When Luxury Brands Decide to Go Private: A Blueprint for Enhanced Control and Elevated Customer Experiences

When Luxury Brands Decide to Go Private: A Blueprint for Enhanced Control and Elevated Customer Experiences

Recently, we have witnessed a notable trend of luxury and premium brands choosing to go private or considering such a move. Nordstrom, a US department store chain, is the latest company to announce a bid to go private. This follows closely on the heels of Tod’s and L’Occitane announcing such plans. At the same time, speculation about DTC sneaker brand Allbirds and e-tailer My Theresa going private has been rife. This shift away from public markets has sparked interest and debate within the business community. There is a general belief that away from public market scrutiny, brands can enhance control over branding and distribution and strengthen strategic planning. However, while many companies have gone private with success, this has not universally been the case. Below, we examine the motivations, intricacies, advantages, and pitfalls of going private.

A. Why do Brands Remain or Go Private?

1. To Liberate from Short-Term Market Pressures

One of the primary motivators for luxury brands to go private is the desire to escape the relentless pressure of quarterly earnings reports and short-term market expectations. Public companies often find themselves caught in a cycle of prioritizing immediate financial results over long-term strategic initiatives. This can be particularly challenging for luxury brands whose value proposition is maintaining an aura of exclusivity and timeless appeal. For instance, when Belmond Ltd., formerly known as Orient-Express Hotels, was acquired by LVMH in 2018 for $3.2 billion, it marked a significant shift. When public, Belmond had faced criticism for its inconsistent financial performance and struggled to justify its luxury investments to shareholders focused on short-term returns. Under LVMH’s ownership, Belmond has been able to focus on long-term value creation without the constant scrutiny of public markets. While LVMH is a publicly traded company, through a significant ownership of Groupe Arnault in LVMH, they retain ownership of 64% of voting rights, thus giving Groupe Arnault a decisive say in decisions. In addition, though it is publicly owned, LVMH does not typically disclose individual brand performance, so on an individual level, brands are largely exempt from financial scrutiny.

2. To Protect from Market Volatility

While luxury brands are generally resilient, they are not immune to economic downturns and larger global shocks like the financial crisis of 2008 and the pandemic of 2020. While the immediate aftermath of the pandemic gave rise to a boon in luxury spending, levels have normalized, and the resilience shown by luxury in the post-pandemic years is giving way to a much more pronounced normalization becoming evident in 2024. Shifting consumer sentiment often affects outcomes for luxury brands. Going private can be an effective strategy to shield the company from short-term market reactions to global events, allow for greater funding stability through private equity or family offices, and provide a buffer during periods of necessary restructuring or rebranding. During the COVID-19 pandemic, privately held luxury brands like Patek Philippe and Rolex could maintain their pricing and distribution strategies without facing immediate stock market pressures.

3. To Preserve Brand Identity and Heritage

Luxury brands often have intricate histories and carefully cultivated identities that can be at odds with the exigencies of public ownership. Going private allows these brands to protect and nurture their heritage without compromising their core values. A notable example is Chanel, which has remained privately held throughout its venerable history. This has allowed the brand to maintain its exclusive image and resist the pressure to expand too rapidly or dilute its brand through licensing deals, a fate that has befallen some of its publicly traded competitors.

4. To Allow Greater Flexibility in Strategic Decision-Making

Privatization allows luxury brands to make bold, strategic decisions with a view to the long term without fear of immediate market backlash. This is a crucial attribute in an industry where trends can shift rapidly and where maintaining relevance requires constant innovation and adaptation.

A notable example is Samsonite: after private equity took over, the company streamlined its product portfolio and focused on making Samsonite more of a premium product globally by eliminating it from retail outlets selling products at a lower price point. While the wholesale community complained about this, it was the correct strategic move as it increased Samsonite’s price point worldwide, thus improving Samsonite’s brand positioning and ultimately lifting the company’s value. This might have been challenging to implement under the scrutiny of public markets or within a larger conglomerate structure.

5. To Enhance Control and Strategic Planning

Streamlined Decision-Making Processes: Private ownership often leads to more streamlined decision-making processes, with fewer stakeholders to consult and less regulatory red tape to navigate. In the fast-paced luxury fashion and goods world, responding nimbly to market trends or creative inspirations can be a significant competitive advantage. For example, when Michael Kors Holdings (now part of Capri Holdings/Tapestry) took Jimmy Choo private in 2017, it was motivated by the ability to make faster decisions about product development and marketing strategies. This agility has allowed Jimmy Choo to respond more nimbly to changing consumer preferences and expand into new product categories.

Alignment of Ownership and Management Interests: Private companies may exhibit closer alignment between ownership and management interests. This can lead to more cohesive strategic planning and execution, as decision-makers are typically more directly invested in the brand’s long-term success, especially when they are also the founders. The Dumas family, which has controlled Hermès for generations, has consistently prioritized long-term brand value over short-term profits, allowing Hermès to maintain its position as one of the most desirable luxury brands in the world, even in the face of economic downturns and changing consumer preferences.

B. How Going Private Can Help Elevate the Customer Experience

Another significant advantage of going private for luxury brands is the enhanced ability to focus on and elevate the customer experience. This aspect is crucial in luxury, where discerning clients expect exceptional, personalized service and immersive brand experiences. 

1. Room To Invest in Personalization and Client Relationships

Private ownership allows luxury brands to allocate more resources toward developing sophisticated customer relationship management (CRM) systems and personalized services without the pressure to justify every expense to public shareholders, enabling brands to offer truly bespoke experiences. After going private via PE firms TPG Capital and Warburg Pincus, who bought Neiman Marcus in 2005 for $5.1 billion, the group invested heavily in its proprietary “ClientBook” app, which allows sales associates to communicate directly with customers, share personalized product recommendations, and provide a level of service beyond traditional retail interactions.

2. Ability to Create Immersive Brand Experiences

Privately held luxury brands often have more freedom to create elaborate, immersive brand experiences that may not immediately impact the bottom line but significantly enhance brand loyalty and customer engagement over time.

A prime example is Chanel, which has invested heavily in experiential marketing initiatives like its traveling art exhibition, “Mobile Art,” and its annual Métiers d’Art fashion shows held in exotic locations worldwide. These events, while costly and complex to organize, reinforce Chanel’s brand image and provide exclusive experiences for its high-value clients. Such initiatives might be harder to justify in a public company setting, where shareholders might question the ROI of such events.

3. Power to Maintain Exclusivity and Scarcity

Private ownership can help luxury brands maintain a sense of exclusivity and scarcity, two essential components of the luxury customer experience. Private luxury brands can exercise greater control of their distribution and production levels without the pressure to expand and increase sales to satisfy public market expectations continually. Hermès is once again a perfect example, renowned for its ability to maintain scarcity, particularly with its iconic Birkin and Kelly bags. The brand’s waiting lists and limited production editions create an aura of exclusivity that enhances the overall customer experience, making acquiring an Hermès product feel like a special and significant achievement for clients.

4. Continued Focus on Craftsmanship and Quality

Privately held luxury brands often have more latitude to invest in the highest levels of craftsmanship, even when these investments may not yield immediate financial returns. This commitment to excellence is a crucial aspect of the luxury customer experience.

The 2012 acquisition by Mayhoola marked Valentino’s transition from being part of a publicly traded company to a privately held entity. After going private, Valentino expanded its product offerings and refocused on quality. The company increased its focus on accessories, particularly shoes and handbags, which became a significant growth driver.

5. Innovation in Customer Service

Private ownership can also facilitate innovation in customer service models, allowing luxury brands to experiment with new approaches that may take time to perfect and scale, but allow them to offer memorable experiences that elevate the brand. By prioritizing these aspects of the customer experience, privately held luxury brands can often create deeper, more meaningful relationships with their clients. This can lead to greater brand loyalty, increased lifetime customer value, and strengthen their competitive position.

Luxury retailer Neiman Marcus, which went private in 2005, was able to focus on store experience investments by launching a new “remote selling” technology platform called CONNECT, which is used by all sales advisors, enhancing personal shopper services through digital clienteling and renovating key flagship stores including the Bergdorf Goodman flagship in NYC.

C. Successes, Failures, and Mixed Bags
The additional examples below provide a more nuanced view of the complexities involved in luxury and aspirational brands going private. They show clearly that while private ownership can offer key advantages, it is no guarantee of success. The outcomes depend on market conditions, brand heritage, financing, management expertise, and adaptability to shifting consumer preferences.

Successes

1. Dior: Bernard Arnault acquired majority ownership of Dior in 1984 by acquiring the bankrupt public company Boussac SA. Under Groupe Arnault’s private ownership, Dior was able to scale and reach critical mass, ushering in LVMH’s eventual full acquisition of Christian Dior in 2017, which allowed for greater synergy within the group and accelerated growth across product categories.
2. Samsonite: Initially owned by public company Beatrice Foods, the company went private in 2007 through a buyout by CVC Capital Partners. Under CVC’s management, a period of restructuring and expansion followed, ultimately leading to a successful IPO on the Hong Kong Stock Exchange in 2011.
3. Birkenstock: The product of a German shoemaking dynasty with roots in the 18th century, this company was able to scale and gain global traction with many popular luxury brand collaborations while remaining under private ownership and, following a short ownership under L Catterton embarked on a successful IPO in 2023.

Failures

1. Bally: Despite going private under Labelux Group in 2008 and subsequent other investors, the brand has struggled to redefine its identity and achieve significant growth.
2. Escada: The German luxury fashion group went private in 2009 but faced bankruptcy shortly after. It struggled to regain footing and was sold multiple times in the following years.
3. Asprey: The British luxury goods house has gone through multiple private ownerships since the 1990s but has struggled to achieve profitability and global recognition.

Mixed Results

1. Lanvin: France’s oldest surviving fashion house went private under Harmonie SA and Fosun International (since 2018), previously being part of L’Oreal under public ownership. While the venerable Lanvin brand regained critical acclaim and financial traction during its ownership status as a private company, it has faced challenges in redefining its identity and achieving true financial growth.

D. What Can We Learn From These Examples?

1. As seen with Samsonite and Birkenstock, private ownership can provide the necessary runway and resources for brand rejuvenation and expansion and an eventual IPO.
2. The success of going private often depends on the expertise and vision of the new owners, as demonstrated by the contrasting outcomes of Dior under LVMH and Bally under Labelux.
3. As seen with Escada, even established luxury brands can struggle under private ownership if they fail to adapt to changing market conditions.
4. The challenges faced by brands like Lanvin underscore the importance of having a clear strategy and identity, regardless of ownership structure.

A decision to go private must consider issues such as stable and sufficient financing for the long-term vision and ensuring that economic conditions and industry trends align for good timing. There has to be a strong leadership team in place, and key talent must be kept on board. All stakeholders must align on the decision and future direction of the company, while management and stakeholders must allow for alternative future scenarios. It is important to make sure that brand perception remains intact while undergoing this type of restructuring and that all regulatory compliance matters are in order.

E. In Conclusion

The decision for luxury brands to go private is complex, depends on the market context, and must be considered carefully. While it offers significant advantages in control, long-term planning, and customer experience enhancement, it also comes with challenges and risks. It requires careful consideration of market conditions, brand positioning, and long-term strategic goals. In many ways, an ideal scenario involves being a public company that, however, retains majority ownership or voting rights, as in the case of Hermès or LVMH: this allows access to public funding while at the same time ensuring the retention of control over key strategic and operational decisions. As the luxury market continues evolving, we may see more brands considering this path to preserve their unique identity and values while navigating an increasingly competitive and unpredictable global marketplace.