recommendation: The Dire Need for Change
My recommendation is to poise LVMH be completely integrated and nimble enough to turn on a dime and adapt to any new technology. It’s a small victory to be first to implement a new retail technology, but it is a major competitive advantage to organize your internal systems to be able to quickly utilize any new technology, thus ensuring that if your competitors implement something new, you are never far behind with a better iteration. The multi-year, one-brand-at-a-time technology adoption approach is archaic, and by the time the last brand implements a change, it is already out of date.

Currently each brand operates independently or semi-independently with various levels of corporate oversight. LVMH’s role in the fashion empire is essentially to manage each brand and maximize profit. Going forward their role needs to change to one of information broker, central corporate hub, and strategic innovator. LVMH should have pristine companywide data in which to analyze trends and modify their options strategy.

When Sephora has a customer, LVMH may eventually get their customer history and run some reports, but this customer will be entered separately in every brands POS system, and the data is not truly combined in any meaningful way.

Recommendation
I am proposing that LVMH uses their massive computing power from running over 50 separate companies, thousands of servers, massive citrix farms, and multiple underground data centers, and gets into the cloud computing business. LVMH’s job would be to maintain the cloud openly within its brands allowing for mass customization and development. In the long run they could offer cloud computing as an external service. While this is currently outside the scope of this recommendation, it is a feasible option with the computing power they currently control.
LVMH would use the POS system they developed in-house called RMS and host it as SaaS for all of their brands to connect to. Instead of dozens of POS systems and databases there is now only one. Each brand would no longer need their own technicians and legacy systems and would also not need to maintain their own servers and software.

An open API would be provided to every brand to customize the POS system to fit their individual needs. This could go as far as each sales associate and manager having a completely different POS interface when they log into the system.

Data fields such as customer name and address would run from one database provided as a service to all brands. While the display is customized, the data is uniform, and you now have corporate customers instead of individual brand customers. Inventory would be coded per brand for ease of use, but visible to all brands so that a “mirror of the future” can offer suggestions in the store from any of the brands and all items can be ordered on the spot.

System Flexibility: Cascading Benefits
The goal again is not to create a system that will work with the above mentioned mirror, but to create a system that will easily adapt to any new technology that arises. Using the mirror as an example, imagine if you are in Dior buying a dress and the mirror outfits you with Benefit makeup, an LV purse, a Fendi wallet, a Tag watch, a Marc Jacob coat and a De Beers diamond necklace. You friends give you the thumbs up, and The Dior sales associate then sells you this entire order. The dress is wrapped up for you and all of the other merchandise is shipped to your house. A sale of one item now turned into a profit for seven different LVMH brands, and the sales commission of that associate just skyrocketed.

The system provides the ability for your sales associates to make more money, thus increasing their motivation and their loyalty to the company and of course corporate profit. Brands become cross-promoted and the fashion empire becomes one integrated kingdom instead of 50 separate fiefdoms.

“Facebook-like” and “Facebook the Omnipresent”
The POS system would function in the same regard as Facebook with the open API that would allow LVMH to be increasingly more nimble. With Facebook everyone logs into the same site, but everyone’s experience is completely customized with unique apps, different preferences and unique pages. Data is shared in real time and users can talk about their experiences. The LVMH POS system will act in this exact way, having a common underpinning, but allowing for both direct and indirect network effects though the ability of any associate to create value capturing application.

For example say that an associate at Fendi creates an app that allows him to track the weather during each sale. Other Fendi stores like the idea and soon Fendi’s associates and LVMH corporate are rating and talking about the benefits of this app related to staffing and merchandising. This app is of course available for all other brands to utilize.

Next a sales associate at Pucci reads one of these reviews on his homepage, and adds the app to his computer. Shortly thereafter all weather data from both Fendi and Pucci is being captured and analyzed.

If the idea catches on, more and more brands could add this app. You have now given the brands a platform to create dynamic capabilities for the entire corporation. One sales associate can now influence the entire future of LVMH though the creation of these apps.
Furthermore data capture is no longer forced onto an entire brand. If only 5-10 stores from a few brands try a new app LVMH is still provided with great data to analyze. Maybe they deduce that sales are up an average of 7% in malls when it rains since people want to be inside and thus flock to shopping havens. This nugget of info appears for all brands to see and stores that did not even know about the weather app now reap the benefits of more accurate staffing and merchandising.

Retailers have trouble with distinguishing garbage data from useful data and another issue with being able to do anything useful with either type of data. Forcing all brands to track the weather may turn out to be pointless, but if one brand proves it useful others can join in. On the other side, apps that prove fruitless can be abandoned just as easily without other brands having to test them and waste time capturing useless data. This useless data can then be purged from the source system at a much lower cost than having thousands of POS terminals remove the weather flag from their system.

The advantage that this type of data agility gives LVMH is immeasurable. In the past one brand would come with an idea, another may adapt that idea to their legacy system and later both may find out that it was useless data. Now you have two systems with useless non-compatible data. On the other hand, if the data is useful now 50 other brands need to alter their legacy systems to track this new data, thus creating 50 non-compatible databases of the same data.
This system would also be directly linked to an actual Facebook app. Customers would add the app on Facebook, search for themselves in the LVMH database or add themselves as a new customer. They can then get shopping tips, alerts about sales, and track their history. LVMH can directly communicate with each customer, and gain even more information about them.
Shopping Experience

As a customer, when I walk into Thomas Pink, the associates will have my shopping history from all LVMH brands, and will be able to analyze my needs and wants with aggregated data. I would image that being a VIP at Dior and then walking into Fendi for the first time and being treated like a nobody is a big turn off to someone who spends thousands of dollars at a time shopping. This lack of data may quite possibly cost Fendi a large sale.

This new system would adapt to stop this situation. With an RFID store card from any brand the customer is instantly recognized by the system, the sales associates are alerted to the customer name and status, and a New York 5th Avenue Fashionista, can be treated as they are expect when they walk into a new store of a new LVMH brand in LA.

The New Role of LVMH
With the creation of this system the role of LVMH changes as noted above. They are now charged with maintaining data integrity, spotting emerging trends, enabling the system to adapt to these trends, and constantly innovating and adding features that advance the industry. As Apple has migrated from a hardware/software/manufacturing company to a design firm, so will LVMH migrate from a corporate enforcer to a constant innovator and player of the options game.

RFID, Facebook and intelligent mirrors are all potential options, and LVMH can interpret the data for themselves and decide which ones to invest in. However, this integrated SaaS system in the cloud allows LVMH to take an options strategy and quickly adapt to new technologies. No longer will 50 brands across thousands of store in dozens of countries have to individually upgrade their systems, and no longer will Benefit Cosmetics have to maintain a clone install of their POS machines and reapply this clone to every register worldwide upon every tiny change. Now all cosmetic modifications can be made at the associate level, but enterprise wide upgrades are made only once and are accessible to all stores.

These enterprise-wide upgrades will be along the lines of adding RFID functionality, or creating an interface to the personal mirror. As noted LVMH will be trying to predict the future, but they will now be armed with an organization that can quickly adapt to change, can instantly test pilot ideas across the globe, and can interact as never before.