Moncler Opens the Door to a New House of Luxury

(Bloomberg Opinion) -- There’s a new bling behemoth on the block.

Luxury brand Moncler SpA has decided against selling itself to a larger company like Kering SA and has instead made its first acquisition. It will buy fellow Italian casual fashion house Stone Island for 1.15 billion euros ($1.39 billion) in cash and shares from the family shareholders and Singapore’s state investor Temasek.

This could be the start of a new phase at Moncler, where it focuses on becoming an acquirer of brands. If it goes down this path, it could eventually even take on Europe’s dominant luxury conglomerate LVMH Moet Hennessy Louis Vuitton SE.

That’s a ways off for now — Moncler is valued at about 11.5 billion euros, LVMH is at about 250 billlion — but the recent acquisition is certainly the first step. Known for its outerwear, Stone Island brings Moncler a broader spectrum of garments with which to expand its product lineup as well as a younger customer base. The latter will especially be useful, as people under 45 could make up two-thirds of the luxury market by 2025, according to Bain & Co.

That might be why Moncler is paying about 16.6 times 2020 Ebitda (an earnings measure) for Stone Island, slightly more than that of the other big fashion acquisition we saw this fall. Apparel maker VF Corp. paid about 15 times Ebitda for beloved streetwear brand Supreme last month. Moncler shares hit a record high after announcing the deal, echoing VF, which jumped the most in 33 years after it announced its surprise purchase. It seems investors are enthusiastic about these edgier forays.

Moncler is also well suited to elevate some of Stone Island’s more tired elements, such as branded hoodies and sweat pants. Not only has the skiwear maker done a good job of transforming the humble down puffer into a sought-after item, it has generated buzz from its collaborations with guest designers to produce limited-release collections. Added investment into Stone Island could turn it into a true luxury outerwear and streetwear label.

There is also potential to expand Stone Island geographically, primarily in the U.S. and Asia. It has just 24 of its own stores — some 78% of the company’s sales are through department stores and other retailers — so there is room to increase its retail footprint.

It helps that as part of the deal, Carlo Rivetti, Stone Island’s chief executive officer, will join the Moncler board, while he and his family will have about a 4% stake in the combined group.

Covid-19 has exacerbated the divide between luxury giants, such as LVMH and Kering, and everyone else. As the industry continues to recover from the pandemic, the biggest players have been able to take advantage of their geographic reach, digital prowess and marketing clout to capture most of the sales. Meanwhile, the smaller companies will more likely need to decide whether to sell out to a conglomerate or forge an independent future like Moncler. Not all will be in as good of a position as the Italian brand, which had net cash of 595 million euros at the end of its second quarter.

Of course, adding Stone Island doesn’t mean Moncler won’t eventually surrender its independence once it has established itself as a major owner of luxury brands. But if it can make a success of its new purchase, then it could negotiate a future deal from a position of strength.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.

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