Wheeling & Dealing: Mergers and Acquisitions Are on the Rise in European Fashion Companies.
For the past five months there have been many headlines broadcasting the selling and purchasing of many fashion and beauty companies with LVMH being a part of several of the headlines. The most recent extravagant purchase of Bulgari for $6 billion continues to capture the attention of fashion followers around the world. As the economy and retail environment continues to change and revive, banks and companies are now ready to re-invest in new growth opportunities. Many of the recent deals completed by LVMH have been viewed as positive actions by the acquired companies as it brings the opportunity to build their business in ways that only a large conglomerate with a strong financial backing can.
Currently companies are looking to acquire and invest in both luxury and lifestyle brands that have the potential to grow globally. It is through potential global growth that investors and buyers are focused on. In addition to the LVMH centered headlines, other headlines and rumors continue within the industry such as the rumors surrounding several takeover speculations for Tiffany & Co. as well as the rumors surrounding Burberry and the recent news regarding Jimmy Choo and AllSaints and the several companies looking to go public. And what types of companies are looking to make these purchases and continue to wheel and deal? The types of companies that are most active in this merger and acquisition trend of cash rich private equity firms who are currently in the market both buying and selling.
Not only is this trend happening in Europe but there have been 53 retail buyouts in the U.S. this year totaling $9.31 billion which is a huge increase to the $1.6 billion in deals seen just a year ago. Analysts are saying there hasn’t been a better time for mergers and acquisitions. Companies have been piling up cash and now they are finding a use for it. An additional cause for this trend stems for the oversaturation in the marketplace and the overabundance of production. Organic growth is increasingly more difficult to achieve leaving much of the growth potential in acquisitions. This strategy of acquisitions and global growth seems to be one reason for the record sales and earnings LVMH is experiencing and remains confident about.
This is only the beginning as many companies are either in expansion mode or are finding the need to consolidate which will continue to support this trend.
Below is a list of some of the other companies who have been active participants in this trend:
- J. Crew and it’s $3 billion acquisition by TPG Capital and Leonard Green Partners
- The acquisition of Gymboree Corp.
- Walgreens to buy Drugstore.com
- Revlon Inc. bought out Sinful Colors brand
- Nordstrom Inc. acquired HauteLook Inc. for $270 million
- LVMH huge purchase of Bulgari and its controversial stake in Hermes
- Kellwood Co. bought Rebecca Taylor in January
- Perry Ellis International Inc. acquired Rafaella Apparel Group from Cerberus Capital
Rising Raw Material Costs Impact Fast Fashion: H&M Profits Challenged.
H&M (Hennes & Mauritz AB) is the world’s third largest fashion retailer but it posted a huge profit drop of 30% this first quarter as a result of soaring cotton prices and negative currency effects in the market place which impacted the company’s gross margin. Higher transportation costs, the negative U.S. dollar and accelerated inflation costs in sourcing markets are the main factors effecting H&M’s profit.
Rather than passing on retail increases to their customer, H&M decided to strengthen its price positioning to maintain its competitive edge which in turn cut into their margin or profit hoping this strategy would pay off in the long term. The company’s goal is to increase sales volume in order to counter the increase costs.
H&M is not the only retailer feeling the pinch though many retailers are approaching this most recent challenge in different ways. One this is for many price sensitive retailers like other fast fashion brands, Target, Wal-Mart and the like, this is one challenge that they will be dealing with for the remainder of the year.
China Continues to Be Impacted By Rising Material and Labor Costs.
Costs are rising for the Chinese apparel and textile production industry as a result of higher labor and material costs and a maturing Chinese economy. These cost increases have led to the closing of several factories and cost control measures with higher prices to come for customers.
Not only are raw materials such as cotton, wool and silk experiencing increases but the labor force has demanded higher salaries which are now needed to attract workers. Therefore, big changes are necessary for the world’s largest maker and exporter of apparel.
The increasing prices in raw materials have already led to a 10% increase in production costs over last year for many companies and the migrant work force that these companies once relied on has changed. China has relied on migrant workers for a long time now which has brought a steady stream of cheap labor to wealthier cities and regions but as wealth begins to trickle into the countryside, many of these workers are finding other employment options closer to home.
China is now partnering more closely with the overseas apparel companies it does business with in order to find ways of controlling production costs. What was once a one-sided relationship for these Chinese companies is now becoming a two-way partnership. With the closure of so many factories and the increase in costs and labor there is more of a balance between the supply and demand in China’s manufacturing sector.
The Economy Continues to Impact the Retail Landscape: L.A. Faces Continued Vacancies as a Result.
Throughout the U.S. retailers have closed their doors and new ones have appeared in their place. The landscape is changing everywhere from New York’s Fifth Avenue to L.A. The past 3 years have brought an incredible amount of change with companies going into bankruptcy and closing their doors, consolidating stores and new companies looking to expand in key areas of the U.S. market.
New York’s Fifth Avenue was a shopping district of little change but in 2008 that ended. In 2009 more stores closed and opened on the avenue than ever before. Despite some occupancy remaining open the avenue continues to have new stores that never existed there before. Even smaller shopping districts like Chicago’s Oak Street have retail space that remains open today after several store closings only few retailers have moved in to take over some of the occupancy. L.A.’s retail landscape continues to make the news as they continue to feel the biting effects on the national and state economy. The landscape in L.A. is unrecognizable to some as it has been completely overhauled in recent years with rampant store closings, moves and new store openings. Many have exited the market and continue to exit. Unfortunately, the southern California market has been slammed with a multitude of economic crisis from housing to the stock market and the state budget crisis. Retailers who remain are focusing on making their businesses more efficient so that they can survive and see if and when the market returns.
The Bridal Trend Continues as Isaac Mizrahi Joins the Bridal Market
Isaac Mizrahi launched his wedding gown collection for the member-only ecommerce site The Aisle New York collection the beginning of this month. The designer returns to bridal but this time offering price points between $2200 and $4500.