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TURIN - Exor, the investment company of Italy’s Agnelli family, is on the lookout for further acquisitions in luxury. It’s already the biggest shareholder of the automaker Ferrari, one of the world’s most desirable cars. Now the Milan-listed company is in exploratory talks with a few other high-end brands, a senior industry source close to the company said. No concrete deal is afoot yet.

Exor is competing against the deep pockets and full Rolodexes of LVMH, Kering and the Qatari investment company Mayhoola, which owns the Italian fashion house Valentino. All three are keen to buy brands and suppliers.

To date, Exor has only made a few minor forays into luxury. It bought 80 percent of the lossmaking Hermès-backed Chinese luxury brand Shang Xia in December 2020. Five months later, it bought 24 percent of the French shoemaker Christian Louboutin.

Its results statement earlier this month said it had €5 billion in cash for acquisitions after completing the sale of its reinsurer PartnerRE.Some patriotic Italians say the Agnellis are the only ones with the financial firepower and national support to build a luxury group to rival French ones like LVMH and Kering. But this does not look likely anytime soon.

In an April 17 letter to Exor’s shareholders the word luxury only appears briefly and at the very end. “At Exor, we are focusing on deploying our capital within the healthcare, luxury and technology sectors, although we remain open to opportunities outside those industries where we can build great companies with great people,” said John Elkann, scion of the Agnelli family industrial empire and CEO of Exor.In its results statement,Elkann gives a deep-dive analysis of many of Exor’s investments in these areas but makes no mention of Louboutin or Shang Xia. Miss Tweed tried to find out more about the performance of these businesses and what their strategy might be.

But first who are the Agnellis and what are their ambitions in luxury? Historically, Fiat was the biggest private employer in Italy, making the Agnellis Italy's most powerful and influential family. As a result, they are often described as the de facto royal family of la Repubblica Italiana. However, their influence in Italy has dwindled. Elkann, the chosen heir of his grandfather Gianni Agnelli, has moved many parts of the family business out of Italy over the past decade. Fiat merged with Peugeot two years ago to become Stellantis, which is based in the Netherlands.

Elkann, through Exor, is the largest shareholder in Stellantis, controls the Turin football club Juventus and owns the Turin newspaperLa Stampa.Exor is alsothe biggest shareholder of The Economist Group. The Agnelli family is now considered part of the global plutocratic elite, rather than anything specifically Italian nowadays.

Elkann thinks he understands luxury because he has led Ferrari successfully over several decades, sources close to the company say. Cars and fashion are two different animals, but there are some common denominators. There are waiting lists for the bright red sports cars with the prancing horse just like there are for Hermès’ Kelly handbags.

It may be no coincidence that Hermès CEO Axel Dumas sits on Exor’s board since last year. His relationship with Elkann goes back a while. Although it was making losses, he convinced Elkann to take over Shang Xia and tap into Chinese consumers’ growing appetite for homegrown brands. That experiment has yet to yield profits.

Since then, Exor has tried to buy into other other luxury houses as well. In 2021, Elkann approached Italian designer Giorgio Armani about a cash and shares deal for his brand, offering Armani a significant share in the combined entity. Armani turned him down, several industry sources said. Armani is now 88 years old and his heirs may take a different view. Elkann will probably make another approach to the heirs when the time comes, the sources said. For the moment, the jury is still out on Elkann’s ability to run and grow luxury brands.

The person who oversees Elkann’s investments in Louboutin and Shang Xia is Suzanne Heywood, Exor’s Chief Operating Officer, a former British civil servant and McKinsey & Company partner. Prior to Exor’s investment in Shang Xia, Heywood sat on the board of Chanel for four years starting in 2017. It was part of Elkann’s plan to give her an opportunity to find out more about luxury. Heywood explored many of the brand’s different businesses, from fashion to make-up and high jewelry, the source close to the company said. In 2017, the French luxury powerhouse started the multi-year process of moving its headquarters from Paris to London. Heywood helped Chanel set up a board structure and an audit committee. “The relationship was mutually beneficial,” the industry source close to Exor told Miss Tweed on condition of anonymity.

Heywood now sits on the board of Louboutin and chairs Shang Xia. She is in talks with various brands Exor could invest in, and also in regular contact with head-hunters to find potential recruits in the luxury industry, the senior industry source said.

CRITICAL FRIEND

Exor believes it can compete against big groups because it is not bent on buying control. It is happy to remain the biggest minority shareholder and act a “critical friend” alongside the CEO-designer duo, the senior industry source said. That’s what convinced Louboutin’s shareholders to choose it over Gucci owner Kering in April 2021. Kering wanted control, Exor didn’t. It paid €541 million for a 24 percent stake in a deal that valued the luxury shoemaker at €2.2 billion – a pretty high price industry analysts said back then. Louboutin today makes under €1 billion in annual sales.

In its 2022 results published earlier this month, Exor reported that between 2021 and 2022, Louboutin’s net profit rose to €119 million up from €90 million and Shang Xia’s losses widened to €25 million from €10 million. The group injected €5 million into the Chinese brand.

Exor did not provide many figures regarding Louboutin. However, a source close to the company said the shoemaker’s organic sales growth in 2022 was in “double digits.” Louboutin is quite different from other rival luxury shoe brands in that every shop in the world has a different assortment and concept. Its boutique in Miami will have shoes with feathers and in bright, exotic colors, for example, while in New York it will carry mainly shoes for the office.

Some industry sources said Christian Louboutin and his investment partner Bruno Chambelland pocketed several hundreds of millions of euros each when they sold to Exor two years ago. They are no longer as hungry to make Louboutin grow as they were before the deal. But the industry source close to Exor say the Italian company is happy to be patient, though it would like to see the French shoemaker increase its presence in China where demand is growing. Louboutin also needs to address sustainability, a topic on which it is quite late compared to rivals, industry insiders say.

Louboutin is a very creative brand, but customers don’t always get what they want. When you go to a Louboutin boutique, you cannot just ask for the model you want. You need to give your size and the sales assistant will tell you what you can buy. Unsurprisingly, the brand needs to get rid of important amounts of unsold stock every year.

Marco Tosi, Louboutin’s Chief Operating Officer, gave more interesting details at Miss Tweed’s Luxury at the Summit conference in Val d’Isère in early April. The company makes around 1,000 shoe prototypes a year and puts into production only 200 of them. Around 75 percent of Louboutin’s products were renewed every three months, he said. That involved a complex logistical organization of more than 1,000 different suppliers. “Did you know that every stiletto required 240 different operations?” Tosi asked. “And some 100 people manipulated the product before it arrives in a store.” Louboutin’s best-selling Kate stilettos cost €745, or half the minimum monthly salary in France. The brand has diversified into bags and make-up in recent years, but they represent a small proportion of its total sales.

Around one quarter of Louboutin’s production is internalized, Tosi explained. That allows the company to cut production when demand is down and produce in very small quantities if it so wishes. Louboutin puts out 4,000 new products every year, he said. With so many different product references, the brand faces stock management problems. Around two years ago, it started opening outlets in its main markets in Europe, Asia and North American to turn some of that stock into cash. It now has around seven of them, the senior industry source close to Exor said.

Adding to the company’s supply chain complexity, big groups such as LVMH, Kering and Chanel have been taking away production capacity in the past decade, buying up the best shoemakers in Italy.

That said, Louboutin is an easy business for Exor to manage compared to Shang Xia. The brand has been in soul-searching mode since it parted ways with its Chinese founder Jiang Qiong Er last year. Er is still advising Exor on luxury matters, as Miss Tweed reported, but is no longer involved in the day-to-day running of the business. When Hermès launched Shang Xia in 2010, the brand’s story was about China’s ancestral savoir faire such as bamboo weaving, “eggshell” porcelain and hand-washed cashmere. It was meant to be the Hermès of China.

But Shang Xia turned out to be a money pit. After 10 years of losses, Hermès got it off its balance sheet. After Exor bought control in 2020, the Italian company realized that the market for its artisanal products was in fact quite small and its customer base quite old. “What Exor had was a brand that made beautiful pieces, some of them went into museums, but it was not a commercial brand, so it needed to be re-oriented,” the senior industry source close to Exor said.

In 2021, Exor hired Chinese designer Yang Li to develop a new line of clothing that would be quintessentially Chinese and of high quality. But an original, desirable and relevant Chinese fashion identity is not easy to pin down, Heywood and Elkann now understand. What does Chinese fashion stand for? If you live in a country with no freedom of expression, how is fashion supposed to thrive and reflect the Zeitgeist? Plus, the Chinese have been wearing Western-style clothes for centuries. Cutting-edge fashion was naturally European, they’ve long thought. That is currently changing with China’s rising cultural self-esteem known as guochao, or “national trend.”Chinese brands like Guo Pei and Masha Ma may be poetic and growing. But they steer clear of making any bold statements, as Miss Tweed reported in 2020.

Shang Xia’s core business in the past few years has been furniture. How do you build a fashion brand when your best-selling product is a carbon fiber chair? Li has produced three collections presented during Paris Fashion Week. None got very positive reviews. “There was a strong streetwear undercurrent that came through in leggings, shirt jackets, bombers and puffers with aerial mountain prints, some pinned with sculpted leather swallows,” WWD wrote about the last collection presented in March. “But all in all, the collection didn’t project a lot of luxury, and it’s unclear where Shang Xia is going in terms of landing on a set of recognizable brand codes.”

The rival Chinese luxury brand Icicle has the same problem. It uses beautiful and expensive fabrics but it does not have a particularly identifiable style or cachet. Icicle has several boutiques in Paris but none of them are profitable, industry sources say. They serve as marketing to show Chinese tourists that the brand has an international presence.

Elkann and Heywood are aware that the Chinese brand needs to find its footing and fine-tune its storytelling. There is no point investing too much in expanding its retail network in China and abroad until it’s got its strategy right, people close to the brand say. One of designer Li’s recurring themes is the Ming dynasty (1368-1644), one of China’s richest periods known for its exceptional porcelains, paintings, lacquers and textiles. So he added to the back of a coat the same large stripe found on the brand’s so-called Ming carbon fiber chair. But that is not enough to make people rave about Shang Xia.

Since 2019, Exor has also been trying to develop a clothing line around Ferrari but that business remains small, industry sources say. Exor has been staging runway shows in Maranello, the northern Italian town where Ferrari is headquartered, and invited fashion journalists to cover the event. But these clothes are sold only in a few stores and outlets in Italy and in the United States. Since September 2022, the Ferrari fashion brand is led by Carla Luini, who has never run a fashion business before. Luini worked for jewelers Pandora, Bulgari and the consumer goods group Procter & Gamble prior to joining Ferrari last year. Ferrari’s designer Rocco Iannone previously worked as creative director for Italian menswear brand Pal Zileri, one of Mayhoola’s most unsuccessful fashion ventures.

Now we understand why Exor remains so quiet about fashion and luxury. There’s not that much to trumpet about. However, that may change if Elkann manages to turn Shang Xia into a success story and invests in promising up and coming fashion and luxury brands.