Piquadro's acquisition of Richemont's Lancel: a winning deal for everyone?
The share price for Italian leather goods group Piquadro picked up more than 4% on the Milan stock exchange, where it is listed since 2007, after Piquadro announced on 13th March that it entered into exclusive negotiations with Swiss luxury giant Richemont for the acquisition of handbag brand Lancel. The acquisition is likely to be finalised before the end of the first half of 2018.
The stock market is rarely wrong. The acquisition would allow the Italian handbag and high-tech accessories brand to grow in size and influence, according to Luca Solca, an analyst in charge of luxury goods research at Exane BNP Paribas. "This acquisition is a good opportunity for Piquadro, which would scale up its business considerably."
Piquadro was founded in 1987 by Marco Palmieri and was originally positioned in the business and travel segment, manufacturing its products in China. Hit by the economic crisis, the company began recovering a few years ago by diversifying, introducing more fashion-oriented products and relocating part of its manufacturing operations to Italy. Above all, it entered the luxury leather goods segment by acquiring Florentine brand The Bridge at the end of 2016.
At the time, Marco Palmieri said that the acquisition would mark "the start of an aggregation process involving a series of premium accessories brands." The acquisition of Lancel would go in this direction, and it would allow the Bologna-based company to exploit the synergy with The Bridge’s Tuscan factory, located near Florence.
The addition of Lancel to Piquadro's portfolio would also be consistent with the latter’s strategy of having brands that are complementary to each other. This strategy is proving successful so far, The Bridge contributing to the acceleration of Piquadro's growth rate. In the first nine months of the 2017-18 financial year, ended on 31st March, Piquadro's consolidated revenue was €71.32 million, up 39.2%. In the previous financial year, Piquadro's annual revenue was just shy of €76 million.
As for Lancel, joining a fully fledged leather goods group and benefiting from an Italian manufacturing site could herald promising new developments. The historic French handbag brand, founded in 1876 in Paris by Angèle Lancel, has been engaged in a restructuring process for several years.
Lancel was bought by Richemont in 1997, and had already been put up for sale in 2012, with no success, so that the Swiss luxury group resigned itself to keeping it. In 2014, as Lancel’s deficit mounted, its sales plummeted. Since then, and after Marianne Romestain was put in charge of the brand in the same year, Lancel started to revive, its sales growing to about €130 million with a network of 78 stores, according to a business source.
"Lancel could perform even better if, instead of trying to compete with Gucci, Burberry or Prada, it tried to focus on the accessible luxury segment, the same in which Michael Kors, Tory Burch, Coach and Longchamp have been so successful," said Luca Solca.
Lancel has not provided any revenue figure but, according to Richemont's latest results, published on 11th January, the group's performance outside of jewellery and watches - notably featuring the Lancel, Dunhill, Montblanc, Chloé and Azzedine Alaïa labels - was stable in the third quarter, generating a revenue of €509 million (on par with the previous year at constant exchange rates, -5% at current exchange rates). Within this trend, Richemont underlined "[the] growth notably of Montblanc, Chloé and Lancel."
It seems that the time is right for Richemont to sell Lancel. The more so since, after a two-year slump, sales for the world number-two luxury group are picking up again. Richemont, the owner also of Cartier, Piaget, IWC and Jaeger-LeCoultre, was severely hit by the watch-making industry's crisis. As a result, it deployed a series of drastic measures in the last two years to steady its course, from buying back stock, repurchasing unsold watches to make room for new collections, to cutting hundreds of jobs in its factories, rationalising its distribution network and radically lowering the average age of its senior management team.
The Geneva-based group is also in the process of reviewing its brand portfolio, to focus on luxury and watches. It parted ways with its Chinese ready-to-wear and leather goods subsidiary Shanghai Tang last July, and bought high-end Milanese leather goods label Serapian, with which it was long familiar, since in the 1970-80s Serapian was the supplier of the leather goods collections for Cartier and Dunhill.
Also, in January Richemont announced it was ready to put €2.8 billion on the table to buy the 75% stake it still doesn't own in Italian fashion and luxury e-tailer Yoox Net-A-Porter, in order to strengthen its position on the online market. Last year, Richemont also bought a 7.5% stake in Dufry AG, the world's largest duty-free retailer. In the last two years, Richemont has been busy refashioning the group, and Lancel seems no longer to have a place within it.
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