Exchange rates and global expansion

[Maximum number: 8]

Extract A LVMH Moët Hennessy Louis Vuitton (LVMH) LVMH Moët Hennessy Louis Vuitton, commonly known as LVMH, is a multinational conglomerate specialising in luxury goods. Its headquarters are in Paris, France. In April 2023, LVMH became the first European business to have a value greater than $500bn.

LVMH has around 60 businesses that manage 75 prestigious brands. These businesses are managed independently in six separate business divisions with a decentralised organisational structure: Wines and Spirits, Fashion and Leather Goods, Perfumes and Cosmetics, Watches and Jewellery, Selective Retailing and Other Activities.

LVMH's portfolio of luxury brands includes Louis Vuitton, Fenty Beauty and TAG Heuer watches. Bernard Arnault, one of the original founders of the business, is the Chairman and Chief Executive Officer (CEO).

Extract B Revenue for LVMH by business division 2022 and 2023

Table for Question 4.3.2.5a - Exchange rates and global expansion question 1 — Edexcel A-Level Business A2

Extract C LVMH's revenue by region as a percentage of its total revenue in 2023

Figure for Question 4.3.2.5a - Exchange rates and global expansion question 1 — Edexcel A-Level Business A2

LVMH has 118 production facilities and craft workshops in France and 26 in Italy. It has over 213,000 employees and a retail network of 6,000 stores worldwide.

Extract D LVMH takeover of Tiffany \& Co On $7^{\text {th }}$ January 2021, LVMH bought all Tiffany \& Co shares for a total of $16.1bn. The purchase of the iconic Tiffany \& Co jewellery brand has reinforced LVMH's position in the high-priced segment of the jewellery market and further expanded its presence in the US.

$Brand value (\$m) of Tiffany \& Co from 2010 to 2023$

Brand value (\$m) of Tiffany \& Co from 2010 to 2023

Extract E Succession planning at LVMH LVMH's CEO Bernard Arnault, 74, is one of the world's wealthiest people, with a fortune of about $161bn. He has been preparing his five children to take over by having them working in a variety of roles at different business divisions at LVMH. Arnault has been developing a succession plan for the luxury empire he founded.

In February 2024, Arnault nominated his sons Alexandre, 31, and Frédéric, 29, to join the board at LVMH. These board nominations are subject to a vote at the company's Annual General Meeting in April. The appointments demonstrate the family's control of LVMH. Arnault and his family own about 48\% of LVMH shares and nearly 64\% of voting rights.

In 2022 Arnault raised the age limit for the Chief Executive Officer to 80, extending the time he could remain as CEO.

Extract C LVMH's revenue by region as a percentage of its total revenue in 2023

LVMH has 118 production facilities and craft workshops in France and 26 in Italy. It has over 213,000 employees and a retail network of 6,000 stores worldwide.

Extract C LVMH’s revenue by region as a percentage of its total revenue in 2023 31% Rest of Asia Rest of Europe Other markets United States France Japan 25% 17% 12% 8% 7% LVMH has 118 production facilities and craft workshops in France and 26 in Italy. It has over 213,000 employees and a retail network of 6,000 stores worldwide.

Using Extract C, discuss the possible effects on LVMH of changes in the euro
exchange rate.

Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the general
marking guidance. The indicative content below exemplifies some of the points that
candidates may make but this does not imply that any of these must be included. Other
relevant points must also be credited.
QS8: Use and interpret quantitative and non-quantitative information in order to make
decisions
QS9: Interpret, apply and analyse information in written, graphical and numerical forms
Knowledge, Application, Analysis, Evaluation - indicative content
- LVMH's revenue comes from a range of regions with the Rest of Asia accounting for
the largest amount of revenue at 31%
- This means that LVMH will have to use a range of currencies when it is exporting
and importing to and from countries outside of France where it is located
- Exchange rate changes could alter LVMH's competitive position in international
markets, making its luxury products more or less expensive relative to local and
international competitors
- For example, a stronger euro against the dollar or Asian currencies could make
LVMH's luxury products more expensive in these vital markets, potentially reducing
demand
- Costs of importing goods or raw materials to make its luxury products might rise
or fall, affecting overall profitability depending on currency fluctuations
- Volatile exchange rates can influence strategic decisions such as pricing strategies,
market entry or expansion and sourcing
- However, LVMH's broad geographic spread offers some protection as losses in one
region could be offset by gains in another due to currency fluctuations
- The presence of production facilities in France and Italy, significant markets for
LVMH, could mitigate some impacts of currency volatility on production costs
- Demand for LVMH's luxury goods due to exchange rate fluctuations may not be
affected if demand for its goods is price inelastic

Level

Mark

Descriptor

0

No rewardable material.

Level 1

1-2

Isolated elements of knowledge and understanding - recall based.

Weak or no relevant application to business examples.

Generic assertions may be presented.

Level 2

3-5

Accurate knowledge and understanding.

Applied accurately to the business and its context.

Chains of reasoning are presented, showing cause(s) and/or effect(s) but may be assertions or incomplete.

An attempt at an assessment is presented that is unbalanced and unlikely to show the significance of competing arguments.

Level 3

6-8

Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context.

Logical chains of reasoning, showing cause(s) and/or effect(s).

Assessment is balanced, well contextualised, using quantitative and/or qualitative information, and shows an awareness of competing arguments/factors.

4.3.2.5a - Exchange rates and global expansion question 1