Sunday, July 3, 2011

At Vuitton, Growth in Small Batches

MARSAZ, France—Nestled in the hills of central France, Louis Vuitton's new factory—inaugurated Friday—expands the luxury label's production capacity by 70 people, a drop in the bucket for the brand, which has annual sales of €5 billion ($7.09 billion) and employs about 3,500 leather-goods workers in France alone.
The site is part of a strategy to eke out small quantities of growth throughout its operations, starting with the factory floor. Vuitton's size means it has fewer unexplored avenues to tap for growth than competitors.
Agence France-Presse/Getty Images
Louis Vuitton owns 17 factories that manufacture bags and accessories. Pictured here, workers at the company's factory in Asnières-sur-Seine, a Paris suburb, assemble travel cases.
"Our paradox is how to grow without diluting our image," Chief Executive Yves Carcelle said at the new factory, situated among apricot and cherry orchards.
Unlike mass-market consumer brands, luxury labels must maintain an aura of exclusivity. Vuitton is constantly pushing the limits. While it sells limited-edition runway pieces, priced at thousands of euros, millions of women own the house's iconic brown and gold monogram bags and wallets, available to "aspirational" shoppers. Vuitton is considering launching a perfume—a product that many high-end fashion houses use to appeal to the masses. Vuitton says it would sell a perfume only in its own stores, instead of in the department stores and perfumery chains where most fragrances are peddled.
In the luxury-goods industry, Vuitton is in an unusual position. Analysts estimate it is billions of euros bigger than rivals such as Gucci, which logged sales of €2.7 billion last year. Vuitton's parent, luxury-goods giant LVMH Moët Hennessy Louis Vuitton SA, doesn't break out sales by brand.
Other brands in the LVMH empire include Dom Pérignon champagne, the Fendi fashion house and the Sephora cosmetics chain.
Bloomberg News
'Our paradox is how to grow without diluting our image,' says CEO Yves Carcelle.
Vuitton's growth over the years means it is constantly bumping up against its full production capacity. The company owns 17 factories that manufacture bags and accessories. Marsaz is the twelfth in France; in addition, there are three factories in Spain and two in California. Last year, Vuitton was running so low on inventory that it closed its French stores early in the day. The company only manufactures components such as zippers in Asia.
Most luxury-goods labels are hitting the accelerator now that the financial crisis has passed; Vuitton is tapping on the brake. After sales rose 22% last year, Mr. Carcelle said he is intentionally tapering growth this year. Prada and Hermès are scrambling to open boutiques in China—territory that Mr. Carcelle feels Vuitton has largely blanketed in its 20 years in the country.
Vuitton has 456 stores around the globe, over 100 more than rival Gucci. Its omnipresence has pushed it to be more selective in its openings. This year, Vuitton will add only about five addresses to its network, with new megastores in cities such as Singapore. Mr. Carcelle is now putting the emphasis on enlarging existing locations, such as Milan.
Shortly after Vuitton opened a factory near Mont Saint-Michel in 2002, Mr. Carcelle began plotting the next opening. Its first factory outside of Paris, opened in 1977 in Saint-Donat in central France, wasn't up to the company's standards anymore, so Mr. Carcelle decided to build a site nearby, with the latest machines. The new site, in Marsaz, could accommodate all of Saint-Donat's 200 workers plus some. Vuitton spends "tens of millions of euros" annually on industrial investments, Mr. Carcelle said.
Louis Vuitton
The newly opened Louis Vuitton factory in central France
During the years it took to build Marsaz, Vuitton had to find other ways to increase its production. Mr. Carcelle implemented a lean production process, inspired by Japanese car makers.
By reorganizing teams of about 10 workers in U-shaped clusters, Vuitton was able to free up 10% more floor space in its factories. "We were able to hire 300 new people without adding a factory," Mr. Carcelle said.
Each step of production was analyzed for potential gains. At Vuitton's shoe factory in Italy, robots now fetch the foot molds around which a shoe is made instead of workers walking back and forth from their workstation to the shelves. The use of robots resulted in a "considerable" time gain, Mr. Carcelle said.
Vuitton developed a computer program to help leather cutters identify the flaws in the skins they receive.
The program determines where to cut out the dozens of different pieces of a bag, a process that has drastically reduced the amount of wasted leather.
Vuitton remains known for high quality, but the work isn't all artisan. Indeed, last year two of its ads showing workers making things by hand were banned by Britain's advertising watchdog for potentially misleading consumers.
At Marsaz, veteran workers are busy training the dozens of new hires. About 15 of them worked in nearby shoe factories before the French industry collapsed. Others have no factory experience. There are former hairdressers, dog groomers and dental-model makers.
Factory manager Walter Giulio said he looks for candidates with "manual dexterity, the ability to work in groups, and motivation." Previous experience with sewing machines isn't a prerequisite. - WSJ
Written by: Christina Passariello