There Is Never A Better Time To Shop Luxury

Finally LVMH completed its $15.8 billion acquisition of Tiffany & Co. this month with slight adjustment in prices to US$15.8 billion (For disclosure: I have been accumulating Tiffany shares up the to the acquisition announcement last year) and I think this is a strategic one for LVMH to add this to their watches & jewelry portfolio. Smart move indeed. There are not many Tiffany’s around LVMH knows how to nurture the brand while growing it. Moncler’s acquisition of Stone Island for $1.4 billion also makes strategic sense although a little high on valuation. For brands that have the steady cash flow and reserve, there is never a better time to shop.

Expect a busy 2021 ahead for luxury M&A as buyers will be bargaining hunting. And many zombie brands will either go out of business or sold at bargain basement price to mall owners as they struggle to fill their spaces. In general there are at least 330 companies who are in deep distress beyond any simple restructuring. For them it is not a temporarily cash flow problem, it is a outdated brand with legacy costs structure, locked-in channel and high debt leverage. Out of those 330, there are about 50 that is worth acquiring if the valuation is right,.

There will four types of M&A this year:

1. Big conglomerates and PE firms looking for an opportunity to consolidate or acquire under performing brands Particular brands that resonate with younger consumers (Supreme etc.) are particularly highly prized.
2. Midsize luxury brands stepping up vertical integration by investing in distressed parts of their supply chain and we could see formation of new luxury conglomerates.
3. Big conglomerates jumping on the early investment in Ai-powered start-ups, AR start-ups and experiential luxury.
4. Big conglomerates joining ventures with China companies to strengthen China’s luxury market never ending demand for foreign brands.

The only part of the industry that yet to see the light at the end of the tunnel is retailers, the digital disruption is not yet over. There is a lot of legacy thinking and assets that needs to be got rid of. Amazon is gearing up for a play. But luxury fashion, whose sale depends, at least in conventional industry wisdom, not only on quality but on exclusivity and intangibles like "experience" and “storytelling” did not see itself there. But I would not underestimate Amazon’s ability to solve that problem. I remembered 20 years ago talking to the CEO of the largest bookstore chains in the US and he said people needed to flip open a book before they buy one. They say the same thing about luxury fashion.

Although it is somewhat crazy to think about shopping in High Street or Rodeo Drive now, but some months later we’ll wake up and realize that people just want to be happy. If history can teach us anything, the 'roaring 20s' was a reaction to the Spanish Flu epidemic of 1919. Once the carnage was over and people emerged from their isolation - they basically went crazy and partied nonstop for 8 years. Go into your wardrobe and get your Guccis ready. Who knows when you need it!