The blockbuster $16.2 billion deal that’s bringing Tiffany & Co. into the LVMH Moët Hennessy Louis Vuitton fold stands out for its size — but surely Bernard Arnault won’t be the last fashion mogul to reach for the checkbook.
In a world where the Millennials are flexing their economic muscles, Gen Z’s take on the zeitgeist is starting to matter more and everything is available online, the need for often radical reinvention is everywhere.
Tiffany was already on the move under chief executive officer Alessandro Bogliolo, appealing to Chinese Millennials, stressing sustainability in its supply chain and stripping the brand to its core, trying to in a sense own the idea of “love” with its engagement jewelry.
But even for a big brand like Tiffany, with sales of $4.3 billion, it can be hard to push through all alone when competitors have the resources of much larger groups, like LVMH or Compagnie Financière Richemont, or, increasingly, the smaller empires like Tapestry Inc. or Capri Holdings in the U.S. It’s a lesson seen also in Versace’s sale to Capri and the Kate Spade deal with Tapestry.
And in sectors where there aren’t big portfolio players looking to consolidate their power, there is the constant need to fend off the disruptors and the digital darlings that are going direct to the consumer. Walmart Inc. is the case study there, which decided to really take digital reinvention seriously and shelled out $3.3 billion to buy Jet.com and bring in some new blood.
To grow and find a workable perch in a fast-moving and ever-more digital world, companies are going to have to continue to pair up.
“There is a lot of consolidation on the horizon,” said Michael Brown, a partner in A.T. Kearney’s consumer and retail practice. “We’re going to continue to see a very, very active deal market for several years to come.
“The thing that’s driving it right now is the fragmentation being created by the new e-commerce entrants,” he said. “They are really just chipping away at the established brands and the established brands still need to invest in physical stores and digital capabilities and it’s a very expensive proposition.”
And Amazon as well as many of the ventured-backed entrants are content to spend and spend on their disruption, making it harder for the established players to make a buck.
“You can still make money in fashion,” Brown said. “But you’ve got to take a look at what some of the leaders are doing in retail right now.”
He said the companies at the top are getting better at connecting their physical and digital touch points and working to create compelling shopping environments that rely on more than fast shipping of the cheapest price.
“Unique goods that people can’t buy at a comparable price anywhere else will always win, people will line up outside your store,” he said. “The priced-based convenience play is being won by Target, Walmart and the off-price players right now. That’s a tough place to play right now.”
For companies looking to make a move beyond their base, the market is still willing to lend them funds to chase their dreams.
“For a compelling story or a compelling business plan, go-forward strategy, the money is there,” Brown said. “We’ve seen retail take on a tremendous amount of debt over the last 15, 20 years — its led to the failure of a lot of companies, but it’s also fueled the growth in acquisitions. The money is already there if you build the case.”