Hermes Prepares to Strike Back Against LVMH Empire... 07/12/10

The situation at Hermes is keeping us fascinated here at the MO Down. Following up on our recent coverage, the Dumas family met on Friday (December 3) to discuss their battle strategy. For those of you just tuning in, we are of course referring to the recent controversy that arose when LVMH revealed its ownership of a 17.1 per cent stake in Hermes. It was quite an unwelcome surprise to the family-owned Hermes, which is now faced with the possibility of a gradual takeover. The Dumas family aren’t happy, and to be honest, neither are many people. Hermes shares fell 9.3 per cent on Friday, and something tells us this was no coincidence.

Currently, the Puech, Guerrand and Dumas families own a combined stake of 73 per cent– no one is taking over anything without their permission. However, the families are hunting for a strategy to allow them to sell shares as needed, without allowing LVMH boss Monsieur Arnault to increase his holding. Hermes is not keen to join the family owned brands that have fallen to the conglomerate. It stands firm as a house of artisans, before businesspeople. Several schemes are in the works at the moment, and we will bring more as soon as we hear…

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Hermes Moves to Counteract LVMH Takeover 30/11/10

Following up on the Hermes/LVMH debacle, the most recent news from Bloomberg is that Hermes has called a ‘round table’ with the Dumas family to develop a strategy to tackle the large, and not so quiet, monogrammed elephant in the room. For those of you just tuning in, the MO Down has been following LVMH’s sudden acquisition of Hermes shares, amounting to 17 per cent. The surprise revelation a few weeks ago has sparked rumours of a hostile takeover, and led to speculation that a third party may be needed to keep Hermes in the family.

It seems the most recent options include a shareholder pact or the creation of a non-listed holding, company grouping together to protect the descendants’ shares. Recently, the MO Down suggested that luxury conglomerate Richemont might come to the party. Reuters suggests that other institutional friends such as BNP Paribas Bank, and Bank of America Merrill Lynch might help out… At times like this, Hermes needs its friends, so it will be interesting to see if someone, and if so, who, can save the day…

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Can Richemont Save Hermes From LVMH Takeover? 16/11/10

There has been a lot of controversy and speculation surrounding LVMH’s recent acquisition of Hermes shares. We have stumbled across a very interesting article by Bloomberg here at the MO Down. If Hermes needs a white knight to ride to its defence, to fend off any prospective (and potentially hostile) majority buyout by Monsieur LVMH Bernard Arnault, they may find it in Richemont. The Swiss luxury goods company, and third largest luxury conglomerate in the world, might just have room in their wallet for a hint of orange.

Bloomberg hypothesises that Richemont may not have enough money, however in the financial overview from the Richemont press release, sales have increased by 37 per cent, or 27 per cent at constant exchange rate, or 22 percent excluding the impact of Net-A-Porter with an increase in operating profit of 95 per cent. It’s a great result that could compound even more positively over the next 6 months (boosted by Christmas and Chinese New Year trading). It’s nice to know Hermes has another option should it require.

Still, we hope Hermes has enough Euro in its Birkins to canter ahead confidently without support. The family shareholders, who collectively own 73 per cent of Hermes are fighting hard to keep the company independent. We are following all happenings closely and will report as soon as we hear.

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Feud Between Hermes and LVMH? 05/11/10

We’ve been closely following the happening surrounding LVMH’s acquisition of Hermes shares here at the MO Down, and there has been an interesting development.

Monsieur Arnault, Europe’s wealthiest man (incroyable!) and CEO of the mighty LVMH group, has a history of getting his way. Let’s face it– he is an incredibly astute businessman, regardless of whether or not you like his modus operandi. Monsieur Arnault has his well-trained luxury eye firmly on one prize in particular. We’ll give you a hint: it’s something iconic and orange in colour. The primarily family-owned Hermes is firm in its stance that the business remain theirs at 73 per cent, and it looks like it could become a fight to the death for one of France’s most iconic brands.

It was a surprise revelation when LVMH revealed its acquisition of 17 per cent last week. Despite Msr. Arnault’s adamant denial that the move signifies future plans for a takeover, Hermes isn’t convinced. ‘If you want to be friendly Arnault, you should withdraw’ said Hermes representatives, questioning LVMH’s motivation. Hermes isn’t interested in becoming part of the luxury conglomerate. Msr. Puech (fifth generation heir of Emile Hermes, founder) told French paper, Le Figaro, ‘we are artisans; our goal is to make the best products in the world. We aren’t in the business of luxury, we’re in quality.

It’s rare to see such hostility between such big names and we can’t help but be fascinated to see how this plays out. We will continue to update as we hear…

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LVMH Acquisition of Hermes Shares to Be Examined By Regulators 27/10/10

There’s been an interesting development over the past couple of days. It seems that LVMH is set be investigated by French regulators over their recent surprise acquisition of Hermes stock. On Monday, we reported that the luxury conglomerate LVMH had increased its stake in Hermes to over 17 per cent. We speculated that this might be indicative of plans to increase interest in the future, and it seems the authorities saw it the same way. A spokesperson from LVMH stated that it did not plan a takeover, but wanted to be a long-term investor.

An issue has arisen over when the shares were purchased, since they were bought at an average price of 80.5 euro, 50.4 per cent cheaper than Friday’s price of 176.2 euro. It has been asserted that LVMH had breached rules by secretly building up a stake in the French leather goods company. Investors are supposed to declare their intentions for the future when their share reaches 10 per cent. It is likely that the small stake previously owned by LVMH was purchased with options to build up stake later down the track. Nonetheless, hedge fund managers are eager to learn the details of this transaction, and so are we at the MO Down. French regulator AMF will handle the investigation. We will keep you posted. Till then, Reuters has more info.

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LVMH Increases Its Undercover Stake In Hermes 25/10/10

Global luxury conglomerate LVMH SA has increased its stake in the quintessentially French maison, Hermes, to over 17 per cent. Until this recent acquisition of 14.2 per cent, it was not public knowledge that LVMH owned shares at all. In France, owners holding under 5 per cent can remain anonymous.

We wonder if this will turn out to be another classic ‘ghost muncher’ situation that will see LVMH incrementally increase their shares to ownership. Stranger things have happened, and we are sure Hermes is a name worth acquiring. Nonetheless, ‘not so’ says LVMH right now. ‘The objective of LVMH is to be a long-term shareholder of Hermes’ said an unidentified spokesperson. Apparently they like what Hermes is doing, and are simply interested in investing in this company because of what they do and how they do it. Hermes is certainly an industry leader, commanding a level of respect not afforded to many. Added bonus, when Hermes shares are doing so well.

Call us cynical, but when the likes of LVMH bid a fine bonjour and pay for it, you can be sure that there is a future strategy in place. We won’t be surprised if they raise the holding soon enough. Time, of course, will tell. Follow this link for more info.

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Valentino Announces 'Capsule' Collection With Gap 13/9/10

Valentino is teaming up with Gap to create an affordable women’s wear range, the ‘capsule’ collection. Designed by creative directors, Maria Grazia Chiui and Pier Paolo Piccioli, the announcement follows Lanvin’s collaboration with H&M, last week. Here at the MO Down, we understand the mission behind this project: to bring the iconic world of Valentino into touch with Gap’s everyday fashion essentials. It makes luxury accessible to a wider market, by combining luxury with basics.

Our concern is that this sort of collaboration may be becoming a little too common, so to speak. When we buy luxury, we pay top dollar because we know that Valentino, for instance, we get what we pay for. The quality and rich history the Valentino name has come to represent, guarantees us the best and finest of design and materials. The Valentino name speaks loudly for the calibre of the product. We wonder if the collaboration of luxury with mass-market brands will have a long-term effect on brand value for the luxury partner?

Surely, these sorts of collaborations will do wonders for the everyday woman’s wardrobe. And for the seasoned fashionista, Gap will never know the true Valentino. But will aspirational markets start to question the sense in paying big bucks, when they can get something designed by Valentino For Gap, for a fraction of the price? We are afraid that these ‘spin-off’ labels, will do more damage than good. Time will tell.

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Richemont Sales On The Rise 9/9/10

Compagnie Financiere Richemont SA– think Cartier, IWC and Dunhill, rose 37 per cent in the past five months. Double-digit increases in every product category and region (except Japan)– not bad! Richemont attributes the growth to the low figures in the same period last year, and to the acquisition of Net-a-Porter, the online retailer we are sure you all know and love! It’s still too soon to declare the recession securely in the past, but even without Net-a-porter, a 5 month growth of 22 per cent, ain’t at all shabby. The biggest growth-region, as expected, was Asia-Pacific. We assume the Chinese have a huge part in this area’s 51 per cent sales increase. Sales in North America rose 52 percent, though in proportion to a terrible year last year. Nice to see things are looking up for consumers around the world, and that our favourite brands are taking back the night!

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Lanvin Confirms Holiday Collection With H&M 3/9/10

Will the real collaborator please stand up. Yesterday, we were certain that Bottega Veneta was going to partner with H&M– we were wrong! It seems this was just a rumor, and Lanvin is in fact the actual H&M collaborator. Joining the likes of Karl Lagerfeld, Stella McCartney and Comme des Garcons, we can’t wait to see how Lanvin infuses H&M with its unique style.

Designed by Lanvin’s artistic director Alber Elbaz and menswear designer Lucas Ossendrijver, the collections (both men’s and women’s) will become available in over 200 retail stores worldwide on November 23- though eager shoppers will be able to view the collections online from November 2. If there haven’t been enough surprises already, the online revelation will take the form of gzip,deflate
Accept-Charset: Ir the occasion. H&M have been very secretive about the whole affair, and have teased followers with cryptic clips for the past few days– we impatiently await the feature!

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Luxury Brands Target In On The Chinese Market - 09/08/10

China is hot on the radar of many luxury brands, as they look to take back control of the growth and operations of their stores. After 5-10 years of learning from their distributors, licensees and franchisees of the in’s and out’s of the local culture and market risks, luxury brands such as Burberry and Coach are sweeping in and cutting out the middle man, so to speak. As they now plan to manage the operations via their own subsidiary directly, they have essentially had a ‘try before you fully invest’ approach.

Burberry has been a key player in this new strategy who recently announced plans to buy its network of 50 China stores. This leaves the distributors in a risky situation. Whilst being a distributor in an emerging market can be wonderful in the early days with growth and market position leading to success in sales they risk losing the cream to the owners of the brand once real success starts to show.

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Prada Are Sitting More Than Comfortably - 06/08/10

The rumour mill has been in overdrive lately about a possible IPO for Prada. And as the company have released their 29% revenue increase for the first half this week, the whiff of the suspected IPO is back yet again, as they continue to evaluate the most suitable moment to jump to action. Prada experienced a whopping 41% increase in retail sales, which pushed the 29% profit result, bringing in $1.2 billion.

Whilst revenue was the only statistic reported in the statement, we can expect to see greater detail of their currently comfortable position later in September. With 30 new stores planned for this year, set to focus on the Asia-Pacific, Prada’s most dynamic region remains the Far East, where sales rose 70%.

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Spotlight On Burberry Possible Sale - 28/07/10

The rumour mill is in overdrive about Burberry being ready for a purchase, with the mystery buyer being named as PPR Group. Previous rumours circulated around LVMH as a possible contender, and whilst PPR are not confirmed, their name has popped up yet again with stronger circulation emanating from the UK financial markets. The Burberry star shines brightly- but who would have guessed a checkered raincoat could have a market capitalisation of 3.7million pounds and trade at a 22 percent premium to its peers. We will keep you updated on this rumour as more solid evidence comes to hand.

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Burberry Buy Out Chinese Franchises - 19/07/10

Burberry are unstoppable at the moment, with the company announcing they will be buying out their Chinese franchises, in a 70 million pound deal. The result comes after 20 years of the franchise model operating in China and it will see the company take direct control over the 50 stores on the mainland. Burberry CEO, Angela Ahrendts, has said of the robust movement of the business deal, “regardless of the market dynamics going on, other dynamics are in place to make this the optimum time to do [this deal].”

It seems Burberry’s star is truly shining, and with the launch of their Burberry beauty line last week (packaged luxuriously of course), there is no doubt that the brand is hot, hot, hot right now.

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Rumour: Chinese Businessman Owns 13% Of Prada - 14/07/10

Is it true or false, that a Chinese business tycoon has been slowly (and secretly) purchasing Prada SpA shares over the past couple of years, to the point that he owns 13% of the company? It was reported by a Shanghai newspaper that the man in question Lu Qiang, had been buying shares through “an unidentified Italian consulting firm, which he had acquired for 20 million euros (US$25 million)”

His plan from there was to “invest 450 million euros (US$566 million) in Prada by buying shares from the Italian fashion icon's creditors.” Recent reports have claimed Lu Qiang may change his plans, due to Prada raising the cost of the acquisition between 600 million and 700 million euros.

Prada have claimed the rumours to be ‘totally unfounded’. Other rumours were circling recently concerning Prada considering an IPO.

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Bidders Way In At The Upcoming Gianfranco Ferre Auction - 17/06/10

Anyone interested in the fashion house of Gianfranco Ferre has until the 6th of July to put up their hand and place a firm offer, in the upcoming auction of the famous designer.

Last year, The MO Down reported of Gianfranco Ferre suffering from the global financial crisis and ultimately becoming bankrupt. Despite this tragedy for the fashion house, the Italians seemed to believe it to be quite acceptable, given the magnitude of the crisis across Europe and the US.

It was only three years ago on Tuesday that Snr Ferre passed away, with Swedish designer Lars Nilsson taking over, in a short and sharp effort that came to an abrupt holt. It’s a trial and error situation for some brands who struggle to survive after the creator passes. Some thrive and flourish, yet others tend to lay low and then spark back with a reinvention. Despite the ultimate outcome, Ferre’s legacy is sure to live on through retrospectives and ‘inspired by’ collections.

Interest in the upcoming auction is travelling in from South Korean conglomerate Samsung Group as well as close to home from the Italian private equity firm Palladio Finanziara- we shall wait and see who is victorious.

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LVMH To Sell Kenzo? – 14/5/10

LVMH is not confirming the rumour, but Vogue has reported that LVMH received interest in one of the lower profile brands: Kenzo.

Market sources report that the luxury giant has enlisted investment firm Crédit Agricole to evaluate a possible sale of the French fashion house, which was acquired in 1993.

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Bain & Co. Says Wealthy Shoppers Are Spending Again – 19/4/10

According to research by U.S. consultancy Bain & Co, wealthy spenders are not just window shopping, they’re actually buying, which has resulted in an increased forecast of "global luxury sales by more than 4 percent this year."

Given global luxury sales were down by 8 percent in 2009 vs. the previous year, it still means that sales are forecast to be -4 percent vs. 2008, so there’s still some work to be done in our book. Fortunately, luxury good houses have the continued development of China and strong sales in Asia to thank, in addition to the strength of the other emerging parts of the ‘BRIC acronym’, namely Brazil, Russia and India.

In this study (as discussed by Reuters), "Bain predicted strong brands would benefit most from the upturn and weak brands suffering from cash problems would have to look for buyers or risk bankruptcy.”

Another key finding was that: "This polarization creates fertile conditions for market concentration. As mega-brands capture more market share, 2010 is likely to be a year when the search for capital triggers M&A and IPOs, and continued challenging conditions for lagging brands create ongoing risk for failures and bankruptcies." We agree with this. Click here for our earlier thoughts on the current status and possible future of luxury mergers and acquisitions.

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Richemont’s Being Clever By Buying Net-a-Porter – 7/4/10

As revealed yesterday, Richemont is buying the lion’s share (67 percent) of online fashion retailer Net-a-Porter.

A key article in the Financial Times (Ready For The Next Chapter In E-Tailing) explored this smart move, concluding that Richemont “became the first leading luxury conglomerate to purchase a multi-brand virtual store, taking the industry's involvement with the web to a new level.”

The article also highlighted some interesting stats, including that Net-a-Porter “has 3.3 million unique users a month, and is growing by approximately 10,000 new customers per month.”

This is impressive. If we break this down by an average from the leading 'luxury brand' flagships in Australia where the stores receive 7-10K per month of traffic arrivals, versus 3.3 million a month. It is increasingly difficult to compete in this landscape and this is why luxury brands more than ever must embrace their own online retail offer. They need to offer more products online in addition to their bricks and mortar stores, they should increase their own share of the tarte tatin ... Hence why again we reiterate Richemont's smart move in this direction to manage wholesale, retail and virtual retail.

Richemont Will Become The Majority Shareholder In Net-a-Porter – 6/4/10

It’s official: Richemont will move from owning 29 percent of internet designer clothing retailer Net-a-Porter to 67 percent, according to Reuters.

An article in the Financial Times also caught our eye, particularly this comment: "Net-a-Porter’s management team are hoping to be able to tap into Richemont’s expertise in the Asia-Pacific region, while Johann Rupert, Richemont’s executive chairman, is hoping to be able to use Net-a-Porter’s skill in selling luxury online to help Richemont develop its own internet strategy."

Johann Rupert, also said in a statement: “Natalie Massenet has created a superb, customer-oriented business at Net-a-Porter in a relatively short period of time. We welcome her and her team to Richemont and look forward to working with them in the future to ensure Net-a-Porter’s continuing success.”

This seems to be a clever move for Richemont; buying into a successful high end online retailer will enhance their own online offer...

Image courtesy of the Times online. It shows Natalie Massenet.

We Give You The Low Down On Luxury Mergers And Acquisitions – 1/4/10

Swatch and Bulgari may not be in buyout talks (see yesterday’s MO Down), but they have us (and the rest of the world) pondering other merger and acquisition (M&A) options and hypotheticals in the luxury industry.

We found an excellent Reuters article that provided a detailed overview of the current state of M&As, which shows some European brands have already been sold to buyers from emerging markets, including Asian companies or wealthy individuals.

We found this comment particularly interesting: "Another contributing factor to an M&A pick-up is the weaker euro which should make European brands more attractive to foreign buyers, particularly from regions such as China, Japan, India, Russia and the Middle East”, according to M&A advisers.

Another thought-provoking insight was that, “Potential buyers in China want to get a share of the big profits European luxury companies make by selling products in their fast-growing home market, while Japanese buyers are looking to tap regions outside their stagnant economy.”

Some of the M&As we’ve already explored on the MO Down include:
• The resurrection of German brand MCM (formerly known as Michael Cromer Munich) by Korean business woman Sung Joo Kim. Click here to read our earlier report.

• German brand Escada was bought by Megha Mittal, the daughter-in-law of ArcelorMittal Chief Executive Lakshmi Mittal. Click here for more details.

We must also note that Lanvin, the iconic French brand that has had a wonderful rejuvenation in recent years thanks to the creative director Alber Elbaz, is owned by a holding company Arpege SAS. The majority owner, Shaw-Lan Wang, a Taiwanese media magnate, found a silent partner in November 2009 to assist in further growing the company and hopefully keeping the other luxury conglomerates at bay for a while... so there’s no hostile takeover in sight right now.

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