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What Will Be Different About Luxury’s Next M&A Spree

Buckle up: the luxury sector is likely to see a deal-making frenzy over the next few years.

Hungry for size and scale, players in the high-end industry are seen shirking the monobrand mantra that’s prevailed since 2017, instead angling for like-minded partners that can fuel growth and foster diversification.

“Fashion, by its essence, comes and goes, and in that context, diversity also offers a natural hedge,” Erwan Rambourg, HSBC luxury analyst, wrote in April’s “Big Bad Beautiful Bling Binge,” report, outlining his belief that mergers and acquisitions will heat up this year and beyond.

While late ‘90s/early aughts M&A focused on buying growth or “do[ing] better than existing management,” things are a little different this time around, Rambourg said. “The interesting thing about the current phase of the industry is that cash is likely to pile up again for the multi-brand groups while smaller independent companies have suffered from the crisis,” he added.

The big conglomerates’ deep pockets mean they can outspend their smaller rivals on data analytics, CRM technology and concierge offerings—the kinds of investments that “attract new consumers and keep existing ones happy,” Rambourg said. “Knowledge is power in what remains a crowded luxury industry and scale enables you to rely less on third-party partners and thus derive insights from selling at retail.”

According to Rambourg, this year’s luxury sales should come in slightly above 2019, with Asia and U.S. seeing growth while Japan’s expected to remain flat and Europe is likely to lag. Tightly managing costs will help luxury companies recover margins. And as Rambourg expects travel to rebound next year, in the interim luxury purveyors will have to continue catering to local audiences while high-spending tourists remain grounded.

By banding together, luxury brands can learn from their new partners’ strengths. “If a specific brand has exceptional managers, some may step up to run others in the portfolio,” Rambourg said, adding that the bigger companies have a leg up with talent acquisition, retention and promotion.” Brands like Hermès and Chanel stand as exceptions, however.

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Both LVMH and Kering have notably grown through acquisitions, with the former integrating Tiffany & Co. and the latter investing in Farfetch through its holding company, Artemis, and taking a 5 percent in Vestiaire Collective.

Moncler and Exor, the Agnelli family’s holding company, seem to be testing the waters when it comes to acquisitions, Rambourg said. Moncler’s purchase of Stone Island marks a first step toward building an Italian luxury conglomerate. And Exor, which in December became the majority shareholder of Chinese luxury brand Shang Xia—which sells everything from furniture, homeware, apparel, and leather goods to jewelry, accessories and tea—already holds a 24 percent stake in red-soled shoe brand Christian Louboutin.

Last month, Giorgio Armani said his eponymous company could someday link up with a joint venture partner. Rambourg doesn’t think Tod’s would be an easy sell, but Italian luxury footwear house Ferragamo could possibly seek out a financial partner. And while Prada doesn’t have a track record in acquisitions—Helmut Lang and Jil Sander weren’t its best moves—CEO Patrizio Bertelli has said the company might be interested in a synergistic purchase.

Private equity giants like L Catterton, which just bought a majority stake in Birkenstock, and Eurazeo, could also stir the luxury M&A waters.