The luxury sector goes shopping

María Eugenia Girón. Professor. IE Business School

1 January 2014

Over the last year, we have witnessed giant steps taken by famous brands as they embark on a race to acquire companies that can guarantee access to the most exclusive raw materials.

It would appear that investment winds are blowing in the opposite direction to normal in the luxury sector. Diversification of premium brands is now going against the grain. In the last year luxury companies have splurged on mergers and acquisitions in a bid to secure supplies of raw materials, looking for somewhere to invest but using strict criteria to ensure authenticity. This process of vertical integration permits them to guarantee quality and availability of the most valued raw materials. Could it be because citizens today see traceability as important, as do clients of luxury products?  Is that why the battle for exclusivity and quality can be won by controlling sources of fabrics, fibers, precious stones, leather and fur?

We have to admire luxury giant LVMH  for its purchase of Loro Piana (www.loropiana.com), thus ensuring the availability of cashmere and other luxury fibres like alpaca and vicuna. Another example is the purchase by Chanel in 2012 of Barrie Knitwear (www.barrie.co.uk), the Scottish cashmere specialist, and Causse (www.causse-gantier.fr), purveyor of gloves, having already bought master embroiderer (www.lesage-paris.com). Further examples of this trend include the acquisition of leather tanning specialists Annonay (www.tannerie-annonay.fr) by Hermés in France’s Ródano Valley, to add to the two tanneries they already have in France and Italy, and the reptile tannery they have in Louisiana. In the cosmetics and fragrance sector, leading brands are forging alliances and investing to ensure the quality of roses, jasmines and other flowers.

Diversification initiatives among luxury firms are full of surprises. First, they focused on ensuring control of the experience by opening mega-shops to showcase and sell their product. Then they moved into the hotel sector when Armani and Bulgari  opened grand hotels in Milan (www.armanihotels.com) and Bali (www.bulgarihotels.com). Naples-based Dolce & Gabbana recreated their taste for all things ornamental and Sicilian cuisine in their Restaurant in Milan, Gold. Recently, Swarovski (www.swarovski.com) communicated their new facet as a film producer, opening up another line of diversification.

These investments are aimed at extending the dream and lifestyle that each brand represents beyond the point of sale. The mission was to enable clients to discover and enjoy the brand experience in all its splendor so that it would form an integral part of his or her aspirations. Now luxury firms can seduce the client through new developments in design and digital technology, in addition to ensuring the quality, authenticity, and exclusivity of the product.

From Asia, where we find the goats and rabbits that produce mohair, cashmere and angora wool, to Latin America, where the vicuna, alpaca and guanaco are bred, and vegetable fibers like the panama are grown, all these raw materials are now objects of desire. The craftsmanship of a product is a differentiating factor. Where will all this competition to extend control lead to in the end? First the artisan, then came the tanner - will the next stop for the luxury sector be to buy livestock followed by the company that supplies the fodder to feed it? 

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