The luxury industry is poised for a deal wave

Mint

2 days ago

A shopping spree looks set to begin in the world of luxury. Prada, one big-name Italian brand, is said to be in talks to buy another, Versace. On March 13th Donatella Versace stepped down as chief designer of the firm founded by her brother. Giorgio Armani, the 90-year-old founder of his eponymous label, has said he isn't ruling out a merger as he plans for retirement. Last month the family that owns Ferragamo, one more Italian brand, had to reassure staff that it is not up for sale after its chief executive abruptly left.
More tie-ups would extend a decades-long trend of consolidation. Three luxury giants—LVMH and Kering of France and Richemont of Switzerland—accounted for 31% of global personal-luxury-goods sales in 2023, up from 19% in 2014, according to BCG, a consultancy. Acquisitions helped fuel that growth. Since 2000 BCG counts at least 33 deals by the three groups. Many independent brands are now concluding that they cannot survive alone in an increasingly difficult market. A new wave of deals seems likely.
The luxury business is in the midst of a painful downturn. Weakening economic growth from America to China has led shoppers to spend less on designer frocks, bags and heels. Luxury sales fell by 2% in 2024, according to estimates from Bain, another consultancy. Credit-card data collected by Citi, a bank, suggests spending on top luxury brands in America was down by 5%, year on year, last month.
So-called aspirational brands that cater to customers who are rich but not extraordinarily so, such as Burberry and Versace, are struggling most. Independent labels have also been hit harder than the big luxury groups. 'This crisis moment will be an excuse for a consolidation," reckons Federica Levato of Bain.
Departing founders are fuelling deal speculation as well. Along with Armani, Dolce & Gabbana is also in the midst of succession planning. Small but trendy brands, including The Row, founded by the Olsen twins, are being floated as possible acquisition targets, too.
Scale creates big advantages in the luxury business, notes Guia Ricci of BCG. It brings bargaining power when it comes to advertising and property. It also attracts talent: up-and-coming executives and starry designers join luxury conglomerates knowing that it will provide them an opportunity to work at multiple brands.
Competition authorities might also abandon their recent hostility to deals. Last year America's Federal Trade Commission blocked the acquisition of Capri, which currently owns Versace, by Tapestry, which owns Coach and Kate Spade. But the Trump administration has signalled it will be more open to mergers. Europe, too, may be willing to allow deals that further strengthen one of the few industries it dominates globally.
The luxury business will also continue consolidating in other ways. In recent years brands have been snapping up their suppliers. In 2023 LVMH bought Grupo Verdeveleno, a Spanish tannery. Chanel has paired up with Brunello Cucinelli and Prada with Ermenegildo Zegna Group to buy stakes in Italian wool producers.
Such deals give luxury firms greater control over their supply chains at a time when these are under heightened scrutiny. Italian authorities have recently been investigating labour exploitation in the country's fashion industry. One popular Instagrammer, Tanner Leatherstein, has made his name by cutting up luxury bags to show how poorly some of them are made. In a survey conducted by Vogue, a fashion magazine, in January, the most common explanation shoppers gave for cutting spending on luxury goods was that they no longer seemed worth the price. That will surely make the industry's cashmere-clad bosses wince.
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