hnnhcronin The luxury fashion space has had no shortage of sizable transaction activity despite the slower M&A volumes over the past 18 months in the wake of high inflation and resulting high rates. Global private equity firm, Advent International, acquired Australian brand Zimmerman, Richemont acquired a controlling stake in shoemaking maison Gianvito Rossi, and Kering acquired a 30% stake in the Mayhoola-owned Valentino, paving the way for full ownership down the line. However, despite the view that true luxury brands reside abroad, the largest transaction in terms of both dollar value ($8.5bn) and media attention, was announced in New York on August 10th: Tapestry has signed a definitive agreement to acquire Capri.
Chanel, Louis Vuitton, Yves Saint Laurent, Loro Piana— what all these names have in common is the ubiquitous association with luxury, high-end European craftsmanship, and long-standing brand heritage. While there are brands with immense name-recognition here in America, they have long struggled to elevate themselves to the same tier as the European brands. Why is this? It traces back to the history of the countries themselves.
European countries are rooted in monarchy, a system that promoted the search far and wide for new, valuable materials and a culture focused around art and design. Monarchs showcased extravagance, draped in only the finest materials and adorning palaces with gold. The elite classes aimed to emulate their rulers, while the working classes were able to prosper as in-demand artisans and craftsmen. This appreciation for elegance and quality trickled down across all economic classes. The culmination of this resulted in major European cities as a hub for all things luxury. On the other hand, America was founded on democracy–an ideal which has persevered in the establishment of brands. America is about accessibility, and brands choose to pursue increased profits through reaching a broader customer base, even though brand dilution ensues. The industrial revolution and resulting mass production techniques solidified the United States as an economic superpower, and this focus on efficiency and broad appeal spills into all companies–even those who aim to serve a more exclusive clientele.
In addition to the cultural drivers, Europe has long benefited from the close physical proximity to fine fabrics and materials such as silk and trade routes with other countries. Silk has been imported from China to Western Europe since the Roman Empire. By the 1200s, Europeans began spinning the imported silk beads and adapting Chinese methods to produce new silks and velvets, especially in key Italian cities, and selling garments to royals and members of the ruling class. Italian textile production techniques and sourcing is second to none. Furthermore, while leather production via the vegetable tanning method was commonplace in Italy since prehistoric times, it became highly sought after for clothing and military uniforms during the reign of the roman empire. By the 1200s, the leather workers guild (the Arte de Cuoliai) was established in Florence in order to enforce quality standards and bring together the finest european artisans. In addition to the raw material sourcing benefits that ensued from the concentrated geography of Europe, this also benefited companies with regards to selling and distribution. It is more cost efficient to market and transport both work-in-process and finished goods within Europe and Asia than from the US. Thus, the European trade routes allow for the easy dissemination of knowledge and products–a benefit that the US luxury goods industry did not reap.
With economies historically agrarian and trade-based in nature, France and Italy were slow to adapt to new technologies and industrialization. Additionally, the post-monarchy and post-world war governments were less pro-business than their American counterparts. The ideals of capitalism and profit maximization were not as embraced in France and Italy; while this has stalled the growth of most companies, luxury brands have undoubtedly benefited, with luxury goods accounting for a significant portion of the French and Italian economies. Products are scarce and slowly and intricately manufactured in the brands’ country of origin rather than offshore despite the cost advantage. The higher cost of production commands a premium price, and thus, only the wealthy can afford to be repeat-purchasers.
