Investment decision of LVMH company Assignment Sample

Introduction

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Investment plays a very crucial role in business, it is more important because a good investment can help to generate revenue with the right investment decision and how funds are invested into different assets. The investment decision is a critical point for any kind of business. Investment decisions are a long-term objective of a company that affects long periods can be long-term. It is also known as capital budgeting where the funds are invested based on long-term. It is quite related to the success of the company and for the benefit of the shareholder and even for the country too. In a short quick introduction of the company, LVMH stands for Moet Hennessy Louis Vuitton, its headquarters situated in France. LVMH holds the chain of multinational corporations and conglomerates dealing in luxury goods. Recently, LVMH has taken several steps related to its investment approach. That’s why the LVMH Company is best for determining the relationship and factors of investment approach and affecting the future of the company. Investment decisions are a long-term objective of a company that affects long periods. It is also called capital budgeting where all the funds are invested on a long-term basis.  They  (Donzé, P.Y., 2018).

 

Through this assignment, the objective of this task is to determine the investment decision of two companies:- Investment in  Jay-Z ace of spade around 50% and disinvestment in Carrefour company shares. The main objective of this assignment is to Critically analyze investment projects and contribute to project appraisal decisions as well as manage financial resources. It is helpful while managing resources at a different level. Provide more information about policy debates within their industry or sector. There are several factors to determine investment decisions:- Risk, Covid Situations, Time horizons, Partnership Benefits, Capitalisations. In this assignment, Some common methods are used to determine investment decisions of LVMH such as literature searches, personal interviews. It is very helpful as many people are prestigious customers of LVMH, internet surveys, electronic mail surveys, and also indulge in group discussion, telephonic surveys. Investment decisions After lots of discussions, all the investigation methods help me to get the best of the best(Gill, S., Khurshid, M.K., Mahmood, S., and Ali, A., 2018).

 

Company and Investment identification

Today, LVMH is the world leader in luxury goods brands. LVMH has 75 unique Maisons in its umbrella. The LVMH Company is known for its collection of luxury goods worldwide. It was started as a family group in 1987. Today, LVMH is headed under the leadership of Chairman and CEO Bernard Arnault. It was established by Moet and Chandon through the merging of two companies as Fashion House Louis Vuitton with Moet Hennessy in 1987. In 2020, it reported sales of 44.7 billion Euros. It is the only group present in all major sectors of the luxury industry in the world with around 5003 stores: Wines & Spirits, Fashion & Leather Goods, Perfumes & Cosmetics, Watches & Jewelry, selective distribution. Luxury brands include names such as Givenchy, Christian Dior, Tag Heuer. With the increasing growth of LVMH, it will earn €329 billion in 2021 and achieve the title of most valuable company in Europe. LVMH controls almost 60 subsidiaries and 75 prestigious brands under one roof where subsidiaries are managed by own or independently, Fashion Group, Wines and Spirits, Perfumes and Cosmetics, Jewelry, Watches, and other activities. The idea to create a group of luxury brands was Bernard Arnault. In Deloitte, LVMH was ranked the first luxury goods company in Global Powers of Luxury Goods. In France, 30% of staff indulges in LVMH Company, which operates over 2,400 stores. Their current perspective towards business is aiming to strictly control the brands and their goodwill, they want in that way to maintain and heighten the perception of luxury goods. Bernard Arnault’s controlling shareholder of LVMH formed a desktop review of brands. They have probably the largest collection of prestige brands or heritage; many of them have been in existence for many centuries. This lineage and pedigree add to the luxury, craftsmanship, prestige, creativity, and ultimately, loyalty and price premium of the brands (Galli, Boger, and Taylor, 2019).

Investment Identifications:-

• LVMH the French conglomerate has announced that they took a 50% holding in “rapper-mogul Jay-Z’s Champagne house”. This is famously known as ‘Ace of Spades’ for the vibrant metallic bottles for the bubbles. According to the one survey, it shows that  ‘Champagne brand’ has sold over 500,000 bottles in 2019, after seeing this it was strong momentum showed by a company during the year. After this Moet Hennessy got a chance to make his reach in global distribution. The LVMH has many marquee wines and spirits under one roof, including Veuve Clicquot, Dom Perignon, Krug, and Château d'Yquem (Donzé, 2018).

• Carrefour is a French-based retail company which is situated in Massy of France. It is considered as 8th largest retailer as per revenue in the world. It is working in different retail chain stores such as groceries, supermarkets, and stores. It comprises 12,225 stores all over the 30 countries. Alexandre Bompard is a current CEO for the last 4 years. The company continuously involves the restructuring of the business and selling off. This is famous in France because of its largest grocery chain there. Around 2,000 supermarkets and more than 700 large-format hypermarkets in Europe. They are focusing on restructuring and reorientations of a business works (Omar, 2019)

Critical evaluation of the investment decision

LVMH is a big luxury brand that keeps taking decisions related to investment such as investing in a JAY-Z brand of Ace of Spade and selling a share of CARREFOUR. These are two big major decisions of a company that affects company growth and success both. The decision could affect the share’s price of the company, revenue part as well as consolidated fund statement. Just because, this decision has been made recently so it is really hard to assume the result in a short period of months. There are several factors to determine and should know about the investment decision of a company (Khan, 2017):-

 

Financial Statements of Company

Carrefour Financial data

This financial Statement, clearly shows the data (2013-2019) about revenue, net income, assets, and employees. From a large perspective, it is predicted that business is going on losses and not earning as much as capability. Employees were reduced in the year 2019. Due to this reason, many employees got deductions in their salary, even shareholders had no chance to get profit from the company as its financial reports showed loss many shareholders sold their shares with a maximum loss after seeing many more shareholders started selling their shares at a low price so that they have not to see more loss in future.

 

• Risk Related Investment Decision

Risk is related to the chance of losing something. It is like the probability of uncertainty of an event. In the case of LVMH, this company has invested with Jay Z with a high amount. The company has bought 50% shares. Mainly, JayZ dealt with the Ace of Spade Champagne. With the value of Champagne-like Ace of Spade $630 million. It has made a $329 Billion company. There is a risk of an investment losing out. But talking about Champagne is demanding and challenging as one of my favourite beverages in front of customers. So, this investment quotes payoff to the LVMH. There is a game of losing shares of CARREFOUR, the shop retailer. LVMH was invested in that company in 2007 (around14 years ago). With changing circumstances, these are great steps to secure investment or risk losing out some revenues in upcoming years.

 

• Investment Capital

After the impact of the Covid-19 pandemic on certain of LVMH's operations and the heightened forecast risk in terms of volatility and timing as a result of the disruptions to international travel and normal trading patterns, and additional costs from COVID-19, both during the pandemic and possible changes in consumer behaviour thereafter.

Capital is a total financial asset that is available to pay off the day-to-day operations and future prospectus. Due to future prospectus, LVMH is continuously working on investing in big companies like JayZ Ace of the spade. Half of the million bottles sold in 2019 by the champagne brand. The agreement between the companies of the deal was not disclosed but it is like gaining a percentage of 50-50% with a demanding brand. It will be under the brand name of LVMH. Talking about CARREFOUR, Arnault held a 5.7% stake via his Financiere Agache holding company, which raised 724 million euros ($854 million) by selling shares on the market in an accelerated book-building process, book runner Societe Generale. Carrefour shares were down 4.48% at 0908 GMT. The Apache stake was sold at 16 euros per share, after Arnault, alongside Colony Capital and Axon Capital, first took a 9.8% holding in 2007 at an average price of 47 euros per share.

 

• Time Horizon

Time plays a significant role in investing decisions. Mostly, investment is considered as a part of long-term goals for companies. For example- If a company is going for an investment purpose, that is for a minimum 5 years set goal. This is the criteria for determining the time horizon. Although day to day decisions did not affect as much as compared to investment decisions in a company and a disinvestment plan from other companies. Well, from the perspective of CARREFOUR, LVMH had already given sufficient time around 14 years. Specifically, it wasn’t growing as much as expected of the LVMH group. Now, talking about the JayZ partnership, it is also considered for a long-term perspective. Companies know what is going on-demand or what not? The LVMH group will provide sufficient time to Ace of Spade for their partnership (Musciotto et al., 2018).

 

• Partnership Benefit

Alexandre Arnault and Jay-Z’s friendship is the strength of a big partnership between two;- luxury brands LVMH and Ace of Spade. He said that I’ll send him a photo of something going on with me or he’ll send me a photo,” Jay-Z said. “It’s supernatural, super chill. I view him as a person of high integrity. Always keeps his word, very punctual. These are some of the qualities I have.”. The champagne Ace of Spade is seen in the ‘Horrible’ And ‘Ugly’. It is appearing in the upcoming movie.‘House Of Gucci’. One movie is also line up where Lady Gaga and Al Pacino are starring. This is not wrong to say that the LVMH group left CARREFOUR after a 14-year long relationship. The bad decisions of CARREFOUR didn’t affect only itself but also the income of Arunaulth's wealth. The evidence is clear in the picture of Financial Data.

 

• Diversification in product lines

Ace of Spades is a Delaware limited liability company, active in the distribution of wines and spirits, and in particular champagne under the brand name Armand de Brignac. The brand itself is also commonly referred to as Ace of Spades and known for its distinctive metallic bottles, as well as sometimes featured in Jay-Z’s music. we have decided to pursue the reorientation of our investments.".Carrefour has been through several transformations, with shareholders benefiting as it spun-off businesses, including its DIA supermarket chain. After pandemic situations, it was seen that CARREFOUR(Agnaou) had not lost out financially over the years, in part because of dividends. Even analyst Bryan Garnier estimated that Agnaou was leaving at a loss (Boubaker, 2019).

 

• Trendy environment  

The business is dynamic because of the business environment. That’s why the company has to adapt fast to technology and pop culture. This initiative of the investment decision taken by LVMH is to buy half of Jay-Z’s company share and its champagne brand. Let’s look at the timeline of The Armand de Brignac. Jay-Z took possession of the  “Ace of Spades'' brand in 2014 “Show Me What You Got” music got lots of fame and popularity, before this song was released Jay-Z took 50% of the partnership with Armand de Brignac started in 2006. This is an influencer point but in the case of CARREFOUR. That does not work like hip hop culture style and influences the customer to buy a product. 

• Reward Benefit

Risk is quite related to reward. With the increasingly trendy environment of Champagne, the partnership is a good deal for any company. Specifically, more than 297 million Champagne bottles were exported globally and with 25 million+ bottles exported only for the US. The imports from the US and France's is over $752.6 million in 2019 which is 15.3% more than the figure of the year 2018. The brand with a nickname “Ace of Spades,” has the sales figures which is more than 500,000 bottles in 2019. CARREFOUR’s CEO Alexandre Bompard said that losing of sarees by the LVMH group, has impacted overhaul in yielding results. This is also a benefit to sell out shares to reinvest in Champagne and other brands (Vogel, Cook, and Watchravesringkan, 2019).

 

• Tackling COVID-19 Situation

Today, LVMH is now the most valuable company in Europe. Due to the century pandemic, Covid19 - The pandemic hampers sales of celebrations and joining hands together. It disturbed the collective spirit at that time. The Champagne industry saw a big decrease of growth in sales this year with a 70% share with lockdown situations in restaurant and hotels, and celebration areas. The Covid pandemic has badly hit sales because of social distancing.  Industry trade group sales fell $1.2 billion, or 18% by volume. It is estimated that it will not affect the business lineup and demand will be increasing after lifting out of lockdown and reducing covid cases.  LVMH was one of the big shareholders in CARREFOUR. With a focus on investing, they had already sold down a small chunk last September and invested in sandal maker Birkenstock because of its fashion and luxury brand (Brem, Viardot, and Nylund, 2021).

Conclusion

The investment is linked with the risk, rewards, and time horizon (mainly long-term goals) of an organization. Investment decisions should be taken as critical steps for policymaking for a future prospectus. Investment is quite relatable for the benefit and success of an organization. The decision of making sound investment helps in reaping a good amount of benefits and profit for the company. The procedure of investment decisions is not easy. It should analyze market information and consider every major factor relating to it. This is complex but necessary for the prospect of a good future. Several things should be determined before investing. Now, Covid Pandemic is also one of the important factors before investing in a new development area or product line of an organization. That should be considered a crucial point in the flourishing and running of a company. The model should show in matters to boost sales and revenue. There is an example of a world-class LVMH. It's the decision regarding investing in JAY-Z Ace of spade where LVMH has invested 50% as a strategic partnership. With taking shares in Champagne, LVMH has joined the league of pop culture style as well as beverages areas. Second, Disinvestment from CARREFOUR- retailer shop industry. It was already at a loss, that's why it sold its remaining shares from there. The performance of the company was not good in financing and revenue areas since pre-pre-pandemic cases. That's the reason behind all disinvesting from the supply chain retailer store. Of course, identification of investment decisions is a foremost part of any organization but evaluations of those decisions are also quite important for the progress and efficient control of management. After implementation of the decision, evaluations should be considered on the factors such as risk decisions, partnership benefits, futures prospectus, time horizons, trendy environment, and capital budgeting of investment. These factors help in determining the decisions for both CARREFOUR and Champagne brand Ace of Spade. This is an example of strategic partnership between CARREFOUR's 14 years and a new era of friendship with Champagne brand ACE of SPADE. The decision to disinvest shows that businesses should cope up with the dynamic environment and should be updated from time to time. During the pandemic time, the partnership (French and American companies) showed a sign of optimism and a new era of luxury goods. It will not only boost sales but also increase the attitude of consumers after a post-pandemic scenario. But with the friendship of Ace of Spade Champagne shows clearly that LVMH knows the value of a good brand. That's why LVMH is the power of luxury items. At last, this task tells about how to use investment decisions in the favor of the company. Based on several research papers and internet websites articles and financial data of the company, concludes the company. Mainly, financial data of CARREFOUR and not getting proper data of finance of JAY-Z brand ace of spade. It comes to know that whether the decision is good or bad, needs a proper time frame on the evaluation of investing decisions. But for now, it could be considered that the company has taken several measures before moving its legs out. 

REFERENCING

Boubaker, S., 2019. Models for assessing and improving supply chain agility (Doctoral dissertation, Université Paris-Saclay (ComUE)).

Brem, A., Viardot, E. and Nylund, P.A., 2021. Implications of the coronavirus (COVID-19) outbreak for innovation: Which technologies will improve our lives?. Technological forecasting and social change, 163, p.120451.

Donzé, P.Y., 2018. The birth of luxury big business: LVMH,         Richemont, and Kering. In Global Luxury (pp. 19-38). Palgrave, Singapore.

Donzé, P.Y., 2018. The birth of luxury big business: LVMH, Richemont, and Kering. In Global Luxury (pp. 19-38). Palgrave, Singapore.

Galli, F., Boger, C.A. and Taylor, D.C., 2019. Rethinking Luxury for Segmentation and Brand Strategy: The Semiotic Square and Identity Prism Model for Fine Wines. Beverages, 5(1), p.26.

Gill, S., Khurshid, M.K., Mahmood, S., and Ali, A., 2018. Factors affecting investment decision-making behaviour: The mediating role of information searches. European Online Journal of Natural and Social Sciences, 7(4), pp.pp-758.

Khan, M.Z.U., 2017. Impact of availability bias and loss aversion bias on investment decision making, moderating role of risk perception. Management & Administration (IMPACT: JMDGMA), 1(1), pp.17-28.

Musciotto, F., Marotta, L., Piilo, J. and Mantegna, R.N., 2018. Long-term ecology of investors in a financial market. Palgrave Communications, 4(1), pp.1-12.

Omar, H.A., 2019. The Role of Applying Modern Marketing Strategies in enhancing the ability of Retailers Study at the Carrefour Hyper Market in Dohuk Governorate. TANMIAT AL-RAFIDAIN, 38(124 followings).

Vogel, A.T., Cook, S.C. and Watchravesringkan, K., 2019. Luxury brand dilution: Investigating the impact of renting by Millennials on brand equity. Journal of Brand Management, 26(4), pp.473-482.