LOG PROCESS I

LVMH-Watches
Louis vuitton timepieces are the fruit of uncompromising technique whether automatics or tourbillions their movements owe their precision and reliability to the know-how of master watch makers in LA CHAUX DE FONDS, switzerland where the company has its own workshop.
OVERVIEW OF INDUSTRY Watches have a long and colorful history, but we'll give you a very brief overview of how watches came to be what they are.

Beginnings
The 1500s - The watchmaking industry centered on Switzerland because of church persecution. Many of the big names in Swiss luxury watches are French because these were the originally Protestant and Huguenot watchmakers who fled Roman Catholic France. The Huguenots, followers of prominent Reformationist John Calvin, settled in Geneva, where Calvin lived. Many of these were jewelry craftsmen who abided by Calvin's belief that adornment was a vice. Thus, these French lovers of beauty turned to watchmaking.

1601 - By the end of the 15th century, Genevan watches were reputed far and wide, and in 1601, the Watchmakers' Guild of Geneva was established. About a century later, many of the original horological geniuses left crowded Geneva for the mountains. Early 1700s - Daniel JeanRichard (1665-1741) introduces division of labor in watchmaking. 1770 - Abraham-Louis Perrelet creates the first "perpetual" watch. 1801 - Abraham Louis Breguet patents the tourbillon regulator. 1868 - Antoine Patek and Jean Adrien Philippe make the world's first wrist watch. 1888 - Louis Cartier creates a ladies wristwatch with a diamond and gold bracelet.

Early 1900s - Mass production of watches begins, thanks to new technologies of watchmakers like Frdric Ingold and Georges Lchot. They focused on pocket watches. 1917 - The end of World War I aids the leap forward in affordability and popularity of wristwatches. 1923 - The automatic wristwatch is invented by John Hardwood. 1960s - The integration of electronics and Girard-Perregaux's development of the first high frequency mechanical watch, also called Swiss Quartz Movement. The 1970s to the present have seen the great recession in mechanical watches due to the quartz revolution, spearheaded also by cheaper materials and the advent of disposable consumer goods. In the 1990's, mechanical watches made a comeback in appreciation.

Company Description LVMH Mot Hennessy Louis Vuitton S.A. (LVMH:Paris Stock Exchange) is a French Holding company and one of the worlds largest luxury goods conglomerates. It is the parent of around 60 sub-companies that each manages a small number of prestigious brands. These daughter companies are, to a large extent, run autonomously. The group was formed after mergers brought together champagne producer Mot et Chandon and Hennessy, a leading manufacturer of cognac. In 1987, they merged with fashion house Louis Vuitton to form the current group. As of December 31, 2008, it operated over 2,314 stores worldwide and employed more than 77,000 employees. It primarily serves in France, Europe, the United States, Japan, and Asia. The companys luxury goods include wines and spirits; fashion and leather goods; perfumes and cosmetics; and watches and jewelry. It also engages in the selective retailing of luxury goods. The companys wine and spirits product line primarily consists of champagne, sparkling and still wines, cognac, and various other luxury spirits. Its fashion and leather goods product portfolio comprises luggage, bags, accessories, ready-to-wear, shoes, textiles, writing instruments, accessories, and sunglasses. Its perfumes and cosmetics product line includes fragrances, make-up, and skincare products. Its watches and jewelry product line includes watches and chronographs. The company is based in Paris, France and the existence of this company can be traced back to 1854, when Monsieur Louis Vuitton, a renowned trunks and luggage retailer, created signature Monogram canvas into purses and bags. Currently, Mr. Bernard Arnault serves as the Chairman and Chief Executive Officer of the LVMH group with Mr. Marc Jacobs serving as it Creative Director.

LVMH PRODUCT LINES

Wines and spirits (Dom Prignon, Mot & Chandon, Veuve Clicquot, and Hennessy), Perfumes (Christian Dior, Guerlain, and Givenchy), Cosmetics (Bliss, Fresh, and BeneFit), Fashion and leather goods (Donna Karan, Givenchy, Kenzo, and Louis Vuitton), and Watches and jewelry (TAG Heuer, Ebel, Chaumet, and Fred). LVMH's retail division includes Sephora cosmetics stores, Le Bon March Paris department stores, and 61% of DFS Group (duty-free shops). Chairman Bernard Arnault and his family, through Groupe Arnault, own about 47% of LVMH. SOURCE: www.hoovers.com LOUIS VUITTON COLLECTION TIMEPIECES MEN Tambour essentials Tambour in black Tambour diving Tambour lv cup Speedy Emprise WOMEN Tambour lovely cup Tambour hologram monogram Tambour essentials Tambour in black Tambour forever Tambour diving Tambour bijou

Emprise

MAJOR COMPETITORS The conglomerate nature of the business is obvious when one considers that only 5 major companies own the majority of luxury Swiss watch brands in the world (excluding Rolex which is a one trick pony):

PRODUCTION CAPACITY
For years, luxury-goods makers have thought about supply and demand differently than do other consumer-goods companies. In most sectors, running out of a product when demand is strong is considered disastrous. But production is limited for some high-end fashion items. source: http://www.post-gazette.com/ Being a luxury item the demand for louis vuitton timepieces is PERFECTLY INELASTIC.

RECENT TRENDS
This is not the best time for the upscale watch industry.
After several years of booming business, Switzerlands luxury watch sector is coming under pressure as the global economy shrivels and sales slow, including in emerging growth markets from China to Russia. Nowhere was the new mood more evident than at the Salon International de la Haute Horlogerie, or SIHH, the trade show in Geneva that is a EXHIBITION for the industry along with Basel World, which takes place from March 26 to April 2. SIHH, which showcases luxury group Compagnie Financire Richemonts brands to Cartieralong with a handful of independent ones, including Audemars Piguet and Girard-Perregaux.

With buyers coming off one of the worst Christmas selling seasons in a decade, especially in the U.S., it was no surprise that many traveled to SIHH with trepidation. Exports of Swiss watches fell by 15 percent in November. December figures have yet to be reported. Many buyers said they feared the temptation of buying too many expensive watches that they really didnt need and probably couldnt sell. Attendance from American retailers declined 50 percent, with overall attendance at the fair down 20 percent, according to organizers. Brands, for instance, kept the number of introductions to a minimum and They were not enforcing minimum buying numbers, either. Companies concentrated on their expertise for high-end complicated pieces, which most executives suggested would continue to sell even as the midrange starts to tank. Retailers suggested that lower and midrange brands were performing poorly, particularly in the U.S. The brands that retailers said seem to be suffering most include Tag Heuer and Breitling, neither of which showed at SIHH. Rolexs performance also was said to be mixed, with brands such as Bell & Ross and Hublot doing somewhat better. But people arent in a mood to buy, particularly in the U.S., where theres a feel-guilty factor at play however, business was stronger in other regions. Most brands said they would rein in unnecessary spending this year and concentrate their investment on research and development. Advertising as a result is expected to suffer across the board, with many watch brands saying they are reconsidering how best to connect with the customer in the current environment. Brands want to create a shortage to drive prices back up again. because brands and retailers complained of widespread discounting. They said heavy discounting would create long-term brand damage and make it difficult for retailers to sell pieces at full price for years to come. The customer gets used to that type of price and its not good for long-term business, said Mark Udell, who runs London Jewelers. source: www.portfolio.com

Analysis: World Timepiece Industry Facing Greater Challenges

is facing greater challenges at the beginning of the new millenium. This warning came from a group of manufacturers for watch and clock industry from China, Japan and Switzerland immediately after they attended the Asian Watch Industry Conference in Hong Kong. Analysts here said that there has yet to have any sign of the good news of the new round of turn for the better timepiece market, instead the market recession and supply in excess of demand have not yet been improved substantially. "In China, the measures taken by the government to stimulate consumption are just inadequate for the timepiece market, and therefore it will be risky to merely hope that the market can take a favorable turn," Li Shiyu, chairman of Rossini Watch Industry Ltd. and vice-chairman of China Horologe Association, said. However, China's timepiece has quietly and thoroughly remolded itself, and there do exist a few outstanding enterprises that dedicate themselves to the creation of famous brands and hope to be recognized and supported by all, Li added. In Japan, the output of the domestic watch industry has declined for two consecutive years in terms of both quantity and value, according to Yukio Shima, director of the JKS News & Magazine, who established the status of the Japan's largest industry paper specialized in watch and clock and jewelry. According to the report "Trends of Domestic Watch Industry in '99" issued by the Japan Watch Association, the total output of the member manufacturers in 1999 was 88 million pieces of finished products in terms of quantity, 25 percent down from the previous year, and 144.3 billion yen in value, a reduction of 29 percent compared with that in 1998. "I think the Japanese watch industry has reached an important and critical turning point where they must go through a structural reform right at the start of the 21st century," Shima said. The recent consumer trend has shifted from practicality to design that brought about in the market many varieties of watches including the revival of old models and the animation character watches, Shima explained. Another trend is centered around the young people from teens to 20s who prefer mobile phones with built-in watch functions, he added. Things seemed much better for the Switzerland's manufacturers. Swiss brands have always had a sway over the Chinese market of high grade products and this situation will keep on for a considerable period of time. And in Japan, despite a decrease in sales of domestic products, imports from Switzerland was increased. "We are the largest single purchaser of Rolex watches in the world having on hand the largest number of references of them and we also represent successfully Audemars Piguet, Piaget and other brands," said Jean-Marc C. Anderegg, executive export manager of

BUCHERER Limited. "The success is due to a harmoniously and professionally built segmentation of our own brands filling the gap unoccupied by the other brands in the market," Anderegg said. For BUCHERER Swiss Made Watches export, the Far East counts for about half of our yearly sales turnover, Anderegg said source: www.english-people.com QUOTES "October was very difficult. November is very difficult, in line with October, no worse no better. We anticipate a bad Christmas. 2009 will be very difficult." (Bulgari CEO Francesco Trapani ) "I am not expecting an overall increase in the watch market next year. But I am not expecting a sharp drop either. I think it should be just sluggish. Stable to slightly negative. Asia used to be stronger, it is still pretty steady, but growth rates have come down from last year, but it is still growing pretty well." (LVMH CEO JeanChristophe Babin) Since October, the real economy has begun to experience dramatic repercussions from the financial crisis. Demand for luxury goods...has fallen dramatically and Richemont is currently facing the toughest market conditions since its formation 20 years ago. Given the current economic climate and the uncertainties facing us, we see no cause for optimism. We must assume that there will be no significant recovery in the foreseeable future. (Richemont Q309 trading statement, 19 Jan.09) "Last year was an absolute record. We expect a decline this year and in 2010. As watch export data shows, we all suffered a decline in sales in the last two months." (Rolex CEO Bruno Meier) "In addition to an unfavourable base effect, this decline clearly illustrates the curb on growth suffered by the industry as a result of the world economic climate. The annualised variation slowed to 8.7%, falling below the 10% mark for the first time in more than three years. At a monthly level the industry had not experienced a decline since March 2005." (Federation of the Swiss Watch Industry, November 08 commentary)

SALES OF LUXURY TIMEPIECES

Back in 2007, LVMH Mot Hennessy Louis Vuitton had first-half sales of 7.4 billion euros, growth of 6%, and figures for operating and net profit rose 11% and 2% to Euro 1.4 billion and 834 million respectively. But the key position held by watchmaking and jewellery in LVMH was more ponouced with increased operating profit (+90% to 57

million). LMVHs brand TAG Heuer continued its move upmarket, buoyed by growth in the sales of its F1, Aquaracer and Carrera icons. source:www.work in switzerland.com Swiss export watch sales have more than doubled from CHF 700 million in 1998 to over CHF 1.4 billion in 2008. Assuming a full deleveraging cycle eliminates the excesses of the past decade, it is easy to see sales plummet rapidly by as much as 50% over the next several years

What do the statistics say: the drop is already being felt. While 2008 overall was a strong year, with Swiss watch exports growing 6.7% relative to 2007, mostly due to H1 strength, December demonstrated a substantial drop in export sales, down 7.6% from a year prior. Furthermore, the bulk of watch sales has been concentrated in the gold and platinum category, and the highest priced segment of the market (watches over CHF3,500) has yet to demonstrate a drop. This ultra-luxury segment has averaged 25% growth since 2006, compared to 1% for the CHF250-500 category and flat for the CHF500-3,000 segments.

SALES BY MATERIAL

SALES BY CONTINENT

Curiously, Swiss watchmakers are hoping the decoupling theory plays out as the U.S. accounts for only 19% of watch sales, while Asia is an impressive 46%. If recent Chinese import data is any indication, the bottom will fall out of the watch market with a vengeance.

SALES BY COUNTRY While December 2008 finally demonstrated a drop in export sales in the US, Hong Kong, China, Singapore and Spain, the rest of the market, especially Japan, France, Italy and Germany, has yet to exhibit the drop that will inevitably occur.

CHANGE IN EXPORTS The next chart indicates that the tide is only now just turning in the luxury watch sector, which, as a true lagging indicator, will present significant pain to public luxury watch makers such as Richemont, LVMH and Bulgari.

Of course, it is premature to declare luxury watches a dead concept. There will always be people willing to spend a lot of cash for that one unique collector's piece regardless of what maintenance costs may end up being over the long run. Regardless, for conglomerates

which have already rolled up the market, with few profitable private brands left outstanding, growth through acquisitions will be complicated, while relying on organic growth at this point will be foolish. Thus, as investors we would be very cautious about investments in such stocks as LVMH, Bulgari and Richemont. The one industry which will undoubtedly suffer are undiversified distribution outlets. As the credit cycle turns, more and more tangential offshoots of the uncontrollable spending spree will be impacted. What is true for luxury watches, will easily apply to such market top-tick gimmicks as ultra premium Vodka, gold plated iPhones, $300 bottle service at trendy night clubs, and many more artifacts of a conspicuous consumption economy that is now unwinding with a bang.

source: zerohedge.blogspot.com