Kering Group has an open but cautious stance on acquisitions. The Group’s current priority is to develop the core capabilities of the brand from a medium and long-term perspective.

Editor’s note: This article is from WeChat public account “LADYMAX” (ID: lmfashionnews) , author Drizzie, reproduced with permission.

Last year, LVMH announced that it had swept Tiffany & Co. for $ 16.2 billion, and the balance of luxury goods was once again broken. The industry then set its sights on the biting Kering Group, looking forward to a battle for acquisitions.

Especially since Kering announced its return to the acquisition market last year, people have been speculating on potential acquisition targets. Sure enough, there was news in December that Kering Group was in tentative negotiations with Italian luxury down brand Moncler on the acquisition transaction, but did not disclose specific details such as the offer.

Given Moncler’s excellent performance in the capital market in recent years, the news has attracted a lot of attention, spurring Moncler’s stock price to soar 7%. Moncler CEO Remo Ruffini also told Bloomberg that he regularly meets with other industry players, including Kering Group, to explore Moncler’s strategic potential opportunities.

However, at the Kering Group’s 2019 financial report yesterday, the chairman of the group, François-Henri Pinault, responded to the analyst’s takeover position for the first time in two months. He first denied that Kering’s acquisition of Moncler rumor.

“I won’t comment on rumors. But Remo Ruffini is one of the key figures of the Fashion Convention, and we are in regular contact as the Fashion Convention conference is coming in April. Currently in terms of mergers and acquisitions, the group No active projects yet. “

Last August, François-Henri Pinault was entrusted by French President Macron on the eve of the opening of the G7 Summit. He led leading global fashion participants including the industry to sign a sustainable agreement with the nature of an industry alliance, the Fashion Pact. ). In recent years, Kering Group has made sustainable development one of the most important group strategies, and it has been promoted from the group’s own practice to the industry since 2019.

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Regarding Kering’s current acquisition position, François-Henri Pinault responded that the group does not want to acquire a brand that competes directly with the current brand because it will destroy the brand value.

He emphasized that the Group has very high requirements for improving its brand portfolio through mergers and acquisitions, and will not go for blind acquisitions because of the emergence of targets in the market. But this does not mean that Kering Group is not looking for acquisition opportunities. On the contrary, the group is actively looking for potential acquisition targets. “We are not passive, but we are very selective.”

Since the four quarters of Gucci’s slowing growth, discussions about Kering’s over-reliance on Gucci and the need to find new growth points through acquisitions to slow down the growth slowdown have continued. According to the 2019 financial report released yesterday, Gucci contributed 60% of the group’s sales revenue, all other businesses contributed the remaining 40%, and Gucci also contributed 82% of its profits.

But François-Henri Pinault denies that the group has a problem with brand balance. He believes that the presence of Gucci has created a virtuous circle for other brands in the group. From the entire earnings conference, Kering’s focus is still on the organic growth of core brands, including the growth of Gucci in the next stage, and the enhancement and consolidation of Saint Laurent, Balenciaga and Bottega Veneta. Alexander McQueen was also mentioned frequently at earnings conferences.

The above core brands do have huge room for improvement.

For example, Saint Laurent is currently overly dependent on leather goods, and the current sales of leather goods account for 70%. This is contrary to the brand’s high fashion house background, and the garment business needs to be strengthened again.

Bottega Veneta has delayed delivery of goods at the end of 2019, which means that this brand that has just reversed the situation not only needs to reform its image, but also improve its supply chain and production. Although Bottega Veneta’s performance recovered earlier than expected, the group acknowledged that more investment is needed to consolidate its growth, and the brand should not expect linear growth, especially at an early stage.

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Gucci is focusing its attention on the retail improvement plan. The picture shows the brand’s pop-up store in Denver, USA

As for Gucci’s problem, it is more oriented towards the brand’s internal optimization. For example, to improve the sales network on the existing basis, including the location, scale and quality of the store, the Group stated that 60% of Gucci stores were renovated at the end of last year. Gucci also plans to reduce wholesale sales from 15% to below 10%. Last year, Gucci retail reached about 45,000 euros per square meter, which has ranked among the best performances in the industry. In addition, Gucci’s design style is also gently transformed with the cooperation of creative director Alessandro Michele and the sales team, simplifying complexity.

Under constant internal calibration, Gucci expects to outperform the industry average growth rate and maintain a high single-digit growth rate. Last year, Gucci’s growth rate was about twice the industry’s average growth rate.

This may explain Kering’s attitude towards acquisitions, which is open but cautious, because the group’s current priority is to develop its core core capabilities from a medium and long-term perspective. At present, Gucci’s annual sales of 9.6 billion euros are one step away from its previous target of 10 billion euros. Saint Laurent exceeded 2 billion euros, Bottega Veneta and Balenciaga exceeded 1 billion euros, and Alexander McQueen exceeded 500 million euros.

In fact, although Kering and LVMH have followed suit in recent years, they have actually adopted different acquisition strategies. LVMH, which was built by the acquired ambitions, did not stop searching for targets for a while, but Kering Group has continuously stripped the brand in the past few years. From 2018, it has sold off non-Puma, Stella McCartney and Christopher Kane, etc. Luxury brand.

Compared to LVMH, the Kering Group has one more hidden important criterion in assessing acquisition targets, namely the sustainable development attributes of the brand. In view of the importance that Kering Group attaches to sustainable development in recent years, the Group must not only evaluate the target from the brand’s own business and the Kering Group’s brand portfolio, but also put forward value requirements to the target. Kering Group particularly emphasized that the group has reduced its overall environmental impact by 14% over the past four years.

It is worth noting that due to Kering’s leadership in the Fashion Convention, the group will establish closer relationships with other companies, which will help create opportunities for deeper understanding and find more suitable acquisition targets. .

Prada’s co-chairs Patrizio Bertelli and Miuccia Prada flew to Paris in December, sources said, and Kering CEO François-Henri Pinault meets. This has become the basis for speculation that Prada intends to sell, but at present it seems that the meeting may also be related to the Fashion Convention.

But judging from the group’s industry reputation and its medium size, Prada is undoubtedly one of the outstanding targets in the current luxury market. Sources also said that LVMH also took a closer look at Prada last year, but did not reach any agreement. Swiss Richemont Group may also be interested in Prada, which can directly strengthen the group’s weakness in soft luxury such as fashion accessories.

After LVMH acquired the Tiffany oversized hard luxury market, Kering’s layout strategy in the field of high-end watches and jewelry has also attracted market attention.

The Kering Group did respond to this. The personnel of the watch and jewellery department of the group subsequently changed personnel. The former person in charge Albert Bensoussan left, and Patrick Pruniaux, CEO of Ulysse Nardin and GP Girard Perregaux. Report directly to Group Managing Director Jean-François Palus. The division also owns jewelry brands such as Boucheron, Pomellato and Qeelin.

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After LVMH’s acquisition of Tiffany, Kering’s next step in the field of hard luxury has been closely watched by the market

The Kering Group’s financial report yesterday showed that the jewelry business affiliated with other departments recorded double-digit growth, but the jewelry category in the fourth quarter was slightly weaker than the previous three quarters, mainly due to the increase in Japanese value-added tax on Boucheron ( (Acquired in 2000), while the Asia Pacific region performed strongly. Pomellato (acquired in 2013) benefits from good trends in the European market.

Qeelin’s 15th anniversary (acquired in 2012) maintained strong double-digit growth. François-Henri Pinault particularly emphasized that after investing in the past three years, Boucheron has performed very well. In terms of watches, due to the challenging market environment, Ulysse Nardin (acquired in 2014) and Girard-Perregaux (a 50.1% majority stake in 2011) will continue to improve sales.

AlthoughAlthough Gucci also started the high-jewellery business last year, the group does not yet have a hard luxury brand that rivals Tiffany. In view of the current cold winter in the Swiss watch market, it is speculated that Kering’s increase in the hard luxury market will focus on high-end jewelry rather than high-end watches. It is reported that Kering Group has explicitly excluded the watch brand from the acquisition target.

In any case, Kering Group will become a strong competitor in the future acquisition market, and free cash flow will support the group’s acquisition strategy. RBC Capital Markets analyst Piral Dadhania said Kering had a free cash flow of 1.52 billion euros after resolving a Gucci tax dispute with Italian authorities and divested the remaining stake in German sports brand Puma, so it has the ability to make mid-sized acquisitions.

Kerwin’s general manager Jean-François Palus also confirmed the group’s efforts to restore strong free cash flow during the meeting. He said that logistics and digital projects can help the group optimize its inventory and thus optimize working capital. In the next few years, capital expenditures, including strengthening store networks, group-level infrastructure and platform investments, will account for about 6% of total sales.

In his opinion, in general, the Group has a balanced capital allocation strategy. The Group’s dividend policy is, as always, attractive, and it can further discuss acquisition opportunities based on existing operating and financial capabilities. The group is also willing to return additional cash to shareholders.

Everything is ready, it is only due to Dongfeng. It is important to cultivate the core brand’s internal strengths. However, in the face of LVMH, which is keen to acquire, Kering Group does not seem to have much choice except to add bets. Kering, which had said that Gucci overtook Louis Vuitton, must temporarily withdraw from the competition between brands and look to the larger industry picture.

In the past three years, Hengqiang, the global luxury goods industry leader, has become increasingly oligopoly-oriented and has continuously integrated resources. First two years ago, Coach and Michael Kors, two major American luxury brands, started their strong acquisition strategies in an attempt to replicate the success of LVMH in the American continent. Coach acquires Kate Spade as Tapestry Group, and Michael Kors acquires Jimmy Choo and Versace as Capri Group.

At the same time, the seemingly stable European luxury goods landscape has plunged internally. LVMH acquired Dior’s fashion division for 6.5 billion euros in 2017. Although this is only the “left-handed-right-hand” of the Bernard Arnault family that controls the Dior Group and LVMH, LVMH has strengthened its integration of the two major departments of fashion and perfume Competitiveness in the head of the luxury industry.

In the next two years, LVMH and Kering Group will start a fight with each other through a matrix arrangement of their brands, and LVMH will complete a series of personnel changes “”Change the card”, staged Tianji horse racing, Kering Group initially completed a smooth transition from Gucci to Bottega Veneta’s growth task. Hermes and Chanel who vowed to defend the dignity of the brand and did not start the acquisition strategy seem to watch the fire from the other side. Keep fighting in this battle.

2019 is also considered to be the first year of the transformation of the focus of the luxury industry to hard luxury. Richemont Group, which is regarded as the second-largest luxury group and focuses on high-end watches and jewellery, is under tremendous pressure from LVMH and Kering, or intends to restart its acquisition strategy.

After two years of stalemate, LVMH, Kering Group and Richemont Group are eager to expand the brand matrix, and the acquisition war between luxury oligarchs may be imminent.