Which is your favourite luxury brand – Loewe or Fendi? Whichever answer you may have, both these luxury fashion brands come from the same fashion house called LVMH ( Louis Vuitton Moet Hennessy), a French Luxury goods conglomerate. They both have intact design values and brand uniqueness yet they are part of a well-oiled giant machine. The conglomerate company has centralized finance, marketing, HR, and operations department while promoting the brands as a stand-alone brand. Acquiring companies and adding them to their portfolio helps them get rid of the competition while retaining their customers. To understand the influence of conglomerate companies on luxury fashion, it is important to understand what exactly is a conglomerate company. A conglomerate is a cluster of two or more corporations engaged in similar or different business under one corporate group.
One of the first conglomerate companies came into existence when two of the most brilliant minds in the Fashion industry started buying European luxury brands giving rise to the two most powerful luxury brand conglomerates, LVMH and Kering. Bernard Arnault of LVMH acquired fashion labels such as Dior, Louis Vuitton, Celine, and Givenchy. Francois-Henri Pinault of Kering acquired Gucci, Yves Saint Laurent, Alexander McQueen and Balenciaga.
LVMH alone has 16 fashion houses under its name, such as Loewe, Moynat, Loro Piana, TAG Heuer, De Beers, Sephora, Berluti, Fendi, Christian Dior, Emilio Pucci, Kenzo, Marc Jacobs, Edun, etc. With 12,775 million euros in sales in 2016 and 1,508 stores worldwide, LVMH is committed to offering their clientele a variety of products to choose from.
Apart from LVMH and Kering, there are other conglomerate companies such as Arvind Brands, Richemont, PUIG, Labelux, OTB, Prada, Chanel, Valentino, Aditya Birla Group, etc. These conglomerate companies have leveraged the power of placing the star brands in the forefront in developing countries such as China and India.
According to annual sector trends report from the Confederation of Indian Industry (CII), the Indian luxury market grew by 25% year-on-year between 2015 and 2016, i.e it grew from 14.7 billion dollars (Rs 96,751 crores) to 18.6 billion dollars (Rs 1,18,498 crores). North India dominates this sector with 40 percent consumption shares followed by Punjab and Haryana. Southern and western India account for around 25 percent market share each and eastern India lags in the luxury market with a 10 percent market share. With their growing affluence, India’s tier-II and III cities are also emerging as new reservoirs of luxury spending.
Conglomerate companies play an important role in bringing luxury brands to India as government regulations demand International companies to have Indian partners.
Conglomerate Companies & Indian Economy
India is likely to be the 3rd largest economy by 2028, according to an HSBC report, surpassing Germany and Japan. One of the most sort after lifestyle brands in India called Arvind Lifestyle Brands Limited brought brands like Arrow, USPA, GAP, Ed Hardy, Flying Machine, Cherokee, ELLE, Mossimo, Nautica and many others to India. Arvind Brands, In 1980, announced its first-ever addition of the brand Flying Machine to the list of their brands. This was part of their strategy to grow in the ever-evolving Indian market. Soon, they became the third largest manufacturer of denim in the world.
Another conglomerate company called Genesis Luxury is bringing luxury brands such as Canali, Armani Exchange, Coach, Bottega Veneta, Hugo Boss, Jimmy Choo and many others to India. They also formed a partnership with Burberry UK to form Burberry India. Infinite Luxury Brand, an Indian Fashion conglomerate company, successfully brought Versace, Roberto Cavalli, and Missoni to the Indian market whereas Reliance Retail partnered with over 25 international luxury brands to India. Some of the luxury brands they have in their kitty are Dune London, Diesel, Brooks Brothers, Hamleys, Juicy Couture, Kenneth Cole, Marks and Spencer, Kate Spade, etc. Aditya Birla Fashion and Retail Ltd has a strong foothold in the Indian luxury Market since 1988. In May 2015, Branded apparel businesses of Aditya Birla Group, i.e Madura F&L, Madura Fashion Division and Pantaloons Fashion and Retail came under one roof and was renamed as Aditya Birla Fashion and Retail Ltd. Brands such as Forever 21, Simon Carter, Ted Baker, Louis Philippe, Allen Solly, Van Heusen, People, and Peter England under its belt. With combined revenue of INR 6,633 crore for FY’17 and growth rate of 18%, it is deemed as India’s No.1 Fashion Lifestyle entity.
Conglomerate companies are not only looking to cater to the adults. Prive Luxury partnered with Les Petits, a luxury clothing line, accessories and furniture outlet for kids. Brands such as Young Versace, Fendi Kids, Simonetta, Baby Dior and many more are part of the brand.
Structure & Strategy Of Conglomerate Companies
Conglomerates have a long-term vision and carefully crafted value strategy to provide the necessary push related to growth and development of the brands. Their strategy is to add various products and services to their portfolio and diversify their reach. Conglomerates cash in on their key assets such as quality, heritage, and creativity. This also helps in developing their star brand.
But, why do corporations go on to form conglomerates?
Benefits Of Forming Conglomerates
There are many reasons why corporates acquire companies or open fully/partially owned subsidiaries.
1. Easy allocation to capitals
2. It helps in diversifying
3. Centralized Finance, HR, Operations and Marketing Departments
4. Attractive revenues
5. Acquiring established business
6. Acquiring businesses that are competition
Disadvantages Of Forming Conglomerates
Here are some of the reasons conglomerates are thought not to be a viable option for the changing consumer behaviour.
1. Conglomerates are slowly losing the advantage of business diversification due to globalization and strong independent international business.
2. One initiative for all policy may backfire and tarnish the reputation of a particular brand. Thus, diminishing the financial planning of the conglomerate.
3. Lack of human resource management.
4. Huge pressure from shareholders.
5. A decline in creativity and uniqueness largely due to limitations to creativity and originality of the brand under the conglomerate company.
Future Of Conglomerate Companies In India
The Indian regulations demand an Indian partner to enter the market. To bypass this, many luxury brands are trying to enter the market through e-commerce as it cuts the middleman, in this case, it is the conglomerate company.
E-commerce portals such as Amazon and Myntra are in a race to get exclusivity of the luxury brand giving rise to e-conglomerate companies. Amazon got the exclusivity rights of Bjorn Borg, a Swedish brand, which meant that people would be able to buy Bjorn Borg only on Amazon. In 2016, Aigner, a German brand known for its leather handbags, launched its luxury leather bag collection exclusively on Myntra. In fact, Myntra houses close to 30 top global brands. Recently, Myntra won rights to manage 15 offline stores of Esprit in India. The future of conglomerate companies is not limited to only retails. Many online portals are also bringing luxury brands to the Indian consumer.
The conglomerate companies have catered to increasing demand for luxury brands in the Indian market and will continue to do so.