Big brands race to control supply lines

Written by Reuters | Paris | Updated: Aug 26 2013, 07:25am hrs
From crocodile farms to rose fields, suppliers of luxury material have become top acquisition targets for names like LVMH and Gucci owner Kering as they race to lock in rare skills and ingredients vital to their brands survival. Having invested heavily in recent years to open shops around the world, notably in emerging markets, luxury leaders are now competing to control the supply lines behind their sales.

We are ready to make the necessary investments when the know-how or raw materials associated with the quality of our objects are threatened, said Guillaume de Seynes, head of manufacturing and equity investments at Hermes.

Illustrating that thinking is LVMHs deal last month to pay 2 billion euros ($2.7 billion) for 80% of Italys Loro Piana, one of the worlds top cashmere makers, which herds its own Andean llama-like vicunas, prized for their fine, tawny hair.

Meanwhile, in the watch industry, Cartier owner Richemont and Kering, among others, have been stepping up their investments in parts providers as a response to a move by Swatch Group to cut back on third-party deals and focus instead on its own brands.

Most supply chain investments so far hover around 20-50 million euros. In 2011, LVMH spent 60 million euros to buy watch dial maker ArteCad and another 47 million euros for 51% of Singapore-based Heng Long, a crocodile leather tannery.

In the cosmetics world, Dior, Chanel and Hermes have been forging exclusive partnerships with plant growers to guarantee raw material supplies.