For tourists and partygoers flocking to the edgy nightlife of Singapore, the Ku Dé Ta bar perched 57 floors above the city-state’s first casino is a popular stop on the drinking circuit.
Set above the Marina Bay Sands casino and hotel complex, it offers arguably the most impressive views of the tiny island nation. It also pulls in about $10m in annual earnings before interest, tax, depreciation and amortisation, on $40m of sales.
For LVMH, the world’s biggest luxury group by sales, it is not just those numbers that have encouraged it to invest in Ku Dé Ta. It is also that Ku Dé Ta is one of the few successful homegrown Asian luxury entertainment and lifestyle concepts.
Usually it is western brands that make the running in this field, says Ravi Thakran, LVMH’s group president for south Asia, southeast Asia and the Middle East. “Assets like this – lifestyle, lounge bar, nightclub – normally come from Vegas, LA, Ibiza or London,” he says. “This is the first time an Asian company built a concept like this and succeeded.”
With brands that include Louis Vuitton, Bulgari and Krug, LVMH is more associated with mainstream luxury products such as handbags, jewellery and champagne. But through L Capital Asia, a private equity arm, it has been pushing into less obvious niches, such as cocktail bars and Jones The Grocer, a small upmarket delicatessen chain. Its latest investment is in YG Entertainment, the Korean music label behind Psy’s “Gangnam Style”.
Last year L Capital Asia, which was launched in 2009 and is based in Singapore, raised $1bn for its second private equity fund, on top of $637m raised in an earlier fund. LVMH and Groupe Arnault, the private holding company of Bernard Arnault, LVMH’s chairman and CEO, together account for about 10 per cent of both funds.
Francis Yeoh, the Malaysian businessman whose YTL Corporation owns Wessex Water in the UK, is an investor and sits on the strategy board, along with Richard Ellman, chairman of Noble Group, the Singapore-listed commodities company.
As well as taking a 51 per cent stake in the company behind Ku Dé Ta, L Capital Asia has pledged to invest about $120m in Crystal Jade, a Chinese restaurant chain in Singapore which Mr Thakran sees as a perfect example of the kind of “aspirational” outlet that is increasingly attracting affluent diners.
“The thinking behind the formation of L Capital Asia was that we don’t have to be in luxury all the time, we can be in layers below luxury, into what I’d call the affordable, aspirational space,” says Mr Thakran, who is also L Capital Asia’s managing partner.
Many Asian entrepreneurs are unwilling to cede control, so LVMH needed a vehicle that could take minority stakes in promising businesses. L Capital Asia aims to share LVMH’s knowhow with such companies to help them expand.
This has worked better in Asia than in Europe, he says, because Asian entrepreneurs tend to have less experience of branding and are more open to advice. “The European guys, whether British or Italian or French, they know how to brand things, market things, package things well, go for finesse and the whole quest for quality.
“Asians have been the factory of the world. They were great at manufacturing things but in building brands they’ve been short,” says Mr Thakran, a former Nike and Swatch executive.
The firm’s third and perhaps best-known investment, Charles & Keith, a Singaporean shoes-to-handbags company, illustrates the point.
The two brothers who founded the company in 1996 wanted to expand in China, Japan and South Korea after building up a network of stores across Southeast Asia and in the United Arab Emirates.
L Capital Asia pointed out that expanding in China, Japan and Korea would be complicated by the need to offer a winter collection. Charles & Keith, based in tropical Singapore, had never had to do that.
“We told them it will take you two years to build the product range. You can’t build just like that. We will help you,” Mr Thakran explains. L Capital Asia found designers from Europe and a separate team was set up to build up a winter collection, which was ready in 18 months.
Similarly, Charles & Keith’s plans to expand in China were revised after the firm, using the template of LVMH’s strategy for building its current 155-outlet network of Sephora make-up and fragrance stores, advised opening first in Shanghai before expanding. The brothers had initially planned to open in eight cities spread across China at once, which would have been more difficult to keep reliably stocked.
Until a recent slowdown in the luxury goods market – largely due to the Chinese leadership’s crackdown on conspicuous consumption – Asia was a powerful growth engine for luxury groups such as LVMH.
But Mr Thakran says that while watches and jewellery have suffered, the “affordable luxury” category below that – where Charles & Keith operates – has been largely immune.
China accounts for about 45 per cent of the first fund’s portfolio. With the second, which is already 30 per cent invested, the focus has broadened to Korea, Japan, Australia and even the Middle East where L Capital Asia is scouting for investments.
It is also trying to bring promising brands to new markets. Last year, for instance, it bought a 49.9 per cent stake in RM Williams, an 88-year-old Australian maker of leather boots and belts. Stores will be opened in Europe in the coming months, then Asia.
As for western fashion names that might travel east, Mr Thakran argues that few US brands have succeeded. “They keep making the same mistakes time and again, not even getting the sizing right. It’s amazing, [they] think those macho-looking T-shirts would look great on Chinese bodies.”
European brands heading to Asia nonetheless represent “relatively easier, low-hanging fruit”. L Capital Asia plans soon to try selling in Asia shoes made by Giuseppe Zanotti, an Italian designer in which the firm has taken a stake. But Asian brands going west “need to work at it”, says Mr Thakran, because they are “not sharp enough yet to stand up to western scrutiny on quality and finesse”.
One exception, L Capital Asia will be hoping, is Ku Dé Ta, which opens in Hong Kong’s Lan Kwai Fong clubbing district, in December. Enquiries have come to open in Miami and Rome, says Mr Thakran. “We would absolutely love to have London and New York too.”
Further reading: Defeat softened by a capital gain
L Capital Asia is not Bernard Arnault’s only investment vehicle. In 2010 LVMH unexpectedly announced that it had bought a minority stake in Hermès, its much smaller Paris-based rival, writes Adam Thomson in Paris.
What followed – cries by Hermès of foul play, legal action, defensive moves and finally, last week, a mutual and very public kiss-and-make-up agreement – amounts to one of the strangest and most closely watched tussles in the global luxury industry.
In essence, the agreement amounts to a victory for Hermès. Mr Arnault’s LVMH has agreed to distribute its 23.2 per cent of Hermès shares to its own shareholders. That, together with a clause in which LVMH promises not to buy any more Hermès shares for the next five years, in practice means that the Hermès family shareholders have overcome any attempts by Mr Arnault to take over the 177-year-old leather goods and fashion wear producer.
But Mr Arnault’s luxury group has not walked away empty-handed. LVMH bought the bulk of its Hermès shares – via equity swaps – in October 2010 at an average price of €106. The shares are now trading at about €245. As a result, LVMH will book a capital gain of more than €2bn on the distribution, on top of a €1bn gain already taken.