Caixin
Nov 09, 2018 07:44 PM
BUSINESS & TECH

A Hands-Off Management Style Suits Chinese Buyers of European Luxury Brands

Mannequins sport women's clothing in a window display of a Jeanne Lanvin store in Paris on Feb. 23. Photo: VCG
Mannequins sport women's clothing in a window display of a Jeanne Lanvin store in Paris on Feb. 23. Photo: VCG

Chinese companies have been snapping up classic European luxury brands this year, including Carven, Bally and Lanvin. But if the buyers want the best return on their investment, they should maintain a hands-off approach to management, analysts said.

Investment in upmarket labels comes on the back of growing spending by consumers from the world’s second-largest economy. Purchases by Chinese shoppers make up 35% of luxury sales globally, and this is forecast to rise to 44% by 2025, according to recent reports from McKinsey & Co. and Royal Bank of Canada (RBC) Capital Markets.

Domestic companies, seeing the demand at home for foreign luxury, are looking to see these brands get greater exposure in China, according to a recent report by consultancy Bain & Co.

Recent additions to the receipt of luxury brands bought by Chinese companies include French fashion house Carven, which was sold to apparel-maker Icicle last month; Swiss brand Bally, which was bought by textile giant Shandong Ruyi Group; and Lanvin, a Paris haute couture label acquired by Chinese conglomerate Fosun Group.

Other deals included Chinese menswear producer Septwolves’ investment in the Greater China unit of Karl Lagerfeld, and Shenzhen-based fashion supplier Ellassay’s purchase of Vivienne Tam’s China rights.

Despite the recent infusion of Chinese cash, the industry is still dominated at the high end by large European conglomerates like Louis Vuitton owner LVMH and Gucci parent Kering Group.

In an interview with Caixin, luxury analyst Rogerio Fujimori from RBC Capital Markets said that there is a “question mark” over how much impact the Chinese investments will have on the industry’s landscape given that the deals have been recent and the brands involved were “relatively small.”

But he said that the synergy that the Chinese investors can seek from the transactions “can be very limited” because the success of many European luxury brands can be partly attributed to “a decentralized model.”

“In the past, many Chinese acquirers assumed that they would need to take full control of, or at least strongly influence, the management of an acquired business. Now, leaders take a more sophisticated approach,” the Bain report said.

Chinese buyers now typically keep the acquired brand’s management team and operating model unchanged and focus their energy on bringing them to China and other Asian markets, the Bain report said, citing Shandong Ruyi as an example of this model.

Shandong Ruyi, the Chinese textile giant that has recently acquired Bally, has been an active buyer around the world, spending more than $5 billion on mergers and acquisitions. The brands it now owns include Sandro parent SMCP, British menswear-makers Kent & Curwen and Gieves & Hawkes, and Cerruti 1881, a Paris-based producer of clothing, fragrances and watches.

Fujimori said that a change in the owner of a European brand, which originates on a wealthy continent known for the high quality of its goods but is now owned by a business from a developing country, won’t change its image as long as the products are still made in Europe with good craftsmanship, quality and management.

He also warned that buying luxury brands is a “very long-term investment” that takes time and money to pay off and can be risky.

Contact reporter Coco Feng (renkefeng@caixin.com)

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