The world might be marching in an uncertain future, but dealmakers are still feeling good about fashion and luxury.
A Deloitte study of mergers and acquisitions trends found that private equity players and investors believe the fashion and luxury space will grow between 5 and 10 percent annually over the next three years.
The areas of digital luxury and cosmetics and fragrances are projected to outperform, while apparel and accessories and watches and jewelry keep up with the average growth level.
This expansion is expected to come amid a landscape that’s becoming ever-more treacherous. (Witness the U.S.-China trade war that President Trump kicked off with tariffs on $34 billion worth of Chinese imports Friday.)
“There is a substantial amount of uncertainty mainly driven by a globalization slowdown, a rise of populism in developed nations and prominent geopolitical instabilities affecting the global scenario,” the Deloitte study said, describing the unstable environment as a “major challenge” for fashion.
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But dealmakers plan to charge ahead.
Deloitte found that 89 percent of the private equity executives and investors surveyed planned to acquire at least one fashion or luxury company this year. Seventy-three percent said apparel and accessories was still the most attractive sector for a deal, while 60 percent singled out cosmetics and fragrances and just 19 percent pointed to watches and jewelry.
Just 16 percent of the respondents pointed to digital luxury as a good sector for M&A, showing that a promising sector with lots of growth isn’t necessarily the easiest place to get a deal done.
“Virtualization trends in the consumer purchasing process are leading to the creation of a new cluster of firms focusing on digital luxury, mainly in the cosmetics and fragrance sector,” Deloitte said. “The appeal of apparel and accessories has fallen, yet the sector remains the primary choice for investors, attracted by high-margin performances.”
Deloitte logged 217 fashion and luxury deals last year, including 77 in the apparel and accessories space.
The biggest deal of the year was the Arnault family’s $13.7 billion acquisition of Christian Dior, which brought the business under the umbrella of LVMH Moët Hennessy Louis Vuitton. Coach Inc. also bought Kate Spade & Co. for $2.4 billion, while Michael Kors Holdings Ltd. acquired Jimmy Choo for $1.2 billion. (The largest deal in the beauty space was Unilever’s $2.4 billion takeover of skin-care business Carver Korea).
The survey found buyers see taking a business overseas as their best opportunity for growth.
“Internationalization is now the main strategic lever [for 44 percent of respondents] adopted by fashion and luxury investors to grow their asset value,” Deloitte said.
But not all opportunities are abroad.
“Even though its adoption has weakened since the previous year, investors still see digital strategy design (16 percent) as a relevant topic for fashion and luxury companies seeking faster growth,” Deloitte said. Additionally, “Frequently, funds acquire underperforming companies aiming to bring sales growth and margins up to the average sector performance.”