A Potential Path to Prosperity

The luxury space has experienced a steady drumbeat of M&A activity this year. The sector has been troubled since the second half of 2023, when many players started to report declining sales and stock prices. While things have turned around a bit for some players in the first half of this year, growth overall has remained slower than in the recent past, according to several analysts who track the industry. Companies continue to face challenges such as declining sales in China; more competition, including from independent, digital-forward brands; and luxury consumers opting to spend their money on eating out, travel, and other experiences rather than products. 

In this environment, some key players have turned to mergers to strengthen their buying power, give them more clout with designers, allow them to cut costs through synergies, and/or enable expansion of their retail or e-commerce footprint, among other benefits. Here are some examples from the first eight months of this year:

• In the most recent transaction, private equity firm Regent, owner of Escada and Club Monaco, purchased the global luxury apparel and accessories label Bally last week from investment firm JAB Holding. Bally, which has recently been collaborating with actor Adrien Brody on capsule collections, is expected to keep its management team in place after the acquisition. 

• EssilorLuxottica, a luxury eyewear specialist, said in July that it would acquire Supreme from VF Corporation for $1.5 billion in cash. VF had expanded Supreme’s geographic reach further into key markets and led it to strong growth, but felt there were limited synergies between the streetwear label and the rest of its brand portfolio. EssilorLuxottica being the buyer was a bit of a surprise in that the purchase marks that company’s first major entry into the apparel market. The deal also represents its inaugural foray into a business model that relies on drops of limited capsules rather than long-running in-house and licensed product lines. 

• HBC, the parent company of Saks Fifth Avenue, announced, also in July, that it would purchase the Neiman Marcus Group, now in the midst of Chapter 11 bankruptcy proceedings, for $2.65 billion, with Amazon holding a minority share. The move will bring two luxury department stores (Nieman Marcus and Bergdorf Goodman) into the HBC corporate family, which already includes Saks Fifth Avenue and Saks Off 5th. The combined entity will be named Saks Global. 

• Estée Lauder completed its purchase of Deciem Beauty Group in June, acquiring the company in full after first investing in 2017 and becoming the majority shareholder in 2021. Deciem, based in Canada, is a prestige beauty specialist known as “The Abnormal Beauty Company,” with its flagship brand being The Ordinary. Its focus is on ingredient transparency, flexibility, and community, and it has earned a reputation as a disruptor in the beauty industry. 

• Coupang, the dominant e-commerce platform in South Korea and a player in other Asian territories, announced in January that it had completed its purchase of the global luxury e-commerce site Farfetch. Similar to Amazon, Coupang, which trades on the New York Stock Exchange and moved its global headquarters to the U.S. in 2022, has been trying to increase its presence in luxury goods, and the acquisition was a key step in that direction. Meanwhile, the deal gave the struggling Farfetch access to $500 million in capital so it could remain in business.

Another merger in this space, announced in August of last year, ran into a snag in April 2024 when the Federal Trade Commission said it would try to block Tapestry’s $8.5 billion acquisition of Capri Holdings—which has seen sales decline in the past 12 months—for competitive reasons. A trial is set for September. The merger, if it goes through, would bring together Tapestry’s Kate Spade, Stuart Weitzman, and Coach labels and Capri’s Michael Kors, Versace, and Jimmy Choo brands. The FTC is concerned that the merger would harm consumers by reducing competition in the handbag industry, where Kate Spade, Coach, and Michael Kors, in particular, all operate. Regulators in Europe and Japan have approved the deal. 

A reminder that Raugust Communications’ monthly e-newsletter comes out tomorrow (Tuesday, August 20, 2024). The Licensing Topic of the Month examines the recent expansion of Asian-headquartered retail chains globally, including in the U.S., while the Datapoint research spotlight offers an analysis of licensing in the coffee category. If you are not yet receiving this free monthly e-publication, you can subscribe here.