Latest news with #TassiloHummel
Yahoo
28-05-2025
- Business
- Yahoo
Seeking to cure Gucci addiction, Kering's Pinault created a debt problem
By Tassilo Hummel and Elisa Anzolin PARIS -In trying to reduce Kering's over-reliance on struggling flagship label Gucci, French billionaire Francois-Henri Pinault has created another problem, as a string of acquisitions piled up debts just as the industry entered a prolonged slump. Those debts are getting harder to manage, with Kering shares down 60% over the past two years and U.S. President Donald Trump's tariff threats dashing hopes of a sector rebound, and are weighing on the group as it vies with deep-pocketed rivals. Pinault's family holding Artemis, which controls Kering and also has a stake in sports brand Puma, is also heavily indebted, and will likely have to pay back 500 million euros ($567 million) to investors in cash following Thursday's cut-off date for a convertible bond, after Puma shares underperformed. Kering may also need to find billions of euros to buy the remaining stake in fashion house Valentino as soon as next year. The company is cutting costs and selling stakes in properties, but if the debt situation does not improve, it could face a third credit rating downgrade in three years, two Kering bondholders told Reuters, declining to be named. That could further hamper its ability to revive Gucci and compete with the likes of Hermes, Chanel and LVMH, which have little to no debt and are investing heavily in their brands. "This is the worst of times, because you've got a fall in sales, which is going to translate into a fall in profit, and at the same time, interest rates are rising. So they can't renegotiate their debt," said Eric Pichet, economics professor at the Kedge business school in France. Kering declined to comment for this story. Pinault, who in 2005 took the helm of the conglomerate founded by his father Francois, enjoyed years of spectacular growth at Kering thanks to Gucci and the "ugly-chic" designs of its former creative director Alessandro Michele. But as shoppers tired of Michele's fur-lined loafers after the pandemic, Pinault sought to diversify through acquisitions, including a 30% stake in Valentino, high-end perfume maker Creed, prime real estate, and - via Artemis - a Hollywood talent agency. The strategy left Kering with net debt of 10.5 billion euros at the end of 2024, up from close to nothing in 2021 and half its market capitalisation, and an even larger debt pile at Artemis, according to the latest available filings. SHOPPING SPREE Since the pandemic, Pinault has struggled to choose between bold fashion creations and more classical looks as the best way to revamp Gucci, a person who advised Pinault and other Kering executives during that period told Reuters. With Kering's moneyspinner sagging, Pinault moved to snap up perfume maker Creed for 3.5 billion euros and 30% of Valentino for $1.9 billion in 2023, both in cash. In less than two years, Kering also splashed out roughly 4 billion euros on properties including on New York's Fifth Avenue, and on prestigious shopping streets in Milan and Paris. A company insider said Kering paid chunky premiums to outbid rivals, fearing its own labels - which also include Yves Saint Laurent and Balenciaga - could lose access to prime sites. Kering, whose free cash-flow fell by almost 30% in 2024 to 1.4 billion euros, is now rushing to sell stakes in these buildings, hoping to free up 2 billion euros in cash by 2026, it told analysts in February. But the stakes may go for less than their book value. Kering recently took a 100-million-euro charge on the sale of a 60% stake in three Paris properties, its 2024 annual report shows. There are other pressures too. Kering has said it intends to fully acquire Valentino in 2028 from luxury fund Mayhoola, backed by Qatar's royal family. But put options included in the deal might force Kering to buy the remaining 70% stake as soon as May 2026, company filings show. This could add 4 billion euros to Kering's cash needs, depending on Valentino's performance. Kering said in April it was confident cost-cutting measures, including store closures and redundancies, would enable it to fund an early deal, if necessary. Plus it can pay for part of the remaining stake with up to 3 million Kering shares, or 2.4% of its equity. Mayhoola would welcome a stake in Kering as part of its expansion strategy, a source close to the fund told Reuters. But this option would only finance a fraction of the overall price tag, based on Kering's current market value. DOWNGRADE RISK Kering's adjusted net debt, which includes rental lease liabilities, stood at 3.8 times core earnings (EBITDA) at the end of 2024, ratings agency S&P told Reuters, while declining to comment on the timing of any potential ratings review. UBS analysts estimated in a recent note that Kering's leverage ratio could reach 4.1 times at the end of 2025. Surpassing four times typically increases the chances of a rating downgrade, one of the bondholders told Reuters. Replicating the acquisition strategy at his family holding company, 63-year-old Pinault, who is married to Mexican-American actress Salma Hayek, used Artemis to buy a 53% stake in talent agency CAA for 3.5 billion euros, according to Artemis filings. Artemis' own net debt, which includes Kering's, stood at 20.2 billion euros at the end of 2023, more than double the previous year, the filings - the latest available - show. While Kering, which usually distributes at least half of its net income to shareholders, could in theory cut its dividend to save cash, that would only compound problems for Artemis. ($1 = 0.8813 euros) (reporting by Tassilo Hummel in Paris, Elisa Anzolin in Milan. Editing by Lisa Jucca and Mark Potter) Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Business of Fashion
23-05-2025
- Business
- Business of Fashion
Trump's Tariffs Hit European Luxury Industry, Shares Tank
European luxury shares tanked on Friday as US President Donald Trump said he is recommending a straight 50 percent tariff on goods from the European Union starting on June 1. Europe's luxury industry, producing handbags, shoes, fashion items and champagne among other prized goods, is highly exposed to the US market, which was seen as the sector's best hope for growth this year as Chinese demand lags. Shares in LVMH and Hermes, France's largest listed companies by market capitalisation, fell by around 3 percent and 4 percent respectively after Trump's announcement, in line with sector peers including Kering, Prada and Burberry. The sector's largest groups sell roughly a quarter of their products to US consumers, while exposure among smaller brands varies, from 14 percent at outerwear company Moncler to 46 percent at sandals-maker Birkenstock. S&P analysts cited the luxury sector in a recent note as one of those most exposed to US tariffs, as companies have only limited ability to move production to the United States. 'If you want to create a factory in the US to overcome the problem of the tariffs, it's just impossible right now. ... You don't have the people, the know-how,' Bain partner Claudia D'Arpizio said at an industry event on Thursday. LVMH's Louis Vuitton is the only European luxury brand producing locally in the United States, though it has been grappling with problems at one of its sites in country, Reuters has found. 'We therefore believe that pricing will likely be the luxury goods industry's main way of mitigating tariffs,' S&P analysts said in a recent note. European luxury goods makers including Birkin bag maker Hermes have said they could use their pricing power to offset the cost of any tariffs, but analysts say some brands may have limited room to hike prices. France's luxury industry — the world's largest — employs over 600,000 people, data from the economy ministry shows. Italy, producing most of the world's high-end leather goods, is also highly exposed to international trade. According to a report by state-controlled bank Cassa Depositi e Prestiti, the fashion industry accounts for over 5 percent of the country's gross domestic product. The two countries are the largest exporters of most luxury products to the United States. In 2024, France shipped sparkling wine including champagne worth €890 million ($1 billion) as well as grape brandy, mostly cognac, worth €1.27 billion to the US, United Nations data shows. Italy meanwhile exported €770 million worth of leather handbags. By Elisa Anzolin, Tassilo Hummel, Mimosa Spencer and Leigh Thomas; Writing by Tassilo Hummel; Editing by Catherine Evans Learn more: Trump Tariffs Prompt Slump in Shipments to US Ports The number of vessels scheduled to arrive at the Port of Los Angeles next week is down by almost a third, year on year.
Yahoo
10-04-2025
- Business
- Yahoo
LVMH finds making Louis Vuitton bags messy in Texas
By Tassilo Hummel and Waylon Cunningham ALVARADO, Texas / PARIS - Six years ago, LVMH's billionaire CEO Bernard Arnault and President Donald Trump cut the blue ribbon on a factory in rural Texas that would make designer handbags for Louis Vuitton, one of the world's best-known luxury brands. But since the high-profile opening, the factory has faced a host of problems limiting production, 11 former Louis Vuitton employees told Reuters. The site has consistently ranked among the worst-performing for Louis Vuitton globally, 'significantly' underperforming other facilities, according to three former Louis Vuitton workers and a senior industry source, who cited internal rankings shared with staff. The plant's problems – which haven't previously been reported – highlight the challenges for LVMH as it attempts to build its production footprint in the U.S. to avoid Trump's threatened tariffs on European-made goods. 'The ramp-up was harder than we thought it would be, that's true,' Ludovic Pauchard, Louis Vuitton's industrial director, said in an interview on Friday in response to detailed questions about Reuters findings. The Texas site, situated on a 250-acre ranch, has struggled due to a lack of skilled leather workers able to produce at the brand's quality standards, the three former workers told Reuters. 'It took them years to start making the simple pockets of the Neverfull handbag,' one source familiar with operations at the plant said, referring to the classic Louis Vuitton shoulder tote bag. Errors made during the cutting, preparation and assembly process led to the waste of as many as 40% of the leather hides, said one former employee with detailed knowledge of the factory's performance. Industry-wide, typical waste rates for leather goods are generally 20%, a senior industry source said. Several former employees who spoke to Reuters described a high pressure environment. To boost production numbers, supervisors routinely turned a blind eye toward methods to conceal defects, and in some cases encouraged them, four former employees told Reuters. Pauchard acknowledged there had been such cases in the past, but said the issue had been resolved. 'This dates back to 2018 and one particular manager who isn't part of the company anymore,' he said. Poorly-crafted handbags deemed unfit for sale are shredded on-site and carted away in trucks for incineration, two of the sources with knowledge of the firm's supply chain said. A former production supervisor who often travelled to the site, said Louis Vuitton mostly used the Texas plant for less sophisticated handbag models, producing its most expensive products elsewhere. Pauchard, Louis Vuitton's industrial director, said the company was being 'patient' with 'a young factory.' 'Any bag that goes out of it must be a Louis Vuitton bag, we make sure it meets exactly the same quality,' he said. 'I am not aware of any kinds of issues suggesting the quality coming from Texas is any different from that coming from Europe.' MADE IN USA Perched behind a hill, the handbag maker's two production facilities were built on grounds near grazing cattle and a gas well. Louis Vuitton named the site Rochambeau in tribute to a French general who fought in the Revolutionary War. Workers at the site make components and entire models of Louis Vuitton handbags like Felice pochettes and Metis bags – with "Made in USA" tags inside. The items sell for around $1,500 and $3,000 at high-end boutiques. LVMH declined to comment when asked which handbag models are fully or partially made in Texas but former workers interviewed by Reuters mentioned the Carryall, Keepall, Metis, Felice and Neverfull handbag lines among the plant's products. In its marketing material, Louis Vuitton says its handbags - typically made at French, Spanish or Italian leather ateliers by artisans known as "petites mains' - are assembled using a process that it has perfected since the mid 19th century. After cutting canvas and leather using hand tools and laser-cutting machines, they stitch pieces together using industrial sewing machines. Workers at the Texas facility, which includes dedicated floors for cutting and for assembly as well as a warehouse, were initially paid $13 per hour. As of 2024, base pay for a leather worker position at the plant was $17 per hour, according to two people who recently applied for positions. The minimum wage in Texas is $7.25 an hour. A former leather worker who arrived as a migrant in the U.S. some years before, said she felt proud when she was hired by the prestigious French brand, but said some workers struggled to meet the brand's quality standards and production targets. "We were under a lot of pressure to make the daily goals," said the former worker, who left the factory at the end of 2019. Another person who worked at the facility until 2023 said she cut corners, like using a hot pin to 'melt' canvas and leather to conceal imperfections in a particularly difficult piece called the Vendome Opera Bag. Another former leather worker said they'd seen people melt material to hide holes or other imperfections in stitching. Damien Verbrigghe, Louis Vuitton's international manufacturing director, conceded some at the Texas plant had chosen to change jobs or leave because of its stringent quality requirements. 'There are artisans that we hire, who we train and who, after several weeks, or months, realize in light of the expectations, the level of detail that is required, they would rather work in other fields like logistics,' he said. 'Some people chose to leave us, because it's true that it's a job that requires a lot of savoir faire.' Three former workers at the plant said they received between two and five weeks of training. A current Louis Vuitton employee in France said receiving just a few weeks of training wasn't unusual as most learning happens on the production line supervised by more experienced craftspeople. "Knowledge of sewing on leather/canvas is a plus, but not required. We offer comprehensive training,' the company said in a job posting for artisan positions in Alvarado published on its website in January. Verbrigghe said training in Texas is 'exactly the same program that we have in all our workshops,' that is, six weeks on the training line, where new artisans do nothing but learn basic operations and skills before going on to train on the assembly line. There, he said, they are 'accompanied and continuously mentored by trainers.' TAX BREAKS LVMH got a host of tax breaks and incentives from Johnson County, including a 10-year, 75% property tax cut, promising the company an estimated $29 million in savings. 'We look forward to serving this exceptional company,' wrote the county's top executive, Roger Harmon, in 2017 correspondence seen by Reuters. In its 2017 application letter for the tax abatement, obtained by Reuters through records request, LVMH said it was aiming to hire 500 people within the first five years of the plan. At the ribbon-cutting ceremony in 2019, Arnault said, 'We will create approximately 1,000 high-skilled jobs here at Rochambeau over the next five years.' Three former staffers, however, said headcount stood at just under 300 workers in February 2025, a figure Verbrigghe confirmed. The White House did not respond to a Reuters request for comment. Pauchard said initial recruitment difficulties were largely due to the COVID-19 pandemic and the lockdown that followed, adding that a decline in local demand also played a role. Despite the problems, LVMH is planning to move even more jobs to Texas. LVMH said in its 2017 filing that its first Texas production facility would cost around $30 million. A second filing from 2022 to local authorities put the cost of its second workshop, completed last year, at $23.5 million. At a town hall last fall, workers at one of two California production sites were told that it would close 2028 and they could move to Texas or quit, according to a former employee who was present. Pauchard confirmed the town hall and said Louis Vuitton intended to streamline its California operations and transfer more skilled artisans to Texas - with so far limited success. Its executives, he said, 'underestimated the fact that Texas is far away from California.'
Yahoo
18-02-2025
- Business
- Yahoo
Trump tariffs would test pricing power of Europe's luxury goods makers
By Tassilo Hummel and Mimosa Spencer PARIS (Reuters) - European luxury goods makers say they could draw on pricing power to offset the cost of any tariffs imposed by U.S. President Donald Trump, but analysts say some brands may have limited room to hike prices. Famous brands like LVMH's Louis Vuitton or Kering's Gucci are counting on a buoyant U.S. market this year as China lags. However, Trump has threatened new tariffs on the European Union due to trade surpluses it had with the United States, in a widening offensive that economists say could trigger a global economic slowdown. Executives at Hermes and Kering, which make handbags and loafers that sell for thousands of dollars, said last week they could leverage their brands' cachet to absorb any additional duties. "If duties increase, we'll increase our prices accordingly," Hermes Executive Chairman Axel Dumas said on Friday after reporting results. Kering CEO Francois-Henri Pinault signalled the same commitment earlier in the week, saying his brands, including Gucci, Balenciaga and Yves Saint Laurent, would "review (their) pricing strategy" in the event of tariffs. "We know how to manoeuvre that," he said. PASSING ON COSTS Yet, years of aggressive price hikes, particularly during the post-pandemic boom, could make it harder for some brands to pass on higher import costs. Most brands lifted prices by their most ever in recent years, analysts from firms including UBS, Citi and Bernstein said. Chanel's classic quilted flap bag has more than tripled in price since 2010, while the Lady Dior bag and Louis Vuitton Keepall travel bag have more than doubled, according to UBS. "We've talked a lot about 'greedflation' for the past 12 months, the idea that you've gone too far, too high, too quickly. And at the end of the day, you've basically cut yourself off from that aspirational consumer," HSBC analyst Erwan Rambourg said. CAUTIOUS PRICING A significant price rise would counter a recent trend for more cautious pricing policy, especially in the U.S. market. Dior, for example, kept U.S. prices flat last year, while Louis Vuitton increased them by a little more than 2%, according to Paris-based market intelligence firm Data & Data, which monitors online retail prices for brand catalogues. Chanel raised prices by 5.4%, a moderate move compared with previous years, while jewellers Tiffany and Richemont-owned Cartier and Van Cleef & Arpels slowed the pace of U.S. increases to 4% to 6%, from over 8% in the previous year, the data showed. "I think that the major brands' room for manoeuvre in terms of price increases in the United States will be fairly limited in 2025," Data & Data CEO Zouheir Guedri said. "This would risk accentuating price differences between different regions and jeopardise costly efforts undertaken over the years to harmonise prices on a global scale." Morningstar analysts said in a recent note: "A 10% to 20% tariff on European luxury goods could depress luxury sales in the U.S., especially for companies like Burberry and Kering that focus more on an affluent and aspirational clientele as opposed to the ultra-rich patrons." CHOPPY OUTLOOK As Chinese demand stays subdued, Europe's luxury companies are pinning their hopes on Americans in 2025, boosted by roaring equities and crypto markets. Even though business with American customers is expected to grow fastest this year, at 6%, buoyed also by a strong dollar, sales to Chinese customers are set to drop 1%, UBS has forecast. But the outlook remains uncertain. U.S. consumer sentiment dropped unexpectedly in February to a seven-month low and inflation expectations rocketed as households feared they could pay the price for Trump's trade policies. Analysts at Citi noted spending habits of aspirational shoppers - consumers who stretch their budgets seeking to elevate their social status - remain choppy. LAND OF CONQUEST Hermes CEO Dumas last week said he still saw the United States as a "land of conquest" to generate growth, pointing to his group's retail expansion into second-tier U.S. cities, with upcoming openings in Phoenix and Nashville. LVMH hinted it could further bulk up production there. CEO Bernard Arnault and his family have cultivated personal ties with Trump, with four of them attending the president's inauguration last month. "We believe the group is positioning itself to be able to negotiate with the U.S. administration on potential tariffs by offering to produce more in the U.S., as is already the case for Louis Vuitton and could easily be done for other brands," said analysts at HSBC. Asked how he viewed lobbying efforts from Arnault in the United States, Kering-owner Pinault told Reuters "it's certainly a good thing" if it helps the European luxury sector avoid additional duties. However, like some other European luxury executives, Pinault ruled out any shifts of production to the U.S., saying that could dilute his group's 'Made in Europe' image and would "make no sense." Sign in to access your portfolio
Yahoo
11-02-2025
- Business
- Yahoo
Exclusive-LVMH media unit refrains from lawsuit against Musk-owned X, sources say
By Tassilo Hummel and Mathieu Rosemain PARIS -LVMH-owned newspaper group Les Echos-Le Parisien is not party to a lawsuit involving French media against Elon Musk's X that it previously said it would join, according to a court official, and four media industry sources said the LVMH papers no longer planned to sue the platform. Les Echos-Le Parisien and other French newspapers, including publications owned by Le Monde and Le Figaro, declared in November that they would lodge a lawsuit to pressure X to compensate them for currently unpaid-for content visible on the social media platform. Such fees, which are designed to ensure journalistic content remains widely available on digital platforms while offering publishers more financial stability, are required under the EU's copyright and related rights rules. Pursuing the lawsuit would have pitted LVMH and its controlling shareholder and CEO, Bernard Arnault, against Musk, the world's richest man and key ally of U.S. President Donald Trump. Arnault attended Trump's inauguration. Two of the sources said Les Echos-Le Parisien informed high-ranking executives at the other papers that it wasn't going ahead with the lawsuit, without saying what motivated the decision. "We have indeed made such a threat against X in the past. Other discussions have been held since then," a Les Echos-Le Parisien spokesperson said, declining to elaborate further. LVMH declined to comment. X's French lawyer declined to comment. The three media groups jointly won a fast-track court order in May 2024 to compel X to release traffic data and advertising revenues allowing the papers to assess compensation levels for their content. While Le Monde and Figaro jointly launched the case a month ago in a court filing, the LVMH unit was not part of the proceedings, according to a Paris judicial court clerk who has seen the filing. EU RULES Les Echos is France's leading daily business newspaper. Le Parisien is a general news daily. In an article published by Les Echos in November, Les Echos-Le Parisien CEO Pierre Louette said that X, "just like any other platform" that generates traffic and revenue from the paper's content, "must comply" with the EU copyright rules. "It's a question of safeguarding quality information, the very foundation of our democracy," he added. French publishers including Les Echos-Le Parisien had won a similar case before France's competition watchdog against Alphabet's Google in 2021. They also struck a deal with Meta on similar issues. "The law on related rights applies to everyone," Louette, who also chairs France's main newspaper publisher association, told Le Figaro in a recent interview. Last month, Les Echos-Le Parisien was part of a group of papers that announced a similar lawsuit against Microsoft's LinkedIn platform. A court date was not yet announced. LVMH bought Les Echos in 2007 before taking over general news daily Le Parisien in 2015 as part of a wider push into the media landscape. Last year, LVMH took over Paris Match, a well-known weekly magazine covering politics, entertainment and celebrities. The conglomerate also owns a French radio station. Bernard Arnault last month praised a "wind of optimism" that he said was blowing through the U.S. following Trump's election and has expressed support for Musk's role in the White House. Arnault said France "should do like in the United States and appoint somebody to cut down on bureaucracy."
