The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
LONDON, United Kingdom — The Savigny Luxury index ("SLI") rose like a phoenix in October, gaining over 6 percent, whilst the MSCI World Index flat-lined. Strong results by the big groups' mega brands were behind much of this increase, bringing much needed relief to the sector, as was some yet-to-be-substantiated bid speculation.
Big news
LVMH and Kering reported very good quarterly results this month, driving the sector up. LVMH's flagship brand Louis Vuitton posted a 7 percent like-for-like sales increase in the third quarter, contributing to the group's better-than-expected sales numbers for the period. Chinese customers as well as good growth in the UK and Italian markets underpinned the brand's performance. Kering's Gucci saw growth accelerate with a 17 percent jump in sales in the third quarter: the first double-digit quarterly growth for the brand since 2012.
Both are good news for the sector. Firstly, because Louis Vuitton can truly be seen as THE benchmark for the luxury sector, because of its size, international reach, breadth of product categories and retail-focused business model. A re-energised Vuitton raises the hopes of everyone in luxury. Secondly, Gucci's renewed success shows what can be achieved as a result of new creative direction and a keen sense of purpose and direction from the top down. This, along with other fairly recent success stories such as Saint Laurent, Valentino and Balmain, prove that it is possible for fashion-driven brands to find growth at various sizes and stages of development even in the current environment.
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Nevertheless, one brand's good day is another brand's bad day as the overall picture for the sector 2016 is still one of flat growth. Burberry fell short in its first half as international wholesale sales continued to falter, despite UK sales rising by 30 percent in the second quarter following the Brexit referendum. Tod's posted a (better-than-expected) drop of almost 15 percent in like-for-like sales for the first nine months of the year and stated that it was paying close attention to its wholesale channel, which was constantly evolving.
Kering continued its widespread management shake-up this month, announcing the appointment of Cédric Charbit (previously at YSL) as CEO of Balenciaga, and the appointment of Nikolas Talonpoika (from within Kering Group) as CEO of Christopher Kane. In the last 10 months alone, Kering has appointed four new CEOs and two new designers. The group also announced the departure of Justin O'Shea after less than six months as creative director of Brioni, evidence that something was going badly wrong there.
The Internet was bubbling with bid speculation as reports of a Burberry-Coach tie up emerged from financial blog Beatville and a $10 billion offer for Michael Kors was mentioned by Spanish News website Intereconomica. Burberry and Coach have already denied talks, whilst Michael Kors has remained silent.
Nevertheless, there has been some deal activity of note this month: LVMH agreed to buy 80 percent of German luggage maker Rimowa for €640 million and Ermenegildo Zegna bought a controlling stake in Italian textile company Bonotto. In personal care. Estée Lauder added another growing cosmetics brand to its portfolio with the acquisition of Becca Cosmetics, a make-up brand offering complexion and colour products that cater to a wide range of skin tones; and Coty acquired haircare specialist GHD.
Going up
Going down
What to watch
The uncertainty around the forthcoming US elections puts big question marks on the short-term prospects for the dollar, international trade and foreign policy. This may or may not resonate well with the current resurgence in nationalistic sentiment throughout Europe and even less so with a growingly assertive Russian power. Whatever may be, this next month is likely to be a volatile one for the sector.
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Sector valuation
Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholders' documentation guaranteeing BoF's complete editorial independence
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