Economies of scale is an economic theory that is coming into full play even in the luxury products markets as the volumes increase and the geographical area expands. Faced with this truth the Bulgari family decided to sell out to LVMH. Francesco Trapani, CEO of Bulgari SpA was talking to the media at his Rome office. He feels that the industry will be dominated increasingly by larger companies as scale and global reach becomes important.
The deal to acquire Bulgari, the third largest jewelry brand is valued at $6 billion. The financial crisis of the global economy put the independent players in the industry under extreme pressure. Dropping volumes and margins and rising costs are threatening to make their operations unviable. The situation will become progressively more difficult if you are not in a position to scale up rapidly. There were some other parties interested in Bulgari but LVMH was the most powerful and made the best offer.
Trapani believes that Bernard Arnault, the Chairman and CEO of LVMH is not aiming to squeeze the founders out of the business but work as a partner with them to increase the business. After the merger, Trapani will become head of watches and jewelry at LVMH, replacing Philippe Pascal. LVMH is relatively weak in watch and jewelry segment and they have invested so much money into Bulgari because they feel it is a star brand that will help them correct the situation in the segment.
Via: bloomberg
