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Message: <blockquote data-quote="Dheepa" data-source="post: 69295" data-attributes="member: 1572">Hi everyone! As always feel free to chime in with your own thoughts. Like Neville, I'm not an expert in fashion at all (been changing in and out of pyjamas throughout lockdown 😅) so I'd be super interested in hearing from any of you that do actually buy luxury items!So what’s most interesting to me about LVMH and L-Catterton is that the recent string of acquisitions by both point to a trend of consolidation within the luxury goods industry. There are a couple of reasons for this:1. High fixed costs – The luxury goods industry doesn’t just sell bags, clothes, shoes etc. It sells the luxury experience. That luxury experience is really only something that can be delivered in person, whether that’s because you have champagne to keep you company while shopping or because you have a host of tailors on call to alter garments you want to buy.   Add to that, the cost of moving to e-commerce platforms and the increased reliance on digital marketing (I’m thinking of the online fashion weeks we saw happening last year), I think its fair to say that the luxury goods industry suffers from the retail industries challenges, but on steroids. From LVMH’s perspective, my guess is that having more brands under its wing allows it to sell more and by sheer volume, create better profit margins. From these smaller brands’ perspective, having a large conglomerate and a large PE house back your business obviously helps deal with, as Neville has pointed out above, the shortfall in revenue due to recession induced reduced sales.2. The Chinese market – According to the FT, Chinese tourists account for two thirds of the sales in Europe’s luxury goods market. Evidently COVID put a stop to that buying spree. I think it’s highly possible that while production of luxury goods brands may stay within Europe (to preserve authenticity, legacy etc.), these brands may start reducing their physical presence in Europe and instead open more up stores in China. If you’re a smaller luxury goods brand without quite as much international reach, this is just another reason that LVMH and L Catterton’s offer will be hard to turn down.Thinking about the legal implications of this consolidation trend, besides the obvious increase in M&A activity, I think we’re likely to also see a lot of disposals. I’m of the opinion that one of the biggest risks with companies that seem to be buying everything and anything is that there is often less of an emphasis on synergies, fit and even potential upside. On the fit point, L-Catterton (focused on consumer retail since even before the LVMH tie up) made a $400m investment into Norwegian Cruise Line early last year, and it’s going to be interesting to see how that pans out. The other risk I foresee is that there will likely be many brands that continue to underperform even once COVID and recession related issues have passed. After all, the luxury goods industry is also suffering from scrutiny on the sustainability of its supply chain process (from making the goods to disposing them) and the changing tastes of younger spenders (see <a href="https://www.forbes.com/sites/walterloeb/2019/05/15/resale-fashion-industry-bigger-and-more-disruptive-than-you-think/?sh=7488e358609b" target="_blank">here</a> on the boom in resale fashion). It seems to me like targeted investment on a few key brands would be a better strategy to deal with these long-term issues (which would potentially also allow conglomerates to benefit from greater long term upside).The second legal implication I foresee is greater competition/antitrust scrutiny. Obviously, from a strictly legal perspective, an acquisition by LVMH of say another luxury spirits/alcohol producer could only be deemed anti-competitive if LVMH already owned a substantial share of that market. As it stands, it only owns Moet, Hennessey, Dom Perignon and now Ace of Spades. It would be interesting to see, provided this buying spree continues within the industry, if enforcing bodies start to take issue with the consolidation of the luxury goods market as a whole (beyond merely analysing market share within specific categories of goods).</blockquote>

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