Opinion: How LVMH's Latest Acquisition Will Shake Up the Luxury Industry


Susanna Nicoletti | November 29, 2019

LVMH's monumental deal with Tiffany and Co. projects the luxury group into new heights, very likely stimulating a shift in strategy for Kering, Richemont and the entire luxury industry.

There's no doubt that the luxury industry is a very competitive field, with a rich of risks as well as opportunities.

While stand-alone brands and smaller groups such as Prada and Tod’s are struggling to find their path to growth, recently founded American groups such as Capri Holding and Tapestry are trying to create a critical mass in the U.S., despite several internal differences. Interestingly enough, the three main luxury groups of the world are developing their businesses in very different ways.

Three Leaders With Different Visions

LVMH, Richemont and Kering couldn't be more different in terms of group strategy and revenue development.

The fact is: there is no standard solution that can be applied to luxury businesses and one of the keys to success is the courage to follow your own way of business, rather than trying compete in the same field of opportunities.

LVMH, the first luxury group in the world, recently announced the acquisition of iconic jewelry house Tiffany and Co. in a $16.2 billion deal.

The latest move is one of a very clear group strategy focused on:

  • Buying key luxury brands to dominate not just leather goods and apparel, but also hard luxury, hospitality (Belmond group), and travel (Rimowa)
  • Enlarging the perimeter of the group business while distributing and balancing the financial risk (new focus on U.S., different product categories)
  • Investing in long-term growth through a dynamic and well-driven approach

LVMH At A Glance

LVMH already owns 75 iconic brands that range from cosmetics, retail, leather goods, ready-to-wear, wines and spirits, and hospitality, but the acquisition of Tiffany's is the most expensive deal ever made by the group, with Bulgari being bought in 2011 for 5.2 billion euro.

The move is representative of the long-term vision and the unstoppable energy of LVMH group. But the group's U.S. acquisitions have not always turned out as big successes: from Donna Karan NY to Marc Jacobs, the French conglomerate hasn't found much satisfaction from the U.S. branch of business.

But rather than crying over spilled milk, LVMH started a new series of businesses which appear to enjoy better performances. From Fenty by Rihanna to Tiffany, the group seems to have a strong intent of not focusing all its attention on the Chinese market. While LVMH previously gave little attention to smaller, undeveloped watch and jewelry brands, the group earned it's first ranking in the luxury industry by acquiring Bulgari in 2011.

Sharp business strategy, nearly-impeccable execution, a healthy dose of sangfroid and endless strength took Bernard Arnault into the Olympus of the wealthiest people in the world.

A Closer Look 

Bloomberg recently reported that the French conglomerate market value is 203 billion euros ($223 billion).

On the other side of the pond, there is another smart business man behind the deal: Francesco Trapani, former CEO of Bulgari, whose relative Sotirio Bulgari just happened to have founded the brand. The mastermind behind the sale of the Roman company to Arnault group is also a shareholder and director on Tiffany’s board. 

How small the world can be-- and Alessandro Bogliolo, current CEO of Tiffany’s, has been a loyal Chief Operating Officer to Bulgari when Trapani was heading the family company. He left some time after the LVMH acquisition of Bulgari. 

With the help of LVMH, Bulgari managed to double sales since 2011 and saw profits increasing fivefold, Bernard Arnault recently said. The step taken by the French group gives the momentum needed to remarkably outstrip its most direct competitors: Kering and Richemont.

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Competitor Strategy

Kering, owned by rival Francois-Henry Pinault, implemented a strategy which is exactly the opposite of LVMH. Pinault opted to push for huge internal growth, focusing on China mainly and dismissing brands such as Puma, Sergio Rossi and Volcom, which were deemed less relevant. 

Kering prioritized key brands such as Gucci, Saint Laurent and Balenciaga to enable as much growth as possible in the past 5 years and succeeded in achieving remarkable growth in revenues and visibility. Gucci rapidly became a global phenomenon with a stunning stellar growth of its annual revenue from 3.5 billion in 2014, to 6.21 billion euro in 2017.

However, Kering also lost the sustainability flagship brand of the group. Stella McCartney pledged alliance to  LVMH, leaving behind many questions as to why the partnership with Kering did not work out.

Kering also suffered due to an investigation of the Italian Tax Authority and signed an agreement accepting to pay an amount close to 1.25 billion euro in a settlement.

Last but not least, the acquisitions the French group made in recent years such as Chinese jewelry Qeelin, British designer Christopher Kane and the Italian Pomellato, in addition to watch brands like Ulysse Nardin, did not seem to contribute enough to the revenue surge and certainly did not conquer the shiny top ranking of the best-performing luxury brands.

LVMH focused on steadily driving the revenue growth of its brands and on expanding the diversity of its own portfolio by making very focused investments and acquisitions. Let’s not forget that the failed prospect of a Hermès takeover left the group an interesting amount of cash. In order to allow a long-term leap, Kering pushed  stellar vertical growth of its existing brands and did not invest further in relevant acquisitions. 

The trouble is, if the stellar growth of Gucci, Saint Laurent and Balenciaga reaches a peak and is forced into a normalization phase, there will be no internal brand capable of sustaining the double-digit growth they experienced in the past five years. As LVMH might eye Chanel next, is Kering willing to invest its cash in expanding its own portfolio? Possibly targeting a global powerhouse like Valentino?

Competition between the two French groups is certainly far from over, even if with the dimensions of the groups morphing into different things. 

And then comes Richemont... last, but not least. The Swiss luxury group founded by South African Johann Rupert became successful thanks to hard luxury. It carefully integrated high-end luxury watch brands, such as Jaeger-Le Coultre and IWC, with legendary jewelry brands, such as Cartier and Van Cleef & Arpels. All the while, it also launched ghost brands like Panerai, making it a niche, sought-after brand ultimately driving it to success with fashion brands like Chloé.

The Swiss group, positioned as traditional and conservative, made great headlines thanks to the unexpected acquisition of one of the key players in high-end e-commerce: Yoox-Net-à-Porter, founded by pioneer Italian businessman Federico Marchetti.

Recently Richemont continued with the long wave of acquisitions of jewelry brands like Buccellati and also launched into a new fashion venture funding the creation of Alber Elbaz' own brand. Slowly but surely, Richemont became the hard luxury giant moving ahead with its own confident pace rather than rushing into reaching double-digit growth. However, this also comes with the inevitable risk of lagging behind LVMH.

What Now?

A question is raised as the fight for the top of luxury groups ranking is now taking a new turn: why are Richemont and, more notably, Kering, not expanding their own brand portfolio stretching it into new categories? Why are they remaining dependent on China and on their own core businesses? Why so little focus on acquisitions?

In 2018, the turnover of LVMH was 46.8 billion euro and 136,000 employees. Kering was at 13.7 billion euro and 35,000 employees, while Richemont reported 10.9 billion euro and 29,000 employees.

The Tiffany acquisition projects LVMH into new heights and very likely will stimulate a shift in the strategy of Kering and Richemont, if not the entire luxury industry.

Certainly LVMH's strategy has some intrinsic risks of losing control in the management of such a big corporation with very few generals and possibly too many soldiers. But at the end of the day, it is an opportunity to become the first and unreachable luxury global corporation, with some level of uncertainty due to it being heavily dependent on its founder Bernard Arnault. But, so far, the French conglomerate strategy has proved more successful than its competitors.

LVMH also showed that, in a global luxury market, to be keeping the pace by focusing on internal growth of its existing portfolio is not enough. To focus on the Chinese market is not the greatest strategy, and to bet all company growth on a very concentrated and traditional range of categories is more than a risk.

In a world where the definition of luxury is getting stretched and evolves by each second, keeping it safe and “just” developing the business as it always has been done is more than a danger, it is an inevitable downfall. In a time when stakeholders are becoming increasingly opinionated and demanding, the more the lifestyle is involved the better it will be.

Luxury branding is not just about the product anymore, it is all about how much of the lifestyle a group can fulfill with their portfolio. Placing a total focus on accessories is not a safe harbour anymore, but distributing the experience of the key touch points and all five senses is. Enjoying a 5-star hotel, drinking fine wines, travelling with style, taking advantage of the best cosmetics and restoring one’s spirit with refined fragrances and curated apparel and accessories-- that's the luxury experience. 

The top luxury groups should see themselves as companies who strive to enhance the joys of life, at all levels. And, no, managing a complex group of brands with an outdated style is most certainly not the key to success in this business.

Cover image credit: Tiffany & Co.

Acquisitions | Jewellery | Watches