Acquisitions in Fashion and Luxury Companies: There is Never a Perfect Recipe

April 26, 2018

In recent years, we have witnessed a wave of acquisitions and very important company transitions in the fashion and luxury sector. The reasons why some controlling shareholders sell the company may be negative (especially a corporate crisis or a difficulty in generational transition) or positive (injection of greater capital for international expansion). Who buys is often a large fashion or luxury group, for example one of the three largest (LVMH, Kering, Richemont) or a private equity fund.

 

Brand synergies, however, are limited: the brands of each of these groups cannot be mixed too much in terms of communication or distribution, because of the high specificity of the positioning and the need to keep the identities, built over time, sharply distinct one from another. On the other hand, private equity funds carry out a traditional role of participation and control, to be valued and resold within a period of 4-6 years. When private equity funds, at the end of the valuation process, sell (as in the case of  Yoox-Net-A-Porter), usually the buyer is again a large group (in this case, Richemont) or other funds. Therefore, the process of concentration in progress seems at first sight to be an almost ineluctable phenomenon. Real estate (for retail expansion) and financial synergies are indeed very significant.

However, there are some cases that suggest that this is not necessarily a one direction path. A surprising case is that of Sergio Rossi, the excellent Italian shoe company sold by the company’s founder to the Gucci-Kering group in 1999. After the acquisition, the company was looking after the international development of the brand, with the opening of many stores and several investments.  But one of the first things that has been done was the transfer of the headquarters in Milan. After 16 years of not so brilliant results, the company was sold by Kering to Investindustrial, a fund that had already owned Ducati and has now in its portfolio, among others, Aston Martin.

The declaration of intent of the new management concerns starting anew from the origins. Restoring the centrality of the factory, as a center of product creation and not just of execution, and also taking back the values ​​towards the identity characteristics; for example, by setting working hours that allow the workers to have two hours in the lunch break to go to eat at home or near the sea. From the stylistic point, they are working on the archive in order to identify the iconic elements necessary to reinvent the past in a modern way.

It would therefore seem that, at least in that case, the integration of the company into a large group was not successful because they were losing sight of the roots of the brand, using the factory as something peripheral and not giving a new direction to an autonomous development of the company.

Other brands, such as La Perla and Mandarina Duck, seem to have encountered similar problems. Also in the case of Mandarina Duck the first thing that was done by the Korean buyer group was to move the headquarter from the original place, denoting what we could call a “conformism of the centralism”. In this case too, we are talking about brands that have had various company steps without ever finding a method of growth that would maintain the indispensable thread with the heritage and the values ​​that had constituted its initial growth. Recently, Kering has also announced the sale of the participation (that was a 50% stake) in Stella McCartney, to the same founder of the brand.

The big groups operating in fashion and luxury have an objective of growth to be reached through synergies in real estate, retail, finance and management. Although it is not possible to identify a perfect and univocal recipe for business success, it is undeniable that stable growth can only be guaranteed by effective management skills and by a long-term attitude in the brand building process. At Bologna Business School, we train managers with a strong vision and the operational skills needed to establish a balance between creativity and business in the management of luxury companies. The BBS Global MBA in Design, Fashion and Luxury Goods makes available the know-how gained from Italian excellence, to train new generations of business leaders who know how to integrate sensitivity for the product with the managerial knowledge necessary to face also the new economic and financial challenges posed by the global market.

 

Angelo Manaresi, Director of the BBS Global MBA in Design, Fashion and Luxury Goods




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