Document Sample
					                                                                                                                                                                                                                VIDEO on
                                                                                                                                                                                                                Lionel Barber, Martin Wolf and
                                                                                                                                                                                                                Vanessa Friedman interview leading
                                                                                                                                                                                                                figures at the FT luxury summit in
                                                                                                                                                                                                                Monte Carlo

                          SPECIAL REPORT | Monday June 15 2009

Slimming all the
rage as belts tighten
Haig Simonian                       groups’ key feature. The grim        first month of its new financial     inflicting permanent damage in
                                    economic backdrop has also           year, were down 19 per cent. Tif-    an industry where customer
investigates the                    come just as some companies,         fany’s first-quarter sales and       perceptions are vital. Manufac-
problems faced by                   notably in leather goods and         profits tumbled as expected.         turing has also been protected –
                                    fashion, face anxieties about        And last month, Christian Lac-       as far as possible – with fashion
luxury goods                        ethics and environmentalism.         roix, one of the biggest names in    and watchmaking brands espe-
conglomerates in the                Advocates of sustainability have     French fashion, filed for protec-    cially aware of the difficulties of
                                    targeted groups using rare spe-      tion from creditors.                 replacing highly-trained seam-
current market                      cies and skins; parfumiers have         With the scope for cost-cutting   stresses or watchmakers when
                                    to cater to growing interest in      limited, brands have turned to       the upturn comes.

        or years, equity analysts   all things organic.                  “cost containment”. Hiring has          How severely companies have
        urged Johann Rupert to        Ever fickle, luxury goods have     stopped, temporary labour con-       reacted has depended on market
        spin off tobacco and        turned near impossible to pre-       tracts have been suspended and       factors and on owners’ percep-
        turn Richemont, the         dict – as the irony of Richem-       pay sometimes frozen. Store net-     tions of the crisis, in an indus-
company he chairs and controls,     ont’s restructuring demon-           works, particularly in the           try still dominated by individu-
into a “pure play” luxury goods     strates. So hard has it become to    stricken US, have been pruned.       als.
group. In 2008, the independent-    forecast the market that many           Richemont is closing 62 out-         Richemont’s Mr Rupert has
ly-minded Mr Rupert finally         top manufacturers have virtu-        lets, mainly in the US, while        been among the hawks, warning
took heed and returned Richem-      ally given up. “Visibility is non-   Burberry has taken heavy             of the sharpest downturn in 20
ont’s stake in British American     existent” says Norbert Platt,        charges on the value of its Span-    years. Francesco Trapani, chief
Tobacco to shareholders, leav-      Richemont’s chief executive.         ish stores. And everyone is look-    executive of Bulgari, by con-
ing his group focused on Cartier      The unpropitious circum-           ing to protect cash flow by          trast, said last month his group
jewellery, Montblanc pens and       stances have been reflected in       reducing      inventories     and    had registered a “clear sign of
much else.                          grim results. Bulgari has            squeezing suppliers.                 improvement” in April, both at
  Today, some of the same pun-      incurred its first quarterly loss       In an image-driven business,      its directly-operated stores and
dits are regretting the loss of     in 10 years. Burberry, the UK        only marketing and advertising       even in the tougher third-party
those high and stable BAT divi-     fashion brand familiar for its       have      escaped      relatively    distribution channel. Burberry’s
dends, as the world’s luxury        distinctive plaid, last month        unharmed, as manufacturers           Angela Ahrendts reinforced that
goods industry struggles with       reported its first full year loss.   fear tarnishing their brands.        message, noting recently that
its biggest challenges in dec-      Richemont’s sales in April, the      Reducing share of voice risks        the recession was beginning to
ades. Demand has tumbled vir-                                                                                 diminish. And Nicolas and Nick
tually across the globe with no                                                                               Hayek, the father and son team
clear sign of recovery. Manufac-
                                     Inside this issue                                                        at Swatch Group, maintain the
                                                                         Italian chic is about more than
turers from LVMH Möet Hen-           Invisible glove                                                          second half will bring a distinct
                                                                         espresso, writes Vincent Boland
nessy Louis Vuitton, the world’s     Martin Wolf quizzes three                                                improvement. More objectively,
                                                                         Page 4
biggest luxury goods group, to       economists about their views                                             Bain & Co, the management con-
Italy’s Bulgari, find themselves     on the economy Page 2                        Lipstick index Is           sultancy, believes the luxury
saddled with stubbornly high                                                        beauty immune from        goods market will shrink by 10
costs, leaving little room for       LVMH Bernard Arnault                            recession? Elisa         per cent this year, with the pain
manoeuvre. Even beauty has           talks to Vanessa Friedman                        Anniss investigates     concentrated in the first half,
proved vulnerable, contrary to       about the prospects for                          Page 5                  following a flat 2008.
the common claim, as figures         the sector Page 3                                                           But some broader themes
for L’Oréal and others show.                                                        Licensing Brands          have emerged. Take geography.
  On top of the market prob-         Italian style                                 are reconsidering a        Those      brands    particularly
lems, the sector faces tough sec-    Tod’s chief                                   discredited business       exposed to the US have
ular change. Globalisation has       executive, Diego                                 model, says             faced the biggest challenge,
put a premium on size – but          Della Valle                                       Lucie Greene           with       Japan       not     far
sheer mass risks diluting the        (right), says                                      Page 6
exclusivity that is luxury                                                                                                Continued on Page 3       Big squeeze: slow sales, hiring freezes and store closures have made it a tough year for the sector   Lynch
2                                                                                                                                                                                                                 FINANCIAL TIMES MONDAY JUNE 15 2009

Business of Luxury

How the world economy might recover its poise
ECONOMICS                                                                                                                                                                                                                  rescue the financial system
                                                                                                                                                                                                                           have extracted a heavy fiscal
Martin Wolf talks to                                                                                                                                                                                                       cost, notably in the US and
three economists                                                                                                                                                                                                           UK.
                                                                                                                                                                                                                             JO’N: We are optimistic
about the prospects for                                                                                                                                                                                                    about prospects in the “BRICs”
a global recovery                                                                                                                                                                                                          (Brazil, Russia, India and
                                                                                                                                                                                                                           China). We also see scope for
                                                                                                                                                                                                                           an inventory-based recovery in

        he world is in the                                                                                                                                                                                                 the group of seven high-income
        midst of the worst                                                                                                                                                                                                 countries for a few quarters.
        financial crisis and                                                                                                                                                                                                 Yet a more sustained global
        biggest global recession                                                                                                                                                                                           recovery will probably need the
since the 1930s. But many now                                                                                                                                                                                              world to cope with a further
see reasons for hope. Is this                                                                                                                                                                                              reduction in the importance of
plausible? Where will the                                                                                                                                                                                                  the US consumer. In order for
recovery come from?                                                                                                                                                                                                        the world to avoid many years
  Stephen King, HSBC Group’s                                                                                                                                                                                               of subdued growth, we need
chief economist, Jim O’Neil,                                                                                                                                                                                               stronger demand in the older
head of global economic                                                                                                                                                                                                    economies of Europe and
research at Goldman Sachs,                                                                                                                                                                                                 Japan. This will require bolder
and Norbert Walter, chief                                                                                                                                                                                                  policies, aimed at reducing
economist of Deutsche Bank                                                                                                                                                                                                 household savings in Germany,
Group, give their answers to                                                                                                                                                                                               and corporate savings in Japan.
these vital questions below.                                                                                                                                                                                                 For the US and UK, export
                                                                                                                                                                                                                           growth is likely to be the
Are the “green shoots” real                                                                                                                                                                                                source of sustainable strength,
or imaginary?                                                                                                                                                                                                              but without stronger demand
  SK: In contrast to the                                                                                                                                                                                                   outside their borders, this will
suffocating fear of depression                                                                                                                                                                                             be slow to develop.
at the end of 2008, financial                                                                                                                                                                                                In all, we appear to be
markets have staged a recovery                                                                                                                                                                                             entering a period where the
and aggressive de-stocking is                                                                                                                                                                                              relative share of incremental
drawing to a close, which                                                                                                                                                                                                  activity will be even more
suggests a pick-up in industrial                                                                                                                                                                                           dominated by the BRICs than
production is due.                 Go east: domestic demand in China is the world economy’s best hope for a recovery and where the best opportunities for luxury retail are to be found                            Getty   in the “noughties”, especially
  Yet worries remain. Final                                                                                                                                                                                                by China and India. For luxury
demand is depressed.                 The strongest positive signals   of equities in portfolios is        less keen on the printing press     revision to our forecasts for         those with a concentration in          retail companies, this is where
Traditional monetary policy        are coming from the largest        reasonable.                         than those of the US and UK.        Chinese growth in 2009 and            the financial industries will be       the big opportunities remain.
has run out of room and fiscal     developing countries, especially                                         JO’N: As each month of 2009       2010. We now forecast 8.3 per         hit harder and for longer.               NW: First, the trends of 2003
policy will do so soon.            China. Within the so-called        Which parts of the world            passes, we find ourselves           cent and 10.9 per cent,                                                      to 2007 were unsustainable. The
Economic recovery depends on       “advanced countries” the           economy are going to recover        thinking ever more that this        respectively.                         What needs to be done to               irresponsible monetary policies,
“unconventional monetary           shoots seem greenest in the        first and which will lag            crisis is almost good for China,      We have also revised                ensure a durable global                lack of regulatory discipline
measures”, which are mostly        UK, perhaps surprisingly. In       behind?                             or more specifically, for China’s   upwards our forecasts for Hong        recovery?                              over financial markets,
untested. Deflation is a risk.     addition to a strong recovery in      SK: China is already in the      role in the world economy.          Kong, Taiwan and Korea and              SK: While policy-makers have         depletion of resources and
  Recovery will be a struggle.     business surveys, consumer         lead. While its exporters have      China seems to realise that an      become slightly less pessimistic      helped avoid a “Great                  growing burden on the
High levels of debt will           spending appears to have held      suffered heavy losses, the          export-based model of growth is     for Japan. We now forecast 3.2        Depression Mark 2”, their work         environment cannot continue.
constrain the pace of activity,    up much better there than          government’s domestic               no longer sustainable.              per cent world GDP growth in          is not yet over. The crisis has          Second, the huge government
at least in the developed world.   many pessimists expected.          infrastructure policies appear                                          2010 after a 1 per cent decline       revealed many fault-lines              involvement may lead to
The good news comes from             NW: The green shoots are         to be bearing fruit.                                                    this year. Meanwhile we see           within global finance, including       excessive intervention in
elsewhere: Beijing’s               real. This is because the             Yet an infrastructure-led        ‘As each month of                   the “old economies” of Europe         the mismatch between a global          markets, including the risk of
policymakers have shown they       precipitous drop in orders and     pick-up in Chinese domestic         2009 passes, we find                and Japan lagging behind.             capital market and national            protectionism. Regional and
can kickstart Chinese domestic     production after the third         demand will do little to help                                             NW: If one does not need            regulation and supervision. It         global co-operation should be
demand, offering a silver lining   quarter of 2008 corrected          other Asian exporting nations.      ourselves thinking ever             parliamentary approval for            is hard to imagine a return to         the goals. President Obama
to a mostly recessionary cloud.
  JO’N: According to our
                                   excessive stocks of almost
                                   everything. Since one can run
                                                                      The world’s commodity
                                                                      producers – the Middle East,
                                                                                                          more that this crisis is            anti-cyclical measures and
                                                                                                                                              citizens have little right to
                                                                                                                                                                                    the “status quo ante”, yet the
                                                                                                                                                                                    shape of any future financial
                                                                                                                                                                                                                           should lead. Europe should
                                                                                                                                                                                                                           follow. The Doha round ought
proprietary indicators, as well    down stocks only once, a           Russia and parts of Latin           almost good for China’              intervene in government               architecture is, at best, hazy.        to be revived. This financial
as much recent published           continuation of the free-fall      America – should, however,                                              planning and execution of             My guess is that there will be         crisis and its ensuing rescue
leading and coincident             seen in the last quarter of 2008   benefit from China’s insatiable                                         projects, investment spending         significant diminution of              packages must not threaten the
indicators, the shoots are         and the first quarter of 2009      demand for raw materials.              In addition to the big           can be faster and more                cross-border capital flows.            globalised system, which is so
blossoming into daffodils. Our     was impossible.                       History suggests the US will     stimulus package, China has         effective. So China will lead in        Unconventional policies will         beneficial to mankind and
global leading indicator has         If observers consider such an    recover more quickly than           embarked on a big reform of         propelling domestic demand.           have to be maintained for              particularly the emerging
shown a marked improvement         inflection point to be the start   Europe, although its ongoing        social security. By pressuring        Effective measures for              many quarters. I am also not           world.
in the past two months after       of a genuine recovery, they are    housing market weakness is a        its banks, as well as cutting       stimulating demand for                convinced we have seen the
dramatic falls from October        dead wrong. The stock market       new experience. The biggest         interest rates and reserve          passenger cars in a few               full effect of toxic assets. I very    In sum, the three agree the
through February. We are           correction may be a false          risk for the eurozone is the        requirements, Chinese financial     countries may also see these          much doubt that the banks              world economy is starting to
confident that by the third        dawn, as well. But since yields    euro’s likely strength, as          conditions have also                industries recover in 2009.           alone are threatened by the            improve, but many obstacles
quarter world economic growth      on alternative investments are     investors conclude that             dramatically improved. We           Countries with excesses in real       problems of toxicity.                  stand in the way of sustained
will be positive again.            so low, increasing the weight      Frankfurt’s central bankers are     recently made a positive            estate and construction and             Meanwhile, the attempts to           and vibrant economic growth.

                                                                                                                            Luxury marketing plays
                                                                                                                            by a different set of rules
                                                                                                                                                                                                                               scents – many still in the
                                                                                                                            Guest Column                    started queuing to discover      must have immediate               world top 10 of fragrances
                                                                                                                                                            something new.                   appeal to maximise the            – were created through
                                                                                                                            JEAN-NOEL KAPFERER                 But does a guide for the      chance of success: P&G            emotional intuition, from
                                                                                                                            and VINCENT BASTIEN             tastes of the future start       takes no risks and uses the       Yves Saint Laurent’s
                                                                                                                                                            by interviewing prospective      fragrances rated high in          Opium, Thierry Mugler’s
                                                                                                                            The present economic            clients? Or by developing a      the trends.                       Angel, Jean-Paul Gaultier’s
                                                                                                                            crisis has forced all           personal vision, realising         But olfactive preferences       Le Male, and, of course,
                                                                                                                            companies to question           it, and educating elite          are short-lived, and this         Coco Chanel’s N° 5.
                                                                                                                            their strategies and            clients who become role          fragrance building model            Let us now compare the
                                                                                                                            practices, and this has         models? Consider the cases       leads to short-term success.      fate of Saab and Mini. Mini
                                                                                                                            never been more crucial         of fragrances and cars.            Fragrance licences grow         (bought by BMW with
                                                                                                                            than for luxury brands and         The doyenne of classic        sales by launching new            Rover in 1994) sold 250,000
                                                                                                                            marketing.                      marketing, Procter &             products, year after year:        cars in 2008; Saab (bought
                                                                                                                              What once worked as a         Gamble, has a Beauty and         but the older ones cannot         by General Motors in 2000)
                                                                                                                            means to sell products no       Prestige division for its        sustain sales generated by        sold 93,000, and it is now
                                                                                                                            longer works; it is time to     licensed fragrance business      the massive marketing             bankrupt, despite the fact
                                                                                                                            reconsider the essence of       where it applies the same        investment at launch. To          that its latest Saab 9-3 was
                                                                                                                            luxury management.              rules as for its FMCG (fast                                        seen as one the best cars
                                                                                                                              As faculty at the HEC         moving consumer goods)                                             in its category.
                                                                                                                            School of Management in         brands.                                                              To boost the sales of
                                                                                                                            Paris, it has been our job         Everything begins with                                          Saab, GM took a classic
                                                                                                                            to analyse current              market research aiming to                                          marketing approach,
                                                                                                                            practices, and it is our        identify specific consumer                                         asking consumers what
                                                                                                                            conclusion that the most        segments and their needs.                                          they did not like about
                                                                                                                            striking feature of             The goal is to launch a                                            former models. As a result,
                                                                                                                            contemporary luxury             product for each segment                                           they softened the radical
                                                                                                                            management is the               in order to build the            A consumer-centric                design and used an Opel
                                                                                                                            necessity to turn               brand’s portfolio of             approach produces                 engine. The resulting Saab
                                                                                                                            marketing on its head:          fragrances, but the                                                9-3 looked more like rival
                                                                                                                            classical marketing is the      problem is that the              its own built-in                  products from Audi or
                                                                                                                            surest way to fail in the
                                                                                                                            luxury business.
                                                                                                                                                            consumer expectations are
                                                                                                                                                            often very much the same
                                                                                                                                                                                             obsolescence                      BMW than a traditional
                                                                                                                              Instead of the marketing      across brands.                     Jean-Noel Kapferer (left)         By contrast, BMW has
                                                                                                                            status quo we have                 Hugo Boss and Lacoste               and Vincent Bastien         retained many of the
                                                                                                                            proposed the “anti-laws of      are two P&G licences, for                                          Mini’s historical
                                                                                                                            marketing”: 18 axioms that      example, that share the                                            characteristics despite
                                                                                                                            include: raise your prices      values of panache, youth,        be profitable they need to        consumer surveys
                                                                                                                            to increase demand;             class, success and energy;       reduce such investment            repeatedly labelling them
                                                                                                                            advertising does not aim at     they share a consumer            but without a big                 as faults: too small a boot,
                                                                                                                            selling; and – most             base and thus the launch         marketing push, product           too low a car – but these
                                                                                                                            importantly – do not            advertisements for the two       demand often falters.             quirks were integral to the
                                                                                                                            pander to consumers’            brands are almost                  Luxury brands today are         unique kart design and
                                                                                                                            wishes.                         interchangeable.                 the trailblazers of               style experience of the
                                                                                                                              At a time of managerial          This consumer-centric         tomorrow’s taste.                 1960s that made the car
                                                                                                                            consensus on the necessity      approach also produces a           Once a consumer                 popular in the first place.
                                                                                                                            to focus on the client, this    built-in obsolescence: its       segment is identified it is         Of course, luxury
                                                                                                                            might seem like heresy.         products do not last             too late to exploit it.           companies should not
                                                                                                                            And, for most brands and        because they are based on          There is no surprise in         ignore their core
                                                                                                                            goods it would be. But not      transient consumer needs         existing demand. This is          customers’ wishes entirely,
                                                                                                                            for luxury. The reason for      and stereotypes. The scent       why all classic luxury            but too much listening
                                                                                                                            this can be traced to the                                                                          mitigates against the
                                                                                                                            birth of the luxury goods                                                                          requirements to surprise
                                                                                                                            business, two centuries
                                                                                                                                                             Contributors                                                      and stand apart.
                                                                                                                            ago: while the craftsman –       Haig Simonian                                                       As a cultural creator,
                                                                                                                            or expert artisan – would        Zurich Correspondent            Tom Griggs                        luxury brands should set
                                                                                                                                                                                             Commissioning Editor
                                                                                                                            go to Court and make the                                                                           their own high standards.
                                                                                                                                                             Vanessa Friedman
                                                                                                                            cloth or furniture his           Fashion Editor                  Steven Bird                         Listening to the
                                                                                                                            aristocratic client had in                                       Designer                          consumer is the best route
                                                                                                                            mind, the luxury goods           Martin Wolf                                                       to a lack of differentiation,
                                                                                                                            business as we know it did       Chief Economics                 Andy Mears                        and failure to inspire the
                                                                                                                            not exist: the artisan was       Commentator                     Picture Editor                    dream – the two levers of
                                                                                                                            merely a supplier of                                                                               desire that are the only
                                                                                                                            bespoke products.                Vincent Boland                  For advertising details,          paths out of the recession
                                                                                                                              It was not until that          Milan Correspondent             contact:                          in the luxury world.
                                                                                                                            artisan started creating         Fiona Harvey
                                                                                                                            objects the clients had not      Environment Correspondent       Gina Walker on:                   Jean-Noel Kapferer and
                                                                                                                            yet thought of that luxury                                       tel: +44 (0) 20 7873 4208         Vincent Bastien are
                                                                                                                            became a distinct market.        Elisa Anniss, Lucie Green,      fax: + 44 (0) 20 7873 3204        co-authors of ‘Luxury
                                                                                                                              This inverted the              Imran Amed                      e-mail:        Strategy – Break the Rules
                                                                                                                            client-creator power             FT Contributors                 or your usual representative      of Marketing to Build
                                                                                                                            structure: consumers                                                                               Luxury Brands’
FINANCIAL TIMES MONDAY JUNE 15 2009                                                                                                                                                                                                                            3

                                                                                                                                                                                                    Business of Luxury
                                                                                                                                                                                                    Slimming all the
How to manage                                                                                                                                                                                       rage, belts tighten
the transition                                                                                                                                                                                      Continued from Page 1

                                                                                                                                                                                                    behind. Europe has been
                                                                                                                                                                                                    mixed, while Asia, notably
                                                                                                                                                                                                                                    enjoyed greater protection
                                                                                                                                                                                                                                    than those dependent on
                                                                                                                                                                                                                                    third parties. “We continue
                                                                                                                                                                                                                                    to see risks associated with

into quality
                                                                                                                                                                                                    China, has remained resil-      a high exposure to the
                                                                                                                                                                                                    ient. Bain expects only         wholesale network – chan-
                                                                                                                                                                                                    China and the Middle East       nels must destock before a
                                                                                                                                                                                                    to escape this year’s con-      recovery in sales can
                                                                                                                                                                                                    traction.                       occur,” notes Louise Single-
                                                                                                                                                                                                      Robust Asian markets          hurst of Morgan Stanley.
INTERVIEW                            “It is a natural tendency     the future. After all, if                                                                                                        have tended to favour the         Sheer size has become a
BERNARD ARNAULT                    of companies during a crisis    worth is long-term, consum-                                                                                                      larger groups, such as          great differentiator. “The
                                   such as the one we are in to    ers are more likely to                                                                                                           LVMH or PPR, owner of           strong brands are getting
Vanessa Friedman                   cut costs, drop prices, and     invest, even if the vehicle is                                                                                                   Gucci, with the broadest        stronger and the not-so-
discusses the state                stop expanding, because it
                                   has the most immediate
                                                                   a handbag.
                                                                     Though      Mr     Arnault
                                                                                                                                                                                                    international networks and
                                                                                                                                                                                                    the resources to have
                                                                                                                                                                                                                                    strong brands are getting
                                                                                                                                                                                                                                    weaker,” says Mr Platt.
of the industry with               impact on numbers,” he          acknowledges the current                                                                                                         invested heavily there. “In       Having a portfolio of
the head of LVMH                   says. “But what we have
                                   learned in the many crises
                                                                   global recession is a magni-
                                                                   tude greater from the oth-
                                                                                                                                                                                                    the current context, we see
                                                                                                                                                                                                    emerging markets exposure
                                                                                                                                                                                                                                    products, such as at LVMH,
                                                                                                                                                                                                                                    Richemont or PPR, has
                                   we have been through is         ers he has experienced                                                                                                           to be the key factor limiting   helped to spread risk. While

          ernard      Arnault,     that this is a mistake, espe-   since he first began creat-                                                                                                      adverse trends in more          financial flexibility may be
          chairman of Möet         cially when it comes to lux-    ing the world’s biggest lux-                                                                                                     mature markets,” notes          more dependent on gearing
          Hennessy       Louis     ury.                            ury group in 1985, he also                                                                                                       Luca Solca, luxury analyst      than size, bigger groups can
          Vuitton, the largest       “Last winter, when I was      believes the lessons he                                                                                                          at Sanford Bernstein.           spread costs over much
luxury company in the              visiting one of my Vuitton      learned in the early 1990s                                                                                                         Products are the second       larger turnovers, enjoy
world, does not like the           shops, a number of custom-      and post 9/11 and SARS                                                                                                           key factor. Firm data is        greater potential for cost
word “luxury”.                     ers actually came up to me      helped position his group to                                                                                                     scarce, but many analysts       synergies, and more sway
  “I prefer to think of it as      and thanked me for never        be able to withstand the                                                                                                         argue that, in hard times       over suppliers.
quality,” he says, a caveat        putting any products on         downturn. Ten years ago,                                                                                                         for even the rich, cheaper        With centralised treasury
that may seem semantic,            sale,” he continues. This       for example, the company                                                                                                         items, such as shoes or         operations,     the   largest
but is, in fact, significant: it   was around the time US          took a position on the need                                                                                                      handbags, hold up better        groups may also be better
speaks to the permanent            department stores panicked      to pay down debt with an                                                                                                         than pricier ones. “Gift giv-   placed to withstand cur-
change in the industry that        at the prospect of a nega-      eye to the long-term.                                                                                                            ing will still go on in the     rency swings. And they
he sees occurring post-re-         tive holiday season, and        Indeed, when it comes to         More than just a pretty dress: Marc Jacobs’ autumn-winter collection for Louis Vuitton    AFP   sub $1,000 bracket, but not     may have deeper and better
cession.                           slashed prices up to 60 per     luxury, Mr Arnault says it                                                                                                       with     watches      costing   qualified       management
  “The      availability     of                                    is important not to have a       allow LVMH to improve its       ronment for his many            manage our company inter-       $50,000 or more,” says Jon      pools. Recent upheavals at
money not just for consum-                                         three year plan or even a        green credentials, perhaps      brands, including Christian     nally,” he says. “I can have    Cox, analyst at Kepler Capi-    Italy’s Versace have spot-
ers but buyers will disap-                                         five year plan, but a genera-    extending the ethical edge      Dior, Givenchy, Fendi and       instant access in real time     tal Markets in Zurich.          lighted the potential for
pear for a very long time –                                        tion plan – a generation         to collaborations with other    Celine, though especially       to my stores around the           The breadth of a group’s      internal squabbling when
maybe 10 years, maybe                                              being the amount of time         brands within his group.        the flagship Louis Vuitton.     world. Then there’s the fact    range also matters. Here,       times get tough.
until the next bubble,” says                                       he believes it takes to give       “At some point in the last      The luxury landscape will     that more young people are      the evidence is not compel-       Finally,     the    largest
Mr Arnault, who believes                                           a luxury brand the historic      cycle, everyone lost their      obviously look very differ-     almost uniquely receiving       ling – as the relative health   groups may be best placed
sector growth will be driven                                       component that is neces-         common sense and did            ent on the other side of glo-   information on the internet,    of Hermès shows. But most       to exploit opportunities
by the real economy, and                                           sary to confer “legitimacy”.     crazy things, in luxury as      bal recession, however.         and the fact that we feel it    analysts say companies          from the tougher market.
will not be much more than         ‘If you don’t put                 Thus, despite much spec-       well as in housing,” says Mr    Already,     Mr     Arnault     is a customer service to sell   with products spanning          That means anything from
2 per cent a year in devel-        your products on                ulation about his desire to      Arnault, making reference       believes, a number of           products online. But at the     price points are more pro-      negotiating better product
oped markets – half the rate                                       add to his luxury portfolio      to the sudden trend of pri-     trends are identifiable that    same time, it is the greatest   tected than those, like the     positioning in stores to
of the past. What this             sale consumers feel             with a leading company           vate equity buying into lux-    will gain momentum as the       risk to this industry going     French silk and leatherware     improved terms from media
means for the luxury indus-
try is more competition, not
                                   they are buying                 such as Giorgio Armani or
                                                                   Hermès, Mr Arnault has
                                                                                                    ury. “It was very easy to get
                                                                                                    lots of money to invest, but
                                                                                                                                    luxury industry – and,
                                                                                                                                    indeed, all industries –
                                                                                                                                                                       The proliferation of fake
                                                                                                                                                                                                    group, that are more tightly
                                                                                                                                                                                                    focused. A broader portfolio
                                                                                                                                                                                                                                    outlets or rental contracts
                                                                                                                                                                                                                                    from mall owners.
from more brands, but from         something that                  been on a relative spending      that is over.”                  begin to see the light at the   products sold on the inter-     means manufacturers can           Ultimately, the biggest
a – permanently – more dis-                                        hiatus since the turn of the       Still, Mr Arnault says he     end of the tunnel. Chief        net is, Mr Arnault believes,    cater to consumers trading      groups may also seize any
cerning consumer base: one
                                   retains its value’              century, divesting himself       is already seeing – if not      among these are the insist-     the single biggest danger to    down, and can provide mus-      rare chances for acquisi-
that demands legitimacy in                                         of such loss-making brands       green shoots, then brown        ence on “value and values”      the luxury industry post-re-    cle with third-party whole-     tions in a still-fragmented
all its goods, from history to     cent pre-Christmas; because     as Christian Lacroix in          and     beige   LV-branded      on the part of the con-         cession, since it undermines    salers and retailers.           industry. Richemont’s Mr
conception to manufactur-          Vuitton has a policy of         2005, and making only            sprouts, especially in the      sumer; the emphasis on          its evolution from a sector       In a market where promi-      Rupert has said none of the
ing, along with all the infor-     never discounting products,     smaller, strategic invest-       US, the area Mr Arnault         control on the part of brand    based on “luxury”, with the     nence has become more per-      companies he covets is for
mation and communication           and has no wholesale distri-    ments, such as Hublot last       believes will rebound first,    managers that is bestowed       bling that suggests, to one     tinent than ever, distribu-     sale. But he – and others –
that implies.                      bution, they were not sub-      August, which, with its          possibly as soon as this        by own-retail as opposed to     based on quality.               tion has gained ground.         have taken care to avoid
  And what that means, as          ject to the sell-off.           growth in Asia, was seen as      winter.                         wholesale models – though          “To me this is the thing     Independent retailers, fac-     mistakes of the previous
far as Mr Arnault is con-            “If you don’t put your        strengthening the relatively       Mr Arnault believes that      that clearly implies yet        we have to tackle next,” he     ing stretched credit lines,     downturn after 2001 by
cerned, is placing ever more       products on sale consumers      small LVMH watch busi-           the combination of govern-      more investment; and the        says.                           have destocked rapidly to       ensuring strong balance
importance on sustainabil-         feel they are buying some-      ness; and last month taking      ment investment, reactive       importance of the internet,        “We have to find some        preserve cash flow. Luxury      sheets. That not only reas-
ity, not just in ecological        thing that retains its          a minority share in Edun,        companies, and his refusal      for both good and ill.          way to put morality online.     goods brands, such as           sures shareholders, but also
terms (though that plays a         value,”     continues    Mr     the organic clothing line        to change course in the face      “The internet is more and     After all, it is one of the     Italy’s Luxottica, with a       provides the financial fire-
part), but in corporate strat-     Arnault, and value is one of    developed by Bono and his        of the current market crisis    more important for both         fast-growing areas of tomor-    high proportion of directly     power to act should the
egy.                               the catchwords he sees for      wife Ali Hewson, which will      will create a positive envi-    communication and how we        row’s economy.”                 operated     stores,    have    chance arise.
4                                                                                                                                                                                                                        FINANCIAL TIMES MONDAY JUNE 15 2009

Business of Luxury

Italian atmosphere is central to Tod’s global expansion
INTERVIEW                         the realms of celebrity and       looking shoes, he looks         says. In common with other       in an increasingly homoge-       been doing fairly relent-      tral to Mr Della Valle’s glo-   nues by then, because the
DIEGO DELLA VALLE                 glamour, Tod’s is anchored        younger than his 55 years       luxury goods makers he is        nised global market. Mr          lessly in the past decade.     bal ambitions. The two have     growth potential is much
                                  as firmly as it can be to its     and betrays only a hint of      intent on capturing con-         Della Valle says it is essen-       Apart from Tod’s hand-      different products and ought    higher than in more tradi-
Vincent Boland                    family roots and its tradi-       jetlag despite having just      sumers in those markets          tial that companies such as      made shoes, coats, and         to have different strategies,   tional markets.
talks to the head of              tional, hand-made, century-
                                  old heritage.
                                                                    returned from China. He is
                                                                    the grandson of the founder
                                                                                                    who aspire to the same
                                                                                                    sense of the Italian lifestyle
                                                                                                                                     his have full control over
                                                                                                                                     their image, production sys-
                                                                                                                                                                      bags, it also produces more
                                                                                                                                                                      casual shoes and clothes for
                                                                                                                                                                                                     he says. The competitors he
                                                                                                                                                                                                     admires most, he says, are
                                                                                                                                                                                                                                       “There is a much bigger
                                                                                                                                                                                                                                     appetite for luxury goods in
the Italian fashion                  Its signature products –       of Tod’s, and he refers on      as do customers in more          tems, and marketing.             its Hogan and Fay brands.      Louis Vuitton, Hermès and       those markets than in
house about quality               shoes and bags – are made
                                  of leather, a raw material
                                                                    several occasions during
                                                                    the course of a nearly hour-
                                                                                                                                       The downturn is testing
                                                                                                                                     all brands. It is also chal-
                                                                                                                                                                      In 2008 the group had reve-
                                                                                                                                                                      nues of €708m and net
                                                                                                                                                                                                       “Is Tod’s vision modern? I
                                                                                                                                                                                                                                     mature markets, and day by
                                                                                                                                                                                                                                     day more people are coming
and globalisation                 that has remained almost          long interview to the DNA       You can see the                  lenging the “Made in Italy”      income of €83m, and, while     think, very,” he says. And      into this market.”
                                  unchanged since it was first      of his company, by which        true vision of Tod’s             segment of the Italian econ-     the Della Valle family has     do luxury goods companies         But as for China as a
It is not too difficult, in the   discovered. A new advertis-       he means precisely that                                          omy, with wholesale pro-         majority ownership and full    and fashion companies have      competing producer, Mr
high-ceilinged elegance of        ing campaign will take the        artisanal heritage that is      through Italian                  ducers complaining of van-       control, it is quoted on the   the     same     customers?     Della Valle is sceptical
Palazzo Della Valle on the
Corso Venezia in Milan, to
                                  company back to basics,
                                  with a focus on Italian fami-
                                                                    synonymous with the Ital-
                                                                    ian concept of luxury and,
                                                                                                    families . . . who live          ishing margins and profits.
                                                                                                                                       “A luxury goods company
                                                                                                                                                                      Milan stock market, where
                                                                                                                                                                      it is worth about €1.2bn.
                                                                                                                                                                                                     “Maybe 50 per cent.”
                                                                                                                                                                                                       Mr Della Valle says that
                                                                                                                                                                                                                                     about its ability to produce
                                                                                                                                                                                                                                     luxury goods.
be seduced by the charms          lies and their lifestyles –       one might say, with the         privileged but also              has to have control of its          The challenge is to marry   the goal in the next five         “It lacks the structure of
of a certain kind of Italian      actual Italian families, how-     Italian concept of family.                                       image,” he says. “For Tod’s,     tradition with modernity in    years is “to complete the       small companies, the tradi-
lifestyle. Here is the head-      ever rich and privileged –          “You can see the true
                                                                                                    serious lives                    the thing is to communicate      a way that not all Italian     globalisation” of Tod’s, for    tion, the concept of excel-
quarters of Tod’s Group,          rather than on celebrities.       vision of Tod’s through Ital-                                    this tradition, the genera-      luxury goods and fashion       which he has been laying        lence” that Italian luxury
which has become a power-            “The Italian lifestyle is in   ian families,” Mr Della         mature markets. “They            tions of work that have          producers have managed.        the groundwork. “I’d like       goods producers have inher-
house in the marketing of         our DNA, and in our group         Valle says. “These are peo-     have    an   extraordinary       gone into our products. For      Tod’s has done it, Mr Della    Tod’s to be much bigger         ited and which they must
that vision to the world’s        we believe in our DNA,”           ple who live privileged but     sense of what luxury is, and     us it’s an absolute priority.”   Valle says, by maintaining     than it is now, without         maintain as a competitive
wealthy and discerning.           says Diego Della Valle, the       also serious lives; real peo-   they aspire 100 per cent to        To achieve it, one must        one key vision: “We’re a       diluting the brand,” he         advantage, he says. “Made
   The atmosphere is delib-       chairman and chief execu-         ple, not actors or models.”     the same sorts of things         put quality before quantity,     luxury goods company, not      says.                           in Italy doesn’t necessarily
erate: where some Italian         tive of Tod’s Group.                This image is especially      that others do,” he says.        and one must maintain the        a fashion company.”              He expects China and          mean expensive goods,” he
fashion      houses       have       Dressed in a blue blazer       important in new markets,         It is an expensive busi-       group’s traditions even as it       This distinction between    India to account for as         says. “It means excellent
expanded ever further into        and jeans and comfortable-        such as China and India, he     ness preserving that DNA         globalises, which it has         fashion and luxury is cen-     much as 25 per cent of reve-    goods.”

                                                                                                                                                         Exchange rates blamed
                                                                                                                                                         for price differences
                                                                                                                                                                                             in the number of people             goods are usually set six
                                                                                                                                                         POWER OF PRICING
                                                                                                                                                                                             travelling to London from the       months or more in advance,
                                                                                                                                                         Imran Amed                          continent, many of whom had         creating a lag in the brands’
                                                                                                                                                                                             apparently come with one            ability to make any changes
                                                                                                                                                         examines the effect of              purpose: to shop. Burberry          once prices have been set.
                                                                                                                                                         currency fluctuations               attributed some of the 20 per         “In particular, those brands
                                                                                                                                                                                             cent spike in its third-quarter     who sell through wholesale
                                                                                                                                                         on the industry and                 UK sales to tourist flows from      channels and multi-brand
                                                                                                                                                         consumer behaviour                  China and Europe.                   stores have limited flexibility
                                                                                                                                                                                               In response to this mass          to adapt pricing later,” says Mr
                                                                                                                                                         Last July, reporting LVMH’s         consumer migration, luxury          Solca. “It is at the moment
                                                                                                                                                         first-half results, Jean-Jacques    companies, including Louis          when brands sell a collection at
                                                                                                                                                         Guiony, chief financial officer     Vuitton and Dior, reduced           a specific price after the
                                                                                                                                                         of LVMH, made a pointed             prices in Japan by 7 to 8 per       fashion shows and selling
                                                                                                                                                         observation: group operating        cent late last year, while          campaigns that they effectively
                                                                                                                                                         profit increased by only 7 per      Chanel, Chloé and Versace           take a currency risk.”
Travelling light: a suitcase bobs around in the Pacific along with thousands of tonnes of packaging and other waste                         Greenpeace   cent, due to the impact of the      reduced their US prices by            So while brands with
                                                                                                                                                         biggest currency fluctuations       similar amounts. But even after     vertically-integrated retail

Build for a lifetime and it
                                                                                                                                                         the group had ever seen. At         these adjustments, a study          operations, such as Hermès and
                                                                                                                                                         constant exchange rates             conducted by Luca Solca,            Louis Vuitton, can be more
                                                                                                                                                         operating profit would actually     luxury analyst at Sanford           reactive and change their
                                                                                                                                                         have risen 19 per cent.             Bernstein, found that average       prices mid-season, others must
                                                                                                                                                            When asked for his thoughts      prices for a basket of Louis        also consider their wholesale

won’t end up on the dump
                                                                                                                                                         in January on the outlook for       Vuitton and Gucci handbags          partners, especially if they
                                                                                                                                                         2009, he remained cautious:         were 30-50 per cent higher in       want to maintain consistent
                                                                                                                                                         “It’s difficult to say how things   China and Japan than Europe         prices within the same
                                                                                                                                                         will pan out in 2009 until we       compared with about 15 per          geography.
                                                                                                                                                         know better how things unfold       cent a year ago. In the US, the       Proposed solutions to the
                                                                                                                                                         from a currency perspective,”       same handbags were 20 per           channel conflict issues include
                                                                                                                                                         he said. “Volatility is at an       cent more expensive than in         developing separate collections
ENVIRONMENT                           craft – to the garbage patch to          This is, in some senses, the      LeCoultre Reverso watch, with           unprecedented level and                                                 or “splitting the assortment so
                                      highlight the toxic threat it          ultimate in recycling and in the    a face that flips over to protect       making any predictions is                                               that a big chunk is not
Fiona Harvey asks                     poses, and the damage that our         economy of the use of resources     the glass while playing polo,           highly risky.”                                                          comparable across channels,”
what approach the                     throwaway habits are doing to
                                      the oceans.
                                                                                          environmentalists      which he has owned since 1999.
                                                                                                                 “It will last me forever,” he
                                                                                                                                                            Most luxury companies find
                                                                                                                                                         themselves with the majority of
                                                                                                                                                                                                                                 says Ms D’Arpizio. “This would
                                                                                                                                                                                                                                 better enable brands to respond
industry should take                     The boat and journey are              “Durability does make these       says. A problem arises, how-            their costs in euros but up to                                          to currency fluctuations as well
towards waste                         being sponsored by IWC Schaff-
                                      hausen, the high-end watch
                                                                             products more environmentally
                                                                             sustainable – the fact that they
                                                                                                                 ever, when high-end consumers
                                                                                                                 use their wealth not just to buy
                                                                                                                                                         80 per cent of their revenues in
                                                                                                                                                         other currencies. In the past,
                                                                                                                                                                                                                                 as protect themselves from
                                                                                                                                                                                                                                 discounting in the wholesale
                                      co m pa ny. M r de R o ths cild        can be used for a long time is      the best, but to buy far more           they have protected themselves                                          channel, which is another
                                                                                                                                                                                             ‘Volatility is at an

         he Great Pacific Gar-        argues that there is something         good,” says Anthony Klean-          than they need. “If someone just        against fluctuations through                                            important pricing issue.”
         bage Patch is a vast         in the very nature of a long-          thous, senior policy adviser to     buys 10 of these [luxury goods]         the use of hedging but in the       unprecedented level                   However, she says, brands
         area of sea north-west of    standing luxury brand that             WWF, the green campaigning          and puts them in a drawer, how          current economic climate,                                               should not be making pricing
         Hawaii, estimated at         chimes with the values he is try-      group.                              is that good for the environ-           things change so quickly that,      and making any                      decisions with the sole
about seven times the size of
Ireland, containing billions of
                                      ing to reinforce by his voyage,
                                      including that seeing consumer
                                                                               He says that making goods
                                                                             that not only have a value in
                                                                                                                 ment?” asks Mr Kleanthous.
                                                                                                                    So campaigners would prefer
                                                                                                                                                         according to Claudia D’Arpizio,
                                                                                                                                                         luxury goods expert at Bain &
                                                                                                                                                                                             predictions is highly               objective of achieving
                                                                                                                                                                                                                                 consistency across markets, but
pieces of plastic detritus.           goods as inherently disposable         themselves, but also have a         consumers to be conscious that          Co in Milan: “While currency        risky’                              should move towards dynamic
   The floating rubbish dump is       is a waste of resources. “IWC is       value at re-sale, can mean that     it is good to buy durable items,        hedging is a useful technique,                 Jean Jacques Guiony      pricing with in-season price
the result of the winds and cur-      a brand that seems to continu-         products go on to have lives        within their budgets, but not to        we are also advising our clients            Finance director, LVMH      adjustments, right down to the
rents of the oceans carrying          ally attract a loyal, long-term        with other consumers once their     over-consume. They also urge            to focus on pricing.”                                                   country level.
away the mess from our throwa-        and – most importantly – pas-                                              luxury goods owners to donate              Unlike hedging decisions,                                              According to the Sanford
way society – though most of          sionate customer, who is gener-                                            their items to second-hand own-         which originate with a CFO,         Europe, compared with 5 per         Bernstein report, brands with
the plastic packaging, bags, nap-     ally very often obsessed by the        ‘If someone just buys               ership once they have finished          pricing decisions are made at       cent a year ago.                    the most sophisticated pricing
pies, fishing nets, toys, bits of     brand and everything it stands         10 of these [luxury                 with them, and only to recycle          the brand level.                      Furthermore, many brands,         strategies, such as Louis
equipment and disposable trin-        for,” he says.                                                             them if absolutely necessary.              While brands have always set     including Gucci and Hermès,         Vuitton, are “fine-tuning prices
kets of various kinds that we            The idea of luxury goods is         goods] and puts them                   Mr Kleanthous also warns             different prices for different      seem to have maintained             by market in the euro area”.
dump is left in landfills, some of
it finds its way to the sea.
                                      that they are built beautifully
                                      and built to last. This is the
                                                                             in a drawer, how is                 that this “built-to-last” ethos
                                                                                                                 does not absolve luxury goods
                                                                                                                                                         markets, recent currency shifts
                                                                                                                                                         have opened up wide,
                                                                                                                                                                                             artificially low prices in
                                                                                                                                                                                             markets such as the UK,
                                                                                                                                                                                                                                 Burberry creates a global
                                                                                                                                                                                                                                 pricing architecture, where
   Much of the rubbish bobs           very antithesis of the ideas           that good for the                   companies from needing to take          unintended differentials in         apparently to bolster spending      individual regions can provide
around coastal waters or is           behind the throwaway society                                               greater care to protect the envi-       prices for the same product in      by tourists and locals alike.       input on final pricing based on
washed up ashore, but the             that have led to the creation of
                                                                             environment?’                       ronment, he warns. “It depends          different markets. This has led       While these price differentials   benchmarking, while always
remainder can be carried long         the vast mess of floating detri-                                           also on the efficiency of the           to a kind of fashion arbitrage      are a return to the norm in the     ensuring that overall margin
distances, and the Garbage            tus the Plastiki plans to chart.       owners have tired of them. This     products, of the waste involved         and poses a new management          sense that they reflect             targets are met in the end.
Patch is where several signifi-          Luxury goods companies are          is a message that resonates with    in their production, in the             challenge.                          historical industry standards,        “By strategically lowering
cant ocean currents and winds         picking up on the fact that their      the environmental values of         energy required and in where               In recent years, it was          differential pricing is more        prices in some markets, brands
converge.                             products can offer consumers a         thrift and the green mantra of      the raw materials come from             commonplace for British             obvious than ever before.           may be able to capture share
   The plastic, much of it broken     way to consume economically –          “reduce, reuse and recycle” – to    and how they are used,” he              shoppers to jump on aircraft to       Aided by information gleaned      in a rapidly changing industry
into small pieces, is a danger to     if not in cash terms, in environ-      “reduce” consumption, reuse         explains.                               New York to complete their          from frequent international         context,” Ms D’Arpizio says.
marine and bird life. Fish and        mental terms – by buying a             “products” and “recycle” when          But luxury goods companies           Christmas shopping with the         travel, the internet and brands’    “Alternatively, they could
birds mistake the small pieces        product that will last for many        products have reached the end       have the opportunity to present         benefit of a strong pound, but      own e-commerce sites,               maintain higher prices
for food, and cannot digest           years rather than a disposable         of their useful lives.              their products as relevant to the       late last year, after the pound     consumers are starting to           elsewhere, which would allow
them, either choking or starving      mass-produced imitation that             These three values are pre-       green pattern of consumption –          fell more than 20 per cent          question whether differences        them to reinvest in their
as a result. Or they get caught       will end up in the dump.               sented in that order because        buying a smaller number of              against the euro and more than      are justified, particularly in      brands. Unfortunately, many
up in the longer strands and die.        Some watch companies, such          reducing      consumption      of   higher-quality goods and serv-          25 per cent against the dollar,     today’s value-conscious             brands currently lack the
   David de Rothschild, a scion       as Patek Philippe, have for some       resources, and of waste, is the     ices – which may become essen-          it was the British who stayed       environment, and especially in      information systems to execute
of the banking family, is an          time deliberately marketed their       best option, followed by reuse      tial if we are to succeed in mar-       at home, while eurozone and         mature and expensive markets        this kind of strategy in a
adventurer turned eco-warrior,        products as heirlooms in the           which is also green, and recy-      rying economic growth with the          US shoppers descended upon          such as Japan.                      scientific way.”
whose latest project is to make       making – they are to be passed         cling is a last resort.             lower consumption of natural            London to snap up bargains,           Yet for the brands, making
a boat from plastic bottles and       on through generations. Jewel-           Luxury goods owners buy into      resources. Which could help, in         bolstered by heavy discounting      strategic changes is not as easy    Imran Amed is an adviser to
recycled waste. He is sailing the     lery companies take the same           this idea. Watch enthusiast         future, to cut the size of the          on the shop floor.                  as it sounds. The problem is        the fashion industry and is
boat – the Plastiki, in a pun on      line – a diamond is, after all,        George MacDonald says his           ocean’s enormous garbage                   In December, Eurostar            this: following the age-old         Editor-in-Chief of Luxury
the famous Thor Heyerdahl             forever.                               favourite possession is a Jaeger-   patch.                                  reported a 15 per cent increase     fashion cycle, prices for luxury    Society
FINANCIAL TIMES MONDAY JUNE 15 2009                                                                                                                                                                                                                               5

                                                                                                                                                                                                 Business of Luxury

Innovative                                                                                                                                                                                        Time for lipstick index to pucker up
                                                                                                                                                                                                  Even people in the beauty
                                                                                                                                                                                                  business are not convinced
                                                                                                                                                                                                  the lipstick index is a valid
                                                                                                                                                                                                                                     Though “the impulse
                                                                                                                                                                                                                                  buying of beauty in the Sex
                                                                                                                                                                                                                                  & The City era is over”,

                                                                                                                                                                                                  measurement anymore.            because her business is
                                                                                                                                                                                                  “When you look at beauty        about a small, affordable
                                                                                                                                                                                                  in a global way you have to     item she still plans on wider
                                                                                                                                                                                                  be very careful,” says          distribution and hopes for
                                                                                                                                                                                                  NPD’s beauty specialist         her best year ever in 2009.
                                                                                                                                                                                                  Karen Grant. “In the US,           “A new make-up look, or

ideas go
                                                                                                                                                                                                  make-up is the largest          even a lipstick, is a much
                                                                                                                                                                                                  prestige beauty category        cheaper way of changing
                                                                                                                                                                                                  and accounts for 38 per         your look than buying a
                                                                                                                                                                                                  cent of the $8.4bn prestige     new outfit,” says Nicky
                                                                                                                                                                                                  market. In France, make-up      Kinnaird, founder of the
                                                                                                                                                                                                  accounts for only 14 per        beauty company Space NK,

on the net                                                                                                                                                                                        cent of sales, while
                                                                                                                                                                                                  fragrance accounts for 64
                                                                                                                                                                                                  per cent, so would a lipstick
                                                                                                                                                                                                  indicator really be what
                                                                                                                                                                                                  you’re looking for in
                                                                                                                                                                                                  France?” She adds that in
                                                                                                                                                                                                                                  which has 62 stores in the
                                                                                                                                                                                                                                  UK and Ireland and 13 in
                                                                                                                                                                                                                                  the US. Still, Ms Kinnaird
                                                                                                                                                                                                                                  believes 2009 “will be a
                                                                                                                                                                                                                                  period of consolidation,
                                                                                                                                                                                                                                  whilst still keeping our eyes
ONLINE                          Boden will appear on its                                                                                                                                          the US, make-up has been        on real estate market
                                site this summer. And from                                                                                                                                        the fastest-growing beauty      opportunities”. With people
Beauty and fashion              August, kid’s, men’s and                                                                                                                                          category for the past           spending more time at
                                women’s accessories and                                                                                                                                           decade, with lip-gloss in the   home Ms Kinnaird has seen
on the internet is              apparel from Gap will fur-                                                                                                                                        ascent, but lipstick sales      sales of scented candles
coming of age, says             ther augment’s                                                                                                                                           are actually declining. Any     grow, rather than lipstick.
                                800-strong brand offering                                                                                                                                         uptick in lipstick sales has       Meanwhile, Bliss founder,
Elisa Anniss                    (which ranges from High                                                                                                                                           been short-lived – the last     Marcia Kilgore, shifted from
                                Street names to boutique                                                                                                                                          one happened in the two         luxury to value in 2006 with

      n times of war and        fare such as McQ by Alex-                                                                                                                                         months following 9/11, and      the launch of beauty brand
      uncertainty, make-up      ander McQueen, Sass and                                                                                                                                           they have recurred relatively   Soap & Glory. In 2008, the
      is considered a female    Bide and PPQ).                                                                                                                                                    rarely since then.              brand notched up sales of
      panacea: the one lux-       The site’s successes have                                                                                                                                          “Lipstick has been off the   £18.2m with the line. “I am
ury item that stays in          also wooed senior retail per-                                                                                                                                     dial for a long time, but I’m   democratic at heart, and
demand no matter what           sonnel away from British                                                                                                                                          totally obsessed with it,”      believe that all people
happens in the world out-       bricks and mortar. “People                                                                                                                                        says New York-based             should have access to great
side.                           want to work somewhere                                                                                                                                            innovator Poppy King, who       product and great design,”
   Hence     the    “Lipstick   where sales are increasing,”                                                                                                                                      launched Lipstick Queen in      says Ms Kilgore. “I love to
Index”, a term coined fol-      says chief executive Nick                                                                                                                                         January 2007. Although Ms       make the masses happy –
lowing an observation made      Robertson.                                                                                                                                                        King is realistic about         and it doesn’t cost a lot
by Estée Lauder chairman          “With        matchesfash-                                                                                                                                       lipstick’s power to defy the    more to do that.”
Leonard Lauder post-9/11: it surprised us how                                                                                                                                       downturn, she remains
as the market goes down,        quickly the site grew into                                                                                                                                        upbeat.                                      Elisa Anniss
lippy sales go up. And yet,     an ever-expanding market,”
according to a Mintel report    says Tom Chapman, owner         Is even the lipstick index being replaced online?                                                                   Dreamstime
that came out in April, lip-    of the UK high-end bou-
stick’s power as a pick-        tique group He notes that       recent years the Yoox           brands and become an            of Jimmy Choo they have          it also brings us closer to     sented as a private sale, it     Bauer media, which owns
me-up is not holding tru-       the online store has swiftly    Group’s focus has shifted       online portal: their offering   seen shoe sales jump 30 per      our customers, when pre-        not only protects the brand,     British women’s magazine
ethis time. Mintel’s survey,    become the number one           from being an upscale TK        includes Prada and Tod’s as     cent in the first quarter of     crunch they were becoming       but also gives the consumer      Grazia.
in the US, UK and France,       womenswear outlet in the        Maxx to becoming an inter-      well as brands like Lanvin,     2009. As for Jimmy Choo’s        remote.”                        the idea that they are             “It’s a way of leveraging
found that from a list of       company.                        net luxury goods specialist     Jasmine de Milo, and            very own website, sales            A recent online retail and    within an inner circle.”         our magazines on line,”
cosmetics, lip colour was         “We forecast a contrac-       – the group also operates       Givenchy and their cus-         online have shot up 80 per       travel report by Forrester        In 2007 the Gilt Groupe –      explains Cocosa’s managing
the item women would be         tion of bricks-and-mortar       e-commerce sites targeting      tomer reach extends to the      cent year to date, according     Research estimates that – launched in       director Andrew Robb, who
most likely to spend less on,   sales in 2009, with 110 per     the EU, US and Japanese                                         to chief executive Joshua        about 28m consumers – that      the US while UK site             says that each 48-hour sale
while more was being spent      cent growth online,” says       markets on behalf of Italian                                    Schulman.                        is one in two UK consumers      Cocosa – –            sells the product of a single
on shampoo and cleansers.       Mr Chapman. “This growth        brands            including     ‘[Online stores]                   “This crisis is doing our     – shop online, outspending      launched in 2008.                designer and offers a care-
Why? It seems the lipstick      is coming from new mar-, Emporioarm-          bring us closer to              industry a service,” says        their European and even           The Gilt Groupe is the         fully edited selection of past
index has been replaced by      kets and consumers as well,        Costumena-                                      Guy Salter, deputy chair-        their US counterparts.          brainchild of Alexis May-        and existing seasons. “I
the online index.               as existing bricks and mor- and Emiliop-         our customers,                  man of the luxury organisa-        By 2014, Forrester fore-      bank and Alexandra Wilkis        believe the recession will be
   Consider     the    recent
results of the UK’s largest
                                tar consumers who are pur-
                                chasing in increasing num-
                                                       In February,
                                                                                                when pre-crunch                 tion Walpole.
                                                                                                                                   “For a long time no one
                                                                                                                                                                 casts 37m UK online buyers
                                                                                                                                                                 will spend £56bn online –
                                                                                                                                                                                                 Wilson, and offers 36 hour-
                                                                                                                                                                                                 long sales of styles from a
                                                                                                                                                                                                                                  good for Cocosa, because
                                                                                                                                                                                                                                  brands will want new chan-
online fashion and beauty       bers online, possibly due to joined its sta-    they were                       was questioning the way of       perhaps partly lured by the     single designer. Distinctly      nels to reach the con-
retailer Its pre-     their wish not to be seen so    ble, and there are plans to                                     doing business and when          newest     online    fashion    American in flavour, the         sumer.”
close     trading     update    overtly as consumers.”          collaborate on an additional
                                                                                                becoming remote’                trading was good it was dif-     trend: invitation-only shop-    group     has    previously
announced sales up 104 per-       Meanwhile, Yoox Group,        six online stores by 2010.                                      ficult to see opportunities.     ping, pioneered by the          offered brands such as           ONLINE EXCLUSIVE
cent to £165m for the 12        the Italian online company        Likewise, Theresa, the        UK, Poland, Romania as          Now, if you compare the          French       site     vente-    Michael Kors, Oscar de la
months to March 31, 2009.       founded by Federico Mar-        Munich fashion destination,     well as France, Spain and       costs of a store roll-out with                      Renta, Valentino, Thakoon,       Jonathan Birchall analyses
Now international brands        chetti in 2000, finished 2008   which             la unched     Italy. As the only independ-    the cost of extending what         “There is a demand for        Anthony Nak, Botkier and         global retail trends based on
are clamouring to access its    with net sales of €101m, in 2006, has      ent purveyors of Roger          you do online, the latter is     designer fashion at mark-       Shoshanna.                       data from credit card sales
customer base: Mango,           marking         year-on-year    also benefited from its rela-   Vivier footwear online, as      more cost-effective and one      down prices,” says Mr             Cocosa, by contrast, is
Hackett, Gant and Mini          growth of 48 per cent. In       tionships    with     luxury    well as one of the stockists    of the long-term benefits is     Salter. “And when it’s pre-     the      brainchild       of
6                                                                                                                                                                                                         FINANCIAL TIMES MONDAY JUNE 15 2009

Business of Luxury

Horrors of past are now just a memory
LICENSING                                                                                                                                                                                                  tunity to venture into areas that you
                                                                                                                                                                                                           wouldn’t normally have access to, as
Lucie Greene investigates                                                                                                                                                                                  the initial financial outlay, product
whether the benefits                                                                                                                                                                                       development and manufacturing side
                                                                                                                                                                                                           is costly, lengthy and complicated,”
outweigh the dangers of                                                                                                                                                                                    says Lulu Guinness, of the epony-
diluting the brand                                                                                                                                                                                         mous London-based luxury accesso-
                                                                                                                                                                                                           ries label, which currently has
                                                                                                                                                                                                           licences for umbrellas, eyewear (opti-

             ention licensing to luxury                                                                                                                                                                    cals and sunwear), bedlinen, Mac-
             brand executives and                                                                                                                                                                          Claren baby buggies, as well as Japa-
             chances are you’ll be                                                                                                                                                                         nese licences for gloves, small leather
             greeted with a shudder.                                                                                                                                                                       goods, and handkerchiefs sold exclu-
Memories of the 1970s and Pierre Car-                                                                                                                                                                      sively in Japan. Still, Guinness points
din’s ignominy are still fresh as ever.                                                                                                                                                                    out a key difference between today’s
But these are testing times, particu-                                                                                                                                                                      licences and those of the past:
larly for younger brands low on                                                                                                                                                                            “Licensing only works when you have
resources, not to mention publicly-                                                                                                                                                                        a rigorous signing-off procedure and if
traded companies, where profitability                                                                                                                                                                      you are absolutely stringent during
– recession or no recession – is neces-                                                                                                                                                                    the design processes.”
sity, not choice. There’s no question                                                                                                                                                                         “It helps that it’s easier to manufac-
licensing can help. And there’s no                                                                                                                                                                         ture good quality inexpensively,” says
question we are seeing a thaw.                                                                                                                                                                             Mr Ekstract. “It used to be that you
   According to Luxury Briefing – an                                                                                                                                                                       could really see the difference
industry information service – the                                                                                                                                                                         between the high street and designer.
$192bn licensing business is set to                                                                                                                                                                        Now the gaps are much narrower.”
grow by 4.7 per cent over the next few                                                                                                                                                                        Today designers retain creative con-
years, with a significant proportion of                                                                                                                                                                    trol, the contracts are shorter, and are
this from the luxury industry.                                                                                                                                                                             carefully managed. “Brands have
   Guy Salter, deputy chairman at                                                                                                                                                                          learnt their lessons. They make sure
Walpole, a luxury organisation,                                                                                                                                                                            products meet quality standards. You
admits: “Luxury licensing is having a                                                                                                                                                                      can’t afford to lose the credibility with
renewal, but it’s gradual. There has                                                                                                                                                                       consumers or that’s it, it damages the
been a renaissance as people have                                                                                                                                                                          brand,” says Mr Ekstract.
seen that it can play role as part of                                                                                                                                                                         Thus distribution and discounting
balanced portfolio. Although, every-                                                                                                                                                                       are all now seen as a key areas for
thing is relative. It’s never going to be                                                                                                                                                                  regulation. Last April, for example,
like it was in the 1970s.”                                                                                                                                                                                 the European Court of Justice ruled
   A quick round-up of the past year                                                                                                                                                                       that trademark owners could legally
also reveals a slew of licensing deals.                                                                                                                                                                    oppose the resale of their goods by
In December Gucci Group (owned by                                                                                                                                                                          discount stores. The move followed
PPR) divested its perfumes and cos-                                                                                                                                                                        the case of Christian Dior Couture
metics division YSL Beauté to L’Oréal                                                                                                                                                                      against its former licensee Société
(YSL, Stella McCartney, Oscar de La                                                                                                                                                                        Industrielle Lingerie (SIL) for selling
Renta, Boucheron and Ermenegildo                                                                                                                                                                           Dior lingerie to discount retailer
Zegna products). Meanwhile, chil-                                                                                                                                                                          Copad International.
dren’s wear witnessed a giant luxury-                                                                                                                                                                         “It’s all very well to say: ‘more con-
licensing boom, with virtually every                                                                                                                                                                       trol’, but appeasing that is a different
designer hopping on board, including                                                                                                                                                                       matter. It’s very challenging to police,
Ballantyne and Jean Paul Gaultier                                                                                                                                                                          particularly if in remote territory like
who joined recent converts Little           Tapping the brand: the Prada phone introduces the luxury label to a younger generation                                                            AFP/Getty    China,” says George Wallace, Director
Marc Jacobs, Moschino, Chloé and                                                                                                                                                                           at MHE Retail, a retail consultancy,
John Galliano among others.                   Still, to Ilaria Alber-Glanstaetten       cific regional markets. “There has                                      sion reported its first-ever positive      who also cautioned against relaxing
   In menswear, Roberto Cavalli signed      chief executive at Provenance, the          been significant licensing in chil-                                     recurring operating profit in the          licences in different territories. “The
with Gibò and Marc Jacobs signed            luxury arm of M&C Saatchi, these            dren’s clothing area because they                                       financial year 2008.                       market today is more global. You
over its menswear to Renzo Rosso’s          deals do not indicate a strategic shift.    don’t have the capability to distribute                                   For smaller brands with limited          have to have a consistent image
Staff International. Vera Wang’s Lav-         “If you look closely at the history of    the product themselves,” says Steven                                    resources, licensing product catego-       throughout, and quality. You don’t
ender Label now has a licence for           most brands, there was always a level       Ekstract, Publisher of License! Maga-                                   ries (if handled well) also remains a      want the customer to see three differ-
accessories with the Accessory Net-         of strategic licensing,” she says, point-   zine. “It’s the same with eyewear –                                     good way to expand and build pres-         ent iterations of the brand.”
work Group; DKNY has licensed out           ing out that while there’s undoubt-         only two or three manufacturers pro-                                    ence in the market – see Topshop’s            So, says HSBC luxury analyst Anto-
intimate apparel to Maidenform              edly been growth in the area, most          duce all the eyewear for designer         ‘It’s all very well to say:   licences with young British and            ine Belge, while “smaller brands may
Brands Inc for spring 2009; Marc            current licensing deals are occurring       brands. But they do a good job; pro-      ‘more control’ but            American designers, and the agree-         turn to licensing, large established
Jacobs has licensed swimwear to Any-        in specialist or peripheral categories      duce good designs, so the relationship                                  ments between young British design-        brands won’t. Louis Vuitton has no
wear Swimwear; and Jil Sander has           such as swimwear or accessories, and        works well.”                              appeasing that is a           ers including Giles Deacon, Danielle       licences, and I can’t see that changing
licensed inner wear and swimwear.
Finally, Prada signed a license for
                                            usually involve smaller or independ-
                                            ent labels, rather than key power-
                                                                                           Within beauty and fragrances par-
                                                                                        ticularly, licensing can also be
                                                                                                                                  different matter. It’s very   Scutt, Peter Pilotto, Todd Lynn, and
                                                                                                                                                                Preen and London-based eyewear
                                                                                                                                                                                                           – whatever the climate. It’s more
                                                                                                                                                                                                           likely that larger brands will consider
electronics, Armani and Versace for         house brands.                               extremely profitable. Following its       challenging to police’        manufacturer Linda Farrow.                 dropping a category if they are under
hotels, and Marc Jacobs for condoms.          Often, they are also kept within spe-     licence deal Gucci Group’s YSL divi-                                      “Licensing gives you a great oppor-      pressure, rather than licensing it out.”

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