Securing the future with vertical integration

Sheep, python, alligator and crocodile farms have all been on the shopping lists of the world’s foremost luxury brands in recent years as the trend for vertical integration continues to gain prominence within the retail industry.

Ermenegildo Zegna purchased a stake in a sheep station in Australia renowned for its Merino wool, Gucci bought a python farm in Thailand, and Hermés acquired alligator and crocodile farms in the US and Australia. The objective has been to gain greater control of the supply chain for the essential high quality raw materials needed for the production of their luxury goods.

 

This vertically integrated approach enables these prominent brand owners to secure sources of these important animals that give them guarantees they can hit their production targets. For animals that are in limited supply this clearly gives them a key competitive advantage.

As prices of these raw materials rise the purchasing of the farms provides control over the expected costs of production, and gives them enhanced margins of course, which all combines to help shareholders sleep a little easier at night.

Vertical integration also brings other benefits such as ensuring the methods used in the rearing of the animals are sustainable and that they are adhering to the best practice that is now demanded when dealing with live animals of any description. By owning the supply chain they can provide full transparency of all the practices of which they are involved.

There is no doubt that such actions by the premier luxury goods brands will be likely followed by other brand owners and retailers as they start to recognise that control over broader aspects of the supply chain – ideally from the origination of the raw materials through to selling to the end customer – provides a number of serious advantages.

Glynn Davis, editor of Retail Insider

K3 Retail deliver multi-channel solutions that enable retailers to create joined up shopping experiences for their customers whether they choose to buy on-line, direct, in-store or via mobile. It has over 20 years’ experience delivering award winning solutions, to more than 175 internationally recognised retail brands.