How Luxury’s Two-Speed Recovery Is Reshaping the Category | The Week Ahead, BoF Professional

How Luxury’s Two-Speed Recovery Is Reshaping the Category | The Week Ahead, BoF Professional

The Big Get Bigger

  • LVMH, Kering, Prada and Hermès report quarterly results this week

  • Luxury sales at many large brands have fully rebounded from the pandemic, but smaller labels will need more time to recover

  • The uneven recovery is driving deals between conglomerates and smaller, privately held brands

The luxury brands reporting results this week have mostly fully recovered from the pandemic, though the rebound has been more impressive at some than others. First-quarter sales were up compared with the same period in 2019 by 5.5 percent at Kering, 8 percent at LVMH and a whopping 33 percent at Hermès. What all these companies have in common is their size; the supply-chain and retail disruptions of the last 18 months only underscored the need for scale; it’s increasingly difficult for independent brands to compete with the resources of a conglomerate. Analysts predict smaller luxury labels could need another year or more to rebound. Stone Island, Supreme and Zegna (which is going public via a special purpose acquisition company) are likely just the beginning of a new wave of mergers and acquisitions. Even Armani may be in play.

A deal for a prestige label, Italian or otherwise, won’t come cheap. There are only a handful of brands that are big enough to draw the attention of an LVMH or Kering, or even OTB, the Italian owner of Margiela and Diesel that is reportedly looking to make a major acquisition. And while the long-term trends may be against the independents, the global rebound in luxury sales makes it a seller’s market.

The Bottom Line: As the big get bigger, the business of managing a luxury brand is only going to grow more complex. That’s inspired a parallel race to lock down the people capable of driving global sales, whether it’s LVMH’s investments in Virgil Abloh and Phoebe Philo, or Ferragamo’s poaching of Marco Gobbetti from Burberry.

IPO Mania

  • Numerous brands, from traditional retailers to direct-to-consumer start-ups, are preparing to go public

  • Upcoming initial public offerings include Forever 21 and Brooks Brothers-owner Authentic Brands Group, rental service Rent the Runway and DTC pioneer Warby Parker

  • A hot market, start-up investors looking for an exit and brands needing cash to expand are fuelling the trend

Hardly a week goes by without another fashion IPO. Seemingly every corner of the industry is eyeing a listing, including digital fashion pioneers (Warby Parker, Rent the Runway), celebrity-backed brands (Fabletics), luxury labels (Zegna, via SPAC) and even traditional mall brands (Authentic Brands Group and Victoria’s Secret via a spinoff). Those are just the names that have been officially announced; Allbirds and Shein are the subjects of persistent IPO rumours, and SPACs formed by LVMH’s Bernard Arnault, Kering’s Pinault family and the former CEOs of Tapestry and Coach point to more listings.

Fashion’s IPO boom is the product of intersecting narratives. The digital fashion boom is now a decade old, and a growing number of brands are under pressure to exit one way or another rather than raise yet another round of funding. The pandemic has also turbocharged online spending, making these companies look even more attractive to potential investors. Traditional brands, whether Zegna, Victoria’s Secret or Brooks Brothers-owner ABG, similarly need to tap public markets for cash to fulfil ambitious turnaround and expansion plans.

The Bottom Line: The track record of fashion IPOs is mixed, with investor enthusiasm for companies like Mytheresa and The RealReal fading after an initial pop in share prices. But with the pandemic, inflation and other uncertainties clouding the market’s outlook, many brands no doubt are looking to strike while the iron is hot.

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