Last week, the acquisition spree of luxury goods manufacturers and suppliers continued, as did the opening of new luxury stores. Meanwhile, Gaps’ earnings showed shipping costs falling in the fashion and retail sectors. Don’t forget to subscribe to the Glossy Podcast for interviews with fashion industry leaders and episodes of Week in Review, and to the Glossy Beauty Podcast for beauty industry interviews. Danny Parisi, sr. fashion journalist
On the Glossy Week in Review podcast this week, Glossy Editor-in-Chief Jill Manoff and I talked about vertical integration in the luxury space after Chanel and Brunello Cucinelli jointly took on half a tail Italian.
Luxury is experiencing something of a gold rush in manufacturing and supply chain. In addition to Chanel and Cucinelli, Kering and Burberry acquired eyewear maker and outerwear supplier, respectively, in March; LVMH took control of a platinum supplier in April; and Only the Brave, the parent company of Maison Margiela and Diesel, acquired a leather goods supplier in May. And on Thursday, Italian private equity firm Permira acquired a majority stake in Gruppo Florence, a luxury manufacturing hub. Fashion law has maintained a running and updating list of all these acquisitions if you want to know a little more about each of them.
So what is driving all these acquisitions? Here’s my theory: The ideal of vertical integration is that it’s expensive upfront but saves money in the long run. And right now, luxury companies are teeming with cash after several booming quarters globally, but they expect things to slow down for the foreseeable future. LVMH had a record year in 2022, achieving more than $84 billion in revenue. It completed its acquisition of Platinum Invest Group in April, when luxury was booming, just before the onset of the expected downturn in May.
In other words, as the luxury market flattens, brands are hoping that investments made during boom times will help soften the blow of lower spending, especially in places like the United States.
New luxury stores
Speaking of luxury, a number of luxury brands opened new physical stores last week. Louis Vuitton opened its first store in the Hamptons Friday. Italian luxury furniture company Minotti has announced that it open 10 more stores around the world, and, also Friday, Lafayette 148 opened a new store in Beverly Hills.
Physical retail is making a comeback since the peak of the e-commerce boom in 2021, and store formats are diversifying. The Louis Vuitton Hamptons store, for example, is a seasonal model; it will close in September and return next summer.
Shipping costs drop for fashion brands
There was a good sign for the fashion supply chain issue in Gaps earnings last week. On Thursday, the brand announced that, despite declining revenue, it had reduced its losses from $162 million last year to just $18 million this year. Gap attributed the surprisingly strong margins to a combination of intentional cost reductions, such as layoffs, and lower shipping and freight costs.
We expect around 250 basis points of inflationary deleveraging in the first half of the year, moving to around 150 basis points of leverage in the second half as we benefit from improving commodity costs and ocean freight rates, said Katrina OConnell, Gaps evp and chief financial officer, during Thursday’s earnings call.
Shipping costs, in general, have fell up to 85% this year, compared to the price spikes that brands have had to deal with over the past two years.
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