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Luxury sector to see niche deals

Luxury sector to see niche deals

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The next aspiring Marc Jacobs or Stella McCartney may find it harder to get financial backing as luxury dealmakers target well-established brands for growth and top design houses begin paring smaller assets.

Industry executives and bankers told the Reuters Global Luxury Summit that the legacy of recession and new fears of a debt crisis in Europe had galvanized top brands like LVMH, Gucci Group NV and Richemont at the expense of smaller brand names as they revamp strategies.

Retail investment bank Financo Inc President and Chief Operating Officer William Susman said he viewed the retail world as “over-branded, over-stored and over-priced.”

As a result, not every brand will survive, and it will become harder for niche brands to find a foothold.

“You saw with Christian Lacroix that eventually LVMH gave up on it after so many years. A lot of those brands may be even better off being run by venture capitalists than they are by those other companies,” said Luxury Institute Chief Executive Milton Pedraza.

“The model for the future is a portfolio of large, strong, resilient brands. I would call that the Procter & Gamble sort of model as opposed … to two major engines and then 60 other very suboptimal brands,” Pedraza said.

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He cited Coach and Burberry Group Plc as managing their businesses well through the recession.

“Brands that are seen as experts in a few categories tend to manage those portfolios very well. Sort of putting one egg in a basket and then taking good care of it,” Pedraza said. – from Reuters

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