This year, luxury companies were more likely to try to get out of contracts than to sign new ones. That could soon change as money picks up on the balance sheets of the biggest players, while independent brands come under the pressure of investing.
It is easy to see that contracts were being made in the region at the time of the pandemic. This month came to an exception: Italian clothing brand Moncler MONC -1.22%
he announced a deal with Stone Island in a trade that valued the smallest streetwear competitor at € 1.2 billion, or $ 1.4 billion at current exchange rates. Furthermore, the 2020 tone was set by LVMH Moët Hennessy Louis Vuitton‘s
legal push to get out of its $ 16 billion pre-pandemic bid for U.S. jeweler Tiffany & Co., which was finally settled out of court with a small price discount.
Management teams were too busy cutting costs and scrambling to sell online at the time of locks to consider the attraction that comes with buying a brand new one. Companies like Burberry that investors have traditionally seen as targets that could stay on the shelf despite a sharp valuation fall. Based on its share price, the British trench coat maker could pick up at one point in March for half of what it was ordering in January.
Soon, however, the biggest luxury brands will be against their old legacy of what should be done with the heaps of money they generate. By the end of next year, the top five European players will have a total net cash of around € 3 billion by market value, based on FactSet estimates. While Hermès, the maker of the Birkin handbag, is happy to keep billions of euros sitting on his books, more proprietary names like LVMH and its competitor Kering, which owns the Gucci brand, may consider contracts to replace them.
Even after Tiffany’s demise, LVMH will have a moderate net debt of earnings about one hour before interest, taxes, depreciation and depreciation. It has been relevant in the wake of previous declines. The French company became interested in a family-owned Hermès in 2010 but eventually failed to take over. He bought the Bulgarian Italian jeweler out of private ownership in 2011.
Next year, there may be opportunities to build other independent names. After this year’s big move toward digital buying, it’s more likely to question whether their own stand-alone days are numbered under registered brands like Tod, or those that are still in the hands of founders as the shoemaker Christian Louboutin.
By the middle of the decade, e-commerce is expected to generate nearly a third of global luxury sales, according to estimates by consulting firm Bain & Company. Even before the pandemic, a distinct gap had opened up between the strong sales performance of major brands such as Louis Vuitton and Gucci and the phenomenal growth of many smaller peers. Without investment in digital, independent companies will eventually collapse. Some may prefer to sell out to deeper peers. Others could come together to create new luxury collections, similar to Moncler’s Stone Island contract.
For now, the industry is still trying to figure out what business will look like when the crisis is over. But the pandemic has also exacerbated the need for scale and digital knowledge. Maybe Moncler is setting a move.
Write to Carol Ryan at [email protected]
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