Buying high-end brands is harder than it looks, even if you are a luxury giant

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To get his hands on Bulgari, luxury titan Bernard Arnault courted the family behind the jeweler for 12 years before accepting a check for $ 5 billion. The pandemic may soften some high-end brand owners, but it will always be difficult to strike deals.

A pre-existing gap between the performance of many large and small designer brands has widened since the start of the pandemic. A major market share gain is underway and “some of the little guys are getting killed,” says Flavio Cereda, luxury analyst at Jefferies. A Chinese mall operator told Cereda that the top 10 brands have fallen from 45% of total luxury sales before the pandemic to 70% today, as more minor players are in a hurry.

The trend was clear in the first three months of the year, when sales of shoe designer Tod’s fell 16% and those of British trench coat designer Burberry fell 5% from the same period before. the 2019 pandemic. Industry giants Hermès and LVMH Moët Hennessy Louis Vuitton, which Arnault founded, posted sales growth of 33% and 8% respectively on the same basis.

The crisis has forced some founders to rethink their succession plans. For the first time, Italian designer Giorgio Armani said in a recent interview with Vogue that it was less important that his eponymous brand was completely independent. Tod’s founder Diego Della Valle has also hinted publicly that he will be open for sale. Investors are betting that a tougher prospect for standalone brands will send these names and others into the arms of big luxury houses like Gucci owner Kering. Tod’s share price has doubled this year, in large part due to trading speculation.

However, acquisitions come up against obstacles. The valuation is a no-brainer, as even struggling listed brands look expensive. The luxury sector as a whole is trading at 31.9 times projected earnings, down from a 15-year average of 18.4 times, according to HSBC calculations. The last time industry stocks were this expensive was during the dot-com bubble.

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