Luxury Briefing: Inside luxury’s acquisition spree, from brands to real estate 

That was the message luxury leaders drove home this week, as they reported earnings and released news about major investments. Scooping up brands and splurging on real estate and marketing were among top trends across their announcements. These moves are having an immediate impact on their margins, but that was expected. They were made in the name of long-term growth — so that, moving forward, the companies will have an even bigger advantage when making strategic investments.

Announced on Thursday, in step with the group’s earnings report for the first half of 2023, Kering will acquire a 30% stake in Italian luxury brand Valentino from its Qatari parent company, Mayhoola. According to the €1.7 billion deal, expected to be finalized by the end of this year, Kering has the opportunity to acquire 100% of the brand if done so by 2028. Significant shareholder Kering will also have a seat on Valentino’s board. According to a Kering statement, the growing partnership could lead to Mayhoola, which also owns fashion brands Balmain and Pal Zileri, becoming a Kering shareholder.

Sixty-three-year-old Valentino, which operates 211 stores in more than 25 countries, earned €1.4 billion in 2022 revenue. Before the Barbie craze, the brand gained buzz for bringing pink to the forefront, with creative director Pierpaolo Piccioli going heavy on a celebrity-loved “Pink PP” shade for fall 2022. 

With its growth lagging behind that of competitors, Kering has recently made big moves to alleviate its reliance on Gucci while also appeasing shareholders. In the first half of the year, LVMH’s fashion and leather goods companies saw a 20% boost in revenue. Revenue for Gucci, Kering’s biggest money maker, increased just 1%. In total, LVMH sales were up 15% year-over-year, compared to Kering’s 2%.

Last month, Kering purchased fragrance house Creed for a reported €3.5 billion, building on its expanding beauty focus. For its part, LVMH’s perfumes and cosmetics division saw a double-digit annual revenue increase in the first half of the year, to €4.03 billion, according to the company. 

Finally, last week, Kering shook up its leadership team, moving Saint Laurent’s president and CEO, Francesca Bellettini, to the role of Kering deputy CEO. As such, all of the group’s brand CEOs will report to her. 

On Kering’s earnings call on Thursday, group chairman CEO François-Henri Pinault owed the recent changes to the fact that “there are reasons to be disappointed” with Kering’s performance, pointing to Gucci.

“I heard many calls for new brand leadership, … but what we needed was more than just moving people around,” he said. “I wanted to change the way we operate for the long term.” 

It’s been a big week for luxury fashion news. On top of Kering, LVMH, Prada, Moncler, Zegna and Hermès reported earnings. And Cartier owner Richemont – which was rumored to be merging with Kering in 2021 — made its own acquisition, taking a controlling stake in luxury footwear brand Gianvito Rossi, announced Friday. Despite its success in hard luxury goods, Richemont’s most recent acquisitions have been in the soft luxury sector; in 2021, it scooped up luxury leather goods brand Delvaux.

In April, Sarah Willersdorf, global head of luxury at Boston Consulting Group, predicted continued consolidation in the luxury sector, with conglomerates making regular acquisitions. “Partly, that’s because we’re in a period of uncertainty, and having scale is a tremendous advantage in a period of uncertainty,” she said. “Once you have a lot of brands in your stable, you can afford for one [brand] to not be doing well. Plus, you have tremendous buying power; there’s power in how you negotiate with wholesale partners, with media, with all sorts of things.”  

Across earnings presentations, between commenting on ongoing sales slumps in North America, as well as fresh growth in Asia and the dropoff of the aspirational customer, luxury companies honed in on their retail and marketing investments — mainly, to explain why they’re high.

LVMH CFO Jean-Jacques Guiony said LVMH’s marketing spending in the first half was exceptionally high, up 24% year-over-year. That was due, in large part, to the multiple events it hosted and the necessary marketing and advertising that accompanied them. Among them: Pharrell’s debut Louis Vuitton runway show in Paris’s Pont Neuf. Guiony said that, in the second half of the year, the company will be comparatively “quiet,” held at “a lower frequency and level.” However, it should be noted that, also this week, LVMH announced its involvement in the Paris 2024 Olympic and Paralympic Games, as a premium sponsor. 

“Luxury brands are storytellers, image creators and trendsetters, and the delivery and resonance of this is dependent on marketing and communications,” said Lucy Nicholls, vp of marketing and design at retail analytics company Intelligence Node. “They’re also aspirational — they need their audience to believe in a dream. Otherwise, who of us would pay such a premium?” 

LVMH’s real estate investment was also “quite significant,” at up to €1.5 billion in the first half of the year. Guiony called the store buys “opportunistic,” noting that they weren’t planned but made financial sense, considering the increasing cost of retail rental. 

“Over the years, the bulk of the capital we’ve invested has been into real estate,” he said, later noting that “the bulk of [LVMH’s] growth comes from physical stores.” And “exceptional buildings” in “very safe and stable locations” have been the go-tos. Earlier this month, the company reported that it had purchased the building housing Louis Vuitton’s flagship on Paris’s famous Champs-Élysées.  

Other LVMH brands that have invested in stores this year include Rimowa, Berluti, Marc Jacobs, Loewe and, in case you missed it, Tiffany & Co. In April, the latter reopened its renovated 10-floor Fifth Avenue flagship. Within the next 3-4 years, LVMH plans to give all Tiffany stores a refresh, to bring them up to LVMH’s standards. LVMH’s acquisition of Tiffany went into effect in January 2021.

“Uniquely for luxury brands, investments in the store footprint are intended to deliver not just a product to a customer, but also a specific, curated experience around the discovery and delivery of that product,” said Nicholls. “As luxury consumers — particularly high-net-worth and ultra-high-net-worth individuals — increasingly shift [their spending] from pure physical products to experiences, the creativity and uniqueness associated with these experiences will be paramount to [a brand’s success].”

As Kering CFO Jean-Marc Duplaix said during Kering’s presentation, “The online channel is more exposed to aspirational product categories,” which are struggling. Meanwhile, owned stores drove 80-90% of revenue in the first half of the year for Kering’s core fashion brands, including Gucci, Saint Laurent and Bottega Veneta. Kering opened 35 stores in the first half of the year, bringing its total to nearly 1,700. 

Kering remains focused on upping the long-term “desirability and exclusivity” of its brands, especially Gucci. To get there, along with investing in stores, it’s doubling down on marketing and the client experience, margin be damned.

To get Gucci back on track, Duplaix said, “We are not afraid to invest, if needed, whatever the impact on the profitability short term.”

Meanwhile, Hermès CFO Eric Du Halgouet said the company’s 2023 operational investments, including real estate and stores, will be €900 million, compared to €500 million in 2022. A portion of that budget will go to opening stores in Los Angeles and Chicago in the U.S., as well as locations in China, France and Austria. In addition, Hermès will dedicate a larger percentage of its revenue to marketing, compared to 2022, with a €600 million planned investment. 

Hermès reported revenue of  €6.7 billion, a 25% increase year-over-year. Meanwhile, both Zegna and Moncler saw 24% revenue growth, and Prada Group reported a 20% boost.