THE BULLETIN: Monthly analysis of the luxury headlines, May 2009

Robb Young investigates the power of strategic focus, the changing fortunes of the private jet industry, and the proliferation of fashion weeks around the world.

Beware of Second-Guessing the Economy

Isn’t it ironic what makes the news these days? When the downturn first crept up on us, the media responded with endless column inches on brands that were repositioning products, postponing store openings or tweaking expansion strategies. But could over thinking your response to the woeful economy be counterproductive? Luxury brands that stick their heads in the sand will surely lose — but perhaps too much focus has been on stories about corporate reinvention and strategic U-turns. Now, by contrast, it is the firms not making any drastic changes that are in the spotlight. Take Nobu, for one. Flouting warnings about the declining Russian luxury market, restaurateur Nobuyuki Matsuhisa brought Japanese fine dining to Moscow last month. And despite the turbulence in the hospitality sector, Dubai-based Jumeirah group said it is sticking to its original plan to acquire operational rights for 60 hotels by 2012. Prada hasn’t followed other fashion brands by scaling back its retail ambitions — instead, it opened a second store in Madrid. Tom Ford’s chairman Domenico De Sole recently advised luxury industry hopefuls that, when in recession, “the key is to stay the course and not change the brand.” For some, it seems, the latest mantra is not to take too many detours on the rough road ahead.

Sources:
WWD – 3 Apr 2009
Reuters India – 7 Apr 2009
Bloomberg – 9 Apr 2009
WWD – 14 Apr 2009

A Changing Scope for Top Jobs

Back when acquisitions were on every luxury mogul’s mind, overseeing a cosy investment fund to take a stake in exciting new brands ripe for investment was a full time job. And so, Groupe Richemont’s chairman Johann Rupert injected cash into Marty Wikstrom’s Atelier Fund to do just that. Fast forward two years to the present and Rupert has charged Wikstrom with sorting out the group’s portfolio of now underperforming ‘soft goods’ brands — including marquee names like Chloe, Lancel and Dunhill. But new economics mean new priorities. Richemont can no longer afford to have these brands take a backseat to its core business of jewellery and timepieces, so Wilkinson will now head up the new division for fashion and leather goods.
Smaller independent firms are also redefining the remit and scope of their top executives. Theo Fennell’s CEO, Pamela Harper, has left only two years after being hired to kick off a momentous global expansion plan, since abandoned when the British brand fell victim to the bad economy. The new CEO’s task? Keep the company afloat.

Sources:
Bloomberg – 30 Mar 09
Guardian – 30 Mar 09
WWD – 30 Mar 09

Formation of a New Regional Art Market

The mixed reviews and commercial uncertainty of exhibitors and collectors alike at the last Art Dubai fair continue to cast some doubt over the contemporary art world’s dream of a booming new market stretching from Casablanca to Calcutta (MENASA). In marketing-speak, the MENASA region unites the Middle East, North Africa and South Asia. While there’s no denying that some common aesthetics, religious traditions and regional migration bind these disparate countries, creating a cohesive art market out of the acronym is proving a bit of a stretch — so far, at least.
Gulf States like Abu Dhabi may get a Guggenheim and a Louvre, but whether bringing distinguished museum franchises to the region will translate to a healthy appetite for contemporary art is another matter. Indian galleries, Iranian artists living abroad and Franco-Maghrebi dealers are all pinning their hopes on the Gulf becoming a regional art centre. But even auction houses like Sotheby’s and Christie’s selling Old Masters have found it tough going in Doha and Dubai. So, what now that global art prices have fallen an average of 35% in just three months?

Sources:
Art Newspaper – 25 Mar 09
Art Info – 27 Mar 09
Financial Times – 4 Apr 09
Financial Times – 7 Apr 09

Intervention in the Luxury Industry

PPR tycoon Francois-Henri Pinault got off rather lightly when riot police cleared protesters blocking his car in Paris a few weeks ago. At several other French firms, top management directors have been held hostage by angry French workers facing possible job losses. But the Gallic love of grassroots clamour is just part of a wider trend of protectionist sentiment and state intervention surrounding the luxury industry today. The New York state governor’s proposed 5% luxury tax on watches and jewellery was defeated by legislators following intense lobbying by the American Watch Association. And in other good news, the Italian government has passed a rescue package for SMEs in the textile, fashion and footwear sectors which amounts to a €1.6 billion gesture toward boosting exports and extending credit lines. In old Europe, where the luxury industry employs hundreds of thousands, if not millions, the financial institutions and manufacturing giants are not the only ones in need of safeguarding after all.

Sources:
National Jeweler – 30 Mar 09
Fox News – 1 Apr 09,2933,512057,00.html
WWD – 10 Apr 09

Sponsorship Deals Bad for Publishing Industry?

Chanel may have cut short its Mobile Art Tour earlier this year, but there is no shortage of new sponsorship deals being inked by fashion brands to help broaden their appeal beyond the usual dedicated followers of fashion. Fendi has partnered with Basel Miami to underwrite a design-meets-furniture-meets-performance art exhibition at the Salone Internazionale del Mobile in Milan. Loro Piana has targeted sailing, sponsoring this year’s Superyacht Regatta while Breguet has thrown some cash at the Louvre to help redevelop its Sully Wing.

But if luxury brands carry on spending their marketing budgets in this way, fashion magazines might see their already declining advertising revenue further dented.

Sources:
BYM News – 3 Apr 09
Fashion Wire Daily – 8 Apr 09
World Tempus – 16 Apr 09
Guardian – 13 Apr 09

Retail Networks Go Farther and Deeper

Social commentators would have us believe that we’re all ‘glocal’ citizens these days. With far more travel opportunities to shop in a glitzy fashion capital or online in the comfort of our bedroom, why are luxury brands going to the trouble and expense of setting up shop in the suburbs, the provinces and far-flung cities outside the major commercial hubs? Simple: there’s ample wealth there and these consumers insist their favourite brands come to them with the goods. Burberry touched down in Perth, some 3000 kilometres from the bustle of Sydney last month. And Hermès is set to open a seasonal summer store in the Hamptons so that well-heeled ladies need not schlep to Manhattan. In Athens, like many other big cities, brands have begun to drop anchor outside the crowded luxury triangle of Kolonaki in favour of leafy suburbs like Kifissia, Glyfada and Piraeus on the doorstep of the moneyed mansions. And when third-tier cities ‘in the sticks’ in emerging markets like China already count as many wealthy households as Atlanta or Detroit, what self-respecting luxury exec would have them wait until they fly to Shanghai or Beijing for a retail fix?

Sources:
WWD – 2 Apr 09
The West Australian – 11 Apr 09
France 24 – Apr 09

Private Jet Business in Need of Spin Doctor

It’s no wonder private jet hire is down 20-50% and aircraft orders are plummeting across mature markets. When Queen Elizabeth is seen tightening the royal belt for the nation by cancelling her order of a long awaited private plane, what CEO can justify such a perceived extravagance during the recession? Royal Bank of Scotland shareholders would have surely balked had the troubled bank not also cancelled its $45 million aviation splurge earlier this year. Even the New York Times’ ten year-old corporate jet is said to be up for sale, according to a few bloggers who dissected the firm’s annual report. Although the case for using private jet travel is no less compelling than before the recession, the public outcry for a more ethical code of corporate spending will probably continue to affect the market for some time to come. It will take a lot more than CNN’s recent musing on how private jet travel can sometimes be more cost effective than commercial flights to sway the tide of mass opposition. The whole industry needs a radical PR make-over – and fast.

Sources:
Private Jet Daily – 1 Apr 09
CNN – 1 Apr 09
Telegraph – 25 Mar 09

Gourmet Food Companies in Delicate Balancing Act

Artisanal food loses some of its soul when it’s overly sleek and international — or does it? Of all the luxury good sectors, the branding of gourmet groceries might just be the toughest to get right. A recent study published by the Wharton business school has compared the marketing and branding approaches of two of France’s legendary names in gastronomy, Fauchon and Poilâne. Unlike fashion or automobiles, where the luxury consumer expects constant innovation within the context of tradition, preserving the heritage of fine food companies appears to be a more sacred affair. What is the right formula to gain international market share and to compete with increasingly popular premium ranges in supermarkets without spoiling the brand cachet or becoming overexposed? The contrasting Fauchon and Poilâne ‘reincarnations’ seem to suggest that there is room for both the glossy branding route and the more discreet approach, but the verdict won’t be in until profits are tallied in the years to come.

Sources:
Knowledge at Wharton – 20 Apr 09

World’s Fashion Weeks Feel the Pressure

April has come to signal the end of fashion’s multicultural spring world tour. The two months following the Paris prêt à porter shows have morphed into a strategic timeslot for designers in Spain, Japan, Russia, India, South Africa, Korea and beyond to ride the publicity wave created by the fashion capitals twice per year during which the world’s media is entranced with anything trotting down a catwalk. Over the course of a decade or so, many of the fashion weeks in these countries have fought hard to gain some international recognition and make a few sales to famous retailers. But since the financial crisis, all eyes have been on the bottom line and buying budgets have been down across the board. Surely it will only get harder to convince industry folks to trek around the world for novelty purchases when their core business is so precarious at home. How will these minor fashion weeks cope with less money in the pot from their all-important local sponsors? Already, events giant IMG bid farewell to Los Angeles fashion week, leaving the city with a hodgepodge of lacklustre shows this March. And there were fewer designers and guests attending the recent Copenhagen and Moscow shows too.

Sources:
The Business of Fashion – 27 Mar 09
WWD – 25 Mar 09

But Is the Diamond Industry Closer to Recovery?

When the wheels come grinding to a halt at very first link of the supply chain, you know it’s a mighty bad omen. Over the past few months, De Beer’s froze mining in South Africa, Botswana, the Congo and then Namibia in the hopes of stabilising prices after demand for the sparkly gems collapsed in key markets like the US and Russia late last year. Polished diamond imports into the US were still down 53% in February. Russia’s Alrosa, the world’s second biggest diamond producer, said it will cut its production plans for this year by 20%. And Harry Winston’s retail arm revealed a slip in sales of nearly 21%, yielding a loss for the firm in the fourth quarter. But could recent news be a harbinger of an imminent turn in the industry? As Forbes points out, discretionary diamond shopping may be down but the fact that people are still getting married should help to mitigate disaster with the obligatory wedding ring. De Beers has now resumed exploration in parts of southern Africa, albeit at a slower pace, to meet what the company calls a “steady” increase in demand from the market’s lowest point last year. And the word ‘optimistic’ has finally begun to be bandied around again in the boardroom.

Sources:
CNBC – 10 Apr 09
Israeli Diamond Industry – 13 Apr 09
WWD – 3 Apr 09
Forbes – 17 Apr 09
National Jeweler – 21 Apr 09
Israeli Diamond Industry – 12 Apr 09

Robb Young, Contributing Editor