New waves of wealth are causing ripples in the structure of the luxury industry
In the past decade a flurry of French, English and Italian luxury brands have ceded control to foreign investors, some due to hangovers from 2008’s global financial crisis, others in a bid to expand and better conquer so-called ‘emerging’ markets.
Britain’s Aquascutum was recently acquired by China’s YGM, Italy’s Cerruti is now controlled by China’s Trinity Limited, Germany’s Escada is owned by India’s Mittal family and France’s Sonia Rykiel forms a part of Hong Kong based Fung Brands. Bedat, Gieves & Hawkes, ST Dupont, Ferretti Group and Pringle of Scotland form further examples of European brands picked up by foreign owners.
Quintessentially British automotive brands Jaguar and Land Rover were purchased by India’s Tata Motors in 2008 reported $2.3 billion. At the time, the move by the Indian industrial giant was described as “a little like Wal-Mart buying Prada,” and much scepticism was directed towards the idea of foreign ownership. Perhaps the sceptics didn’t realise the brand had previously been owned by North America’s Ford Motors, who purchased it from Germany’s BMW.
As far back as 2001, Taiwanese entrepreneur Shaw-Lan Wang purchased France’s oldest couture house, Lanvin. A label she returned to profitability in 2007, under the creative direction of Alber Elbaz. Of the purchase, she remarked to the Financial Times; “I have a friend in Hong Kong and he has dressed in Lanvin for more than 30 years. I thought, ‘He would be very proud if I was the owner.’”
Most recently Kazakh billionaire Goga Ashkenazi – known according to Reuters for her ‘opulent lifestyle and high-society friends’ – agreed to buy a majority stake in fashion house Vionnet. The London-based entrepreneur has come on board to help the house ‘grow in a globalised industry’, but began her journey with the brand as a paying client.
It’s no secret that centres of wealth are changing. 2012’s Wealth Report confirms the relentless shift in wealth distribution towards Asia-Pacific. The region covering China, South East Asia and Japan now has more centa-millionaires – or those with over $100m in assets – than North America or Western Europe.
Share market volatility is also said to be sending wealthy investors longing for tangible assets, which, even if their value does fall can still be enjoyed (BusinessWeek). A poll of 2,000 individuals (with investable assets of $1.5 million or more), conducted by Ledbury Research, identified increased investment precious jewellery, antique furniture, precious metals, wine, rugs, sculptures, classic automobiles and coins.
Could we be witnessing a ripple effect of ‘passion investing’ when it comes to luxury brand M&A? The emerging wealthy increasingly have the affluence and power to make inroads into whichever industries they choose, and are increasingly known for their consumption of luxury products. Why wouldn’t they want to invest in things they are passionate about?
Concrete examples of this are still in infancy – Madam Wang’s acquisition of Lanvin, Lady Goga’s more recent acquisition of Vionnet, the Mittal family’s acquisition of Escada – but perhaps it is not only attractive growth opportunities that are brining foreign investors to European luxury brands. In the case of Jaguar Land Rover and Lanvin, there is much success to be emulated.
Many investors from emerging markets are comparably more liquid than their European and American counterparts, and therefore more able to capitalise on opportunities presented by the world’s greater economic woes. “We are seeing investors, particularly Asian investors, waiting and scanning the market,” explained Patrice Mueller, managing director of Ipolitis & Hubertus, to us earlier this year.
“Scanning to see when the European crisis and the debt crisis will stabilise, and when they believe they are reaching the bottom, then they will start to invest. So we know at the moment that many Asian groups are actively looking for transactions in luxury." A phenomenon witnessed in May, when China’s YGM scooped up for Aquascutum for just £15 million.
Both media and analysts have often called into question the effects on brand equity and image, when a heritage brand with strong links to provenance, falls into the hands of foreign ownership. Many examples in the luxury automotive space could be used to build their case, but when it comes to the case of luxury goods brands, many have so far prospered.
Both Jaguar Land Rover and Lanvin have been restored to profit under foreign ownership. Foreign investment will allow global expansion for the Sonia Rykiel brand, at a time when it is unlikely to receive funding from French funds. Ferretti Group and Aquascutum were both liquidated under local ownership. The times, they are a-changing.
And the paradigm of provenance is changing too. Burberry, a brand whose key proposition is its ‘British-ness’, unashamedly manufactures in China, where it believes it can find the most price effective levels of high quality. They once again achieved growth in the double digits and record-breaking global sales.
France’s PPR has flourished whilst promoting the quintessential ‘Italian-ness’ of brands like Gucci, Bottega Veneta and Sergio Rossi. Louis Vuitton invested €5 billion in 2011 in the promise of Italy’s finest jeweller, Bulgari.
Provenance seems less defined today by manufacturing locale or controlling conglomerate, than it is by communications and respect for heritage. In fact the smartest of investors understand that phenomenal luxury brands, have deep respect for the codes that made them so in the first place.