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

Robb Young sums up the month’s decisive headlines, explaining how high culture sponsorship deals are back in vogue; why five-star hotels are choosing to downgrade themselves; and which coping strategies firms are using to readjust to luxury’s brave new world.

Will Sexy Cars Be Emasculated by the Crisis?

When the Frankfurt International Motor Show rolls around each September, luxury carmakers put aside the balance sheet for a week to tantalise punters with a whole lot of chrome, aerodynamics and horsepower. Although there were several requisite unveilings of sexy, high-octane beasts, like Lamborghini’s Reventon Roadster, Porsche’s Panamera saloon, Bentley’s Mulsanne and the newest model from Ferrari, the 458 Italia, no one this year could pretend that the industry wasn’t still in freefall from last year’s disastrous sales tally. The 21% decline for the luxury car sector has given car makers pause for thought and many now quietly admit the need to reorient their R&D and marketing directions accordingly. Not surprisingly, many other launches in Frankfurt were of more compact, fuel-efficient and affordable models — the kinds that many observers believe are to be manufacturers’ lifeline for the coming years. To quote MSNBC’s dire headline, the “luxury car market may never look the same.”

Sources:
The Telegraph – 11 Sep 09
The Independent – 13 Sep 09
Bloomberg – 17 Sep 09
MSNBC – 28 Sep 09

The Industry-wide Hunt for Coping Strategies

Now that there is consensus about the permanent nature of many of the changes the luxury industry faces, people are beginning to talk more about the “adjustments” they’re making in market spread, product diversification, operational consolidations and even in the most taboo topic of them all — prices. Veteran luxury retailer Albert Eickhoff of the German department store Eickhoff Koenigsallee declared bluntly that brands will have to cut prices in order to survive. Stores like his are pressurising fashion brands to offer lower-priced goods. Burberry is adding $600 trench coats for US customers to exploit a “broader opportunity” there, while Jimmy Choo has started to offer more casual (hence more affordably priced) models too, like its espadrilles and jelly sandals. Like so many other firms, it is also now exploring new product categories to stretch the brand — and its entry price point. It has just launched a classic range called Choo 24/7 to capitalise on the success of its best-selling styles from the past. Many jewellers like Tiffany & Co, Stephen Webster and Lara Bohinc have been stealthily pricing down by introducing or expanding their silver ranges. Bulgari, meanwhile, is abruptly closing three underperforming US stores, to open in three different city locations instead. A Louis Vuitton executive recently conceded that expanding and enhancing stores has become a lower priority compared to getting the right design/price balance. Chicago’s luxury emporium Ikram has reportedly sent back more products this year to designers since the bar for luxury has been raised by consumers’ newfound revelations. As Booth Moore, the LA Times fashion critic recently penned, “The fashion industry’s old business model is out of style.” When asked what the “new normal” will be for the luxury industry after the recession, Pam Danziger told The Gourmet Retailer, “They will need to realign their brands with the new values that more thoughtful, careful and selective affluent shoppers hold."

Sources:
WWD – 28 Aug 09
New York Times – 28 Aug 09
Gourmet Retailer – 31 Aug 09
Financial Times – 14 Sep 09,dwp_uuid=4b767ed6-9da2-11de-9f4a-00144feabdc0.html
Bloomberg – 11 Sep 09
Los Angeles Times – 13 Sep 09,0,747468.story?page=1
Time 17 Sep 09,8599,1924242,00.html
Economist – 17 Sep 09
Bloomberg – 25 Sep 09
WWD – 30 Sep 09

Luxury Brand Benefactors’ New Projects

Taking the corporate moral high-ground is not all about jumping on the fair-trade bandwagon and painting it green. Back before luxury brands invested their marketing budgets in eco-ethical projects, one way to earn a socially conscious badge was to patronise the arts and cultural heritage groups. If the latest round of sponsorship deals is any indication, cultural giving might be undergoing a revival among more luxury brand patrons. Swiss watchmaker Audemars Piguet has signed a three-season sponsorship deal with Moscow’s Bolshoi Theatre. As part of Jaeger-LeCoultre’s ongoing patronage of the Venice Film Festival, the brand will also sponsor an exhibition dedicated to Fellini in Paris and partner with UNESCO in the Tides of Time project, which will feature Venice on this year’s list of sites deserving protection. Not to be outdone, Tiffany & Co has donated $100,000 to support the conservation of Pingyao Ancient City, a UNESCO World Heritage Site in China. Meanwhile, Gucci Group just committed to sponsoring a new Ph.D. scholarship programme at Central Saint Martins College of Art and Design and the University of the Arts London.

Sources:
WWD – 2 Sep 09
Edipresse Asia – 31 Aug 09
World Tempus – 26 Aug 09
The Time TV – Sep 09
Haute Horlogerie Magazine – Sep 09

Galleries Recalibrate Prices at Newer Art Fairs

Riding high on the triumvirate wave of the Asian economic boom, a dynamic collecting culture and a surge of highly coveted upcoming national artists, contemporary art fairs in China and India launched with unbridled idealism a couple years ago. Last month, however, saw many galleries exhibiting at Shanghai’s ShContemporary fair and the India Art Summit take a more realistic marketing approach suited to the times. In New Delhi, although some big ticket pieces were snapped up in the $10,000-100,000 range, it was the affordable items that kept business brisk, according to several reports. The Nature Morte gallery cited Archana Hande as a big seller with prices under $2,000, while the cutting-edge Bangalore Galleryske used the showcase to display works from its gallery store, Storeske, selling out its handmade pieces reproduced in larger or unlimited editions, such as Sudarshan Shetty’s small sculptures for $300. In Shanghai too, even if Ota Fine Arts flogged a few sculptures for Yayoi Kusama and Beijing’s The Long March Space did the same for Zhang Wang in the $200,000-300,000 range, many galleries tended to feature work with more moderate prices than last year. According to a cross-section of exhibitors from both events, overall sales were deemed “satisfactory”.

Sources:
Artinfo – 26 Aug 09
Edipresse Asia – 28 Sep 09
Edipresse Asia – 31 Aug 09

More Worrying Signs for the Luxe Hotel Sector

Although hospitality insiders claim it’s not as uncommon as it sounds, the news that several major luxury hotels are voluntarily dropping a star from their five-star rating certainly looks pretty grim. Long the hallmark of superlative service and amenities, the ratings bestowed by national hotel industry associations, such as the AAA and Mobil Travel Guide in North America, are rather expensive credentials to maintain. In order to cut back on operating costs, some Hilton and Intercontinental group hotels have recently downgraded to yield savings by foregoing many of the usual five-star perks. Starwood Hotels & Resorts suggested they would consider doing the same for some of their properties if there was “no discernable impact on the guest experience.” In the US, RealPoint, a commercial mortgage-backed securities analysis group told Bloomberg last month that 1,500 luxury hotels could now be at risk for default. Even in China, the market that is bolstering so much of the luxury industry, demand for top-end hotel rooms is down in most urban areas, having reached oversupply late last year.

Sources:
Bloomberg – 25 Aug 09
Fractional Life – 27 Aug 09
The Real Deal – 28 Sep 09
Asia One News – 25 Aug 09

Digital Fashion Revolution Accelerates

Fashion has finally turned a cyber corner. Reports on how the notoriously technophobic industry finally “embraced” the internet are now officially old news. These days, it can be more of a tender cuddle — or a firm grip for dear life. It has been revealed that Fabergé’s much anticipated “comeback” — after ninety years out of the jewellery business — will rely on an international sales strategy exclusively using ecommerce and not one retail outlet outside a single flagship. Net-A-Porter is growing so fast that it has resorted to spinning its need for talented staff into a human resources story recently published in the Financial Times. New York University’s Stern School of Business has started a report that ranks luxury and fashion brands’ successful use of the internet as “genius, gifted, average, challenged or feeble”, essentially naming and shaming them. A new crop of “personal styling” sites like Covet.com, ShopStyle.com and Dressassistant.com are also making waves. And on the back of the success of Gilt Groupe, Rue La La and Vente-privée, a similar invitation-only sale site, Glamour-sales.com, selling high fashion at steep discounts has finally launched in Japan. The Economist recently profiled such businesses, concluding that they have indeed helped move a glut of crisis-era inventory that would have otherwise gone unsold. Praised be the internet.

Sources:
International Herald Tribune – 25 Sep 09
WWD – 27 Aug 09
Economist – 3 Sep 09
New York Times – 9 Sep 09
Financial Times – 17 Sep 09
Revolution Magazine – 23 Sep 09

Choice of Models Getting Braver and Brasher *

It seems that Louis Vuitton’s adventurous casting of statesmen and astronauts for recent ad campaigns might just have started a trend. Brioni reportedly passed over a shortlist of models and actors for its fall/winter campaign, tapping high society New York hotelier André Balazs instead. While it may sound unusual to choose a real-estate mogul, owner of hotels like Chateau Marmont, The Raleigh and The Mercer, Balazs is handsome, photographed often in the right circles and a good personification of the Brioni brand. Emanuel Ungaro’s choice of Lindsay Lohan as its new brand ambassador/”artistic adviser”, on the other hand, is rather risky, to say the least. These days, Hollywood’s resident “bad girl” is photographed far more often for the tabloids than for a glamorous red carpet style. Another unconventional muse announced in the past month include photographer Atul Kasbekar who posed on the other side of the camera for Swiss watchmaker Carl F. Bucherer‘s Indian market campaign.

Sources:
PR Inside – 21 Aug 09
AFP – 9 Sep 09
World Tempus – 15 Sep 09

China-Watching Even More Important Since Downturn

It’s certainly no coincidence that China has been dominating the headlines while we were preparing this issue on the BRICs. It has been the most talked about luxury market for years now and, since the crisis hit, it has become an even hotter topic. With so many brands convinced that their white knight will be wearing red and brandishing stars, getting the China-formula just right is now pivotal. This means that column inches on the rapidly evolving country are in even greater quantity and, contrary to the law of supply/demand, more valuable as well. Reuters focused on three milestones in separate reports: first, that Cartier’s CEO Bernard Fornas disclosed China could become its biggest market in four years; second, that Chinese tourists in London have overtaken Arabs and Russians as the top overseas luxury consumers; and finally, that Chinese investors like China Investment Corp and apparel makers like China Dongxiang have expressed interest in acquiring foreign fashion brands. Bloomberg highlighted Ralph Lauren’s accelerated expansion strategy of opening fifteen new Chinese boutiques annually in the coming years, as well as Chinese carmaker Geely’s craving to go upmarket by bidding for Saab and targeting Volvo. China Daily quoted Mercedes-Benz’s CEO Klaus Maier as saying the country has become its top market for the popular S-class models and noted that many luxury car brands have begun to push into third tier city markets. Flightglobal picked up on a comment by Bombardier’s VP for sales who believes the outlook for business jets in China is at its most promising to date, despite the downturn. Satiating and then renewing China’s appetite really will be the holy grail of luxury over the next decade.

Sources:
Reuters – 1 Sep 09
China Daily – 28 Sep 09
Bloomberg – 31 Aug 09
Reuters – 3 Sep 09
Flightglobal – 9 Sep 09
China Daily – 29 Aug 09
Reuters – 16 Sep 09
Bloomberg – 10 Sep 09

The Sweet Smell of Mergers & Acquisitions

With more than one influential luxury survey outlining customers’ assertion that there are too many competing brands on the market, it’s no wonder acquisition speculation is rife. Diageo’s CEO said that the spirits distiller is poised to “seize” opportunities and furthermore admitted he dreamed of buying Moët champagne brand from LVMH should Bernard Arnault ever be persuaded to sell. Canadian department store chain Holt Renfrew is in the spotlight after numerous reports surfaced that the company was joining forces with hedge fund Perry Capital LLC to swoop in on the Barneys New York chain and relieve current owners Istithmar of the bankruptcy or grating debt restructuring plan looming overhead. Some analysts, however, are doubtful if Holt has enough liquidity to make a serious offer. Chinese carmaker Geely secured a $334 million investment from Goldman Sachs to help its quest for an acquisition, prompting Geely’s shares to increase 26%. Hermès has bought the building where the Asprey shop is located on London’s Bond Street for £75 million ($120 million) and is rumoured to be harbouring ambitions to rescue the fading jewellery brand through a buyout. UK premium fashion brand Jaeger has acquired Aquascutum for an undisclosed sum, bringing the 158-year-old British heritage brand back home after years under Japanese ownership with Renown.

Sources:
Bloomberg – 27 Aug 09
Financial Post – 3 Sep 09
Forbes – 8 Sep 09
BBC – 23 Sep 09
The Guardian – 27 Sep 09

New Challenges Await Fashion’s Top Talent

A certain upmarket childrenswear brand got a boost last month when star CEO Christian Blanckaert revealed that, after fourteen years with Hermès, he would be retiring at the end of August. Swapping crocodile carryalls for satin baby booties, Blanckaert is now busy stepping up the fortunes of Petit Bateau, which is owned by beauty giant Yves Rocher. The parent company hopes that, as non-executive chairman, Blanckaert will be able to leverage international markets better — analysts estimate that only 40% of Petit Bateau’s annual €265 million ($385 million) turnover is derived from sales outside its home country, France. Back at Hermès, Blanckaert was succeeded by Beatriz Cristobal-Gonzalez, formerly the firm’s commercial director, which should make for a smooth transition. Also headed to new pastures is Kuwaiti retail mogul Sheikh Majed Al-Sabah who recently bowed out as chairman of Villa Moda over disagreements of strategy and corporate governance with the Dubai International Financial Center, its new majority shareholder. Planning to stick to retail, he said he would focus on luxury lifestyle, hospitality and food in order to avoid competition with Villa Moda, of which he still owns nearly 30% — though many observers wonder if he will retain ownership for much longer. Following the departure of Nina Ricci’s designer, Olivier Theyskens, the president of parent company Puig Fashion Group, Mario Grauso, also stepped down. While at Puig, Grauso’s portfolio included Paco Rabanne, Carolina Herrera as well as Nina Ricci. His controversial appointment of Theyskens, who failed to make the Ricci brand sing, is what many insiders see as a contributing factor to Grauso’s exit.

Sources:
La Tribune – Sep 09
WWD – 3 Sep 09
NY Mag – 14 Sep 09