PARIS, France — The luxury goods industry is ripe for further consolidation. LVMH has surmounted most of its internal issues — DKNY has been sold, DFS is out of its loss-making Hong Kong airport concessions, even the long-troubled Marc Jacobs seems on its way out of the woods — and is ready to move, probably during the next slowdown in the sector. With Puma out of the way, Kering is pushing forward with its soft luxury businesses and is likely to move sooner rather than later. Richemont, too, seems to have regained its appetite for acquisitions under its new leadership. See its €2.7 billion bid for full control of Yoox Net-a-Porter. So, what’s likely to happen?
For sure, Richemont could decide to reinforce, rather than abandon, its weak beachhead in soft luxury. But it seems unlikely that the Swiss conglomerate will do more than add-on deals to pad out its brand portfolio. The company may have size on its side, but it also has a controlling family whose voting rights would be diluted by a high-profile merger. The group could also be on the receiving end of a bid or a merger by/with one of the two French giants, LVMH or Kering.
Moving south, Italy’s soft luxury players missed the chance to be industry consolidators decades ago. Today, they are rapidly becoming irrelevant as anything more than space-fillers for the big groups. Even Tod’s or Salvatore Ferragamo would be little more than a rounding error in terms of the industry’s structure. The sole exception is Prada, which could appeal to LVMH or Kering to further extend their lead in leather goods.
LVMH is clearly in pole position to lead industry consolidation through M&A and further extend its lead.
Across the Atlantic, there is no real substance to the notion of an “American LVMH.” None of the American brands — not Coach, not Michael Kors — really fit the bill as an anchor around which to build a luxury giant. Not only do they lack the strong cash profile necessary to finance such a sweeping strategy, but even combined, the market capitalisations of the four largest American soft luxury champions wouldn’t match a European challenger. Of course, some still see this as a good idea. Good luck to them. Simple mergers can be complicated enough; now imagine the task of bringing a collection of brands together under one roof.
Back to France then. LVMH is clearly in pole position to lead industry consolidation through M&A and further extend its lead. Kering is the natural challenger. Not only does it harbour multi-category ambitions, it is pushing forward on its newly found successes with Gucci, Saint Laurent and Balenciaga. Kering could certainly move forward with a high-profile merger. A tie-up with Richemont would be a master stroke. Equally striking would be an LVMH tie-up with Chanel. Given its footprint in cosmetics, Chanel would be even more desirable than Hermès and not as big as L’Oréal.
It’s not hard to come up with any number of scenarios involving the smaller fry and some of these could actually materialise. Richemont could even surprise us all and emerge a winner on Yoox Net-a-Porter. But realistically, when it comes to big deals, the choices are limited. One thing seems certain: any major moves are likely to be a French affair.
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.