Luxury jeweller brands. The recent acquisition of the Bulgari by LVMH, the world’s leading conglomerate, foretells a wave of consolidations. Autumn Womens jackets, Springs and Autumns need golden, reddish, or dark brown eyebrow pencils or powders. Summer and Winter eyebrows look atural with a charcoal or brown pencil or eyebrow powder but cannot use red tones.

In order to grow, many family owned luxury brands will join existing conglomerates or form new groups.

Luxury jeweller Bulgari

In most industries, concentration has been a trend, with major groups leading the sector. The benefits of size (big is beautiful) are well known. The luxury industry itself, although attached to images of independent family brands, is no longer the exception. LVMH originated in 1987 from the merger of a leather company with a cognac and champagne house and is now home to more than 60 brands. More recently, PPR (now called Kering), originally a wood and retail conglomerate, added a arm with the purchase of the Gucci Group, with the ambitious goal to make it the world’s number-two group. Richemont (Cartier) and Prada (Miu Miu) are other famous examples.

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Some doubts have been expressed about the validity of such concentration. Rigby, D’Arpizio and Kamel (2006) argue that: ‘the usual benefits of being big – leverage with suppliers, shared marketing and administrative expenses, and high volume, strategic customers just do not seem to apply for most multibrand luxury players’. They add to their critique some disturbing facts. In the luxury industry, single-brand companies actually grew 60 per cent faster from 1994 to 2004, compared to brands owned by the multibrand conglomerates, without showing weaker profitability.

It has been highlighted that brands could be in danger when integrated with and managed by non-luxury groups (eg Jaguar and Ford).But why should groups be a special case? Because, unlike FMCG brands, the brand equity of brands depends on their very high symbolic power. When a change of ownership takes place, there is therefore a risk that stakeholders will lose confidence in the sustained authenticity and inherited culture of the brand.

As luxury groups have transformed into listed companies, they have come under growing pressure to exhibit growth figures while simultaneously maintaining their high brand equity. However, the feelings of privilege that they create are threatened by pressures to increase penetration, diffusion, trading down, and the introduction of so-called ‘accessible luxury’ option.

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De Sole, former CEO of Gucci Group, puts it straight: ‘When you are a public company and you want to continue to create value for your shareholder, you have no choice. You cannot go downmarket because of the effect on margins and profitability’ (Galbraith, 2001). The recent wave of acquisitions has been enabled by the desire of many well-known family companies to give up their autonomy and by the search for synergies.

Theoretical background: how groups create value

Unlike all other sectors, groups cannot be based only on cost-reduction motives. If they were, how would they create value? A review of diversification theory highlights that the performance of multibusiness firms (MBF) is related to their capacity to generate corporate effect rather than industry or business effects (Brush, Bromiley and Hendrickx, 1999; Rumelt, 1991). The corporate effect can be defined as value creation at the corporate level, which corresponds to both the vertical relationships between the corporate centre and the businesses, and the horizontal relationships between the businesses.

Operative synergies, market power

Search for synergies is another goal of groups. Synergy is the effect that the combined return of two or more parts together is greater than the sum of the return of each part individually. Usually the study of synergies has been limited to efficiency focused synergies or hard synergies (economies of scope). Following Knoll, we integrate it into a more global scheme: operative synergies, market power synergies, financial synergies and corporate management synergies, which are respectively derived from leveraging operative, market power, financial and corporate management resources across the businesses.

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A brand joining a group has to add value to the group. Reciprocally, the group has to add value to the brand. But what is the reality of this parenting advantage with which groups are said to endow their brands? As Moore and Birtwistle put it: ‘Little, if any, consideration has been given to how luxury brand conglomerates secure what Goold, Campbell and Alexander described as “parenting advantage” – those strategies, structures and processes whereby the “parent works through its businesses to create value”.

For them brand development and sharing of group resources are the main sources of parenting advantage that luxury groups can create. Is this really the case?