Will Mergers And Acquisitions Become A New Opportunity For Luxury Group Growth?

Moodie, a credit rating agency, is in the latest global market.

The retail industry report said that the luxury retail industry will have a turning point in 2017, the three largest luxury group in the world.

(LVMH.PA) Kering (PRTP.PA) and Hermes (HRMS.PA) achieved strong growth in the first quarter.

The report predicts that the global luxury retail industry will grow by 7% in 2017, and the average growth rate in the 2016 fiscal year is about 4%.

The group will take e-commerce business as a new growth point.

Moodie stressed in the report that the prediction is based on the strong performance of LVMH group and Kai Yun group in the first quarter, but the overall sales growth will slow down in the second half of the year.

The report also refers to the performance of CK parent PVH group, Ralph Lauren and Tiffany&Co., Shiseido and Sandro parent SMCP group, indicating that these groups will improve in 2017, but they still have a long way to go back to double digit growth.

According to the world clothing and shoe net, sales of LVMH group rose 15% to 9 billion 900 million euros in the first quarter of fiscal year 2017. Sales of fashion and leather sectors including LV, Givenchy and other luxury brands rose 15% to 3 billion 405 million euros compared with the same period. The first quarter revenue of the group rose 31.2% to 3 billion 573 million 500 thousand euros, of which the luxury sector with Gucci and YSL brands increased by 34% to 2 billion 417 million 100 thousand euros.

In the 2016 fiscal year ended March 31st, its sales of the brand of the jewelry watch brands such as Cartire, IWC and Van Cleef & Arpels decreased by 3.9% to 10 billion 650 million euros.

Vincent Gusdorf, a senior analyst at Moodie institution, points out that although the purchasing power of Chinese consumers is gradually recovering, it is slow to recover from the unstable global geopolitical environment. At least in 2020, the growth of Global Luxury Retailing industry is likely to return to double digits.

The retail environment in the US is still not optimistic. In Moodie's report, it is expected that the growth of us department stores will further slow down. Most of the American luxury fashion retailers are in a period of restructuring.

Experts in the annual ReCon conference of the international shopping center Council held in Las Vegas, USA, said that the total retail sales of the US Department stores have closed 2880 stores so far this year, and the data is expected to expand to 8640 at the end of this year, reaching a new high of 9 years, exceeding the 6163 stores closed in 2008.

According to the Costar investment strategy research center, it is estimated that at least 1 billion square feet of retail space should be rationalized by American retailers in order to reverse the downward trend of sales per square foot.

Ralph Lauren, the US luxury luxury clothing brand, has closed dozens of stores in the past few months, including flagship stores in Fifth Avenue, New York, due to its sluggish performance.

In the three months ended April 1st, Ralph Lauren's net loss in the fourth quarter expanded to $204 million from $41 million 300 thousand a year earlier, while sales fell 16.3% to 1 billion 570 million US dollars a year.

But Moodie believes that in the long run, it is right to reduce the volume of the department store's shipments and close the stores, and reduce the operating costs. At the same time, it also improves the group's financial flexibility and the resilience to the change of consumer demand.

As for luxury goods group, Moodie expects that the cost of acquisition will be the main expense of LVMH group and Kai Yun group's multi brand luxury group this year. The average purchase cost is about $7 billion, compared with $2 billion in 2016.

In a report released in April, HSBC also came to a similar conclusion that large amounts of cash and mature multi brand management experience in luxury giants will set off a new wave of mergers and acquisitions, and said that LVMH, Coach and Kai Yun group are the most likely to acquire the group.

At present, LVMH group has announced that it will buy Christian Dior fashion department at 6 billion 500 million euros, while Coach decides to buy Kate Spade for 2 billion 400 million US dollars, while competing with Michael Kors to buy British luxury shoe brand Jimmy Choo.

As for Kai Yun group, HSBC thinks it is likely to sell Puma shares to acquire funds for other brands, and suggests that LVMH group may merge Cartire's parent company.

Bain report predicts growth of luxury retail consumption in various regions of the world in 2017

On Monday, the Worldwide Luxury Market Monitor 2017 Spring Update (global luxury market monitoring report 2017 Spring Edition) released by consulting company Bain and Italy Luxury Association Fondazione Altagamma also predicted that the performance of the global luxury market in 2017 will be much better than that in 2016, thanks to the strong driving force of two markets in China and Europe.

The total sales volume of the luxury market in 2017 is expected to reach 259 billion euros, an increase of about 2% to 4%, an increase from 1% to 2% in December, the report said.

{page_break}

Claudia D'Arpizio, one of the authors of the report, said that after the cold winter last year, the luxury industry began to show signs of recovery in the first quarter of 2017. The recovery of Chinese consumers' purchasing power has a great positive impact on the growth of the entire luxury industry.

It is reported that in the first quarter of this year, global personal luxury consumption growth has reached 4%, because the higher expenditure of European and Chinese consumers offset the weakness of consumer spending in the United States and Southeast Asia.

Federica Levato, partner of Bain consulting firm, pointed out that this year's market is healthier and more positive than ever. This is the main reason for this increase.

The purchasing power of Chinese consumers is gradually recovering, but the recovery rate of luxury goods industry is still slow due to the unstable global geopolitical environment.

According to the region, the report thinks that with the recovery of tourism industry, the European region will become the fastest growing market in the luxury goods industry, with sales expected to grow between 7% and 9%.

Spain and Britain are popular destinations.

In his report, Bain stressed that although the United States remains the largest market in the luxury industry, the luxury retail industry is still facing a difficult challenge due to the strong US dollar and the policy advocated by the new president Trump.

Some analysts say the biggest disadvantage in the United States Department Store is that it is unable to attract the millennial generation of young consumers, whose volume is still dominated by middle-aged and old consumers.

In Asia, the report expects sales growth in mainland China to be between 6% and 8%, but sales in other regions are affected by exchange rate changes and tariff policies, or 2% to 4%.

What is worth noting is that the report called the luxury market "Chinese Bulimia" from 2010 to 2014, that is, the stage of growth driven by the strong demand of Chinese consumers. During the period, the global luxury industry was driven by the strong demand in the Chinese market.

Since 2015, the report has found that the growth rate of luxury goods industry has gradually slowed down and entered the so-called "New Normal", that is, the new normal stage.

The report also predicts that by 2020, global luxury goods sales will reach 280 billion to 290 billion euros, with an average annual growth rate of 3% to 4%.

By 2025, the millennial generation will account for 45% of the total consumption of luxury goods, of which Asian consumers will account for more than half.

For the traditionally luxury brands, the electricity business is still in its infancy. LVMH group did not formally launch its first self owned e-commerce platform until early May. After publishing its annual earnings report last month, the group announced that it would introduce digital talents to prepare its own e-commerce platform to stimulate the growth of the group's performance.

Claudia D 'Arpizio said that for the luxury brand e-commerce business, the only "real threat" comes from Amazon, an e-commerce giant. "If Amazon formally enters the field of fashion and luxury goods, luxury brands want to rush to occupy the market again."

The report concludes that although the sales growth of the luxury goods market will accelerate in 2017, the gap between the performance of each luxury brand will further increase, and consumers' demand for innovation and creativity will be higher and higher.

Claudia D 'Arpizio emphasizes that even with the improvement of digitalization, the share of e-commerce business in the major brands is growing. However, the physical retail channel is still the most important source of income for luxury brands. Therefore, the importance of physical stores will only increase. However, some luxury brands have realized that the number of stores is not the most important, but the resonance between stores and consumers is the key to sustainable development.

More interesting reports, please pay attention to the world clothing shoes and hats net.