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Why an LVMH-Ralph Lauren Deal Is Unlikely

The American brand is too far removed from LVMH’s core luxury business model.
Designer Ralph Lauren poses on the runway at Ralph Lauren Spring 2016 during New York Fashion Week.
Designer Ralph Lauren poses on the runway at Ralph Lauren Spring 2016 during New York Fashion Week. (Getty Images)

Could LVMH really be thinking about acquiring Ralph Lauren?

This week, an Axios report, based on anonymous sourcing, speculated that the French luxury conglomerate and American brand, whose eponymous founder remains its largest shareholder, have recently been in talks. (A representative for LVMH declined to comment on the report. A representative for Ralph Lauren said that the company does not comment on rumours.)

The story generated plenty of conversation: the luxury industry remains in rapid consolidation mode, and LVMH has shown that it is keen on buying billion-dollar-plus businesses to further cement its dominant position as the global market leader. (At the end of 2019, it scooped up the American jeweller Tiffany for $16.2 billion, the largest deal in its history.)

Ralph Lauren, which generated $4.4 billion in the fiscal year ending March 27, 2021, has seen sales soar as pent-up demand benefitted fashion brands across the board. Last spring, sales in North America, its largest market, were up 301 percent year over year.

This isn’t the first time there’s been speculation about a potential Ralph Lauren sale. LVMH rival Kering has also been rumoured to have looked at the company.

The reasons why are clear: the Ralph Lauren brand itself remains strong, even in the US, where it is heavily distributed.

“When asked to name ‘luxury clothing brands,’ Ralph Lauren is always in the top-10, usually in the top five,” said Robert Passikoff, founder and president of Brand Keys, which surveys consumers about brand sentiment. A February 2022 Prosper Insights survey of almost 8,000 American consumers also found that nearly 11 percent had purchased something from Ralph Lauren over the past six months, up from 9.5 percent in 2021. Among 1,500 “fashion forward” customers, 19 percent bought something from the brand over the past half year.

LVMH has had plenty of success in the US market with its European heritage brands like Louis Vuitton and Dior, but not with more accessible, American-born brands including Donna Karan International, which it bought in 2000 and sold 16 years later after failing to turn it into a powerhouse. Its other major American fashion label, Marc Jacobs, was once on its way to billion-dollar status — pegged at the next Michael Kors, with talks of a potential IPO spin off. But after shutting down the contemporary, department store-reliant Marc by Marc Jacobs label in 2015, it underwent a major reset, only recently experiencing a new wave of success thanks, in part, to the popularity of its lower-priced Heaven collection.

But there are also some curious particularities that make a Ralph Lauren deal with a major French luxury conglomerate unlikely. For one, Ralph Lauren, the company’s 82-year-old executive chairman and chief creative officer, has never communicated a clear succession plan, nor has he ever communicated any interest in selling.

Most Ralph Lauren clothes, home goods and accessories are priced in the mid-range, not at the high end, which means the profit margins are often far lower no matter if they are discounted or not.

Another problem is that Ralph Lauren is fundamentally a different fashion business than the ones LVMH currently operates.

It starts with history. American fashion brands were built in a different way than European ones. Instead of being rooted in couture — which is all about originality, attention to detail and quality — they stem from the 7th Avenue rag trade, where the main business was making clothes cheaply and quickly, with a heavy sheen of marketing.

Ralph Lauren’s genius is in his cinematic world-building abilities, which he began in 1967 with a rack of ties. His aesthetic draws as much from New England preppiness as it does the English countryside and French aristocratic style, and now encompasses everything from home goods to kid’s clothing. But a significant amount of its products are sold in the off-price market. Out of 239 directly owned stores in North America, 195 — or 81.6 percent — are Polo Factory stores. In Europe, 63 percent are outlets.

Why is this such a sticking point? You can certainly find LVMH products at stores like TJ Maxx on occasion, and the group runs its own network of outlet stores. But most Ralph Lauren clothes, home goods and accessories are priced in the mid-range, not at the high end, which means the profit margins are often far lower no matter if they are discounted or not.

What’s more, despite its strong reputation, Ralph Lauren has not managed to play seriously in luxury fashion outside of men’s suiting. Its leather goods in particular — bread and butter for most big houses — are not held in the same regard as Dior, Gucci or Saint Laurent. While a large swath of consumers are happy to buy a $95 polo shirt from the brand — especially when it’s on sale — it is not a go-to label for four-figure handbags.

The company has made strides on these fronts over the past few years while enacting its turnaround effort, exiting lower-brow retailers like Kohl’s and decreasing its reliance on the off-price market. Still, Ralph Lauren might be a better target for Capri, which owns Michael Kors, or PVH, which owns Calvin Klein and Tommy Hilfiger. They have a more similar distribution strategy and pricing architecture.

However, these might not be as attractive acquirers to Lauren. Selling to a prestigious group like Kering or LVMH would be seen as a “crowning achievement,” as Axios put it, and secure his family’s fortune.

He can, after all, choose to do nothing, as long as he continues to satisfy shareholders.

THE NEWS IN BRIEF

FASHION, BUSINESS AND THE ECONOMY

Yeezy Gap drops first looks from Balenciaga collab.

Yeezy Gap drops first looks from Balenciaga collab. On Wednesday, Gap revealed the first collection of products from its “Yeezy Gap Engineered By Balenciaga” line, a three-way partnership between the American retail giant, Ye (the performer formerly known as Kanye West) and the Paris-based luxury brand.

Authentic Brands Group inks deal with New Guards Group for Reebok’s operations in Europe. The long-term partnership names Farfetch subsidiary New Guards Group the core operating partner for Reebok’s retail, e-commerce and wholesale channels in Europe.

Garment worker pay is 45 percent lower than living wage, report finds. Workers in key garment- and footwear-producing countries are, on average, receiving just 55 percent of the pay they need to achieve a decent standard of living, according to data published Monday by The Industry We Want, a coalition of industry stakeholders calling for better working conditions and environmental sustainability in fashion.

Ozwald Boateng returns to London Fashion Week. The Savile Row designer put on a star-studded show that celebrated Black culture at the Savoy Theatre.

Louis Vuitton is ramping up French production. The luxury mega-label spotlighted job creation and top-end crocodile bags as it inaugurated two workshops, with two more on the way.

Chloé targets new tool to measure fashion’s social impact. The label is working with the Institut Français de la Mode and Conservatoire National des Arts et Métiers to develop an open-source tool that will enable brands to measure performance on issues like gender equality, living wages and diversity and inclusion.

The RealReal doesn’t expect profitability until 2024. The online luxury resale platform projects it will not be adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) positive until the full year 2024, chief financial officer Robert Julian said in its fourth-quarter earnings report on Thursday, Feb. 24.

EU proposes law to make big brands more accountable for supply chains. The Corporate Sustainability Due Diligence law will force large companies operating in the EU to check that their suppliers respect environmental standards and don’t use slave or child labour, as well as ensure that their business strategy aligns with limiting global warming to 1.5 Celsius.

Macy’s says no to e-commerce spinoff on the heels of strong earnings. The retailer decided against a push by an activist investor to spin off its online business, and forecast better-than-expected annual sales after a bumper holiday season.

Puma says China boycott, cost pressures weigh in 2022. The sportswear maker said it expected sales to grow at least 10 percent in 2022 but cautioned that a consumer boycott in China and cost pressures would limit profit growth.

Allbirds quarterly revenue rises 23 percent. The shoemaker’s sales rose 23 percent to $97.2 million in the fourth quarter, beating analysts’ estimates of $91.76 million.

Mercado Libre’s 2021 net revenue up 78 percent to $7.1 billion. Latin America’s largest e-commerce platform announced net revenues for the fourth quarter of $2.1 billion, but still recorded a loss of $46.1 million.

THE BUSINESS OF BEAUTY

Olaplex is on track to earn its private equity owner one of the biggest and fastest payouts in the history of the industry.

Olaplex created a $10 billion buyout bonanza. A hair care start-up that was helped out of obscurity by an endorsement from Kim Kardashian is on track to earn its private equity owner one of the biggest and fastest payouts in the history of the industry.

Boots in store for $10 billion sale as bid deadline looms. The sale will see US drug store giant Walgreens cash out from Britain’s largest drug store chain, which named a Feb. 24 deadline to receive indicative bids from a series of deep-pocketed investors that could value the 173-year-old firm at up to £8 billion ($10.88 billion), two sources told Reuters.

Estée Lauder executive suspended over Instagram post. John Demsey, an executive group president at Estée Lauder that leads brands such as MAC and Clinique, has been suspended from the company, the Wall Street Journal reports. Dempsey shared a post on Instagram of a mock Sesame Street book cover that included a racial slur and a joke about Covid-19.

PEOPLE

Hsien Ching and Kate NV in Perfect Magazine.

Perfect Magazine announces new appointments. Amber Later will be New York editor, Edward Buchanan senior fashion editor in Milan, Camille Bidault-Waddington fashion director in France, and Susanna Lau and Tom Rasmussen senior editors in London.

Hermès taps two new executives. Sharon MacBeath, the group’s human resources director, and Agnès de Villers, president and chief executive of Hermès Parfum et Beauté will join the nine-person executive committee on Mar. 1.

KCD Worldwide promotes Laura Birbrower. Formerly senior vice president of fashion services, Birbrower has been named partner of fashion services at the agency.

ThredUp names head of public policy and sustainability. Seth Levy will oversee the resale platform’s government affairs and policy initiatives surroundings its environmental efforts in the newly-created role.

MEDIA AND TECHNOLOGY

Alibaba office building. Shutterstock.

Alibaba reports slowest quarterly revenue growth, misses expectations. China’s Alibaba Group Holding Ltd. on Thursday reported its slowest-ever increase in quarterly revenue since going public in 2014, as tepid growth in core e-commerce business and intensifying competition ate into its sales. The e-commerce company also called off negotiations with potential investors aimed at raising at least $1 billion for Lazada before its IPO.

MA + Group launches NFT and metaverse division. The creative agency believes brands will need talent that can create 3D avatars and make NFTs as much as they currently need stylists and photographers to help them craft and communicate their images.

Compiled by Joan Kennedy.

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State of Fashion 2023
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State of Fashion 2023