THE BULLETIN: Monthly analysis of the luxury headlines, Sept. 2009

In this month’s rundown of the luxury headlines, Robb Young explores private islands, the online migration of luxury media, and money matters.

Remote Resort Sector Booming

Turning entire islands into resorts is nothing new. From the Caribbean to the South Pacific, it has been a part of the luxury resort menu for years. But more and more, far-flung, isolated properties are targeted by developers looking to guarantee privacy and security for a particular breed of introspective travellers. Two properties in the news, however, demonstrate just how prolific and competitive this segment of the luxury hospitality industry is becoming. First, Amanresorts, who were in talks with the Montenegrin authorities even before the country gained official independence in 2006, snapped up the rights to redevelop the island of Sveti Stefan on the Adriatic coast as soon as the country’s new flag was flown. When phase two is complete, the island’s historic villas and buildings will effectively become a 47-unit detached hotel. The second is in the UK. On a secluded strip of land between two lochs in northern Scotland, Dall Estate and Malcolm James Developments are currently awaiting planning permission to construct a £1.3 billion ($2.1 billion) private members club resort near Kinloch Rannoch. A £2 million ($3.3 million) initial membership fee with an annual top up of £500,000 ($826,000) will allow guests to stay in units from £6,000 to £14,000 ($9900 to $23,000) per person per night.

Sources:
The Telegraph – 31 Jul 09
TTG Live – 14 Aug 09

Department Stores Bolster Investments

It has been tough going for department stores lately — as noted in the June issue of The Bulletin. But, if recent headlines are any indication, they’re not taking it lying down, using investment as their preferred weapon. In Milan, La Rinascente has just revealed its long-awaited design floor where innovative homewares and design goods from the likes of Ron Arad, Zaha Hadid, Alessi and Nespresso are selected by the store’s forward-thinking fashion director Tiziana Cardini. The newly-opened ION Orchard shopping centre in Singapore invested heavily in its “superbrands” area, including duplex flagships from Prada, Cartier, Christian Dior, Dolce & Gabbana, Giorgio Armani and Louis Vuitton. Barney’s New York was given an injection of $25 million by parent company Istithmar World Capital to stay on schedule in opening new branches around the US. And Liberty in London has appointed financial advisors to seek out new investors to aid in its expansion plan. Investment might be flowing the other way too if the Borletti Group, owner of La Rinascente and Printemps, succeeds in its bid to rescue Christian Lacroix.

Sources:
WWD – 24 Jul 09
Straits Times – 21 Jul 09
WWD – 6 Aug 09
Reuters – 26 Jul 09

Luxury Publishing Continues Net Migration

To help stem the exodus of advertisers from their glossy magazines, leading fashion publishers Condé Nast and Hachette Filipacchi have been restructuring online operations and investing significantly in meatier content for the web versions of their more popular titles. Star writers and high profile contributors are being inducted into the magazines’ websites at virtually every juncture of the transition to improve quality content. The aggressive move from paper to pixel also means publishers are putting a greater emphasis on the ad sales divisions of their internet media arms and appointing high-flying executives from Silicon Valley. In July, Condé Nast recruited James Bilefield, a veteran of Yahoo and Skype, to oversee its newly-christened digital division, Condé Nast International Digital. They are hoping that some of the lost advertisers can be tempted back into the fold with the proposition of enhanced digital ad models – or that ad revenues can be supplanted by alternative online revenue streams that are currently being developed.

Sources:
The Guardian – 17 Aug 09
Wall Street Journal – 17 Aug 09

Legal Wrangling Persists on Several Fronts

A trademark dispute between a British cosmetics company and Stella McCartney looks ready to boil over. Nude Skincare care brand is set to bring a legal case against McCartney and YSL Beauté, a division of L’Oréal, for using the word “nude” in the name of McCartney’s new fragrance, Stella Nude. Condé Nast Publications is suing the Turks and Caicos Islands and their tourist board for reneging on advertising payments of over $1 million for pages it bought in W, Vanity Fair and other titles during 2007 and 2008. In intellectual property, brands are now fully entrenched in the battle against counterfeiting, taking on intermediaries and third parties in the grey area of the counterfeit trade. Gucci sued three US firms last month that it claimed profited from processing transactions or providing trading services with a source of fake Gucci goods. This could set an interesting precedent for widening the net against the illegal trade.

Sources:
Bloomberg – 27 Jul 09
WWD – 10 Aug 09
Cosmetics Design Europe – 13 Aug 09
WWD – 28 Jul 09

First-Half Financial Results

A snapshot of the first six months of 2009 shows hopeful figures, but as yet no decisive turnaround. LVMH’s H1 net profit fell 23% but the group blamed non-fashion categories like watches and jewellery (down 73%) and wines and spirits (down 41%) for the poor performance. Still, overall revenue was up — just 0.2% — from €7.79 billion ($11.08 billion) to €7.81 billion ($11.11 billion), suggesting that fashion and accessories are more resilient within the group than many analysts anticipated. Aeffe, which operates the Alberta Ferretti, Moschino, Pollini brands as well as several international licenses, posted a loss of €10 million ($14.2 million) compared with a profit of €6 million ($8.5 million) in H1 of last year. PPR’s operating profit stood at €707 million ($1 billion) for the first six months of the year, down from €743 million ($1.05 billion) in 2008. Profits from its luxury unit, the Gucci Group brands, fell 1.1 percentage points at 26% during H1 but totalled €305 million ($434 million) – again, much better than the pundits had predicted.

Sources:
Yahoo! Finance – 27 Jul 09
WWD – 3 Aug 09
Reuters – 31 Jul 09
Wall Street Journal – 4 Aug 09

Luxury Auto Give-aways and Trade-ins

Although the light at the end of the tunnel is now flickering brighter than earlier in the year, there are still signs that the luxury car industry is desperate for every single sale. JPMorgan recently issued a note to clients saying that in Western Europe at least, the luxury segment is close to the bottom of the market and increasing its market share — however, news on the ground is less optimistic. The once white-hot Russian market, for one, is witnessing aggressive discounts by dealers who are reportedly even allowing trade-ins of non-luxury cars to augment sales. Bentley has partnered with Peal Motors Yachts in the UK for an eyebrow-raising promotion in which clients who buy a yacht get a Bentley Continental GT thrown in for free, while BMW has taken a knock by bowing out of Formula One. Prestige, it seems, comes a distant second in today’s race.

Sources:
Forbes – 28 Jul 09
Wall Street Journal – 10 Aug 09
Channel 4 – 3 Aug 09
The Times – 29 Jul 09

Private Jet Aviation in the Middle East

The Middle East’s private jet market is looking mighty attractive at the moment. Despite a decline in commercial aviation due in part to the lacklustre tourism sector, the private aviation market is expected to grow by as much as 20% this year, according to the brokerage company International Air Charter. Top executives, HNWIs, extended royal family members and local elites are growing accustomed to flying within the region by chartered, fractionally owned or proprietary jets. What’s more, the “decadent” stigma attached to private flying in the West after the crisis has not translated in this part of the world where social classes still rarely mix. Fleets are increasing and operators like MAE Jets in Bahrain, Saraya Skies in Jordan and Royal Jet are expanding. Nevertheless, a gap will remain in the market, analysts believe. Quintessentially’s MD in the region, Debbie Duncan-Studart, recently told Arabian Supply Chain magazine that many local operators are neither proactive nor competitive and that their clients eagerly await a more diversified market.

Sources:
Emirates Business – 5 Aug 09
Al Bawba – 30 Jul 09
Gulf Daily News – 25 Jul 09

Destocking Finally Hits the Champagne Region

Late last year was when the world realised the party really was over. Champagne, the beverage of choice during good times, was one of the first luxury goods that consumers saw fit to reconsider. Retailers and wholesalers duly reduced inventories and now the destocking effects are being felt at the very beginning of the supply chain. Laurent-Perrier’s second quarter revenues fell 24% and LVMH, maker of Moët, Veuve Clicquot and Dom Perignon, also saw sales decline. Its spirit division posted a 22% decline for the first half of the year. According to the Comité interprofessionnel du vin de Champagne (CIVC), sales for champagne-makers across the board fell at a similar rate of 23% from January to May compared with the same period last year. Now, stock in the region’s cellars is bursting at 1.2 billion bottles of champagne. Growers find themselves sitting on an excess of grapes, which could cause a tilt in the balance of power between growers and vintners. If champagne houses use their poor sales figures as justification to buy even fewer grapes this season in order to lower their inventories, growers fear cash flow problems could surface and leave some with little option but to sell their vineyards on to the big players. They point to LVMH’s acquisition last month of two independent winemakers, Cheval Blanc and Tour du Pin, as a sign of the group’s ambitious mood.

Sources:
Bloomberg – 31 Jul 09
WWD – 14 Aug 09
Economist – 20 Aug 09

Refinancing, Stock Buy Backs, Acquisitions, IPOs

Money has been changing hands like there’s no tomorrow. Richemont completed the stock buy-back plan it spearheaded last May while Bally’s Chinese subsidiary acquired the 30% stake previously held by ImagineX in order to restructure its operations there. General Motors sold Saab to Koenigsegg, a Swedish luxury carmaker, and, after a year on the hunt, New York designer brand Tory Burch finally inked a deal with a minority investor, Tresalia Capital, a Mexican family firm. Roberto Cavalli’s much anticipated acquisition by Italian private equity firm Clessidra appears to have fallen through due to an exceptionally high valuation. Hyatt Hotels is hoping to raise $1.15 billion in an IPO in order to finance an expansion. Prada, meanwhile, reportedly sent its bankers to Richemont in a bid to persuade the Swiss conglomerate to take a substantial minority stake in its business after it postponed yet another IPO. Prada has been approached by several private equity firms since then including the Bonomi family’s Investindustrial Fund and TPG; however, it is apparently holding out for better offers.

Sources:
WWD – 5 Aug 09
International Diamond Exchange – 26 Jul 09
WWD – 24 Jul 09
Reuters – 5 Aug 09
Edipresse Asia – 10 Aug 09
Reuters – 1 Aug 09
Bloomberg – 31 Jul 09
Draper’s Record – 4 Aug 09

Hired, Fired and Resigned

The top brass at fashion firms keep moving and the quest to find their creative pulse seems as difficult as ever. Cristina Ortiz, the women’s wear designer for Salvatore Ferragamo has been succeeded by Massimiliano Giornetti, the house’s men’s wear designer. He will design both lines after months of speculation that Wanda Ferragamo was unhappy with Ortiz’s vision for the Italian brand. Cerruti has managed to do it again. The Belgian designer Jean-Paul Knott is the latest in a long line of talented artistic directors who have somehow eluded the management. At Emanuel Ungaro, it’s now official that Asim Abdullah, the house’s owner, will replace Esteban Cortazar. Though it has been painted as a separation by mutual agreement, it was apparent for quite a while that Cortazar’s time was up. Ballantyne has struck gold with Louise Goldin who will design a capsule collection for the Italian-owned Scottish knitwear brand. And, if several key insiders can be trusted, there may be credence to the murmurings that Haider Ackermann could be Martin Margiela’s protégé and take over the iconic conceptual house.

Sources:
WWD – 30 Jul 09
Fashion Mag – 12 Aug 09
WWD – 23 Jul 09
New York Times T magazine – Fall 2009
WWD – 31 Jul 09