LVMH targets fashion brands on mainland

LVMH, the world's biggest luxury group, is intensifying its drive into China by acquiring promising local fashion brands targeting mid to high-end consumers on the mainland, analysts said.

The strategy would help the French conglomerate deepen its understanding of the mainland market and expand faster in the world's second largest luxury market, they said.

Robust growth in the mid-to-high-end fashion market on the mainland had made local brands more attractive to LVMH even though the very top of the luxury market had softened slightly, reflecting global economic uncertainty.

The South China Morning Post reported yesterday that LVMH, owner of brands including Louis Vuitton, Hennessy Cognac and Bulgari, had spent US$2 billion buying a 10 per cent stake in mainland fashion maker Ochirly through its private equity arm L Capital.

The deal comes just a few weeks after the luxury giant announced last December that it was to take a stake in another mainland clothing brand, Jorya, which is owned by Fujian-based Xinhe Fashion. 'Some Chinese fashion brands have been growing very fast in the past five years,' said Li Jian, manager of M&B Consulting in Shanghai.

'They have learned to build up their brand image, they have expanded their sales network aggressively across the country and they're closely following global fashion trends.'

Compared to Europe and the United States, China's fashion market only started to take off in the past decade, Li said. Ochirly and Jorya, both created around 10 years ago, are among the few home-grown brands to survive and thrive.

Ochirly is a mid-priced brand catering mainly to trendy female office workers and students. Jorya focuses on high-end consumers seeking original and elegant designs.

'The success of these local brands could provide some valuable insights for LVMH, which is keen to increase its presence in China,' said Li.

Zhao Xiao, an analyst with China Merchant Bank International, said domestic clothing brands with expanding networks in lower-tier cities would be helpful for LVMH as it sought to open shops.

'It's a smart investment,' said Zhao. 'The luxury group is likely to do more of these deals in future.'

So far, L Capital has made several purchases in Asia. It has invested in Hong Kong-listed Emperor Watch and Jewellery, Charles & Keith in Singapore and Genesis Luxury in India.

Some analysts said LVMH might eventually buy out the fashion brands in which it had taken a stake.

Eugene Mak, an analyst with Core Pacific-Yamaichi Securities, said LVMH was buying promising brands to offset slowing growth in the luxury market on the mainland.

He said luxury sales might grow by about 15 per cent this year from more than 20 per cent last year.