Published on 13th, February 2014
In March 2013, something happened at the legendary American luxury jewellery brand Tiffany & Co. There was an announcement that one of the brand’s shareholders had increased its stake in the company through the acquisition of an additional 3.2 million shares, bringing its total shares to 15.9 million, and thereby increasing its ownership of the iconic American brand from 5.2% to 12.5%.
The same shareholder also happens to have paid an estimated €699 million for slightly more than 1% of LVMH, the world’s largest luxury conglomerate; in addition to owning a 17% voting stake in the parent company of Porsche. By the way, this shareholder also recently acquired Valentino for an estimated €600 million and also paid €800 million to purchase the luxury portfolio of Louvre Hotels, whose portfolio includes Hotel du Louvre and Concorde Lafayette both in Paris; Hotel Martinez in Cannes; and Palais de la Mediterranee in Nice, all in France.
Oh, lest I forget, this same shareholder bought the U.K’s retail landmark Harrods for £1.5 billion back in 2010 and has recently acquired the French retail giant Printemps for approximately €2 billion in August 2013. These of course have not halted this shareholder from continuing with other luxury business quests including funding the soon-to-be-opened Peninsula Hotel in Paris and the Shangri-La Hotel in London; acquiring the Four Seasons Hotel in Florence, Italy, for €150 million; and launching its own luxury fashion brand, QELA,set to compete with the likes of Dior, Prada and Chanel.
By now, this ingenious shareholder no longer needs an introduction. Yes, your guess is right. It is indeed the Qatar royal family who is behind these frenetic activities in the luxury sector, through its different investment funds, holdings, subsidiaries, companies and groups scattered across different countries. Qatar? Yes, indeed. And by the way, I have omitted to mention other numerous acquisitions and investments recently made in affiliate industries including entertainment, cinema, real estate and culture. As you wonder if the Qataris are on a quest to become a major player in the international luxury industry (a possibility not to dismiss), it may be well worth noting that Qatar is officially the wealthiest country in the world, with the highest GDP per capita and a dizzying level of wealth and economic output that may well elude European countries in the next generations.
But what does Qatar have in common with luxury? Why Qatar? Why luxury? Why acquire fashion houses and retailers? Why invest in luxury hotels? Why take stakes in luxury jewellery brands? Why the interest in luxury cars? Why the West (where most of the investments are based)? Why now? Why?
I believe the answers are as clear as crystal. We are in a period of great change in the socio-economic world context and the presence of the Qatari’s activities in luxury is a simple reflection of this, albeit on a small scale if you consider the larger scheme of things. Just as the capital structure of the world economy is shifting and the scope of financial influences and geo-political powers are realigning, the luxury industry is also undergoing an important shift in its mechanics and global consolidation.
The Qatar investment activities in luxury are just a few examples out of a new wave of acquisitions, investments and partnerships that are on a rapid rise in the international luxury scene. The emerging players are not only families and individuals but also groups and investment funds.
A roll-call of this new crop of luxury shakers would be incomplete without mentioning Hong Kong’s Li & Fung (which owns controlling stakes in Cerrutti 1881, Sonia Rykiel and Gieves & Hawkes, among others); Taiwan’s Shaw Lan Wang (who owns Lanvin); Hong Kong’s Novel Entreprises Limited (which owns Michael Kors, Tommy Hilfiger and Pepe Jeans and has invested in Karl Lagerfeld and Asprey & Garrard, among others); Kazakhstani-born Goga Ashkenazi (who acquired Vionnet in 2012); Hong Kong’s Fang family (who own Pringle of Scotland); and South Korea’s Amore Pacific (which recently acquired Annick Goutal and Lolita Lempicka).
This is not to mention the numerous private investors beyond Asia and across the Middle East, Africa and South America, quietly amassing stakes in different segments of luxury through acquisitions, fundings, holdings and investments. These are clear signs that a significant change is brewing in the luxury market and this wind of change seems to be blowing away from the West.
From West to East and South
This wind of change is further confirmed by some the most recent investment activities of the traditional luxury groups that seem to also be in a hurry to expand and diversify their portfolios beyond the West. The Richemont Group was the first to move in this direction with the purchase of Shanghai Tang as far back as 1998. More recently, LVMH has been quietly amassing a collection of small independent promising luxury brands and manufacturers – through L Capital which it owns – from India to China, Singapore, Brazil and beyond.
Recent acquisitions and stakes have been made in India’s traditional garment retailer Fabindia Overseas Private, Chinese casual wear company Trendy International Group, Hong Kong’s Ming Fung Jewellery Group, India’s distributor of luxury brands Genesis Luxury, Singapore’s crocodile tannery Heng Long and Brazil’s foremost online beauty portal Sacks.com.br, which has since been transformed to Sephora.com.br.
PPR (currently known as Kering) is also not left out and took a controlling stake in Chinese fine jewellery brand Qeelin in 2012. Hermes, whose approach may be considered more audacious, launched the luxury brand Shang Xia based on the Chinese cultural heritage in 2010, with stores in China prior to any consideration of the European market, including France, Hermes’ origin.
The Estee Lauder group towed the same lines by creating the “China-specific” beauty brand Osiao in 2012, with products conceived with Asian ingredients for Asian skin. Prada who is yet to acquire or launch a luxury company from an emerging market (watch this space), is now traded at the Hong Kong Stock Exchange (as are Samsonite and L’Occitaine). Moving southwards, Ermenegildo Zegna currently co-owns CAMEGIT for Garment Manufacturing in Egypt, together with Arafa Holding – AIVC, the largest garment manufacturer and retailer in North Africa.
Shifts in the Market
So what should be expected in this new environment where major funds from the emerging markets are channelled towards acquiring Western brands while Western luxury groups are seeking ownership of brands from emerging markets in their bid to penetrate these markets? Can we reasonably say that the consolidation of the international luxury industry is taking on a new shape? I believe so.
I also believe that we have reached a juncture where the question of “who owns luxury today?” has become legitimate. It is time to gauge whether it is the creator, the buyer, the seller, the maker, the consumer, the investor, or all of them that who claim a legitimate ownership of today and tomorrow’s luxury. But I beg to ask, who is today’s creator, buyer, seller, maker, consumer and investor?
Luxury’s move from the West to the East and South is not only on the level of investments and acquisitions but also in terms of demand, consumption, manufacturing, sourcing and supply. It is now a well-known and documented fact that emerging markets account for over 20% of luxury consumption worldwide and that by 2015, China will become the world’s largest consumer of luxury, accounting for over $27 billion in purchases, followed closely by Japan.
In addition, the fastest growing markets for several luxury categories from fashion to accessories, beauty, jewellery, watches and hotels are located in emerging economies as far flung as the Middle East, South America, Asia and Africa. Even in Europe and North America (to a large extent), the largest consumer group of luxury products and services are tourists.
A case in point is Galeries Lafayette in Paris which is not only one of the most visited department stores in Europe (with an estimated 80.000 visitors per day), but also has more than half of its clientele as tourists mostly from Asia, the Middle East and South America.
It would be challenging to establish that this influx of tourist shoppers is not a direct result of a clear rise in luxury consumption, driven mainly by drastic changes in wealth distribution around the world. Just take a look at the recent Forbes report on the world’s millionaires, which clearly shows that the rules of the wealth game have changed.
Interestingly, the shift in the luxury market is also happening on the level of consumer psychology and influences. Luxury consumers are drawing their influences from channels like the internet that was not considered important in the recent past. In this fast-moving, technology-driven age of hyper-connectivity where access to information is instant and uniform, consumer mind-sets are being momentously influenced by their exposure to web content. From social media platforms to online magazines, blogs, styling websites, interactive media, video channels and luxury websites, today’s luxury consumers are as much influenced by web content as they are by the actual luxury products.
Content has emerged as a product and the architects of web content such as bloggers, photographers and stylists like Brian Boy (from the Philippines), Tina Leung (from Hong Kong) and Han Huohuo (from mainland China) have also emerged to become influential figures and celebrities with millions of followers around the world.
Some consumers themselves are also emerging to become indirect brand ambassadors, sometimes wielding as much influence on other consumers as magazine editors did in an almost bygone era. Just take a look at the Tumblr pages and Youtube videos of some fashionistas like Wendy Nguyen and Ashley Madekwe whose influences go beyond their geographical zones.
Wendy’s Youtube video “25 Ways to Wear a Scarf in 4.5 minutes” has been viewed a whopping 22 million times, more than any other video in luxury and fashion. These collective forces are accelerating and changing the very definition of luxury and the mind-sets of the new mass breed of luxury consumers who have money to spend and who mostly originate from emerging markets.
In addition to the force of connectivity, there is a definite shift in sourcing and manufacturing. It may be general knowledge that a substantial amount of the raw materials used by luxury brands in fashion, accessories, jewellery, watches and even beauty are sourced from around the world, manly from the so-called emerging economies. We all know that an estimated 65% of the diamonds used in the world are mined in African countries including Botswana, Namibia and South Africa; and that the top producer of gold in the world today is China.
It is also a well-known fact that the best silks are found in China, Japan, Yemen, Kazakstan and Oman; while the best cashmere is from Mongolia, India, China and Tibet. But what is not yet well known is that suppliers and manufacturers in these emerging economies, whose resources are sometimes obtained in questionable conditions to dress the world’s wealthiest, are in the process of requisitioning their natural wealth. A case in point is the government of Botswana – one of the world’s major suppliers of diamonds – which has mandated the diamond mining and manufacturing company De Beers to move its entire diamond processing business and sales operations from London to Gaborone, a move that includes the transfer of thousands of jobs and an estimated $6.5 billion in annual sales operations.
This is by no means a substantial investment to the local economy. The African Fashion International (AFI), which has the support of the South African mining company African Rainbow Minerals, is also taking a similar approach of investing in the local economy by supporting home-grown designers and creative talents in the luxury and artistic industries. At the opposite end of the world, the South Korean group Kolon Industries, which owns the luxury leather goods brand Couronne, has invested heavily in sourcing and treating its leather locally; and recruiting local craftsmen based just outside Seoul to make its hand-stitched bags. The case is similar with Malaysian women’s wear brand Farah Khan, whose dresses are worn by the international elite. All the pieces in the brand’s collections – which sell for an average of $1,000 – are hand-embellished from start to finish by local “hands” in Malaysia.
The pattern follows the same route with Woo, the iconic Chinese luxury scarf and shawl brand – and Hermes’ main rival in China – which sources its cashmere from Mongolia and produces its scarves in China, using techniques that are a mix of traditional craftsmanship and modern innovation, to guarantee uncompromised quality standards.
There is yet another surprising angle to this tide of change along the retail landscape. Luxury and high-end brands from emerging markets have started to pop up in the West, most of who opt for a mix of stand-alone stores and extensive sales points within department stores. Qeelin is present in the main European retail temples including Harrods and Selfridges in London and Colette in Paris, in addition to their own stand-alone store at Palais Royal in Paris. Herborist the flagship Chinese beauty brand can be found in most Sephora stores around France and Europe.
Stella Luna, the shoe brand which is a darling of Chinese urban fahionistas, opened a stand-alone store in the very Parisian St. Germain district of Paris in 2012. Even Hermes’ own Chinese luxury brand Shang Xia is gearing up to open its first store outside China in Paris later this year. In addition to these, luxury department stores have been playing host to a consortium of local designers and talents from around the world, most notably the 2012 collaboration between Selfridges and Ndani, a pop-up store showing a collection from a group of highly talented designers from Nigeria.
Reinforcing Luxury or Redefining Luxury?
The landscape and dynamics of the international luxury market are definitely changing. Although one may be carried away by speculating that we may indeed be at the beginning of the end of the era of luxury monopoly by the West, it is also pertinent to ask what the future holds for luxury. Will luxury’s future path gravitate towards redefining luxury or reinforcing luxury? What will be the landscape of luxury in ten years’ time? What will the semblance of international luxury market be like in 2023? What does luxury need to do today to ensure that its future remains not only upbeat but authentic?
For starters, I believe that luxury must be reinforced today to ensure that it would not need to be redefined tomorrow. Luxury needs its true essence and values to resurface, to act as its shield even in the face of inevitable vicissitudes. Luxury must ensure that its culture and philosophy are never compromised irrespective of the current wind of change. Luxury needs gatekeepers to secure its future. Luxury must stand sure and true irrespective of who will be holding the keys to its future in the coming decade.