July 10, 2013
LVMH Moët Hennessy Louis Vuitton's $2.6 billion deal for 80 percent control of Italian cashmere giant Loro Piana will give the French luxury conglomerate an iron lock on the entire supply chain.
The Paris-based company's sustained march toward luxury supremacy may not darken the overall manufacturing landscape, although its appetite for family-owned brands and sources of raw material is undiminished. With this deal, coming two years after its purchase of Italian jeweler Bulgari, LVMH gains a growing brand to fortify its global aspirations, while Loro Piana may benefit from LVMH's business expertise as an ongoing family-steered operation.
"LVMH now has several major engines of growth which will be valuable for funding other engines," said Milton Pedraza, CEO of The Luxury Institute, New York.
"Loro Piana will benefit from systems, processes, technologies and talents that LVMH can provide," he said.
"There are tremendous tangible and intangible benefits from having large conglomerates in the luxury world such as the exchange of ideas."
Mr. Pedraza is not affiliated with LVMH or Loro Piana, but agreed to comment as an industry expert.
Loro Piana is a family-owned business that spans six generations.
Sergio and Pier Luigi Loro Piana, the brothers who head the company, will remain 20 percent shareholders and will keep their functions at the leadership of the company.
The brand's products can be found in more than 130 directly operated stores around the world as well as select wholesale stores.
Loro Piana is known for finding and distributing rare fibers, making it an asset to other luxury brands. It is the world's largest manufacturer of cashmere.
For example, the brand's baby cashmere hails from Northern China and Mongolia. The fibers can only be attained from kid goats 12 months and under that yield no more than 30 grams of baby cashmere each.
Baby cashmere being collected
Recently, the brand discovered lotus flowers in Myanmar that require more than 6,500 stems to produce one length of hand-woven fiber.
These qualities have likely contributed to the brand's steady growth over the past few years.
The brand's sales have climbed almost 17 percent in the past three years. Revenue is expected to reach nearly $900 million in 2013. Thirty percent of its sales are from China.
Once the acquisition is complete, LVMH may help Loro Piana expand its business operations, refine its brand image and make its techniques more efficient.
LVMH's Louis Vuitton
Likewise, Loro Piana may give LVMH more latitude for growth. The conglomerate already houses Louis Vuitton, Bulgari and Moët & Hennessy, among many other brands.
LVMH has already observed promising results as shares rose 2.5 percent since the acquisition, reports Reuters.
In addition, experts say Loro Piana will continue to do business with other luxury brands.
"Loro Piana is busy today assuring their clients that there will be no changes," said Chris Ramey, president of Affluent Insights, Miami, FL. "And with the same management in place, they're probably right.
"Competitors will have to decide whether to support LVMH or not," he said.
Not just primping facades
Other luxury conglomerates have seen positive results from similar acquisitions.
For instance, together Harry Winston Inc. and Swatch Group Ltd. are likely to benefit from combining their manufacturing practices and diamond expertise with the $750 million acquisition of Harry Winston's jewelry business.
Swatch Group will get a boost from the purchase of Harry Winston Diamond Corp.’s luxury jewelry and timepiece division and, at the same time, the diamond brand’s reputation will be upheld. Moreover, Swatch will also assume up to $250 million in debt from Harry Winston (see story).
In LVMH's case, this acquisition of Loro Piana may lead to more dynamic moves for both.
"They have more leverage to take gambles, negotiate for real estate in China, negotiate for technology," Luxury Institute's Mr. Pedraza said. "There are all kinds of opportunities."
Joe McCarthy, editorial assistant on Luxury Daily, New York