Effects Of Economic Crisis And Employee Retention Strategies Commerce Essay

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The luxury goods market had experienced a considerable growth internationally in all the sectors in the first decade of 2005. From LVMH financial reports, the revenues for the first decade of 2005 totalled 6.17 billion Euros, which was 10% higher than the revenues for the same decade of 2004. The luxury market was finally booming again in the first decade of 2005. With the increase in the number of global millionaires, greater confidence in the economy and mass consumers buying luxury, the future was bright for luxury fashion houses. According to LVMH and Boston Consulting Group reports, the role of Europe and new developing markets, such as Russia, China and India, in luxury goods consumption has been growing since 2001. Based on the Boston Consulting Group estimates, in 2004 the market for luxury products and services generated a profit of $400 billion, primarily in European Union countries, such as UK, France, Germany and Italy, as well as Japan. However, more recently there has been a decline in the global luxury sales revenues of 15- 20 percent according to a recent study by Bain & Co.

Every one of us knows that we recently came out of the economic downturn and companies are reconsidering their strategies to lead the market in whatever way it is possible. In this regard, for the purposes of the present paper two recent surveys needs to be mentioned here in the first instance.

Firstly, the research report compiled by the Watsonwyatt & Co. In which they have concluded that one year after the financial crises began, employers are now beginning to lift freezes on hiring and salary increases. It has also been indicated that the companies are making offers to new hires in the past and are anticipating the new offers in the near future. Employers seemed to be concerned, comparatively before the economic crises hit, about their ability to attract and retain critical skill employees. As having, the right people in place will be a key differentiator for companies looking to outperform competitors in a recovery.

Second research on the same topic conducted by Spencer Stuart one of the world leading executive consulting firms in 2009, which is worth mentioning here, has been concluded by the following remarks that challenges the luxury industry is facing in coming out of this recession are significant and the companies have already taken the measure to bring them back to the tracks. In interviews with the executives of the different organisations it has clearly been mentioned by most of the interviewees that the first and the most important thing they are determined about is not to lose talent. As one director expressly contributed to the research by saying

"Talent retention is key here. we need to keep the best and motivate them despite no bonus and without salary increase"

What is common in these two reports is that the greater emphasis has been put on the employee retention as a key strategy to handle the circumstances. It is true to the large extent that taking employee retention as a strategy reflects the view that in today's highly competitive environment market value depends less on tangible resources, but rather on intangible ones, particularly human resources. Recruiting and retaining the best employees is the only part of the equation. According to Noelle et al(2004) The percent of the market value related to the tangible assets in 1982 was 62 percent with 38 percent for intangible assets. In 2000 this percentage has reversed with only 15 percent of the market value lies in the tangible assets while the rest 85 percent is directly linked with the intangibles.

In this review, we will assess the concept of employee retention by identifying its key components and then its effect on the organisational performance with specific relevance to the luxury industry. Although the evidence for the effect and importance of the employee retention is now growing but the evidence included in this paper is significant to make a link between the employee retention and the organisational performance.

There has been seen the considerable shift in the strategy literature which shows that the internal resources carries a huge importance in assessing the external positioning of any organisation. (Wright et al 2001). The work of Penrose (1959) represents the beginning of the resource-based view of the firm (RBV), later articulated by Barney (1991). According to the resource, based view of the organisation the competitive advantage is not based on the technology or natural resources but it is dependent upon the valuable, rare and hard to imitate resources, which reside within the organisation. The importance of these resources lies within their nature that they cannot be copied for twofold reasons. Firstly, the mechanism by which they generate value and secondly, the passage of time over which they develop. (Becker & Gerhart 1996:782).

According to Fitz-en 1997, the companies today compete in the global environment, the winning business models alone are not sufficient for successful running of the businesses in this highly competitive environment, and the war for the talent is intense. He termed employees of any organisation as the valuable assets because employees who work for any organisation gain knowledge over the passage of time and losing that employee simply means the lost of knowledge. Keeping this importance in mind, he stated that the average company loses approximately $1 million with every 10 managerial and professional employees who leave the organization. Combined with direct and indirect costs, the total cost of an exempt employee turnover is a minimum of one year's pay and benefits, or a maximum of two years' pay and benefits.

In Europe, employers have been reluctant to fire during this recession for the key reason that employment laws make it cost a lot to dismiss people but in United States the employers simply don't want to lose skills because they have worked so hard to hire and train. If they lose their employees it will very difficult for them to get them back. According to them the agenda for the future is the people cost money and talent cost even more.

As the luxury industry becomes more complex,. However, with a finite talent pool available, many businesses have started to hire leadership talent from other sectors. These successful 'outsider' executives bring brand management experience and an international mindset, adapt well to the idiosyncrasies of the luxury sector and know how to unlock the value in the business.


The study will attempt to answer the following questions:

What are the connections between the employee retentions and organisational performance in luxury industry?

What motivates the employees in difficult economic conditions?


These steps will be followed to answer the above questions:

Review the literature on job satisfaction and employee retention.

Based on the information obtained from the review of literature a questionnaire will be prepared to identify employee retention strategies and practices in the given organisation. (In this case LVMH human resource department)

The information gathered from the questionnaire results will be sorted, analysed categorically and future recommendations for the practice shall be made accordingly.


The review of literature will tentatively include: journal articles focusing on the employee retention in luxury industry, career development and benefits focusing on the employee motivation etc. If needed, additional elements of employee retention may be considered.

Justification for the study:

After reviewing all the above cited articles, reports and surveys I came to know that employee retention is a key to success in these hard and difficult financial times and there is still a room for further research that how employees could be motivated to keep within the organisation and this phenomenon has direct link with the organisational performance. This is the reason which has motivated me to do further research on this topic.