SECTOR FOCUS Luxury sector shrinks before Covid and Brexit, M&A activity grows

What makes stores relevant in an online age?

What makes stores relevant in an online age?

The world’s Top 100 luxury goods companies generated revenues of $252bn in 2020 [1], down 12% from the $261.13bn seen in 2019 and only marginally ahead of the $247bn recorded in 2018. 

By 2017 all luxury brands were increasingly talking about online in their annual reports. In 2020 that rocketed up by 46%, reflecting how the pandemic had suddenly focused attention on digital.

So finds the RetailX Luxury Sector Report, which outlines how this contraction can be squarely placed at the door of the pandemic, which radically shifted spending on all goods online and, with economic uncertainty globally across the first half of 2020, saw overall sales decline markedly [2]

The bulk of luxury retail takes place in stores – some 75% in 2020 (see Figure 2) – and within travel. The rolling lockdowns and consumer reluctance to go out had a large impact on sales. The near-cessation of travel, plus the cancellation of many events, also had a pivotal impact on the global luxury market, with sales through airports and luxury cruises seeing rapid and deep declines in early 2020. 

That has started to reverse in 2021 and 2022 as international travel tentatively restarted. Shoppers slowly returning to physical retail leaves stores accounting for 75% of luxury retail sales globally, with online accounting for 23%. The remaining 2% comes from travel-based luxury retail [3]

This small slice is set to increase in significance to the luxury sector as international travel starts to reopen and those airport luxury retailers who leveraged online shopping in the pandemic continue to thrive through this channel as they fill a gap left by many retail outlets in shopping malls being closed. 

Aside from dealing with the shifts in consumer habits generated by the pandemic, the industry has also seen a wealth of mergers and acquisitions (M&A) activity across 2020 and into 2021, with 65 deals in the apparel and accessories sector of the fashion and luxury goods industry worldwide in 2020. There were a total of 277 merger and acquisition deals across the fashion and luxury goods industry [4]

Some of the most notable have been LVHM’s $16bn acquisition of Tiffany & Co at the very end of 2019. VF Corporation (VFC) acquired Supreme for $2.1bn and Moncler purchased Stone Island for $1.4bn. Exor, the Italian holding company for Italy’s Agnelli family, invested €541 million in French shoemaker Christian Louboutin. 

Many other luxury companies, including Richemont and Kering Group, are also on the acquisition trail [5]

This M&A activity is the result of the increasing shift to digital selling – both online and innovations in in-store retail – wrought by the pandemic. Luxury business tend to only thrive once they are scaled to a certain size: the larger the company, the more technology investment can be leveraged across multiple brands in multiple geographies.

Some of the M&A activity however has also been driven by opportunity. With some luxury marques suffering financially from the pandemic’s impact on their over reliance on physical retail, there is a ready stream of “buys” for those luxury companies that are still cash rich and looking to grow.

References

[1] Deloitte, https://www2.deloitte.com/content/dam/Deloitte/at/Documents/consumer-business/at-global-powers-of-luxury-goods-2021.pdf

[2] Bain & co https://www.bain.com/about/media-center/press-releases/2020/covid_19_crisis_ pushes_luxury_to_sharpest_fall_ever_but_catalyses_industrys_ability_to_transform/

[3] Statista https://www.statista.com/statistics/883157/share-of-the-global-personal-luxury-goods-market-by-channel/

[4] Statista https://www.statista.com/statistics/1039182/fashion-and-luxury-goods-number-of-man­da-deals-worldwide-by-sector/

[5] Luxury Society https://www.luxurysociety.com/en/articles/2021/03/opinion-luxury-ma-opportu­nities-will-heat-up-post-covid-heres-why

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