The luxury fashion retail industry is no stranger to change, but recent notable mergers & acquisitions (M&A) have further shaped the industry’s landscape as certain luxury brands are looking to expand. A number of factors have encouraged luxury fashion houses to merge. As we mentioned in an earlier article, e-commerce has greatly affected the bottom lines of brick-and-mortar stores. As more consumers are shopping online, the sales of brick-and-mortar retailers have diminished. In fact, there has been a noticeable decrease in the number of consumers who shop at North American malls and department stores. Another factor that has prompted a shift towards M&A is the change in consumer preferences. Before, shoppers gravitated more towards luxury brands that fell in the middle in terms of price and style, which are also referred to as “middle market luxury brands”. Now, consumers have veered towards the opposite ends of the spectrum and seem to be split into two camps, one that is loyal to high-end luxury brands or another that prefers more affordable fashion retailers.
Although wealthier consumers are still purchasing high-end luxury items, competition from online platforms is encouraging some luxury retailers to turn to M&A as a solution. Certain high-end luxury brands have been using M&A to combat changing environmental factors in the industry for years, by merging into “luxury brand super groups” or a “family of brands”. It is predicted that this trend is here to stay. For instance, one of the largest luxury brand conglomerates in the world, LVMH, is comprised of 70 brands that are in over six various industries, ranging from fashion and leather goods to wines and spirits. Despite the fact that consolidation in the luxury retail sector will likely increase, some heritage brands, such as Chanel and Hermès, are resisting the trend of M&A. One reason why heritage luxury brands would resist attempts to be taken over is that these brands have historically been associated with their founding fashion designers. From a marketing point of view, consumers associate the heritage brand with these iconic figures, which is a selling point that many consumers use to justify paying high prices for these products. If these fashion houses were to merge, the branding of these companies would be diluted and consumers’ perceptions of these brands could diminish. While some heritage brands have been successful in rebuffing the trend of M&A that has been seen in the industry to date, this trend will likely remain in style for a while.
The author would like to thank Monica Wong, Articling Student, for her assistance in preparing this legal update.
Stay informed on M&A developments and subscribe to our blog today.