Luxury goes back home: giants strengthen their sourcing in proximity

Are there enough crocodiles in the world to make 3,000 handbags a year? Is there enough silk in the world to sell carrés to the rich in emerging countries? Can artisanal luxury be massive and global? For groups like Hermès, LVMH and Kering, the answer is not optional. European luxury giants have been speeding the acquisition of its suppliers and the construction of new productive hubs in the continent that saw them grow, and there is a triple reason: to ensure its stock to continue growing, to  strengthen their sourcing in proximity to adapt to the challenges of the industry and to face sustainability.

Under the romantic vision that Hermès or Chanel are conserving labors and almost millenary suppliers, lies a purely financial truth: to sell more, to continue growing. Stock exchange doesn’t forgive, and for the luxury giants, growing has been a goal for years. For that they need to make sure they have their stock supply of raw materials that, by the sectors definition, are key in its value proposal, and that are limited, that is why the dependency is bigger than in other sectors of the market.  

This need also covers another growing tendency, sustainability, that has already entered some strategic plans of bog companies. Kering, pioneer in elaborating a win and lose report in terms of environment, plants in its sustainability report that 90% of the impact generated by its value chain, comes from the production of its raw materials.  

Hermès, Gucci or Louis Vuitton are some of the companies that opened factories in its local markets the last couple of years  

But, why Europe?  On one hand, because here is where the majority of the group’s providers are. On the other hand, because its here where the its main market lies, so reinforcing its production in proximity allows them to be more flexible and adapt to the changes of the market.

Sustainability was one of the arguments Chanel listed after one of suppliers shopping spree in 2016. That year, the company, run by the Wertheimer brothers, bought Richard Tannery, lamb skin supplier, and acquired a minority stock in Sophie Hallette, a tulle and lace provider with more than 130 years old history near the French location of Calais.

Chanel, that started its vertical integration in 1984 with the acquisition of Desrues, a button producer, controls Barrie as well, a Scotland cashmere supplier Laseage, for embroidery, Lemarie for hats and Causse, gloves.  

Gucci’s goal is to reduce 40% its number of suppliers  

Only in the last two years, Chanel has entered also the capital of the watchmaking Montres Journe, and in the Italian tannery Samanta, and has acquired 100% of the Spanish tannery Colomer Leather.

Hermès has taken is bet towards verticality a step forward. In 2009, the company started breeding its own crocodiles in Australia to guarantee the access to the raw material of its two bestsellers: Birkin and Kelly handbags.  

The company also acquired two of its historic suppliers specialized in leather, the tanneries, Tannery d’Annonay and Tanneries du Puy, and has reinforced its productive capacity with new factories in its local market.

Inly in two years, the company has opened two new factories:  Manufacture d’Hericout and Manufacture de l’Allen, both in France. The group also operates with a third factory in the region, Manufacture de Selencourt, active since the nineties and that counts with sixteen centers around the country.

Hermès goal is to reinforce its three productive units to employee more than 780 workers by 2023. The three centers are dedicated to the production of tanners for the manufacture of leather handbags and accessories.

Its leather supplier is also one of Prada’s main obsession, that controls the French tannery, Tannerie Megisserie Hevy, specialized in lamb, and that keeps a jointed venture with its historical Italian supplier Conceria Superior.

Kering has also bet from controlling its value chain from the beginning. The company, owner of Gucci, Yves Saint Laurent and Bottega Veneta, amongst others, has a majority share in a Thailand pythons farm and in the specialized in crocodile leather tannery France Coco.

Louis Vuitton announced the construction of two factories to reduce its delivery time to one week

The company also bets for proximity with the opening of two new hubs for Gucci, its crown jewel, and Bottega Veneta.  

The first of the opened in 2018 a new industrial hub in the city of Scandicci, near the company’s headquarters. “This is the biggest industrial investment in the history of Gucci” Marco Bizzari, president and CEO of the company explained.  New Gucci installations, called ArtLab, count with a surface of 37,161 square meters and employee more than 800 people.

“Three months after joining Gucci, in January 2015, the idea was to reduce 40% the number of suppliers”, recognized Bizzari. When he joined, only 5% of the leather items where made in the company, and now represent more than 50%.

L’Oréal or Givaudan reinforces its production in France so far in 2019

Bottega Veneta, on the other hand, announced last June the construction of a third factory for its industrial hub in Veneto, Italy, of 6,000 square meters and destined to the production of leather items.

The biggest luxury group of the world, LVMH, also reinforced its supplier’s proximity. The company started last year the construction of two new factories in the French locations of Sainte-Florence and Beaulieu, with the goal of reducing the time of its delivers to one week.

Furla, Ermenegildo Zegna and Burberry are some of the companies that last year have ensured its stock with acquisitions: the fist one bought 100% of the Italian manufacturer Effeuno; Zegna acquired the knitter Bonotto and Burberry bought the Italian CF&P. Despite all, the British giant also took a step back in its sourcing strategy with the sale of its fabric in Leeds.

The perfume industry also strengths its stock  

Perfume giants also reinforced its productive units in proximity. L’Oréal, number one in the sector announced in April an investment of 15 million euros to boost its premium line of perfumes in Paris.

Also, in the French capital, Givaudan, opened last year a digital lab to reinforce its innovation area. The British Parterre, on the other hand, counts with its own botanical garden in England to cultivate aromatic plants for its perfumes.