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

Robb Young examines the latest luxury news cycle, including the M&A grapevine, desperate department stores and the emergence of Korean fashion designers on the global fashion stage.

The Mergers & Acquisition Grapevine

It’s been a rumour rollercoaster this month. Heaps of speculation about M&A deals surrounding the major luxury groups have set off a frenzy of insider scoops that suggest an industry-wide shake-up. Was LVMH about to divest Moët Hennessy to spirits giant Diageo — the latter reportedly had prepared for a massive capital injection to complete such a deal? Although LVMH immediately denied it, some wondered whether the rumour had been manufactured internally to send signals that Bernard Arnault is poised for an acquisition binge. LVMH just bought a stake in the ethical fashion brand Edun when Escada’s share price rose 16 percent based on conjecture that the besieged German brand might be another lucky company eyed by Mr. Arnault. PPR denied that it is selling off Gucci Group and snapping up Puma instead — but could it be ready to quit the luxury game for the right price? Meanwhile, Richemont’s chairman inadvertently spun the rumour mill by suggesting that he would be prepared to expand his empire if the right company were available. “Any company we may wish to buy is not for sale,” Johann Rupert remarked rather cryptically. With Porsche entering the Volkswagen fold; Fiat pursuing a merger with Chrysler; Tiffany saving Lambertson Truex; Financière Saint-Germain acquiring Daum Crystal; and Merit’s majority stake in Moonen Yachts in the news, it’s no wonder so many observers are eager to uncover the next big luxury shopping spree.

Sources:
WWD – 1 May 09
Bloomberg – 1 May 09
Wall Street Journal – 22 April 09
Reuters – 7 May 09
WWD – 29 Apr 09
Wall Street Journal – 14 May 09
Reuters – 14 May 09
BYM News – 8 May 09
Yahoo Finance – 18 May 09

Adding Private Label & Closing Up Shop

First they cut the buying budgets, then they reduced staff, and finally they slashed prices. Except that ‘finally’ still hasn’t come for struggling department stores. The latest survival tactics are structural – shrinking geographic market spread and altering business models. For one, Barney’s is aiming to close two of its American stores after evaluating very disappointing sales results against earlier projections; and Henri Bendel will eliminate its clothing departments to focus on faster-selling accessories and beauty products. Bendel will roll out its new format with lower-priced gift items and an expanded private label range inside shopping malls around the US this year — and will presumably streamline its New York flagship. Competitors like Macy’s beefed up their private label assortment even earlier in a bid to increase profit margins and rapidly tailor their merchandise to flash trends. Harvey Nichols, too, will follow suit with their private label, according to its CEO. With legendary emporiums like these surrendering to the recession, designer fashion brands can expect an even rougher ride at retail in the coming year.

Sources:
New York Times – 30 Apr 09
WWD – 11 May 09
Reuters – 6 May 09
WWD – 13 May 09

Product and Brand Extensions

It’s always a gamble for a brand to invest in new product categories, but the stakes are even higher in times like these. Foregoing the motto, “just do what you do well and do it even better,” companies are charging ahead with parallel product ranges in the hopes of finding new revenue streams. Eighty-eight years after it was founded, at long last Gucci is seriously contemplating a cosmetics range with creative director Frida Giannini at the helm. Avant-garde fashion designer Martin Margiela recently unveiled furniture and interiors in his stark, trompe-l’oeil signature style at a Milan exhibition, while young designers like Phillip Lim haven’t let the economy break momentum for expansion by adding swimwear, shoes, lingerie and more.

Sources:
3 News – Apr 09
Wallpaper – 24 Apr 09
WWD – 13 May 09

Battling Inferior Distribution Channels

Just as the value of a stylish house declines when it flanks a dilapidated neighbourhood property, luxury goods need to be in good company to capitalise on their exclusive cachet. This seemed to be the message behind the latest ruling by the European Court of Justice that backed Christian Dior’s claim against its corsetry licensee SIL. Dior had argued that by selling its lingerie to a discount retailer, SIL failed in its agreement “to maintain the repute and prestige of the Dior trademark.” In less favourable legislative news, The European Commission is drafting new guidelines that could mean luxury companies may no longer be able to impose quantity limits on their goods sold online — so long as the web vendors are authorised distributors at associated ‘bricks and mortar’ locations. One can almost hear the cheers rising from eBay’s headquarters. This would mean fewer restrictions for the e-commerce giant’s many dealers of luxury cosmetics and designer fragrances.

Sources:
Fibre 2 Fashion – 4 May 09
EUbusiness – 23 April 09
Bloomberg – 8 May 09
New York Times – 13 May 09

Bespoke Craftsmanship

Nowhere does craftsmanship shine brighter than in the world of bespoke luxury. Most analysts agree that one reason Hermès is weathering the crisis better than its competitors is its resilient leather goods division where Birkin, Kelly and other bags are customised to clients’ specifications. They point to the announcement that first quarter sales were up 3.2 percent as a direct result of the perpetual appeal of the brand’s handcrafted ranges. The allure of bespoke craftsmanship will also be a lynchpin in the success of Montblanc in India where a jewellery salon has just opened offering unique pieces designed by the company’s artisan atelier. In Dubai, Rolls Royce has sold a fleet of its Phantom sedans to the Burj Al Arab hotel with bespoke interior details like embroidered headrests and tactile Grecian key marquetry. Such bespoke craftsmanship is just the kind of unique selling point that brands need to exploit more now in order to coax luxury customers to open their wallets a little wider.

Sources:
Reuters – 7 May 09
Wall Street Journal – 8 May 09
India Retailing – 7 May 09
Zawya – 12 May 09

From Consumer to Creator

They have some of the smartest select shops and busiest designer flagships in the world now. Boon The Shop, Galleria, Space Mue and Seoul’s branch of Corso Como have become luxury landmarks with powerful ‘chaebol’ conglomerates behind them like Samsung, Shinsegae, Hyundai and Hanwha. Although the market size is clearly smaller, some in the fashion industry are calling Korea “the next Japan,” with its voracious appetite for trends and ‘get there first’ mentality of buying the most progressive international labels. But Korea is fast proving it’s not just a land of shopaholics. Names like Lie Sang-bong and Woo Young-mi are gaining notoriety on the Paris catwalks and Korean-American designers are making waves in New York. Last month’s winner at the Mango fashion award was Lee Jean Youn from Seoul, who followed another young Korean laureate of last year’s Fashion Fringe, Eun Jeong Hong. Together with the country’s advanced manufacturing and textile industries, expect Korean design to filter into luxury fashion even more in the years ahead.

Sources:
WWD – 1 May 09
Vogue.co.uk – 30 Apr 09

New Moods for a New Age

Right in line with the overall mood of the luxury industry, brands are making a comeback using the softly-softly approach. Although Tanner Krolle kept its small made-to-order business alive while restructuring, it had been on a virtual sabbatical for the past year and a half. A handful of anonymous investors resuscitated the 150-year old luggage and leather brand under a new design mandate to stop chasing the handbag trends and live by its heritage of classic, simple luxury instead. Wholesale operations will resume at a more modest level, while retail remains on the back burner. Jean Colonna, the Belgian designer known for his raw yet delicate take on the goth-rock look, has also re-emerged after a six year hiatus. In what he calls a “totally new direction,” simple basics and fine Nepalese cashmere will be sold online and in pop-up boutiques before pursuing wholesale. Discreet and zen are not only popular design catchwords these days – they’re also guiding principles behind a re-launch.

Sources:
WWD – 29 Apr 09
WWD – 5 May 09

The Fine Line Between Counterfeit & Homage

On close inspection, it’s a pastiche at best. But the newly unveiled Geely GE does look suspiciously similar to the Rolls Royce Phantom in many ways – for a fraction of the price. Critics (including Rolls Royce’s legal team) have not, however, discounted using the word counterfeit to describe the budget Chinese automobile maker’s attempt to cross over into the upper end of the market. US Trade representatives have said they are worried that China will regress in its enforcement of intellectual property law as the economic crisis puts pressure on the country’s manufacturing industry. But just where does the line between copying trends and copying a trademark fall? On Capitol Hill, US lawmakers have reintroduced a bill that, if passed, would protect the copyright of American fashion designers for three years. Designers like Thakoon Panichgul, Maria Cornejo and Narciso Rodriguez have joined lobbyists there to make a case against ‘fashion piracy.’ Accessories brand Coach last month initiated its own campaign called Operation Turnlock, targeting parties who distribute and sell counterfeits.

Sources:
Wall Street Journal – 11 May 09
WWD – 1 May 09
WWD – 24 Apr 09
Daily Mail – 23 May 09
WWD – 1 May 09
WWD – 20 May 09

At the Top of the Atelier

Rash hirings and reckless firings. Fashion brands that rely on the creative flair of a big personality are increasingly impatient with their artistes, rendering them more dispensable than ever before. In the latest flurry of activity, Gabrielle Greiss has exited Sonia Rykiel only 18 months after being hired as creative director. Madame Rykiel’s daughter (and company president) is now overseeing the design studio herself. Louis Vuitton veteran Peter Copping has been appointed artistic director of Nina Ricci after the ill-fated partnership between Olivier Theyskens and the French house. Copping’s vision will almost certainly be more in line with the Ricci customer than was Theyskens’. Most interestingly perhaps was the news that Theyskens wasn’t hired for Halston despite reports that Anna Wintour was championing him as the only suitable candidate for the revived American brand. Instead, it was London designer Marios Schwab who inherited the key to the Studio 54 style. Elsewhere, luxury silversmith brand Georg Jensen tapped furniture and interiors designer Todd Bracher as its new creative director to steer the company into a broader lifestyle direction.

Sources:
WWD – 22 Apr 09
Vogue.co.uk – 28 Apr 09
WWD – 30 Apr 09
WWD – 20 May 09

Publishing Industry’s Decline

The vultures had been circling for quite a while before they finally swooped in for the glossy beast they had been trailing. Portfolio, Condé Nast’s inflated business digest for style-conscious tycoons, folded only two years after its decadent launch. Across much of the magazine sector, advertising and circulation continue to plummet. Hearst (publisher of Harper’s Bazaar, Esquire, etc) has just gone on a ten-city road trip to try to drum up new ad clients by offering more flexible conditions. At the top end of the food chain, magazines like Vogue and GQ are looking famished these days as their long loyal luxury advertisers flee in droves. iD magazine, the fashion industry’s seminal reference for the cutting edge will also submit to the recession — and the new media age — by becoming a bimonthly title as of September. The New York Times has taken a different cost-cutting approach for the upcoming issue of T, its highbrow style supplement. Instead of printing fewer issues, it will be absorbed into the normal weekend magazine as a mere ‘bonus section.’ Where will this all end?

Sources:
WWD – 29 Apr 09
Independent – 29 Apr 09
WWD – 14 May 09
WWD – 19 May 09

Robb Young, Contributing Editor