W08 - Jay Z, Estee Lauder, Chanel, Prada, Macy's, Sephora, Farfetch
1. LVMH acquires 50% of Jay Z’s champagne
2. Estée Lauder $1.0 billion stakes in Deciem, shuts down Becca Cosmetics
3. L Catterton acquires majority stakes in Birkenstock
4. Net a Porter signs an unusual deal with Prada
5. Chanel launches an AI scanner and lipstick virtual try-on app
6. Bareminerals launch party in a virtual villa
7. Sephora opens 60 new stores. Ulta opens a 2nd Flagship in New York
8. Macy’s beats expectations
9. Farfetch is profitable for the first time!
10. Rapid News: Laduree, Burberry
Your weekly luxury podcast
1. Let’s start with a couple of news from Estée Lauder. First of all, the beauty giant is going to pay $1.0 billion to increase its ownership of Deciem, from 29 to 76%. This transaction values Deciem at $2.2 billion dollars, and Estée Lauder already committed to acquire the remaining stakes in 3 years, at which point it will fully own the Canadian beauty group. As a reminder, Deciem is a beauty and skincare company started in Toronto in 2013, which dubbed itself “the abnormal beauty company”. One of their most famous brands in The Ordinary, which offers skincare with powerful ingredients but at an approachable price.
That was the good news. The bad news that came from Estée Lauder was that Becca Cosmetics would shut down by September 2021, due to an accumulation of challenges and the impact of Covid.
2. Still on the M&A side, Birkenstock is selling majority stakes to L Catterton, the private equity giant with connections to LVMH, as well as Bernard Arnaud’s family office. The deal is said to value Birkenstock at 4 billion euros. The Birkenstock family will retain stakes in the company. The strategic objective of the deal is to expand in Asia and India, while solidifying the brand’s position in Europe and the US. Birkenstock generated 722 million euro of revenue in their fiscal 2019 and they expressed that 2020 was a record year as well, in clear contrast to the footwear industry which was down by almost 20%.
3. LVMH acquired 50% stakes in Jay Z’s champagne brand Armand de Brignac, also known as Ace of Spade. The brand launched in 2006 and Jay Z owned 50% back then, before buying the remaining half in 2014. The Champagne brand sold more than half a million bottles in 2019. Talks between Jay Z and LVMH started in 2019, directly handled by both Bernard Arnaud and his son Alexandre.
4. Net a Porter, The online retailer owned by Richemont, signed an agreement with Prada to sell through a drop-ship model. For those of you not familiar with this term, it means that when a shopper buys Prada on Net a Porter, the products will be shipped by Prada directly to the consumer. Net a Porter will not own the stock and will receive a commission on the sale as opposed to the traditional wholesale margin. Drop shipping is not new and it is not unusual for department stores like Neiman Marcus or Nordstrom to favor drop shipping so that they don’t carry the inventory risk. The benefit for luxury brands is that it gives more control over inventory and better margins, as the commission on sales is usually 20 to 30%, which is better than the usual 50% wholesale discount. Over the past few years, luxury brands reduced their wholesale footprint to favor direct to consumer models, whether online or offline. With this effort, Net a Porter aims at competing with Farfetch, which was able to attract big luxury brands such as Gucci through a model of eConcessions, which allows brands to manage inventory but most of all the ecommerce storefront and experience directly on the Farfetch website. While concessions are a standard business model for department stores in the physical world, it is becoming more popular online. Nordstrom for example has already implemented e-concessions, as well as drop ship models, and it recently announced a massive reduction of its wholesale business model, from 85% to 50%. Could this mark the beginning of the end for traditional wholesale models where retailers have to buy inventory upfront and carry the burden of unsold merchandise, which often triggers inventory liquidation through mark-downs. This is a trend to watch very closely.
5. Chanel launched a really cool app this week, called Lipscanner, which is both a color scanner and virtual try-on. How does it work? The app uses an AI scanner to recognize the color from any type of image and then matches it to the closest color from the more than 400 shades in the brand’s lipstick collection. It means that when users stumble across a color they like, and it can be the color of literally anything that has a color,whether it’s from real life, social media images, or flipping through magazine pages, Lipscanner will find a matching color at Chanel. The app also scans the user’s lips shape, texture and skin tone to propose the best color shade and allows users to virtually try-on the lipstick.
6. A cool initiative I wanted to highlight this week is a virtual shopping event that beauty brand Bareminerals will host on March 2nd, which is an auspicious date as it is also my birthday. Just saying. The event will take place in a virtual seaside villa, and will be hosted by bareminerals ambassador for the day, Hailey Bieber. Users will be able to navigate through the space by clicking on the various rooms, in a video-game kind of world, and each room offers a different kind of content, from video tutorials with beauty experts, to interactive activities, or shopping. The reason for the event is the launch of the brand’s liquid mineral foundations and concealer. Multiple videos of Bieber discuss products with makeup and dermatology experts. The event is being promoted by Bieber and a network of influencers on social media, who participated in a February 23 preview that granted access to 800 participants. QR codes located throughout the experience can be scanned to create content which will serve as UGC.
7. Sephora announced its largest store-expansion ever, with the opening of 60 new stores as early as this month, in addition to the 200 it will open at Kohl’s department store later this year. The total store count will reach 700 units in the US.
It shows that Sephora has a lot of confidence in its physical stores, which are being enhanced with new design as well as services, such as buy online pick up in store, same day delivery, and new online features such as Instagram shopping or buy now pay later.
Then, Ulta opened a 2nd flagship store in New York City, and the new mega beauty store features everything you find in a post pandemic store: cash registers in the back, more space is freed up for aisle displays and social distancing, QR code’s redirect to virtual try on apps to reduce testers manipulations,
8. Macy’s released Their fourth-quarter results and they exceeded expectations! Sales reached $6.8 billion which is an 18% decline versus 2019, with online sales growing 21%. These better than expected results are encouraging, and Macy’s actually raised their forecast for 2021, estimating it could reach almost $20.8 billion in sales. The American department store is also investing heavily in digital which is hoping to grow to $10 billion annually within the next three years.
9. Farfetch reported their 2020 results. Gross merchandise value increased by 49% to reach $3 billion dollars. Revenue increased by 67% to reach $1.7 billion dollars.
Despite these strong results, Farfetch still posted a huge loss for the year, but that was eclipsed by the huge milestone the company finally crossed during that last quarter. For the first time ever, Farfetch became profitable, posted an adjusted EBITDA of $10 m. It means the secret sauve of profit might have finally been found and it would be interesting to see how Farfetch does in the coming quarters.
10. French macaron maker Laduree is for sale. After posting a loss of 10 million euros in 2020, the historical baker owned by the Holder family is looking for a financial partner. It is unclear if it is to sell the entire business or stakes in it.
Then, Swarovski unveiled their new brand identity and logo. It is still a swan, but it looks more modern. The brand will start rolling out a new store concept called Instant Wonder, in New York and Paris first, before being rolled out in more countries. The stores will feature the latest campaign and visual identity, and according to the brand, they will be an immersive and mesmerizing experience int he world of jewelry.
Finally, Burberry is paying back earlier than due a 300 million pound loan it received from the British government during the pandemic. It will also repay 7 million pounds it had received in business rates relief.