- Don-Alvin Adegeest |
The luxury groups have a luxury problem: they are sitting on a mountain of cash. 17.4 billion euros to be exact, that can't sit gathering dust in a bank account. Assets of this size should be invested in something, but what?
Buying brands is small change for some
Buying another brand would be small change for group like LVMH or Kering, unless it was the size of Burberry, another billion euro business. Or Chanel, or Tiffany. Except that none of these companies are for sale.
Acquisitions are seemingly more interesting for other behemoth brands, not smaller luxury companies. Remember Kering's acquisition of sportswear brand Puma and skateboarding business Volcom? It is now selling both.
According to Bloomberg, French companies LVMH, Kering and Hermes International, along with Switzerland’s Richmond, were 17 bn euros cash rich at the end of 2017, with no slowdown in earnings as emerging markets like China continue to increase profitability.
In an article titled "The Big Luxury Brands Have 22 Billion Dollars to Burn," Bloomberg disclosed the spending of the luxury houses: Hermes is paying a special dividend to shareholders totaling about 528 million euros; Richemont about 2.7 billion euros to take control of online retailer Yoox Net-a-Porter SpA. Yet even these transactions will make relatively small dents in the companies’ cash piles.
Last year LVMH launched LVMH Luxury Ventures, a vehicle destined to invest in small, promising fashion, cosmetics or accessories companies.
The notion was for the vehicle to buy stakes in luxury companies with sales of between 2 million and 5 million euros and a high-growth potential.
At the time LVMH told Reuters: “The aim is to accompany financially the development of these small nuggets to create value."
Green investing could be perfect vehicle for luxury groups
Considering the impact of fashion on the planet, luxury groups would do well to invest their cash reserves in sustainable channels like the Global Cleantech Capital fund. Lest not forget that textile production is one of the most polluting industries, producing 1.2 billion tonnes of CO2 per year, which is more emissions than international flights and maritime shipping.
In a world saturated with fashion garments, over 60 percent of textiles are used by the clothing industry. Consider, too, that large proportions of clothing manufacturing occurs in China and India, countries which rely on coal-fuelled power plants, further increasing the carbon footprint of each garment.
Luckily, sustainable investments have a high rate of return and have grown by 58 percent in a market that is now worth 21 trillion dollars. This is no small change for even LVMH or Kering. As luxury houses are keen to publicly share their commitment to sustainable practices, perhaps they can put their money where their mouth is.
Photo credit: Luxury brand logos