FT SPECIAL REPORT The BusinessGolf of Luxury

Say cheese! Evolving tastes See now,buy now Luxury brands must Sophisticated Chinese Jo Ellison says fashion learn from Instagram tourists demand more is getting faster SOCIAL MEDIA Page 2 ASIA Page 3 BAROMETER Page 4

Monday May 23 2016 www.ft.com/reports | @ftreports Brands innovate to combat global slowdown

London, New York and Paris fight for three main drivers of that change: “Mil- In the luxury world, shoppers,MrMianisays. lennials, digitalisation and the behav- These are testing times for the luxury iourofChineseconsumers.” hard times call for goods industry, worth €250bn in 2015, Crucially, while this upheaval wrong- according to a Bain & Company study. foots the industry, a recent survey from chic solutions, says Companies’ expectations of solid consultants BCG found consumers felt a growth from emerging markets are quarter of luxury brands were losing Rachel Sanderson being undermined and are embarrass- their exclusivity or were at risk of losing ing their current strategies for expan- it. Furthermore, around a third of con- sion, while developed markets look pal- sumers said they were saturated with t the centre of Milan’s pre- lidandhesitant. personalluxuryproducts. mier luxury shopping dis- The LVMH conglomerate has blamed Complicating the outlook are millen- trict — the Quadrilatero terror attacks in Paris and Brussels for nials, the sought-after 18-to-34-year D’Oro,orGoldenGrid—isa weighing on sales in Europe, while the olds. BCG defines these as global con- A new opening that high- strong dollar and weakening consumer sumers, highly digital, optimistic, sensi- lights how the luxury goods industry is sentiment are hurting luxury sales gen- tive to sustainability — and sceptical. respondingtoeconomicpressures. erally in the US. Falling demand in They are not attracted by the simple MonteNapoleone VIP Lounge, in a China and Hong Kong is causing brands façade of the brand, says Antonio palazzo between the Céline and Valen- torethinktheirtacticsthere. Achille,managingdirectoratBCG. tino stores, draws on nearly 150 luxury Salesgrowthofpersonalluxurygoods These tensions are pushing the indus- brands to tackle the problem of declin- — from handbags and shoes to prêt-à- adjusting to lower expectations with a shops and art installations in stores as Clothes show: try to be evermore innovative to keep ing footfall. It offers private fitting serv- porter — slowed to 1-2 per cent in 2015 varietyoftactics. the lines between shopping and enter- artist Ai Weiwei shoppers interested, says Desirée Bol- ices and a concierge able to obtain hard- from 7 per cent in 2013 at constant cur- Cost cutting — from ending product tainmentblurandbrandscompetewith poses next to his lier, chief executive of Value Retail, to-find tickets. “If you want to see every rencyrates,accordingtoBain. linesandclosingstorestoremovingwell consumergroups. art installation which runs 11 outlet villages in Europe red dress in a size 38 in the Quadrilatero Thomas Chauvet, luxury analyst at paid designers — is significant. Though One of the few remaining areas of at the Bon andChina. we can bring it to the lounge for you,” Citi, argues that for a few years compa- not all moves were solely driven by bullish growth in luxury is ecommerce, Marché Ms Bollier this month presided over a saysGuglielmoMiani,chiefexecutiveof nies were “in denial” about the “reset” reducing cost, several top designers which Bain estimates grew to 7 per cent department special event at Value Retail’s Fidenza fashion brand Larusmiani and boss of of the luxury goods industry triggered ‘Our sector have left their brands in the past year: of market share in 2015, from 1 per cent store in Paris VillageinItaly,apop-upstorecalledthe Patrick Kovarik/AFP/ theQuadrilateroindustryassociation. bythecollapseofdemandinChinafrom Hedi Slimane from Yves Saint Laurent, in 2005, with Chinese etailers making Getty Images Creative Spot that will showcase prod- Fiveyearsagosuchperkswereniceto 2013 onwards. Prada was among the is in a RafSimonsfromChristianDior,Alexan- inroads. ucts by Milan’s hottest young designers have.Buttoday,asluxurygoodscompa- brandswhosesalesbegantoslowthen. period of der Wang from Balenciaga and Alber “Our sector is in a period of acceler- — at cut prices. “You are adding that nies face another difficult year, they “In 2015 and at the start of 2016, they ElbazfromLanvin. ated evolution,”says Armando Branch- layer of experience to what has now have become must-haves as brands, have realised it is a different story,”says accelerated Instead, brands are introducing fea- ini, vice-chairman of Italian industry become a very banal thing: shopping,” stores and luxury centres like Milan, MrChauvet.Inresponse,theindustryis evolution’ tures such as concierge services, pop-up lobby Fondazione Altagamma. He sees saysMsBollier. 2 ★ FINANCIALTIMES Monday 23 May 2016 The Business of Luxury Snap happy: Tomorrow’s master craftsmen, today Instagram rolls Skills Kate Youde meets the next generation of artisans keeping the luxury industry’s heritage trades alive

Ralph Moullet, 22, Andre Wilson, 19, out carpet for assistant cutter at apprentice clay Savile Row tailors modeller at British Huntsman car manufacturer Aston Martin Itriedtodoa fashion brands vocationalcourse AstonMartin infashionand cametomyschool clothinganddidn’tthinkIwaslearning twoyearsagototalkaboutthecarsand enough.OnthedaysIwasn’tatcollege,I whattheyweredoing;afterwardsIsaw usedtoworkforChristopherRaeburn, theclaysculptingapprenticeship thedesigner,andhesaid,“Maybe advertisedonthewebsite. insteadofgoingtocollege,learnacraft.” Ifacar’sjustaconceptdrawing,we’ll That’showIfoundmywayto startwithascalemodelandexperiment Huntsman,andI’vebeenworkingwith withthedesignertogetvolumesand Campbell[Carey],theheadcutterand shapes.Whenwedoourfinalmodel, Strike a pose: Instagram’s James Quarles — Damien Maloney creativedirector,sinceIwas17. whichisaccuratetoaboutquarterofa Youseejacketscomeback,fromthe millimetre,wescanitwithlasers.That’s photographs sprawled across double andtravellingtoMilanandParis,hesaw Instagram influencers and the public in 1960sand1970s,thatgrandsonshave sentthroughtotheengineersandthe Social media The app’s pages in fashion magazines, Instagram how fashion houses started adopting late May to show the behind-the-scenes broughtintohavealtered.I’dlove,in carismadebasedoffthatclaymodel. business development believes its smartphone-sized squares socialmediatoreachcustomersalready story of how everything from handbags thefuture,toseeajacketcomeback It’snotjustavisualthing. are better at showing off the detail usingappstodiscovernewbrands. tospiritsaremade. withmynameon,becauseinsidethe Youhavedirectinfluenceonthings head has unfiltered involvedinluxurycraftsmanship. “Ihadthebenefit,livinginLondon,of Luxury brands use social media to jacketwehavetheordernumberand thatyouseeonTVandinmovies,which James Quarles, global head of busi- sitting in the front rows, looking down show they are “not my father’s or my cutter’sinitials. isverycool. advice for maisons, ness and brand development at Insta- the line and everyone was on Instagram grandfather’s brand”, Mr Quarles says. gram, says luxury goods makers do best trying to capture and edit those runway Marketers can deploy Facebook’s seg- Yee Hui Chim, 29, Cameron Weiss, 28, says Hannah Kuchler when they zoom in to show the cus- looks and show them instantaneously,” mentation tools on Instagram to reach prototypist at head watchmaker and tomer every careful decision they have he says. The luxury industry followed different kinds of luxury audiences, French accessories founder of Los hetwistandtwirl,theshim- madeinmanufacturingtheproduct. bloggersinusingInstagram. such as Asian consumers or “Henrys”, brand Moynat, part Angeles-based Weiss mer and swirl of her tas- “Luxury businesses are the best at Now,60percentofInstagram’s400m which stands for “high-earning not rich of Groupe Watch Company selled skirt were captured managingbrandsofanymarketerinthe monthly active users say they learn yet”,whomaybenewcustomers. Arnault in a slow-motion video world. They understand the story his- about products and services on the app While luxury brands may have been Iwasalwaysinterestedin T postedonInstagrambyEva tory,the importance of the heritage, the and 75 per cent say they are inspired to drawn to Instagram organically, the Ifthedesignergivesmeadrawing startingmyownbrandbutitwasn’t Chen as she prepared for her first Met importance of craft, but also the impor- act—bysearchingforabrand’swebsite, company has put substantial effort into ofa[new]bag,I’mtheonewho untilworkingforacoupleofthebest Gala this month. The gala, which raises tance of being relevant, and modernity goingtoaboutiqueortellingafriend. showing the creative possibilities of the createsthepatterns,cutstheleather, Swisswatchmakingcompaniesinthe funds for the Metropolitan Museum of aspartoftheirproposition,”hesays. Several brands have embraced Insta- app in the hope of luring more advertis- assemblesthebag,sewsthebag—either world[AudemarsPiguetandVacheron Art’s Costume Institute, is one of fash- Luxury businesses can show each ele- gramatfashionshows.TommyHilfiger, ing dollars. Analysts at Credit Suisse byhandorsometimesbymachine— Constantin]thatIfeltIhadreallylearnt ion’s highest-profile showcases and mentoftheprocessusingdifferenttools for example, recently created an estimate that Instagram’s revenue was andthenwealsodosomefinishingon enoughaboutthebusinessof celebrity attendees wear unique crea- such as stills, videos and loops — one- “InstaPit”, with special seats for social about$570minthepastquarteralone. theedges. manufacturing.Idoallofthedesign, tionsfromdesigners. second clips that play endlessly. Rather media influencers, some with millions At the Met Gala, Instagram collabo- BeforethisIwasasoftwareengineer.I prototypingandassembly. “Not going to lie, I chose this custom than worrying about whether going of followers, to snap the runway from. rated with Vogue magazine to create a workedinthesemiconductorindustry Tostart,wemakeeverythingby @christopherkane dress for the behind the scenes could ruin their LuxuryconglomerateLVMHopenedup booth filled with flashing fluorescent forthreeyearsandIstartedleathercraft hand.Fromtherewethenfigureout slow-mo twirl opportunities!” Ms Chen, brand’smystery,they can show off their more than 50 ateliers and maisons to lights where celebrities like Madonna asahobby. howtomanufactureinmore who is Instagram’sfashion ambassador, designandmanufacturingcapabilities. werevideoedintheirdesigneroutfits. It’sverydifferent[frommaking contemporarywayswith wrote in the caption. The video Mr Quarles — sitting in a large confer- ‘Looking down the line, The results, posted on Instagram semiconductors],butdevelopingthe computer-controlledmillingmachines attracted 12,000 likes from Ms Chen’s ence room in Instagram’s Silicon Valley @gvsgvs, resembled glossy photo- patternsinvolvesmathematicstoo andlathesandthingslikethat. 574,000followerswithinthreedays. headquarters — joined the company everyone was on Instagram shoots, seductive TV adverts and music becauseithastobereallyprecise.Itisas Thegoalistoproducecomplete While luxury goods marketers may from its parent Facebook, where he trying to capture and edit videos. The app and the magazine had complicatedasengineeringbutwithan timepiecesintheUSandreallyworkon reminisce about the days when adver- managed relationships with advertisers worked together to create a new kind of artistictouch.Forthisindustry,the bringingbackwatchmakingasan tising meant only expansive, glossy from London. While living in London those runway looks’ redcarpet. experiencematters. industrytotheUS. Brunello Cucinelli, philosopher and cashmere capitalist

Enterprise His delicate jumpers come from a factory that reflects a humane worldview, finds Rachel Sanderson

“Whycan’tcapitalismbecontemporary too?”asksBrunelloCucinelli,founderof the cashmere fashion brand which bears his name, as he sits in Solomeo, the Italian hilltop village where his fac- toryislocated. It is not an empty question: Mr Cucinelli, 62, grew up watching his fatherworkinafactory,abandoningthe family farm to earn a better wage. “I have seen my father humiliated, offended, and with little money,” he says.Henowtriestorestoretothework- ers in his factory the dignity stripped fromhisfamily. Mr Cucinelli runs his company,which is worth €1.2bn and whose jumpers can sell for upwards of €1,000, according to his philosophy of “humane capitalism”, Reel deal: cashmere wool on display in Cucinelli’s office — Alessia Pierdomenico/Bloomberg and it has borne results. Founded in 1978, its shares rose 124 per cent to a Mr Cucinelli’s vision has translated style of expansion. “Very shortly you peak after listing on Milan’s stock into profit — but not everyone is a true findthereisnowhereelsetogo.” exchangefiveyearsago;theyarenowup believer. He is an outlier in the luxury Mr Cucinelli and his family own 60 50 per cent. It trades at multiples simi- industry for rejecting the pursuit of per cent of his company’s shares. Fidel- lar to those of Hermès, the €34bn growth at all costs, insisting that the ity, the global fund manager, is the sec- French luxury leather goods house firm intends to achieve only “elegant ond-largestinvestorwith6percent,fol- foundedin1837. growth”, which equals around 10 per lowed by the Zegna family, who are Mr Cucinelli, in blue blazer and white centayear. behind luxury menswear group shirt, seated in his sleek white offices, Analysts are more sceptical. The Ermenegildo Zegna, with 3 per cent. applies his principle beyond his dona- sharepricereacheditsheightinJanuary Analysts think ultimately he may sell a tions for the restoration of ancient 2014 and Mr Cucinelli admits consult- significant stake to LVMH, although Mr buildings in Solomeo. “For me, it is not antshaveurgedhimtorampupproduc- Cucinelli says he intends to keep the sustainable to give €5m to a charity and tion — perhaps shifting some outside of companyinfamilyhands. haveyourproductsmadebychildren.” Italy — to drive up the company’s profit As with Armani, where the founder His workers certainly benefit from margins.Heisadamanthewillnotdoit. remains in command in his 80s, inves- this outlook. They come in at 8am and torsposequestionsaboutgovernanceat leave by 5.30pm. He does not allow Cucinelli. Recently he appointed co- emailstobesentoutsidethosehours. Brunello Cucinelli chiefexecutives,whoareintheir40s. There is a 90-minute break at 1pm would like a world For his success, Mr Cucinelli has where all those and in a subsidised canteen, workers who work with his become an admired figure in Italy, a pay €3 for their lunch. On this Tuesday, luxury label earn new entrepreneur in a country keen for that is abundant helpings of rice salad ‘a just amount’ success stories as it returns to economic from white porcelain bowls set out on growthafteradecadeofstagnation. wooden tables, followed by peppers “I would like a situation where all the On the day of our interview, Techno- stuffedwithmeatandcourgettes.Apple peoplewhoworkwithme,theinvestors, gym, which was founded within five cake and fruit are available for those the banks, the suppliers, all earn a just years of Cucinelli and makes fitness who want dessert. Wine accompanies amount. Otherwise the annual report equipment, launched on Milan’s stock themeals,withcoffeetofinish. comesoutandwhenpeoplereadit,they exchange;itssharesrose11percent. Onthelight-filledfactoryfloor,where say:‘Youarethieves.’” For Mr Cucinelli, such “manufactur- workers dress in neutral colours He rejects the idea he should pursue ing start-ups” are Italy’s future. “I am straight out of a Cucinelli lookbook, an aggressive policy of opening stores, super-positive on Italy. There is a every room has large windows looking the number of which now stands at 120: rebirth. The country is different from outacrosstheUmbrianhills. “You eat the earth,”he says flatly of this twoyearsago.Thereisnewair.” Monday 23 May 2016 ★ FINANCIALTIMES 3 The Business of Luxury Hong Kong confronted by changing tastes

Tourists from How the downturn is affecting tourist spending mainland China are Outbound travel from China Shopping spend per trip becoming more Millions of passengers, Total passengers to By product type, 2015 v 2016 (Rmb ) 2015 v 2016 projection the ‘Magnificent 7’ sophisticated and Jewellery and watches 2,424 91.3m CHINA demanding, writes 2015 40 2,085 Jennifer Hughes 95.4m Luxury handbags 1,912 1,866 2016 HONGN KONGKONNGG Make-up and cosmetics 1,810 ander around Hong projection MACMACAUACAUU Clothes, shoes and hats 1,645 Kong’s Harbour City on 30 1,618 anygivenweekend,and among the crowds 1,349 W thronging the shopping 20 mall, talk of a downturn might appear Most popular luxury brands purchased overdone. But it is quieter than in 2014, % of luxury fashion consumers when queues of mainland Chinese 25 formedjusttogetintoluxuryboutiques, 10 2015 2016 drivingsalesthatmadethemallrespon- 20 sible for almost a tenth of the city’s entireretailspend. 15 2015 2016 Recent retail news in Hong Kong has 0 10 been disappointing. Year-on-year sales Change: -6.9% -1.0% 46.2% 25.3% 41.7% -2.0% 13.7% were down 21 per cent in February, 5 accordingtogovernmentfigures,asChi- nese tourists sought new experiences in 0 cities such as Seoul, Tokyo and Paris. Hong Kong Macau Thailand S. Korea Japan Taiwan Singapore Dior Hermès Burberry Armani Calvin Klein After stripping out price changes, this Chanel Coach Gucci Louis Vuitton Versace was the biggest fall in Hong Kong retail FT graphic Sources: HSBC; FT Confidential Research sales since September 1998. Chow Tai Fook, the largest Chinese jewellery Fischer, head of consumer and gaming than on shopping. Year on year, shop- Changing habits among western gainsdowntoitsboldstrategyofcutting chain, said this month that it expects research at brokerage CLSA. “But go to ping fell on average 6.9 per cent, and 10 shoppers are repeated with their Chi- prices for some products by as much as profits to be down 40-50 per cent on Tokyo, Seoul, Paris or Milan and you percentamongwealthiertravellers. nese counterparts, particularly in fash- 20 per cent in the mainland and in pop- “weaker consumer sentiment in [the] haveamuchwidernumberofoptions.” Analysts put this down to well-trav- ion. Younger consumers are increas- ular overseas destinations, including GreaterChinaregion”. Japan and South Korea have become elled Chinese becoming more discern- ingly interested in niche brands they Hong Kong. This move is attributed in While Hong Kong’s swift change of particularly hot, helped by favourable ing. “The first time I went to Paris I discover online — and which may not part to making up for the weakness of fortune — as recently as 2014 Harbour exchange rates. According to CLSA’s bought a Hugo Boss suit because I could evenneedanyphysicalpresencesuchas the euro against the renminbi and also City boasted the world’s highest sales luxury price checks, goods in Tokyo 12 and it was my first trip. Now I buy cof- aflagshipstoretodrivesales. to combating the grey market, where per square foot — is unlikely to be months ago were about 20 per cent fees, I don’t buy more suits,”says Spen- Global luxury brands have had mixed goods are sold through unauthorised exactlyreplicatedelsewhere,itcontains cheaper than in Hong Kong — far from cerLeung,aconsumerindustryspecial- fortunes among Chinese consumers in retailers. Chanel increased prices in lessons for luxury watchers on how theirlong-runaverageofbeingabout20 istatUBS. thepastyear.AccordingtoFTConfiden- Europe at the same time so they would quickly China’s appetite for upscale per cent more expensive. But more Mr Leung attributes the impressive tial Research’s Annual Chinese Out- be“harmonised”,thecompanysaid. goodsandexperiencescanshift. recently, the yen’s rise against the US recentriseinoverseastripsandthesales bound Tourism report, Chanel Among the challenges of working out Analysts attribute China’s changing dollar — to which Hong Kong’s dollar is growth for favoured brands to the increased its popularity, with 26 per prices and retaining Chinese shoppers, habits to several factors, including pegged — means that Japanese prices pent-up demand within China where, cent of respondents buying the brand, The region’s one of the most remarkable features is exchange rate moves, but more impor- have again become more expensive, for years, rising personal wealth was up from 20 per cent. Other winners swift change theunmatchedpaceofchange. tantlytoevolvinghabitsandtastes. withapremiumofroughly10percent. heldbackbytravelrestrictions. includeCoach,HermèsandGucci,while Businesses catering to China’s luxury “The luxury experience is not just More important for the luxury sector “We haven’t had this situation any- DiorandArmanilostshare. of fortune appetite are catching on. Despite the about shopping. In Hong Kong, all the is the fact that last year marked a sea- where else — where so much demand Fornewerentrants,“toreachthelevel contains lack of queueing these days in Hong luxury brands are here and some of the change in habits: for the first time since was held back. For Chinese, the world of brand awareness in China of a Chanel Kong’sHarbour City,last year the mall’s fastfashionbrandstoo—butthereisnot it began its research in 2013, FT Confi- opened up much more quickly only oraLouisVuittonisgoingtotakeyears,” lessons for shift in strategy towards focusing on the much diversity at mid-price points and dential Research found Chinese tourists after 2012 when countries started fight- saysAudeBousser,founderofLBBAsia, luxury overall experience helped pull in higher there are a limited number of museums spent more on accommodation, food ing for the Chinese tourist dollar and aluxurybrandconsultancy. grossrevenuesthanintheboomyears— or cultural activities,” says Aaron and entertainment combined abroad easedvisarestrictions,”saysMrLeung. The survey puts much of Chanel’s watchers andbiggerprofits,too. Even retail therapy will not save China from its growth ailment

1.9 per cent, as it was in 2015. Christine goods abroad, so their demand has had ECONOMICOUTLOOK Lagarde, managing director of the IMF, a huge effect on the global industry. has rightly described this as a “new Now, however, the Chinese economy Martin mediocre”. has slowed towards what President Xi But the attractive feature of the Jinping has labelled “the new normal”. Wolf forecast is the expectation of at least This is an important negative factor for some growth in all significant high- the luxury industry. But China’s income economies: 2.4 per cent in the slowdown is affecting other economies. US, 1.9 per cent in the UK, 1.5 per cent One effect is the end of the boom in in the eurozone, and a modest, but still commodity prices. The performance of the luxury positive, 0.5 per cent in Japan. Key for many emerging economies industry depends on the vigour of the The performance and prospects of has been a slowdown in net capital global economy and the success of emerging economies are also mediocre, flows. This, argues the IMF, is largely people who want to buy upmarket at least by their relatively dynamic past due to “the narrowing differential in products. Aspirational consumers of standards. In 2015, these economies growth prospects between emerging luxury goods have done relatively well grew 4 per cent. This year, their growth market and advanced economies”.Yet almost everywhere. But the growth of is forecast to reach 4.1 per cent, with a even more important has been the the world economy is disappointing. rise to 4.6 per cent for 2017. China and failure to maintain the pace of The performance of the global luxury India are forecast to grow by 6.5 per structural reforms in too many sector — worth €250bn a year, cent and 7.5 per cent, respectively, in emerging countries. according to a Bain study — will 2016. But falling prices have hit The new mediocrity may be depend on how the balance between commodity exporters hard, with disappointing — but it means sustained these two elements works out. prolonged and deep recessions under growth. Unfortunately, one can also see Yet again, the International way in Brazil and Russia. significant downside risks. Some reflect Monetary Fund has downgraded its The emerging economies survived economics, such as divergent monetary economic forecasts in its latest world policies; the impact of negative interest economic outlook, released last month. The many who are outside rates on confidence; low commodity The baseline projection for this year is prices; instability in capital flows; and for 3.2 per cent growth of the world the charmed circle of the the possibility of renewed turbulence economy, measured at purchasing relatively successful have in financial markets. power parity. This is much the same as Others are political. These include last year, 0.2 percentage points lower become disillusioned instability in the Middle East; mass than was forecast as recently as migration; populism in high-income January and 0.4 percentage points the financial crisis of 2007-09 relatively countries; the possibility of Britain lower than was forecast last October. unscathed, the leading exceptions leaving the EU; and friction among This level is surely no disaster, but being in central and eastern Europe. great powers. the consistent downgrading of growth Emerging economies’ past dynamism, The growth in prosperity of the rates is a worry. especially China’s, had a dramatic world’s aspiring and achieving classes At least as important, the world effect on the global market for luxury is good for the business of luxury. But economy is confronting a swath of products. According to Bain, China’s populism is growing too, as the many political and economic risks. Most will demand grew from a mere 1 per cent of who are outside the charmed circle of come to nothing. But the cumulative the luxury market in 2000 to more the relatively successful become danger of something going badly wrong than 30 per cent in 2015. Meanwhile, disillusioned, even despairing. How looks high. the shares of Japan, America and will this end? The answer is likely to For high-income countries, the Europe all dropped. Moreover, the play a big part in the global economic forecast growth this year is a modest Chinese buy 80 per cent of their luxury story over the next decade.

Contributors Jo Ellison Martin Wolf For advertising details, contact: Fashion editor Chief economics commentator Victoria Roberts, +44 (0)20 7873 3226, [email protected], or your usual FT Jennifer Hughes Kate Youde representative. Asia capital markets editor Freelance journalist All editorial content in this report is Hannah Kuchler Josh Spero, Owen Walker produced by the FT. Our advertisers have San Francisco correspondent Commissioning editors no influence over or prior sight of the articles. Rachel Sanderson Alan Knox Milan correspondent Picture editor 4 ★ FINANCIALTIMES Monday 23 May 2016 The Business of Luxury

Barometer The fashion industry is in tumult as some brands cut the delay between the catwalk and the wardrobe, writes Jo Ellison See now,buy now: trouble now?

s the fashion industry in crisis? It certainly seems to be in a state of flux. The collapse of the Asian market, an exodus of designer talent from the big houses and the sluggish performance of I ready-to-wear has precipitated several radical announcements. The slowdown has been profound. According to Philip Gajzer, managing director of Move Now Commercial Brokers, which advises luxury brands on property, footfall has dropped by around 20 per cent in recent months, and as much as 50 per cent in certain areas. An increase in first-quarter sales at luxury conglomerate Kering came in below expectations at 2.6 per cent, while earlier this month retailer Hugo Boss said it would cut costs by €50m this year after a 4 per cent fall in sales over the same period. This began with the global economic downturn in 2008 and sharpened in the wake of the Paris and Brussels attacks, according to some fashion houses. A new system of Chinese import taxes introduced in April has contributed further to luxury’s woes. The Chinese, who account for one-third of all luxury purchases globally, are being more frugal. Meanwhile, disruption is happening within the industry itself as brands try to engage the new consumer — and lure back the old. In February, British fashion house Burberry announced it would start selling collections directly from the Catwalk to Fendi and his own brand acknowledged the capabilities some Laurent among those experimenting. Gucci has made the catwalk from September — a “see now, buy now” strategy. sidewalk: companies might have to deliver high volumes in shorter shift permanent. Commentators heralded the decision for subverting forever models at shows timeframes through direct distribution. But Mr Lagerfeld This gender blending is profound. First, it makes for an the traditional show format, where clothes are normally in New York and said the system would be disastrous for smaller designers editorial nightmare, as fashion editors work out what should delivered in store six months after their catwalk appearance, London, with still dependent on wholesale to achieve sales. He echoed the be covered, in which month, and where. For business, it and upsetting the sanctity of a twice-yearly show schedule accessories on sentiments of many when he said: “This way is chaos.” makes some sense: by showing women’s clothes on that has existed for 50 years. display in a In fact, ready-to-buy may be less disruptive than it seems. menswear catwalks, brands can use the earlier calendar “It’s doing what feels right for our audience,”Burberry Coach store in “Our model of business is already ready-to-buy in that most dates to increase their in-store shelf life. chief executive and creative director Christopher Bailey Manhattan of our sales are in the pre-collections,” Michael Burke, chief The women’s season is a source of frustration for designers JP Yim/John Phillips/Getty explained. “It wasn’t supposed to be a ground shift within the Images/Michael executive of Louis Vuitton, has said. “Only 5-10 per cent of who want to keep their product in store for longer before industry. Or even that radical. But we’re in an industry which Nagle/Bloomberg store merchandise is presented on the runway. For us, the sales begin. “Sales are the terror of our industry where a is supposed to embrace change and so this format felt like show is not about commercial product. It’s about being piece of fashion has a lifetime of four months,”says Albert part of that journey.” transgressive and remaining interesting, so that we have Kriemler of fashion house Akris, which has no plans to Others followed suit: Tom Ford will shift his show to a see something to talk about.” change its practice. “The menswear dates would be much now, buy now model in September, while Prada, Michael “Abrand like Coach isn’t waiting for the wholesale buyers ‘It’s a fallacy more reasonable to the industry in terms of delivery.” Kors, Coach and Diane von Furstenberg all offered a small and department stores to make their orders during fashion to think of Discounting remains the scourge of the industry. Gucci has number of accessories and apparel for sale immediately after week any more,”said Victor Luis, chief executive of Coach, a plan: last December the Kering-owned company their autumn/winter presentations this spring. in February. “To be able to deliver in August, which is when show week renounced the sale season, saying its products will simply Many applaud the decision to challenge the status quo. “I the stores now want their product, we have had to make as the focus hang alongside new season stock with no reduction. Likewise call it power to the brand,”explained Paolo Riva, chief major manufacturing decisions well before the show. We’ve at Saint Laurent, which claimed the creation of the executive of DVF, in February. “We can control our future ordered the materials and product that we expect will of the “permanent collection” that is never discounted has and not be dictated to by a broken system. The first prêt-à- perform well and spoken to our factories. It’s a fallacy to buying contributed to the company breaking the $1bn revenue porter was in the 1960s. Brands have fallen behind, especially think of show week as the focus of the buying calendar.” barrier last year. those with a legacy. And that’s not good.” More disruptive are the plans to merge the men’s and calendar. Ironically, for his last show in Paris in March, outgoing Others have been less enthusiastic. “It’s a mess,”said Karl women’s shows. Again, Burberry was among the first to We’re way Saint Laurent designer Hedi Slimane employed an old Lagerfeld, also in February, of the decision by some brands to announce such an approach. But the mixed catwalk was couture sensibility. It was the very opposite of ready-to-buy, re-tailor the business of fashion. The creative head of Chanel, already well established, with Gucci, Prada and Saint past that’ yet it was equally as subversive.