Luxury retail giants with a penchant for snapping up fashion houses are on the rise. Similar to a trend we see in the music industry, some fashion houses staunchly assert their independence and refuse to merge for as long as they’re able, while others seem to have worked the option into their business plan. Regardless, the trend gives us a clear forecast into the future of the business of fashion. Only the strongest brands have been able to avoid being acquired, and even then, the proverbial vultures continue to circle in anticipation of a chance to scoop up defiant heritage brands that are still holding out. As our spending patterns and shopping habits change, what factors are pushing fashion brands to sell, or not to sell, to luxury retail giants?
Adjusting to Online Retail is Hitting Some Brands Hard
(Chanel Christmas Decorations Inside Beijing’s Shin Kong Place. Source: MaoSuit.com)
Many fashion lines are struggling as online stores threaten to outperform their brick-and-mortar counterparts at shopping centres. As online shopping becomes the norm, the chain of resulting circumstances has backed some fashion brands into a corner when it comes to making strong profits and expanding. Adaptation to the new way that shoppers consume is something some fashion houses are struggling to get ahead of. Take the case of heritage brand Chanel, who broke the record for paying the highest price for a retail space in Los Angeles’ history in 2015, according to the the Wall Street Journal. The store was priced at a shocking $13,000 USD per square foot. The following year, leaked reports revealed the privately owned company had suffered a 35% dip in profits. Though we can’t be absolutely sure the move was directly responsible for hurting Chanel’s bottom line, it could be read as a cautionary tale to other brands that are hoping to stay privately and independently owned. The traffic on city high streets could pale in comparison to the traffic online soon enough, and as the industry reacts to people’s new buying patterns, big investments into real estate seem like a risky move.
Heritage Brands are Fighting Back Against Luxury Brand Super Groups
(Axel Dumas, CEO of Hermes. Source: http://www.buro247.sg)
The choice to join a family of brands like LVMH (owner of Moet, Hennessy, and Louis Vuitton to name a few) is understandably viewed by some fashion houses as the beginning of an erosion of the brand’s authenticity. An identity crisis of sorts could follow, leaving many long-time buyers who like the idea of purchasing art from the artist, so to speak, to feel less personally related to the brand. Companies like Hermes and Chanel are inseparable in the public eye from their respective, eponymous founders. That strand of authenticity is also inseparable from the price tag’s justification for many, and resistance to being acquired becomes a brand’s point of pride. According to Forbes, LVMH has made aggressive attempts to buy Hermes share by share since the current chair, Axel Dumas, is firm in his decision not to sell (as are the rest of the major shareholders). This attempt was collectively blocked by Hermes shareholders and has led to much tension, not to mention what could be seen as a deeper resolve to maintain independence. The optics of that move could be an essential component of keeping the brand strong.
As Department Stores Die, Mid-Priced Brands Seek Relief
Mid-priced brands, sometimes referred to as “affordable luxury”, are in a strange position right now. Sandwiched between retail giants that are relatively inexpensive like Zara, and the heritage brands discussed earlier like Chanel, the fashion lines that aren’t particularly cheap but also aren’t particularly prestigious are wading through a profit-plunging gray area. As fewer consumers shop at big department stores where brands on the low end of luxury like Kate Spade and Michael Kors used to shine, profits for the department stores and the brands inside them start to dip. Simply put, consumers who can afford Chanel and Hermes continue to spend as usual. But the consumers who might have sprung on a mid-priced purse or watch on a whim at the mall just aren’t shopping there anymore. Without a cult following or an affordable price tag, fashion brands can be left with no choice but to join forces and merge with other brands or sell to groups like LVMH to keep their heads above water.
Summing Up – Is Resistance Futile?
In summation, weak cultural capital, dependency on department store sales, and prices positioned at the low-end of the luxury cost-scale is a recipe for disaster for a fashion brand hoping to resist merging or selling. The question is whether remaining independent is a luxury that brands can afford and, if so, for how long? Heritage brands on the luxury end of the spectrum need both their high-end clients and their healthy reputation to remain intact if they want to dodge being scooped up by a super-group of brands. Affordable retail giants are safe for now. It seems in this era, polarization is in the air, from the political zeitgeist right down to our socks.