The Birth of Luxury Big Business

Today, large enterprises exercise strong domination of the luxury industry. Although many brands have an old history, some of them going back to the early nineteenth century, the dominance of big businesses in the luxury industry is an obvious phenomenon.

For family firms, as was the origin of many luxury companies, going public allowed them to enlarge capital to support their reorganization and expansion into global markets. It expresses a fundamental change in the management of luxury business and in the organizational structure of the industry.

In 1980, only five out of today’s 27 big companies were already traded in stock exchange. During the 1980s, six new companies entered stock exchanges, among them three general luxury companies which dominate the industry today: LVMH (1987), Richemont (1988) and Groupe Pinault (1988, today: Kering).

IPO was often chosen as a way to fund the capital necessary for M&A and the opening of new stores throughout the world. The management of luxury firms was deeply affected by such a change, as financial profits and returns on equity became key objectives.

The three large diversified luxury groups which dominate the industry today have played a major role in the transformation of luxury business since the 1990s. Their strategy, organization and management practices became a model for smaller specialized companies to follow, whether they were engaged in fashion, cosmetics, watches or jewelry.

The three general luxury conglomerates are dominant actors of the global luxury industry. Their importance relies both on their large market shares and on their business model, which was largely implemented by specialized luxury companies. First, one must mention the role of entrepreneurship and corporate governance. Second, these three groups are truly international, mostly European luxury companies. Their external growth through M&A led them to acquire numerous brands throughout Europe, together with a few American luxury designer and fashion brands, and, more recently, some Chinese companies in jewelry, fashion and spirits. The owners and managers of these conglomerates understood that all these European brands shared something similar in terms of identity (timeless know-how, lifestyle, high-quality, crafts, etc.) and that this was a valuable asset on global markets.

The internationalization of these groups is their common third characteristic. The growth relied fully on their international expansion, particularly in Asia.

Finance appears as a key resource, and a major competitive advantage, of the conglomerates. It made it possible to build groups through M&A and to offer an expansion on global markets to brands which could not afford it in the context of small and independent family firms. The development of retail, especially through directly owned stores, is an important issue to control sales, brand identity and extension, particularly in emerging markets. Between 2000 and 2014, the number of directly owned stores went from 1286 to 3708 for LVMH, from 444 to 1056 for Richemont, and from 196 to 1186 for Kering.

Yet the importance of the luxury diversified groups relies not only on their size and financial power, but also on the new strategy they implemented and which became a benchmark for all the industry. The mass production of luxury goods, their mass-distribution throughout the world, particularly through mono-brand stores, and the mass-advertisement campaigns aiming at construction a unique identity is a model followed by all specialized firms ranked among the world’s 25 largest luxury companies. This requires large amounts of capital, which is the reason why most of them entered stock exchanges around the world.

Source: Extract from Donzé PY. (2018) The Birth of Luxury Big Business: LVMH, Richemont and Kering. In: Donzé PY., Fujioka R. (eds) Global Luxury. Palgrave, Singapore

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