With merger and acquisitions heating up the luxury market, what lies ahead for Kering – the second biggest luxury conglomerate – and how prepared is it for the future?
CONSUMERS
With Luxury Consolidation Heating Up, What Lies Ahead For Kering?
This is the featured image caption
Credit: This is the featured image credit
Over the last decade, collaborations between luxury brands and contemporary artists have gone beyond mere artistic partnerships towards a new kind of luxury branding.
PARIS – Art and fashion have always developed side by side, for fashion, like art, often gives visual expression to the cultural zeitgeist. During the 1920s, Salvador Dalí created dresses for Coco Chanel and Elsa Schiapparelli. In the 1930s, Ferragamo’s shoes commissioned designs for advertisements from Futurist painter Lucio Venna, while Gianni Versace commissioned works from artists such as Alighiero Boetti and Roy Lichtenstein for the launch of his collections. Yves Saint Laurent’s vast art collection, recently auctioned at Christie’s in Paris, testified to his great love of art and revealed the influence of a variety of artists on his own designs.
In the 1980s, relationships between luxury brands and artists were advanced when Alain Dominique Perrin created the Fondation Cartier. In the Fondation Cartier pour l’Art Contemporain, a book marking the foundation’s 20th anniversary, Perrin says he makes “a connection between all the different sorts of arts, and luxury goods are a kind of art. Luxury goods are handicrafts of art, applied art.”
The Fondation Cartier pour l’Art Contemparain building in Paris
With merger and acquisitions heating up the luxury market, what lies ahead for Kering – the second biggest luxury conglomerate – and how prepared is it for the future?
Last month, it was reported that French luxury conglomerate Kering had approached Richemont with an informal offer for a potential merger that could create a more sizeable rival to take on the industry giant LVMH, a partnership that many believe could reshape the future of luxury.
But its offer was rejected. And while shares in Richemont rose following the report from Miss Tweed, a Paris-based publication that specialises in fashion and luxury founded by former Reuters correspondent Astrid Wendlandt, Kering’s shares fell on the news.
The news comes at a time when deals in the luxury sector are heating up. In the past few months alone, the industry has been awash with the news of completed deals and billion dollar acquisitions, including LVMH’s completion of its $15.8 billion acquisition of Tiffany, VF Corporation’s purchase of Supreme for $2.1 billion, and Moncler’s deal with Stone Island for $1.4 billion. The three deals alone are valued at nearly $20 billion.
Add to that announcements from Onward Holdings in March it is selling its Jil Sander brand to Italian luxury conglomerate OTB, which also owns the Maison Margiela and Marni, and Exor, the Italian holding company for Italy’s Agnelli family, investing €541 million in French shoemaker Christian Louboutin, and it seems there is no better time to partner up at a time when the landscape of luxury is shifting.
There have long been rumours over a potential merger between Kering and Richemont, particularly as the former is well known for its fashion and leather goods, while the latter is the dominant player when it comes to hard luxury. A partnership, in the eyes of many, would be a match made in heaven, particularly given the increasing pressure in the market from LVMH’s following its completion of its Tiffany acquisition last year.
But speculation of a potential merger or not, Kering’s positioning in the luxury market is under scrutiny as it must first address some of its own issues before embarking on a new adventure. And its biggest problem is also its best performing brand: Gucci.
In its full year results, Kering reported Gucci’s revenues fell 21.5 percent to 7.4 billion euro, on a like for like basis. Given that Gucci accounts for 60 percent of revenues and 80 percent of profits at group level, maintaining the phenomenal growth of Gucci seen over the past five years remains a Herculean task. And what goes up, must come down.
Singer Celeste stars in Gucci's Winter In The Park campaign.Credit: Photo: Courtesy of Gucci
Fixing Gucci
“The first real focus for Kering is organic growth and fixing Gucci,” said Erwan Rambourg, Global Head of Consumer and Retail Equity Research at HSBC and author of Future Luxe. “There have been a lot of reasons for Gucci to underperform last year, and some were self-inflicted like the decision to postpone or scrap some projects at a time when their peers like Louis Vuitton and Dior pushed ahead and were rewarded for it.”
“So, to a certain extent, there is a case to be made that they were a bit too pragmatic, too short term in their approach, and too conscious about the risks rather than being focused on the opportunities for the rebound,” he added.
For certain, some of the issues that Kering seems to be facing is how to balance the brands in its portfolio and how to connect to a broader audience. While it seems have positioned brands like Gucci at younger consumers and Bottega Veneta at a more mature audience, other labels in its offering like Brioni have yet to find their stride, and its jewellery and watch brands are not performing well compared to their peers.
“They need to have a bit of a sort out, and just say: look, here are our different brands, here's what each of them addresses. And here's how they address them,” said Neil Saunders, managing director at GlobalData Retail, a retail agency and consulting firm. “They do have brands that address different audiences, but it seems to be very patchwork, and it seems to be a bit haphazard.”
Navigating Tough Times
In other respects, Kering ongoing commitment to sustainability and deep understanding of the luxury customer demonstrate that the group’s ability to project into the long-term and tap into values ahead of its peers.
“They are doing a very good job at navigating the current climes,” said Robert Burke. “They are extremely strategic, and they are very realistic,” said Robert Burke. “When the pandemic happened, they wanted to reassess their businesses, their retail, reassess their wholesale strategy, and I believe that they are heavily invested in their own direct-to-consumer business, whether that be physical or online, which is very smart.”
“Their leadership is very strong… And they very much understand the balance of the established luxury customer and the aspirational luxury customer, perhaps almost better than anyone.”
For Saunders, Kering’s investment in Vestiaire Collective – a 5 percent stake in the second-hand platform – and the $50 million in Farfetch (through its investment arm Artémis) indicates new opportunities for the growth, one that its peers have yet to explore in a meaningful way.
“It's really about growth,” noted Saunders. “There is some growth to come from brands like Gucci, for sure … But I think if you kind of want to really generate stellar growth and superior growth, you have to be looking at those newest segments of the market, which to be fair, they have started to do with resale because that is a very, very big part of the market, that is growing very rapidly.”
“That's the key thing,” he added. “How you go to get access to some of these very fast growing segments? Because through the existing brands that they’ve got, I'm not quite so sure the strategy is all that successful.”
“Acquisitions for them will probably the most important,” noted Burke. “It’s really looking at strategic acquisitions because they are very good managers and very good implementers of business strategies so they are highly effective so I think finding the right strategic investments.”
Clearly, with Kering’s informal approach to Richemont, it is something that the group is considering seriously. However for Rambourg, Kering still needs to focus on the task at hand. Fixing Gucci.
“We would argue that, with a bit of luck, 2021 can partly be a mirror of 2020. And Gucci can come back,” said Rambourg. “You've seen them start to talk about this, in terms of this year being the 100th anniversary of the brand. You'll have the Ridley Scott movie that's coming out specifically on Gucci at the end of this year. You have many initiatives, and obviously, they are reinvesting there.”
“At the core of Kering is essentially getting Gucci right before the second topic which is M&A,” he added. “The press is talking a lot about M&A, investors are asking a lot of questions about M&A. But Kering made that clear that they need to get Gucci right, they need to get organic sales growth functioning again. And yes, they do have the platform to welcome more brands. But that comes at a second stage. That's not the top priority of the moment.”
Cover Image: British designer, television personality and author Alexa Chung stars in Gucci's Winter in the Park campaign. Photo: Courtesy of Gucci.
Senior Editor, Luxury Society
Limei Hoang is a senior editor at Luxury Society, based in Geneva. She was formerly an associate editor at the Business of Fashion in London. Previously, Limei spent six years at Reuters as a journalist, and she has also written for the BBC, The Independent, and New Statesman.
