Louis Vuitton’s ‘upgrade’ transformation strategy pays off

An informal survey recently conducted by Reuters among several Louis Vuitton stores in Europe reveals that the IT bag of the season, the Capucine bag is proving to be a huge success, already selling out in many stores. A report by Exane Paribas confirms the same, indicating that Louis Vuitton’s strategy to launch pricier and less-logo bags is paying off.

On New Bond Street in London, Reuters found that there was only one Capucine sample bag with a “not for sale” sticker on it and 40 people had already reserved one but assistants said the bags were likely to be available only at the end of September or early in October.

The Capucine handbag in full-grain Taurillon calf leather, a material also used by rival brand Hermes, is several times more expensive than Louis Vuitton’s canvas 600 euro-LV-embossed bags with which the brand built its name and profitability.

Bernard Arnault, the boss of parent company LVMH, said in January that Louis Vuitton planned to prune its portfolio of canvas bags, which make up two thirds of its business and generate gross margins of 90 percent. Analysts expect gross margins from leather bags such as Capucine to be slightly lower.

Shop assistants said they took delivery of only a handful of Capucine bags every other week over the summer, intimating Louis Vuitton may have deliberately caused the shortage to create a buzz around the product – taking a leaf out of Hermes’ book. LVMH and Louis Vuitton declined to comment.

“I take it as a very positive sign that the Capucine bag is sold out,” Exane BNP Paribas analyst Luca Solca said. “Louis Vuitton had to work on its exclusivity perception and creating products for which there is high demand and not enough volume to satisfy everyone, certainly helps.”

Analyst estimate Louis Vuitton generates around 7 billion euros in annual sales, twice as much as rival Gucci, leading to worries that Louis Vuitton is so big and present worlwide that there is little room left for it to expand.

adapted from Reuters, Bloomberg and Exane

Louis Vuitton Capucine bag ad campaign Fall 2013