The Power and Relevance of Luxury Fashion Conglomerates
From Prada Group’s success to Arnault family successions — luxury conglomerates leverage on the expertise and strategies to bring in profits.
The Prada Group made headlines last week as the company’s sales rose by 16 percent in the first quarter, driven by a jump in Miu Miu sales and continued growth in Asia. This led to Miu Miu and Prada being ranked first and second as fashion’s most popular brands according to the Lyst Index.
Next, Tapestry’s acquisition of Capri Holdings showcased the conglomerate’s strategy to create a stronghold in the fashion industry could be in jeopardy as The U.S. Federal Trade Commission on Monday sued to block the deal. At LVMH, 75-year-old chairman and CEO Bernard Arnault is making plans to pave the way for his next generation of entrepreneurs to take over the reigns. LUXUO dissects the strategies in place by today’s biggest luxury conglomerates.
Tapestry’s acquisition of Capri Holdings showcased an evident strategy to create a stronghold in the fashion industry, which was put on hold by The U.S. Federal Trade Commission which sued to block the deal. To support the opposing action, the FTC cited the immense competition in the handbag market, predicting that the merger would raise prices in the affordable sector, making them less attainable for more consumers. On the other hand, fashion industry leader, 75-year-old chairman and CEO Bernard Arnault at LVMH is making plans to pave the way for his next generation of entrepreneurs to take over the reigns. LUXUO dissects the strategies in place by today’s biggest luxury conglomerates.
Miu Miu Sales/Prada Group Thrives
As the luxury fashion industry prepares (and experiences) various sales slumps, Prada saw revenues rise by 16 percent, the result of an increase in Miu Miu sales and continued growth in Asia with a boost in sales coming from China and Japan. Miu Miu’s 89 percent jump is particularly remarkable as it comes atop 58 percent growth last year, and in a market that has slowed dramatically for other luxury brands and Prada’s competitors. LVMH reported first-quarter sales up two percent in its fashion and leather division, while rival Kering’s revenues fell by 10 percent. A few strategies were at play.
As reported by LUXUO, consumers are rejecting logo-heavy patterns and opting for quiet luxury instead, something Prada has leaned heavily into in recent years along with the help of Raf Simons who shuttered his eponymous label in 2022 to focus on his collaborative efforts with Miuccia Prada. Miuccia Prada began to leverage provocative, social-media-friendly runway styling to market a revamped lineup of pieces. The brand’s variations of the micro-skirt juxtaposed with contemporary references like the “preppy”, collegiate-style dress and youthful take on officewear, play a part in driving sales to a new generation of customers.
Next, Prada consumers have developed an increased resistance to price hikes. For example, the triangle-logoed bucket hat from the brand is now priced at USD 695, compared to USD 340 in 2019 showing a willingness of customers to spend. Third, Prada Group was strategic in its management of Prada and Miu Miu. Both the luxury Italian brands are marketed similarly. Therefore, when Prada increases their prices, Miu Miu’s prices are maintained. The brands are synonymous with one another in the form of an extension but not marketed like that of a lower-end diffusion line. As the Prada Group states, “Miu Miu is the most unrestrained portrayal of Miuccia Prada’s creativity. Intentionally far from traditional aesthetic imagery, the brand conveys the essence of an emancipated and conscious woman. Miu Miu’s strength fluctuates between naïf spirit and iridescent subversion and it illustrates the most rebellious and seductive core of contemporary femininity”.
Finally, Prada invests in a smart choice of ambassadors including South Korea celebrities such as Song Kang, K-pop girl group Twice alongside and Chinese singer-songwriter Cai Xukun. These personalities hone in on the brand’s growing popularity in Asia, particularly across China, Japan, South Korea, and Southeast Asia, which has led to this growth in the region. The future sees Prada investing more in strategic retail spaces for Miu Miu across fashion capitals in Asia, supporting the return of Chinese and Japanese clients.
The concerted effort by the Prada group sees a calculated push in marketing while diversifying demands to encourage profits and growth across the group.
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LVMH Successions
As the Financial Times reports, in 2013 Delphine Arnault was appointed as the executive vice president of Louis Vuitton, in charge of supervising all of Louis Vuitton’s products-related activities. Since 1 February, 2023, Delphine Arnault has been chairman and chief executive officer of Christian Dior Couture. Simultaneously, 31-year-old Alexandre Arnault is the senior executive at Tiffany, and his 29-year-old brother Frédéric was recently appointed head of LVMH Watches. Delphine, the 48-year-old chief executive of Christian Dior and her brother Antoine Arnault, the 46-year-old head of image and communications for the group, took their seats at roughly the same age. Arnault’s youngest son, 25-year-old Louis Vuitton watch director Jean, is expected to join his siblings on the board in due course, according to reports.
Bernard Arnault’s succession planning within LVMH, particularly involving his children, serves several strategic purposes that can contribute to the long-term profitability of the conglomerate. Much like when a fashion brand hires a new creative director, when LVMH appoints a new vice president or chairman, there will inevitably be some risks involved in the direction the new appointee will take the company. Nepotism or not, it is in Bernard Arnault’s best interest to convince investors and customers that future leadership at LVMH is secure in the hands of his children. By having his children take on leadership roles within LVMH, Arnault ensures that his vision for the company and its brands maintains its consistency in strategic decision-making and brand direction.
Next, keeping LVMH within the Arnault family maintains a sense of stability and control over the conglomerate. Family-owned businesses often have a long-term perspective and can prioritise factors beyond short-term financial gains, such as retaining brand reputation and legacy. By involving his children in the management and operations of LVMH brands, Arnault has inevitably trained them with valuable insights into the luxury industry, ensuring a smooth transition of leadership when the time comes for Arnault to step back from his role.
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Lastly, brand loyalists could view the involvement of Arnault’s children in the management of LVMH brands as the continuation of family ownership and involvement. This can contribute to not only retaining the reputation of LVMH brands but also ensuring the stability of the conglomerate, which could result in confidence amongst investors and lead to the long-term profitability of LVMH in the luxury market.
Overall, Bernard Arnault’s plans for succession is a strategic move as it preserves family ownership and control, foresees long-term stability (and profitability), and ultimately reinforces brand loyalty and reputation within LVMH.
Read More: Frédéric Arnault’s Appointment Alerts Growing Importance of LVMH Watches
Tapestry’s Acquisition of Capri Holdings/ Anti-Competition
The U.S. Federal Trade Commission on Monday sued to block Coach parent Tapestry’s USD 8.5 billion deal to buy Michael Kors owner Capri saying it would eliminate “direct head-to-head competition” between the flagship brands of the two luxury handbag makers, sighting that the deal would raise prices on handbags and accessories in the affordable luxury sector, “harming consumers”. This would include competition between the brands on price, discounts and promotions, innovation, design, marketing and advertising. According to a statement from FTC, the organisation also added that the “tie-up, which would create a company with about 33,000 employees worldwide, could reduce wages and employee benefits”. This is the first time that President Joe Biden’s aggressive antitrust enforcement has targeted the fashion sector.
Tapestry currently owns Coach, Kate Spade, and Stuart Weitzman while Capri overlooks Michael Kors, Versace, and Jimmy Choo. Tapestry’s acquisition sees the group create a stronghold in the fashion industry as a combined Tapestry and Capri would be the second-largest personal luxury goods company in the US in sales, behind LVMH and ahead of Gucci owner Kering and Cartier owner Richemont.
Coach and Michael Kors fall into the “high midrange” category offering a more high-end take than handbag brands like Kate Spade and Tory Burch but also offer more attainable pieces as compared to “ultra-luxury” brands like Chanel and Hermès. The Tapestry and Capri amalgamation into one could be seen as an “anti-competition” strategy as Tapestry would then be able to control the prices of Coach and Michael Kors, bringing Coach prices higher or Michael Kors lower or vice versa which would create a monopoly on Tapestry controlling the “accessible leather luxury” market.
“The FTC’s decision to sue is surprising because there’s no shortage of competition for fashion, apparel and accessories. The commission has latched onto a marketing term — “accessible luxury” — and treats it like a unique market that exists in a vacuum,” said Howard Hogan, chair of the fashion, retail and consumer practice at law firm Gibson Dunn.
In what could be a case of “having your cake and eating it too”, one could argue that Tapestry aims to dominate the “accessible/affordable luxury” market with Michael Kors, Coach, and Kate Spade while also having a foothold in the high-end luxury market with Versace and Jimmy Choo. The U.S. Federal Trade Commission has keenly noticed it to prevent amalgamation of superpowers and anti-competition.
Read More: Kering Group’s Decreased Sales Do Not Spell Trouble
Conclusion
While large conglomerates are reinforcing plans to dominate the luxury sector, lowering demand for luxury goods has particularly affected Independent labels like Ferragamo and Missoni who continue to work through an uphill battle. Ferragamo sales fell by 9.2 percent at a constant in the first nine months of 2023, as the result of a weakened demand in Asia and North America. As the JingDaily reports, revenue fell by USD 892 million from USD 984 million during the same period last year. Earlier this year, Bloomberg reported that Burberry Group suffered their steepest decline in over a decade after slashing its profit forecasts due to a drop in sales in the final quarter of 2023. As Reuters reports, shares in Burberry sank by 7.4 percent, extending losses over the last year to 44 percent.
Perhaps Chanel is leading in the industry by employing the “vertical integration strategy” with Maison Michel. The vertical integration strategy is where a company takes ownership of a key player within its supply chain. Case in point, Maison Michel joined Chanel’s Métiers d’art in 1997, directly providing customers with the ultimate milliner of choice for Parisian haute couture, eliminating the need for Chanel to seek out the expertise of luxury hat makers for their ready-to-wear and haute couture collections. Besides Maison Michel, Chanel has invested in 13 Métiers d’art and more than 30 manufacturing sites over the last 40 years including acquiring stakes in Italian luxury knitwear manufacturer Paima, French clothing manufacturer Grandis and Italian leather goods manufacturer Renato Corti.
Similarly, the Prada Group has made vertical integration a core component of its industrial strategy as in 2023, Prada Group announced they will each acquire a 15 percent stake in the Italian knitwear manufacturer Luigi Fedeli e Figlio alongside Ermenegildo Zegna Group. It’s the second time the two companies have teamed up to secure a joint stake in a supplier: in 2021, they jointly acquired a majority stake in wool and cashmere supplier Filati Biagioli Modesto. The aim is to preserve Made in Italy craftsmanship and know-how, and ensure a consistent supply of high-quality materials regardless of economic conditions or global supply chain shocks.
Read More: Kering Acquires Creed In A “Natural Extension” of The Group’s Luxury Universe
Kering on the other hand, is seemingly willing to sacrifice short-term profits for long-term goals by way of dominating the beauty and accessories sector and making strategic acquisitions. Despite a four percent year-over-year decrease at the end of 2023 as compared to 2022, Kering Beauté was established in 2023 to create value for the group and its Houses alongside ensuring that Bottega Veneta, Balenciaga, Alexander McQueen — all of which are currently licensed to COTY — as well as the jewellery brands Pomellato, and Qeelin reach their full potential in beauty, which is, as the Group puts it, a natural extension of their universe. Kering Eyewear on the other hand, saw a record-setting 35 percent uptake in revenue for 2023 which equates to approximately USD 1.6 billion, which the company said was partially due to the consolidation of its Maui Jim brand, which Kering acquired in 2022.
From Kering to LVMH, each fashion conglomerate is undergoing its own strategies in the battle for profits. While LVMH seeks to pave the way for future successions and appointments to ensure the see-through of long-term goals, Chanel champions vertical integration to protect its own interest where demand outstrips supply and Kering goes further into the beauty industry to diversify their offerings. As far as it stands, Miu Miu’s strategies have paid off this quarter in terms of healthy profit margins but only time will if future acquisitions in other luxury conglomerates will result in profitable forecasts or clear succession plans will indeed retain consumer behaviour, other than investor interests.
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