Wednesday, February 4, 2015

"Numbered Days for Chanel and Armani?"

From Barron's Penta:
A challenging market for luxury goods could lead to a sustained period of mergers and acquisitions.
Bernstein analyst Mario Ortelli claims smaller, family-controlled brands like Italian clothing designer Giorgio Armani and Swiss watchmaker Audemars Piguet are struggling when compared to their larger counterparts, both of which Ortelli has placed on his list of more than fifty luxury takeover targets. Among them: Designers Chanel, Versace and Ermenegildo Zegna; handbag maker Longchamp; jewelry purveyors Chopard and Graff Diamonds; and watchmakers Rolex, Patek Philippe and Audemars Piguet.
Of course that’s Ortelli’s take – the cachet and virtue of Audemars Piguet and Patek Philippe to many watch collectors is precisely that they are not cogs inside a conglomerate, but maintain their originality and quality by remaining independent. They also have huge reserves of their own: The antique watch collection of Patek Philippe is, for example, alone worth hundreds of millions of dollars, perhaps even more, and huge premiums would have to be paid to buy either of these family-owned companies.
So, we have trouble believing stalwart luxury brands like Audemars Piguet and Patek Philippe are likely to sell any time soon. But we could see cash-flush lux conglomerates snapping-up second tier or up-and-coming start-up brands at fairer prices, such as Corum, Breitling, MB&F and Urwerk. Here management missteps or generational transition could set up a buying opportunity.
Chanel Boy Bag Red
After many rich years, such privately-held brands are starting to have a hard go of it. They “cannot stretch the brand,” Ortelli says, because they “have to maintain that allure and exclusivity.” But then again, to be taken seriously, they “have to be in markets like China, where subdued demand [recently] makes the market more challenging.” The large conglomerates like Richemont, LVMH, Kering or Swatch Group, can weather the short-term storm by spreading their costs over several brands, and, long term, can afford the time it takes to turn around a troubled label....MORE