Most luxury brands try to project an image of hailing from a distant past—preferably, the 1800’s—with their legacy carried on by a founding family that strives to keep up the namesake’s exacting standards.
But of course, luxury isn’t really like that anymore. Many of the biggest names today are owned by huge conglomerates. And now we have another well-known brand joining that list, with the purchase of renowned jeweler Bulgari (founded: 1884) by luxury powerhouse LVMH. (There was also talk that LVMH may acquire part of Indian manufacturer Gitanjali. Gitanjali labeled this “speculation.“)
Bulgari is an interesting case since it has been a more pro-active brand than most; it even has a hotel chain. Still, a member of its founding family told Bloomberg: “More and more, I think the big groups will be the protagonists of the luxury business …Life will be progressively more difficult for the independents that are not large enough.”
LVMH now controls so many big names—and is locked in an ongoing struggle to control Hermes—that Luxury Daily recently called it “the Wal-mart of luxury.” While that surely makes executives cringe, there are similarities:
The larger that LVMH gets, the more it squeezes from suppliers and vendors better pricing and terms for raw materials and supplies, as well as enhanced clout for talent and for pushing product quickly from factory floor to retail store…
But the question is: Will this consolidation have a cost? Veteran luxury watcher Pam Daniziger recently argued: “You’re talking about mass-retailing and mass-marketing, and that is not what luxury is all about.” As the CEO of Hermes recently put it, explaining why his company doesn’t want to sell to LVMH:
Hermes is not managed on financial principles .. it is managed on the principle of the artifact in the best possible finish with the finest raw materials, with creativity as strong as possible that make people come into our stores … If you give economic control to financiers, they will kill the economy because they want short-term results.
Now, it is hard to say that LVMH doesn’t know what it is doing, given its ongoing success; its watch and jewelry profits soared 103 percent last year. Even so, what has made these names stand out was the care lavished on them—not the economies of scale behind them. Clearly, analysts believe luxury consolidation is the wave of the future. But at what point does all this consolidation yield diminishing returns?