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

Robb Young examines the latest luxury news cycle, including the hunt for retail space bargains, a slew of designer bankruptcies and the metamorphosis of Chinese firms as luxury investors.

Luxury Retailers Count on Rent Renegotiations

Burberry’s CEO Angela Ahrendts is planning to open ten to fifteen new stores this year while many of her peers pull the plug on retail expansion. Ahrendts expects she’ll be able to negotiate bargains on some of these leases during the protracted slump in commercial rates. By setting up shop now in markets that Burberry was already keen to bolster, she anticipates better margins in the years to come. Renegotiating existing real estate deals is another way in which brands hope to cope with prohibitive overheads in markets where demand has plummeted. Nowhere is this more acute than in boom/bust towns like Moscow and Dubai. Rivoli Group, which operates stores for Dunhill, Tag Heuer, Bang & Olufsen and Vertu in Dubai and the Middle East, recently told Reuters that unless Dubai’s luxury malls bring commercial rents down soon, brands could face “burnout” – and possibly “collateral damage” across the market.

Sources:
The Guardian – 28 May 09
WWD – 22 May 09
Reuters – 9 June 09

London Welcomes Designers Home

The catwalks in London have been in need of some stardust for quite a while and next season they’ll finally get some. London Fashion Week announced that it has lured back three quintessentially British brands for the September shows: Burberry, Pringle and Matthew Williamson. For many years, the brands eschewed London in favour of other fashion capitals, taking part in an ongoing exodus that has plagued the city’s fashion industry. While some of London’s most promising young designers continue to seek out brighter lights in New York or Paris (Gareth Pugh last season and Giles Deacon next season), in recent years there has been a steady flow back including Vivienne Westwood who now shows her Red Label in London along with other returnees Luella Bartley and Alice Temperley. Williamson, Pringle and Burberry are quite a coup for London as they will bring much needed press and buyers back to the city – and possibly a knock-on effect for their young designer compatriots. If this homecoming (timed for LFW’s 25th anniversary) is not short lived and if LFW could eventually bring back even one of the “holy trinity” (McQueen, McCartney, Chalayan), the whole British luxury industry could see a vital boost.

Sources:
Drapers – 1 Jun 09
Vogue – 1 Jun 09
WWD – 8 Jun 09
The Independent – 27 May 09

Europe’s Art Fairs Buoyant

June was a bumper month in the contemporary art world which saw artists, gallerists and collectors hopping between Italy, Switzerland and the UK to soak up the summer exhibitions. From the glamorous spectacle of the Venice Biennale to the get-down-to-business atmosphere at Art Basel to the scholarly tradition and crowded walls of the Royal Academy Summer Exhibition, these events couldn’t be more different. Yet by most accounts, all three have managed to come out relatively unscathed by the recession – at least anecdotally. Obtaining hard sales figures for events that style themselves foremost as cultural barometers and secondly as art market traders has proved rather difficult. But what has emerged from all three is that it is indeed a buyer’s market and the right works are still perceived by many as a solid investment. Prices for some artists may have dipped but the market maintains a healthier appetite than many had predicted.

Sources:
Bloomberg- 21 May 09
Financial Times – 6 Jun 09
Economist – 18 Jun 09
The Independent – 21 Jun 09
Luxury Society – 7 Jul 09

Watch & Jewellery Firms Brace Themselves

Chopard must still be reeling from the $8 million robbery at its Place Vendome boutique in late May; but the company has bigger losses to ponder. The Swiss company’s chairman recently told an audience at the Reuters Global Luxury Summit that he expects a ten percent drop in sales for the year and the entire Swiss watch-making fraternity is facing what observers are calling “the worst decline in twenty years.” Still, if first quarter figures from other brands are any consolation, Chopard might not be doing so badly after all. At Tiffany, 1Q profits fell 64% and Harry Winston reported a decline in sales of 30.4% with operating losses doubling from $2.4 million to $5 million. And this comes as three smaller but notable jewellery firms, Henry Dunay Designs, Michael Beaudry and David Webb, joined the bankruptcy roster last month.

Sources:
BBC – 30 May 09
Reuters – 9 Jun 09
Wall Street Journal – 29 May 09
WWD – 8 Jun 09
Wall Street Journal – 24 Jun 09

Legends & Prodigies Too Are in Danger

There are so many ways to interpret the news that Christian Lacroix has filed for bankruptcy protection. Some say it’s yet another sign of couture’s imminent demise whilst others have gone so far as to call it a symptom of the market’s newfound distaste for decadence. Not likely. Some insiders blame the Falic Group, an American investment group that bought the house in 2005, for an ill-fated restructuring and US expansion timed just before the global downturn last year. Whatever the reasons – and there are surely many more than one – the news has shaken the luxury industry to its core. Lacroix has vowed to find a white knight and show a small collection during Paris Couture this month, but the future doesn’t look good. Although analysts were expecting there to be more victims of the recession, the calibre of those going under has shocked even the most cynical among them. Critically-acclaimed Belgian designer Veronique Branquinho has started liquidation of her company and French label Stella Cadente closed its doors last month too.

Sources:
Business Week – 2 Jun 09
Fashion Wire Daily – 28 May 09
Luxist – 29 May 09
WWD – 17 Jun 09

Waiting for Entry Level Luxury to Rebound

No one expected this to be an easy ride for designer eyewear firms. As one of the most popular entry level items in the luxury industry, the recession was bound to hit them particularly hard. So it’s little surprise that the sector’s two biggest players have reported falling 1Q profits. Luxottica (manufacturer of eyeglasses and sunglasses for the likes of Chanel, Bulgari, Dolce & Gabbana and Ralph Lauren) said profits fell 22.5% while its rival Safilo (YSL, Armani, Gucci, Marc Jacobs, etc) fared worse with an 87% decline. Although both companies have painted a more optimistic picture for the months to come, many market observers remain sceptical. Safilo is said to be currently in talks with at least two private equity bidders while it negotiates loan repayment waivers from its creditors. Meanwhile, the fashion industry awaits the eyewear giants’ Q2 results as they could be a key indicator of how soon to expect a recovery for other small accessory categories.

Sources:
WWD – 25 Jun 09
Reuters – 22 May 09

Luxury Brands Pursued by Chinese Firms

Just as the Japanese did when their manufacturing industries and consumer markets began to dominate the regional economy, Chinese companies are now eager to snap up prestigious Western brands to help speed along China’s imminent coronation as the leading luxury market in Asia. Aquascutum’s Chinese licensee YGM Trading Ltd has been pursuing a take-over of the British heritage brand against rival bidders like Crombie and Aquascutum’s former CEO Kim Winser. Tellingly, Aquascutum is currently owned by Japanese apparel giant Renown who is very keen to sell. Another Chinese company, Sichuan Tengzhong Heavy Industrial Machinery Co., secured its purchase of the American luxury SUV brand Hummer from GM last month, puzzling many experts as to how the Chengdu-based company plans to turn a profit on the petrol-guzzling truck. Unless, of course, the iconic American off-roader is soon to be made in China.

Sources:
CNN – 2 Jun 09
Drapers – 16 Jun 09
Forbes – 3 Jun 09

Louis Vuitton’s Online Romance

Luxury brands and the internet have had a tempestuous relationship over the past decade. But it seems they’ve finally become bosom buddies – if luxury’s bellwether brand is any indication. Despite earlier misgivings, LVMH became an internet pioneer when it launched eLuxury.com back in 2000, embracing the internet and even creating a shop-in-shop for its flagship brand Louis Vuitton on the site. But last month, LVMH shuttered eLuxury’s commercial arm for good. The group contends that the closure of the site was strategic and that, in some way, it was a victim of its own success, having helped persuade consumers to buy LVMH brands online via their stand-alone sites. But LV just can’t get enough of the internet. In the same month, LV added another feather to its high-tech cap by launching its first exclusively online bag, the Totally Monogram, and by opening its very own Twitter account. Could it be coincidence that last month, one of Twitter’s investors hinted to the New York Times that Twitter might soon become a direct ecommerce outlet for its corporate members?

Sources:
Fibre 2 Fashion – 25 May 09
Just Style – 9 Jun 09
New York Times – 19 Jun 09

Keeping it in the Family

Some of the most spectacular success stories in the luxury business have involved bringing in executives from outside the company fold. With a fresh perspective and no loyalties but to the brand itself, outsiders can sometimes propel brands further than those on the inside. But perhaps it’s a sign of these cautious times that many recent appointments have either come up the corporate ladder or through relationships with former colleagues. Last month, Gucci Group tapped Christophe Mélard as CEO of Sergio Rossi, moving him up the ranks from sister brand YSL. Chanel promoted Barbara Menarguez, an eleven-year veteran of the house, to the CFO post while De Beers appointed Francois Delage as CEO of De Beers Diamond Jewelers after his launch of De Beer’s branded diamond Forevermark. Loewe’s new CEO Lisa Montague has been drafted from Mulberry, but this was still very much a calculated move. Loewe’s designer Stuart Vevers had been recruited by Montague for Mulberry a few years before he decamped to Spain. Now the two are reunited at Loewe. And at Jil Sander, CFO Alessandro Cremonesi replaced departing CEO Gian Giacomo Ferraris. The latter was brought in by Donatella Versace after a turbulent relationship with her former CEO, Giancarlo di Risio – who, incidentally, was an outsider from LVMH. Perhaps Donatella will have better luck with this outsider than with the last.

Sources:
New York Magazine – 9 Jun 09
WWD – 26 May 09
Israeli Diamond – 24 May 09
WWD – 18 Jun 09
La Tribune – Jun 09

New Luxury Developments in Old Markets

We’ve become almost immune to the relentless pace at which new luxury malls, retail complexes and whole luxury villages in China, India and the Middle East are opened. In the past few weeks alone, China’s Golden Eagle Shopping Plaza welcomed a host of new tenants and Bernard Arnault was at the groundbreaking ceremonies for L’Avenue Shanghai in the Hongqiao Development Zone. And in Chennai, India, the Bergamo Luxury Mall has been in the news as it nears completion. The list goes on and on. But gone relatively unnoticed are the new luxury developments in mature markets. Proof that there is a lot more mileage left in the vast American market (badly hit by the recession though it may be), construction on the $1.5 billion “Streets of Buckhead” project in Atlanta has recently resumed. Hermès, Van Cleef & Arpels, Brioni and Etro have already signed leases around the seven-block area that will include 350 luxury rental apartments. And in suburban Seattle, The Shops at The Bravern will see its ribbon cut in September bringing Louis Vuitton, Hermès, Jimmy Choo, Salvatore Ferragamo and Wolford to the Pacific Northwest. Like so many of these new American developments, The Bravern is a mixed residential/commercial project where condominium owners will be on the doorstep of boutiques.

Sources:
WWD – 10 Jun 09
China Briefing – 22 May 09
WWD – 22 May 09
The Hindu Business Line – 31 May 09
WWD – 10 Jun 09

Robb Young is Managing Editor