MARKETING/DESIGN/CONSUMER TRENDS/INSPIRATIONS Cognac & Brandy News for Consumers & Industry Experts
No question that luxury companies are consolidating.
What are the motivations?
Controlling more suppliers by acquiring them. LVMH bought out Heng Long in 2011 to control supplies of exotic skins. Note that HL was also a supplier to Hermès which also explains that one takes control of a supplier to better manage supplies but also limit supplies to its competitors.
These suppliers can also serve multiple internal brands which can now gain access to specialized suppliers and increase overall quality, standards and broader economies of scale.
This also allows to better cross-market. Their is an influx of bargaining power when one controls supplies, manufacture, and distribution. For instance, LVMH also acquired Neiman Marcus, a major chain store in the USA for luxury goods.
The bargaining power extends to other intermediaries than the traditional channels, such as it increases bargaining power to get deals, such as:
With the Media: “I pay for an ad in your magazine for this brand and you give me a free editorial for that brand – thank you very much!”
With Retailers: “I let you have this brand and this brand, if you take this brand, this brand and this brand – thank you very much!”
The acquisition of luxury brands by other luxury brands does not warranty success. Sometimes the motivation is to acquire talents. One talented person can be used behind several brands.
Purchasing more recent luxury luxury companies allows to inject new blood in the old one, and one should not let small seeds become bigger seeds in fear that these might create some shades in the future.
Older brands are not less susceptible to decline for let’s say having been in the market longer. In fact, on the contrary older luxury brands which are being ran independently are more in jeopardy than any other. They suffer from the lack of synergies and dynamism multiple luxury brands gain from being part of a group of brands.
One very common tool to explain this phenomenon is the Boston Consulting Group matrix which created in the 1970s explains a basic dynamic between product portfolios (or brands) inside 4 quadrants. In essence, some markets have more or less growth, and the company has more or less market shares in these markets. One of the founder of Taco Bell told me one day: “it is difficult to make a ding with one thing. One is better off having a few businesses going at the same time, so as to use the one that works well to support the new ventures or the businesses needing help”.
It is hard to be patient if you only have one gig going on, or all your eggs in the same basket, but if one has several baskets and several brands it is either to balance things out and let the time do its job.
With the current trends for technology and wearable media, the watch industry is declining and the future luxury watch might have more digital gadgets than stones. Hence, with the advance of electronics upscale and luxury watches might less require the mechanical and jewelry skills pass down from one generation to the other. In comparison, what has happen to Kodak for its camera to benefit cell phone manufacturers is also impacting watch maker since watches are becoming less relevant to provide time. It is possible that the traditional watch making goes away against digital media wristwatch.
One of the characteristics of luxury brands is uniqueness. As companies merger and acquire each other there is less individualism and more uniformity of the leadership in these companies. The risk is that these companies loose their relevance to the market and start becoming more premium and less luxurious.
One solution is to foster independence of each brand for creativity, while keeping the whole group connected.