The European luxury goods industry is facing a "big reshuffle"
LVMH's high-end glasses factory Thelios is hidden in the depths of the Dolomites in Italy. The forecast of demand for high-end glasses (such as Céline cat-eye sunglasses priced at 400 euros) means that CEO Giovanni Zoppas is planning to double the existing plant.
"We expect that in the near future, the entire eyewear industry will achieve an annual growth rate of 4-5%." In a recent interview, Zoppas predicted that "large-scale mergers and reorganizations" would reshuffle the entire fashion eyewear industry: reshuffle the current 150 companies. The number of eyewear brands has been merged to less than 20. LVMH Group, which owns well-known brands such as Louis Vuitton, Dior and Celine, is expected to become a big winner in this industry reshaping.
Looking ahead to the prospects of LVMH glasses business, we can see the tremendous changes in the global luxury goods industry, and Europe has become the undisputed leader of the luxury goods industry.
Growth drivers of the European luxury industry
The growth of the European luxury goods industry in recent years is very different from that of 10 years ago: Ten years ago, the financial crisis raged around the world, and the stock prices and prices of luxury goods plummeted. The 2,000 euro Louis Vuitton handbag is prohibitive, not to mention the 700 euro Gucci sneakers.
According to statistics from consulting firm Bain & Co, the global luxury goods industry has tripled its size in 1996. Bain predicts that the total sales of the global luxury goods industry will reach 280 billion euros in 2018, and the total sales will increase to 390 billion euros in 2025.
The "heritors" of the industry's rapid growth in recent years are Chinese buyers, especially young people born after the millennium in China.
Really, the young millennials are the "big contributors" to the rapid growth of the luxury industry in the past two years. They contributed 40 to 60% of the sales of well-known luxury brands such as Louis Vuitton, Gucci and Cartier. , Said Rogerio Fujimori, an analyst at Royal Bank of Canada (RBC). He added that young Chinese millennials contributed a larger share of luxury goods sales. U.S. tax cuts are also indispensable, because this has greatly increased the spending power of the wealthy in the United States.
Not long ago, American fashion brand Michael Kors acquired Italian brand Versace for US$2.12 billion, highlighting the ambition of American luxury brands to enter the European luxury market. The purchase price of Michael Kors is equivalent to 22 times of Versace's gross profit (earnings before tax, interest, depreciation and amortization), which is much larger than that of the American fashion brand Tapestry (formerly known as Coach) last year to acquire another US at 9 times gross profit. Brand Kate Spade.
Deadly challenges in the European luxury market
But behind all the attention is the radical change in the industry landscape: Europe's thriving luxury goods market implies Achilles’ heels. The globalization of demand for luxury goods and the “spoiler” of technological power (such as “online shopping” and social media have contributed to the rapid update of fashion by consumers), which means that the profit “cake” after the revival of the European luxury goods market is not It is divided equally by each luxury brand.
Just like the mergers and reorganizations of the high-end optical industry, the luxury industry is reshuffled to make the strong stronger, because it has strong capital online and offline to "conquer the city," grabbing more market share from niche brands, and the latter is working hard to transform operations. Mode, Fujimori said.
The triggering of the Sino-US trade war and the ensuing concerns about the declining purchasing power of the Chinese market will accelerate the tendency of the strong to become stronger.
Not long ago, due to concerns about the escalating Sino-US trade war, luxury stocks were sold off the market, and Morgan Stanley brokers lowered the rating of luxury stocks to "underweight." "The substantial slowdown in China's economy is the biggest risk facing the luxury goods industry. Emphasizing this factor will make the valuation of the luxury goods industry too high," Morgan Stanley wrote in one of its minutes.
One result of the recent boom in the European luxury goods market is that the three major luxury goods giants LVMH, Kering and Richemont have become true multinational operators, and the boundaries between countries have become more and more irrelevant. critical.
M&A and restructuring are increasing
LVMH and Kering are both headquartered in Paris, while Richemont is headquartered in Switzerland, but most of their products are produced throughout Europe, and their stores are spread all over the world. Of course, these major groups have always adopted European creative talents.
The less obvious impact of the above trend is the increasing number of mergers and acquisitions. The reason is that when the valuation of major independent brands is at the highest level in history, they will rush to accept the "Zhaoan" of the powerful fashion giant; since 10 years ago, Bulgari Since the family (Bulgari) sold the eponymous brand to LVMH, there have been few such mergers and acquisitions.
In addition to Versace, the family brand Missoni also sold a minority stake to an Italian private equity firm in July last year. Designer Dries Van Noten sold most of his stake to the Spanish fashion brand Puig ). All three sellers have insisted that they will never sell their equity.
Florence shoe brand Salvatore Ferragamo and Italian well-known leather goods brand Tod’s (possibly acquiring Prada), which owns Roger Vivier and Hogan, are expected to become merger targets for bank predators.
Ferruccio Ferragamo (Ferruccio Ferragamo) is the chairman of the Ferragamo Group and a direct descendant of his huge family. He once admitted that he had approached private equity firms and "French fashion giants", but reiterated that he would not sell shares in the family business. Tod’s owner Diego Della Valle and Prada co-owner Patrizio Bertelli also categorically ruled out the possibility of selling the family business.
But bankers and luxury industry executives say that if the current model transformation of a fashion brand fails and the buyer makes an ideal bid, it may be sold without pain. Diego della Valle last year sold another of his own assets (his stake in the high-speed rail company NTV) for 2 billion euros, and he had said before that he would never "cut love."
This "big reshuffle" of the luxury goods industry has spread to a wide range and created new fashion giants. Marco De Benedetti, Co-Head of Carlyle's European Purchasing Department, said: "There will always be winners and losers in this industry. Some brands are now unknown, but one day they may grow into fashion. Giant, this is my business opportunity." Debenedetti said.
Large-scale mergers and acquisitions will consolidate the leading position of the European luxury goods industry, but the momentum for mergers and acquisitions undoubtedly comes from external pressure, especially the threat of large technology companies.
Internet giants become a threat
Richemont President Johann Rupert once said that he was worried that the combined strength of the European luxury goods industry would one day be surpassed by technology giants such as Amazon, Google and Alibaba.
He then called on LVMH, Kering and Richemont to join forces to use the sales platform of the Anglo-Italian luxury e-commerce giant Yoox Net-a-Porter in order to defeat Alibaba and Amazon, which have entered the luxury online sales industry. But his proposal was unsupported.
Therefore, Richemont purchased YNAP this year. At the same time, as Farfetch and London-based e-commerce company Matches.com went public in New York, the competition between European luxury e-commerce companies has intensified. However, executives admit that if high-tech companies in the United States and China aggressively enter the luxury online sales industry, they will truly endanger the dominant position of the European luxury industry.
Luxury executives recognized Alibaba as the biggest threat to the industry. Alibaba launched the Tmall luxury channel Luxury Pavilion last year and went straight into the luxury industry. This online platform serves luxury buyers.
Dwecky summarized the reason for the worries of the luxury industry: He pointed out that the European luxury brands at the highest valuation in history (the total market value of all luxury listed companies last weekend was US$500 billion) is only comparable to the market value of Alibaba. Half of Apple's market value.
"The future development prospects of the luxury goods industry are still unknown...On the one hand, its performance is now the best in history; at the same time, the luxury goods industry is facing huge challenges and requires huge capital investment." Say.