Big brands race to secure luxury supplies from reptiles to roses
By Astrid Wendlandt
PARIS (Reuters) - From crocodile farms to rose fields, suppliers of luxury material have become top acquisition targets for names like LVMH (LVMH.PA: Quote) and Gucci owner Kering (PRTP.PA: Quote) as they race to lock in rare skills and ingredients vital to their brands' survival.
Having invested heavily in recent years to open shops around the world, notably in emerging markets, luxury leaders are now competing to control the supply lines behind their sales.
"We are ready to make the necessary investments when the know-how or raw materials associated with the quality of our objects are threatened," said Guillaume de Seynes, head of manufacturing and equity investments at Hermes (HRMS.PA: Quote).
Illustrating that thinking is LVMH's deal last month to pay 2 billion euros ($2.7 billion) for 80 percent of Italy's Loro Piana, one of the world's top cashmere makers, which herds its own Andean llama-like vicunas, prized for their fine, tawny hair.
Analysts expect Loro Piana will, over time, focus solely on supplying LVMH's stable of fashion brands such as Fendi and Celine, and stop supplying rivals. With one Loro Piana overcoat requiring the fleeces of 25-30 animals and retailing for around 14,000 euros in Milan, that's a precious resource to own.
Meanwhile, in the watch industry, Cartier owner Richemont CFR.VX and Kering, among others, have been stepping up their investments in parts providers as a response to a move by Swatch Group UHR.VX to cut back on third-party deals and focus instead on its own brands.
The latest acquisitions add to luxury's trend towards vertical integration - controlling everything from the cutting room up to the shop rail. This, says Bernstein luxury goods analyst Mario Ortelli, "gives you a competitive advantage, raises barriers to entry and underscores the image of your high-quality products."
Most supply chain investments so far hover around 20-50 million euros. In 2011, LVMH spent 60 million euros to buy watch dial maker ArteCad and another 47 million euros for 51 percent of Singapore-based Heng Long, a crocodile leather tannery. Continued...