What just happened?
During the final quarter of 2020, there were a number of high-profile fashion sector Mergers and Acquisitions (M&A). For example, LVMH agreed to pay $15.8 billion for Tiffany and Co and VF Corporation bought the brand Supreme for $2.1 billion.
What does this mean?
Luxury sector analysts predicted a continuation of such high-profile M&A’s to continue in 2021.[1] Such deals provide insight into the direction that luxury retail is heading in the post-pandemic world, bringing new opportunities and challenges for brands to navigate. As these deals continue into 2021, for example with JD Sports acquiring the US sportswear and footwear retailer DTLR in March 2021,[2] the gap between the top-performing companies and the remainder will widen further within the fashion industry.[3] Even prior to Covid-19, the top quintile accounted for 200 percent of the industry’s economic profit, whilst the remainder lost money.[4]
Two key drivers for this surge appear to be the growth of the Chinese middle class and the rise of digital sales, prompting luxury companies, in particular, to consolidate market share through new routes, for example, geographically.[5] A high-profile example of this is th e strategic global partnership between Farfetch, Richemont, Kering, and Alibaba. In response to the challenges posed by the pandemic, the vision of this group is to define ‘Luxury New Retail’ (LNR).[6] This could be revolutionary in helping luxury brands navigate the post-pandemic world, representing a shift from the traditionally divided landscape in luxury e-commerce to a uniting of the two biggest groups in luxury in common cause.[7] With the rising demand for luxury products in China, this is an opportunity for growth through digitisation of the global luxury industry. For example, Farfetch positioning itself on Alibaba’s platforms (such as Luxury Soho) gains luxury brands like Prada and Louis Vuitton access to 757million consumers.[8]
How does this impact the legal industry?
On a basic level, this will cause a rise in companies seeking advice for luxury sector M&As. A competitive advantage in firms gaining access to such deals will be an international footprint. It has been reported that China is on track to claim the biggest share of the global luxury market by 2025.[9] Consequently, some luxury brands may find it useful to seek advice from those firms which have “China Desks”. This can assure them that their legal advisors are able to offer more than just an understanding of the legal developments within the region, giving them a business advantage. For example, profound knowledge of the local culture can help companies better understand consumer behaviour in the country in order to make the business venture a success.[10]
Another draw for luxury companies will be firms with fashion sector specialisation, as when companies are considering an M&A or joint-venture deal, there will be sector-specific points that would require more attention during the due diligence (investigation) process. Evaluation of the assets, particularly intellectual property (IP) rights, is critical in fashion industry transactions as this will often be the seller’s most valuable asset.[11] Lawyers would undertake an investigation into all IP (such as trademark and copyright registrations) to confirm ownership and ensure that there is no potential to litigate over the use of the brand or its designs.[12]
The deals mentioned in this article are a few of many. A list of the latest fashion industry deals can be found via this link:
https://www.fashionlaw.co.uk/m-and-a/
Written by Sheelpa Maroo
Assessing Firms:
#HoganLovells #Eversheds #Skadden #DLAPiper #FoxWilliams #MishcondeReya #TaylorWessing #Farrer&Co #Linklaters #BakerMcKenzie #Bird&Bird #Withers #Dentons
References
[1] George Arnett , ‘Why 2021 will be a bumper year for M&A’, (Vogue Business, 1 January 2021) <https://www.voguebusiness.com/companies/why-2021-will-be-a-bumper-year-for-manda > Accessed on 29th March 2021
[2] Fox Williams, ‘Fashion M&A’ (Fox Williams) < https://www.fashionlaw.co.uk/m-and-a/ > Accessed on 29th March 2021
[3] ‘The Year Ahead: Fashion Is Set for a Surge in M&A’, BOF Team and McKinsey & Company (December 7 2020) < https://www.businessoffashion.com/reports/finance/the-year-ahead-fashion-industry-is-set-for-a-surge-in-m-and-a-mergers-acquisitions > Accessed on 29th March 2021
[4] IBID
[5] James Crux, ‘Boom time for luxury goods: Welcome to the Roaring Twenties where wealthier people will splash the cash’, (Shares, 11 February 2021) < https://www.sharesmagazine.co.uk/article/boom-time-for-luxury-goods-welcome-to-the-roaring-twenties-where-wealthier-people-will-splash-the-cash > Accessed on 30th March 2021
[6] Rob Corder, ‘Richemont, Kering, Farfetch and Alibaba form alliance to define the future of luxury retail’, (9 November 2020) < https://www.watchpro.com/richemont-kering-farfetch-and-alibaba-form-steering-committee-to-define-the-future-of-luxury-retail/ > Accessed on 31st March 2021
[7] Elizabeth Paton and Vanessa Friedman, ‘The Luxury E-Commerce Wars Heat Up’, (29 November 2020) < https://www.nytimes.com/2020/11/29/business/amazon-farfetch-richemont-ecommerce-wars.html > Accessed on 1st April 2021
[8] Editorial Team, ‘London-based online luxury fashion retail platform Farfetch raises €929.9M from Alibaba and Richemont’ (Silicon Canals, 10 November 2020) < https://siliconcanals.com/crowdfunding/fashion-retail-platform-farfetch-raises-929m/ > Accessed on 31st March 2021
[9] Danielle Wightman-Stone, ‘China’s share of the global luxury market reaches new high in 2020’, (6 January 2021) < https://fashionunited.uk/news/retail/china-s-share-of-the-global-luxury-market-reaches-new-high-in-2020/2021010652819 > Accessed on 1st April 2021
[10] Eversheds Sutherland, ‘China Desk’, < https://www.eversheds-sutherland.com/global/en/where/europe/germany/services/china-desk/index.page > Accessed on 2nd April 2021
[11] ‘M&A and fashion: if the deal fits... buy it!’, Douglas Hand (2019) < https://annualsurveyofamericanlaw.org/wp-content/uploads/2019/03/Hand-1-Final.pdf > Accessed on 19th April 2021
[12] IBID
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.