VIDEO on FT.com Lionel Barber , Martin Wolf and  Vanessa Friedman interview leading figures at the FT luxury summit in    Monte Carlo FT.com/luxury-video

  SPECIAL REPORT | Monday June 15 2009

www.ft.com/business-luxury-2009 Slimming all the rage as belts tighten

Haig Simonian groups’ key feature. The grim first month of its new financial inflicting permanent damage in economic backdrop has also year, were down 19 per cent. Tif- an industry where customer investigates the come just as some companies, fany’s first-quarter sales and perceptions are vital. Manufac- problems faced by notably in leather goods and profits tumbled as expected. turing has also been protected – fashion, face anxieties about And last month, Christian Lac- as far as possible – with fashion luxury goods ethics and environmentalism. roix, one of the biggest names in and watchmaking brands espe- conglomerates in the Advocates of sustainability have French fashion, filed for protec- cially aware of the difficulties of targeted groups using rare spe- tion from creditors. replacing highly-trained seam- current market cies and skins; parfumiers have With the scope for cost-cutting stresses or watchmakers when to cater to growing interest in limited, brands have turned to the upturn comes. or years, equity analysts all things organic. “cost containment”. Hiring has How severely companies have urged Johann Rupert to Ever fickle, luxury goods have stopped, temporary labour con- reacted has depended on market Fspin off tobacco and turned near impossible to pre- tracts have been suspended and factors and on owners’ percep- turn Richemont, the dict – as the irony of Richem- pay sometimes frozen. Store net- tions of the crisis, in an indus- company he chairs and controls, ont’s restructuring demon- works, particularly in the try still dominated by individu- into a “pure play” luxury goods strates. So hard has it become to stricken US, have been pruned. als. group. In 2008, the independent- forecast the market that many Richemont is closing 62 out- Richemont’s Mr Rupert has ly-minded Mr Rupert finally top manufacturers have virtu- lets, mainly in the US, while been among the hawks, warning took heed and returned Richem- ally given up. “Visibility is non- Burberry has taken heavy of the sharpest downturn in 20 ont’s stake in British American existent” says Norbert Platt, charges on the value of its Span- years. Francesco Trapani, chief Tobacco to shareholders, leav- Richemont’s chief executive. ish stores. And everyone is look- executive of , by con- ing his group focused on Cartier The unpropitious circum- ing to protect cash flow by trast, said last month his group jewellery, Montblanc pens and stances have been reflected in reducing inventories and had registered a “clear sign of much else. grim results. Bulgari has squeezing suppliers. improvement” in April, both at Today, some of the same pun- incurred its first quarterly loss In an image-driven business, its directly-operated stores and dits are regretting the loss of in 10 years. Burberry, the UK only marketing and advertising even in the tougher third-party those high and stable BAT divi- fashion brand familiar for its have escaped relatively distribution channel. Burberry’s dends, as the world’s luxury distinctive plaid, last month unharmed, as manufacturers Angela Ahrendts reinforced that goods industry struggles with reported its first full year loss. fear tarnishing their brands. message, noting recently that its biggest challenges in dec- Richemont’s sales in April, the Reducing share of voice risks the recession was beginning to ades. Demand has tumbled vir- diminish. And Nicolas and Nick tually across the globe with no Hayek, the father and son team clear sign of recovery. Manufac- Inside this issue at Swatch Group, maintain the Italian chic is about more than turers from LVMH Möet Hen- Invisible glove second half will bring a distinct espresso, writes Vincent Boland Martin Wolf quizzes three nessy , the world’s Page 4 improvement. More objectively, biggest luxury goods group, to economists about their views Bain & Co, the management con- ’s Bulgari, find themselves on the economy Page 2 Lipstick index Is sultancy, believes the luxury saddled with stubbornly high beauty immune from goods market will shrink by 10 costs, leaving little room for LVMH recession? Elisa per cent this year, with the pain Vanessa Friedman manoeuvre. Even beauty has talks to Anniss investigates concentrated in the first half, proved vulnerable, contrary to about the prospects for Page 5 following a flat 2008. the common claim, as figures the sector Page 3 But some broader themes for L’Oréal and others show. Licensing Brands have emerged. Take geography. On top of the market prob- Italian style are reconsidering a Those brands particularly lems, the sector faces tough sec- Tod’s chief discredited business exposed to the US have ular change. Globalisation has executive, Diego model, says faced the biggest challenge, put a premium on size – but Della Valle Lucie Greene with Japan not far sheer mass risks diluting the (right), says Page 6 exclusivity that is luxury Continued on Page 3 Big squeeze: slow sales, hiring freezes and store closures have made it a tough year for the sector Lynch 2 ★ FINANCIAL TIMES MONDAY JUNE 15 2009 Business of Luxury How the world economy might recover its poise

ECONOMICS rescue the financial system have extracted a heavy fiscal Martin Wolf talks to cost, notably in the US and three economists UK. JO’N: We are optimistic about the prospects for about prospects in the “BRICs” a global recovery (Brazil, Russia, India and China). We also see scope for an inventory-based recovery in he world is in the the group of seven high-income midst of the worst countries for a few quarters. Tfinancial crisis and Yet a more sustained global biggest global recession recovery will probably need the since the 1930s. But many now world to cope with a further see reasons for hope. Is this reduction in the importance of plausible? Where will the the US consumer. In order for recovery come from? the world to avoid many years Stephen King, HSBC Group’s of subdued growth, we need chief economist, Jim O’Neil, stronger demand in the older head of global economic economies of Europe and research at Goldman Sachs, Japan. This will require bolder and Norbert Walter, chief policies, aimed at reducing economist of Deutsche Bank household savings in Germany, Group, give their answers to and corporate savings in Japan. these vital questions below. For the US and UK, export growth is likely to be the Are the “green shoots” real source of sustainable strength, or imaginary? but without stronger demand SK: In contrast to the outside their borders, this will suffocating fear of depression be slow to develop. at the end of 2008, financial In all, we appear to be markets have staged a recovery entering a period where the and aggressive de-stocking is relative share of incremental drawing to a close, which activity will be even more suggests a pick-up in industrial dominated by the BRICs than production is due. Go east: domestic demand in China is the world economy’s best hope for a recovery and where the best opportunities for luxury retail are to be found Getty in the “noughties”, especially Yet worries remain. Final by China and India. For luxury demand is depressed. The strongest positive signals of equities in portfolios is less keen on the printing press revision to our forecasts for those with a concentration in retail companies, this is where Traditional monetary policy are coming from the largest reasonable. than those of the US and UK. Chinese growth in 2009 and the financial industries will be the big opportunities remain. has run out of room and fiscal developing countries, especially JO’N: As each month of 2009 2010. We now forecast 8.3 per hit harder and for longer. NW: First, the trends of 2003 policy will do so soon. China. Within the so-called Which parts of the world passes, we find ourselves cent and 10.9 per cent, to 2007 were unsustainable. The Economic recovery depends on “advanced countries” the economy are going to recover thinking ever more that this respectively. What needs to be done to irresponsible monetary policies, “unconventional monetary shoots seem greenest in the first and which will lag crisis is almost good for China, We have also revised ensure a durable global lack of regulatory discipline measures”, which are mostly UK, perhaps surprisingly. In behind? or more specifically, for China’s upwards our forecasts for Hong recovery? over financial markets, untested. Deflation is a risk. addition to a strong recovery in SK: China is already in the role in the world economy. Kong, Taiwan and Korea and SK: While policy-makers have depletion of resources and Recovery will be a struggle. business surveys, consumer lead. While its exporters have China seems to realise that an become slightly less pessimistic helped avoid a “Great growing burden on the High levels of debt will spending appears to have held suffered heavy losses, the export-based model of growth is for Japan. We now forecast 3.2 Depression Mark 2”, their work environment cannot continue. constrain the pace of activity, up much better there than government’s domestic no longer sustainable. per cent world GDP growth in is not yet over. The crisis has Second, the huge government at least in the developed world. many pessimists expected. infrastructure policies appear 2010 after a 1 per cent decline revealed many fault-lines involvement may lead to The good news comes from NW: The green shoots are to be bearing fruit. this year. Meanwhile we see within global finance, including excessive intervention in elsewhere: Beijing’s real. This is because the Yet an infrastructure-led ‘As each month of the “old economies” of Europe the mismatch between a global markets, including the risk of policymakers have shown they precipitous drop in orders and pick-up in Chinese domestic 2009 passes, we find and Japan lagging behind. capital market and national protectionism. Regional and can kickstart Chinese domestic production after the third demand will do little to help NW: If one does not need regulation and supervision. It global co-operation should be demand, offering a silver lining quarter of 2008 corrected other Asian exporting nations. ourselves thinking ever parliamentary approval for is hard to imagine a return to the goals. President Obama to a mostly recessionary cloud. excessive stocks of almost The world’s commodity more that this crisis is anti-cyclical measures and the “status quo ante”, yet the should lead. Europe should JO’N: According to our everything. Since one can run producers – the Middle East, citizens have little right to shape of any future financial follow. The Doha round ought proprietary indicators, as well down stocks only once, a Russia and parts of Latin almost good for China’ intervene in government architecture is, at best, hazy. to be revived. This financial as much recent published continuation of the free-fall America – should, however, planning and execution of My guess is that there will be crisis and its ensuing rescue leading and coincident seen in the last quarter of 2008 benefit from China’s insatiable projects, investment spending significant diminution of packages must not threaten the indicators, the shoots are and the first quarter of 2009 demand for raw materials. In addition to the big can be faster and more cross-border capital flows. globalised system, which is so blossoming into daffodils. Our was impossible. History suggests the US will stimulus package, China has effective. So China will lead in Unconventional policies will beneficial to mankind and global leading indicator has If observers consider such an recover more quickly than embarked on a big reform of propelling domestic demand. have to be maintained for particularly the emerging shown a marked improvement inflection point to be the start Europe, although its ongoing social security. By pressuring Effective measures for many quarters. I am also not world. in the past two months after of a genuine recovery, they are housing market weakness is a its banks, as well as cutting stimulating demand for convinced we have seen the dramatic falls from October dead wrong. The stock market new experience. The biggest interest rates and reserve passenger cars in a few full effect of toxic assets. I very In sum, the three agree the through February. We are correction may be a false risk for the eurozone is the requirements, Chinese financial countries may also see these much doubt that the banks world economy is starting to confident that by the third dawn, as well. But since yields euro’s likely strength, as conditions have also industries recover in 2009. alone are threatened by the improve, but many obstacles quarter world economic growth on alternative investments are investors conclude that dramatically improved. We Countries with excesses in real problems of toxicity. stand in the way of sustained will be positive again. so low, increasing the weight Frankfurt’s central bankers are recently made a positive estate and construction and Meanwhile, the attempts to and vibrant economic growth. Luxury marketing plays by a different set of rules

scents – many still in the Guest Column started queuing to discover must have immediate world top 10 of fragrances something new. appeal to maximise the – were created through JEAN-NOEL KAPFERER But does a guide for the chance of success: P&G emotional intuition, from and VINCENT BASTIEN tastes of the future start takes no risks and uses the Yves Saint Laurent’s by interviewing prospective fragrances rated high in Opium, Thierry Mugler’s The present economic clients? Or by developing a the trends. Angel, Jean-Paul Gaultier’s crisis has forced all personal vision, realising But olfactive preferences Le Male, and, of course, companies to question it, and educating elite are short-lived, and this Coco Chanel’s N° 5. their strategies and clients who become role fragrance building model Let us now compare the practices, and this has models? Consider the cases leads to short-term success. fate of Saab and Mini. Mini never been more crucial of fragrances and cars. Fragrance licences grow (bought by BMW with than for luxury brands and The doyenne of classic sales by launching new Rover in 1994) sold 250,000 marketing. marketing, Procter & products, year after year: cars in 2008; Saab (bought What once worked as a Gamble, has a Beauty and but the older ones cannot by General Motors in 2000) means to sell products no Prestige division for its sustain sales generated by sold 93,000, and it is now longer works; it is time to licensed fragrance business the massive marketing bankrupt, despite the fact reconsider the essence of where it applies the same investment at launch. To that its latest Saab 9-3 was luxury management. rules as for its FMCG (fast seen as one the best cars As faculty at the HEC moving consumer goods) in its category. School of Management in brands. To boost the sales of Paris, it has been our job Everything begins with Saab, GM took a classic to analyse current market research aiming to marketing approach, practices, and it is our identify specific consumer asking consumers what conclusion that the most segments and their needs. they did not like about striking feature of The goal is to launch a former models. As a result, contemporary luxury product for each segment they softened the radical management is the in order to build the A consumer-centric design and used an Opel necessity to turn brand’s portfolio of approach produces engine. The resulting Saab marketing on its head: fragrances, but the 9-3 looked more like rival classical marketing is the problem is that the its own built-in products from Audi or surest way to fail in the consumer expectations are obsolescence BMW than a traditional luxury business. often very much the same Saab. Instead of the marketing across brands. Jean-Noel Kapferer (left) By contrast, BMW has status quo we have Hugo Boss and Lacoste and Vincent Bastien retained many of the proposed the “anti-laws of are two P&G licences, for Mini’s historical marketing”: 18 axioms that example, that share the characteristics despite include: raise your prices values of panache, youth, be profitable they need to consumer surveys to increase demand; class, success and energy; reduce such investment repeatedly labelling them advertising does not aim at they share a consumer but without a big as faults: too small a boot, selling; and – most base and thus the launch marketing push, product too low a car – but these importantly – do not advertisements for the two demand often falters. quirks were integral to the pander to consumers’ brands are almost Luxury brands today are unique kart design and wishes. interchangeable. the trailblazers of style experience of the At a time of managerial This consumer-centric tomorrow’s taste. 1960s that made the car consensus on the necessity approach also produces a Once a consumer popular in the first place. to focus on the client, this built-in obsolescence: its segment is identified it is Of course, luxury might seem like heresy. products do not last too late to exploit it. companies should not And, for most brands and because they are based on There is no surprise in ignore their core goods it would be. But not transient consumer needs existing demand. This is customers’ wishes entirely, for luxury. The reason for and stereotypes. The scent why all classic luxury but too much listening this can be traced to the mitigates against the birth of the luxury goods requirements to surprise business, two centuries Contributors and stand apart. ago: while the craftsman – Haig Simonian As a cultural creator, or expert artisan – would Zurich Correspondent Tom Griggs luxury brands should set go to Court and make the Commissioning Editor their own high standards. Vanessa Friedman cloth or furniture his Fashion Editor Steven Bird Listening to the aristocratic client had in Designer consumer is the best route mind, the luxury goods Martin Wolf to a lack of differentiation, business as we know it did Chief Economics Andy Mears and failure to inspire the not exist: the artisan was Commentator Picture Editor dream – the two levers of merely a supplier of desire that are the only bespoke products. Vincent Boland For advertising details, paths out of the recession It was not until that Milan Correspondent contact: in the luxury world. artisan started creating Fiona Harvey objects the clients had not Environment Correspondent Gina Walker on: Jean-Noel Kapferer and yet thought of that luxury tel: +44 (0) 20 7873 4208 Vincent Bastien are became a distinct market. Elisa Anniss, Lucie Green, fax: + 44 (0) 20 7873 3204 co-authors of ‘Luxury This inverted the Imran Amed e-mail: [email protected] Strategy – Break the Rules client-creator power FT Contributors or your usual representative of Marketing to Build structure: consumers Luxury Brands’ FINANCIAL TIMES MONDAY JUNE 15 2009 ★ 3 Business of Luxury Slimming all the How to manage rage, belts tighten

Continued from Page 1 enjoyed greater protection than those dependent on the transition behind. Europe has been third parties. “We continue mixed, while Asia, notably to see risks associated with China, has remained resil- a high exposure to the ient. Bain expects only wholesale network – chan- China and the Middle East nels must destock before a to escape this year’s con- recovery in sales can into quality traction. occur,” notes Louise Single- Robust Asian markets hurst of Morgan Stanley. INTERVIEW “It is a natural tendency the future. After all, if have tended to favour the Sheer size has become a BERNARD ARNAULT of companies during a crisis worth is long-term, consum- larger groups, such as great differentiator. “The such as the one we are in to ers are more likely to LVMH or PPR, owner of strong brands are getting Vanessa Friedman cut costs, drop prices, and invest, even if the vehicle is Gucci, with the broadest stronger and the not-so- discusses the state stop expanding, because it a handbag. international networks and strong brands are getting has the most immediate Though Mr Arnault the resources to have weaker,” says Mr Platt. of the industry with impact on numbers,” he acknowledges the current invested heavily there. “In Having a portfolio of the head of LVMH says. “But what we have global recession is a magni- the current context, we see products, such as at LVMH, learned in the many crises tude greater from the oth- emerging markets exposure Richemont or PPR, has we have been through is ers he has experienced to be the key factor limiting helped to spread risk. While ernard Arnault, that this is a mistake, espe- since he first began creat- adverse trends in more financial flexibility may be chairman of Möet cially when it comes to lux- ing the world’s biggest lux- mature markets,” notes more dependent on gearing BHennessy Louis ury. ury group in 1985, he also Luca Solca, luxury analyst than size, bigger groups can Vuitton, the largest “Last winter, when I was believes the lessons he at Sanford Bernstein. spread costs over much luxury company in the visiting one of my Vuitton learned in the early 1990s Products are the second larger turnovers, enjoy world, does not like the shops, a number of custom- and post 9/11 and SARS key factor. Firm data is greater potential for cost word “luxury”. ers actually came up to me helped position his group to scarce, but many analysts synergies, and more sway “I prefer to think of it as and thanked me for never be able to withstand the argue that, in hard times over suppliers. quality,” he says, a caveat putting any products on downturn. Ten years ago, for even the rich, cheaper With centralised treasury that may seem semantic, sale,” he continues. This for example, the company items, such as shoes or operations, the largest but is, in fact, significant: it was around the time US took a position on the need handbags, hold up better groups may also be better speaks to the permanent department stores panicked to pay down debt with an than pricier ones. “Gift giv- placed to withstand cur- change in the industry that at the prospect of a nega- eye to the long-term. ing will still go on in the rency swings. And they he sees occurring post-re- tive holiday season, and Indeed, when it comes to More than just a pretty dress: ’ autumn-winter collection for Louis Vuitton AFP sub $1,000 bracket, but not may have deeper and better cession. slashed prices up to 60 per luxury, Mr Arnault says it with watches costing qualified management “The availability of is important not to have a allow LVMH to improve its ronment for his many manage our company inter- $50,000 or more,” says Jon pools. Recent upheavals at money not just for consum- three year plan or even a green credentials, perhaps brands, including Christian nally,” he says. “I can have Cox, analyst at Kepler Capi- Italy’s Versace have spot- ers but buyers will disap- five year plan, but a genera- extending the ethical edge , , and instant access in real time tal Markets in Zurich. lighted the potential for pear for a very long time – tion plan – a generation to collaborations with other , though especially to my stores around the The breadth of a group’s internal squabbling when maybe 10 years, maybe being the amount of time brands within his group. the flagship Louis Vuitton. world. Then there’s the fact range also matters. Here, times get tough. until the next bubble,” says he believes it takes to give “At some point in the last The luxury landscape will that more young people are the evidence is not compel- Finally, the largest Mr Arnault, who believes a luxury brand the historic cycle, everyone lost their obviously look very differ- almost uniquely receiving ling – as the relative health groups may be best placed sector growth will be driven component that is neces- common sense and did ent on the other side of glo- information on the internet, of Hermès shows. But most to exploit opportunities by the real economy, and sary to confer “legitimacy”. crazy things, in luxury as bal recession, however. and the fact that we feel it analysts say companies from the tougher market. will not be much more than ‘If you don’t put Thus, despite much spec- well as in housing,” says Mr Already, Mr Arnault is a customer service to sell with products spanning That means anything from 2 per cent a year in devel- your products on ulation about his desire to Arnault, making reference believes, a number of products online. But at the price points are more pro- negotiating better product oped markets – half the rate add to his luxury portfolio to the sudden trend of pri- trends are identifiable that same time, it is the greatest tected than those, like the positioning in stores to of the past. What this sale consumers feel with a leading company vate equity buying into lux- will gain momentum as the risk to this industry going French silk and leatherware improved terms from media means for the luxury indus- they are buying such as Giorgio Armani or ury. “It was very easy to get luxury industry – and, forward.” group, that are more tightly outlets or rental contracts try is more competition, not Hermès, Mr Arnault has lots of money to invest, but indeed, all industries – The proliferation of fake focused. A broader portfolio from mall owners. from more brands, but from something that been on a relative spending that is over.” begin to see the light at the products sold on the inter- means manufacturers can Ultimately, the biggest a – permanently – more dis- hiatus since the turn of the Still, Mr Arnault says he end of the tunnel. Chief net is, Mr Arnault believes, cater to consumers trading groups may also seize any cerning consumer base: one retains its value’ century, divesting himself is already seeing – if not among these are the insist- the single biggest danger to down, and can provide mus- rare chances for acquisi- that demands legitimacy in of such loss-making brands green shoots, then brown ence on “value and values” the luxury industry post-re- cle with third-party whole- tions in a still-fragmented all its goods, from history to cent pre-Christmas; because as Christian Lacroix in and beige LV-branded on the part of the con- cession, since it undermines salers and retailers. industry. Richemont’s Mr conception to manufactur- Vuitton has a policy of 2005, and making only sprouts, especially in the sumer; the emphasis on its evolution from a sector In a market where promi- Rupert has said none of the ing, along with all the infor- never discounting products, smaller, strategic invest- US, the area Mr Arnault control on the part of brand based on “luxury”, with the nence has become more per- companies he covets is for mation and communication and has no wholesale distri- ments, such as last believes will rebound first, managers that is bestowed bling that suggests, to one tinent than ever, distribu- sale. But he – and others – that implies. bution, they were not sub- August, which, with its possibly as soon as this by own-retail as opposed to based on quality. tion has gained ground. have taken care to avoid And what that means, as ject to the sell-off. growth in Asia, was seen as winter. wholesale models – though “To me this is the thing Independent retailers, fac- mistakes of the previous far as Mr Arnault is con- “If you don’t put your strengthening the relatively Mr Arnault believes that that clearly implies yet we have to tackle next,” he ing stretched credit lines, downturn after 2001 by cerned, is placing ever more products on sale consumers small LVMH watch busi- the combination of govern- more investment; and the says. have destocked rapidly to ensuring strong balance importance on sustainabil- feel they are buying some- ness; and last month taking ment investment, reactive importance of the internet, “We have to find some preserve cash flow. Luxury sheets. That not only reas- ity, not just in ecological thing that retains its a minority share in Edun, companies, and his refusal for both good and ill. way to put morality online. goods brands, such as sures shareholders, but also terms (though that plays a value,” continues Mr the organic clothing line to change course in the face “The internet is more and After all, it is one of the Italy’s Luxottica, with a provides the financial fire- part), but in corporate strat- Arnault, and value is one of developed by Bono and his of the current market crisis more important for both fast-growing areas of tomor- high proportion of directly power to act should the egy. the catchwords he sees for wife Ali Hewson, which will will create a positive envi- communication and how we row’s economy.” operated stores, have chance arise. 4 ★ FINANCIAL TIMES MONDAY JUNE 15 2009 Business of Luxury Italian atmosphere is central to Tod’s global expansion

INTERVIEW the realms of celebrity and looking shoes, he looks says. In common with other in an increasingly homoge- been doing fairly relent- tral to Mr Della Valle’s glo- nues by then, because the DIEGO DELLA VALLE glamour, Tod’s is anchored younger than his 55 years luxury goods makers he is nised global market. Mr lessly in the past decade. bal ambitions. The two have growth potential is much as firmly as it can be to its and betrays only a hint of intent on capturing con- Della Valle says it is essen- Apart from Tod’s hand- different products and ought higher than in more tradi- Vincent Boland family roots and its tradi- jetlag despite having just sumers in those markets tial that companies such as made shoes, coats, and to have different strategies, tional markets. talks to the head of tional, hand-made, century- returned from China. He is who aspire to the same his have full control over bags, it also produces more he says. The competitors he “There is a much bigger old heritage. the grandson of the founder sense of the Italian lifestyle their image, production sys- casual shoes and clothes for admires most, he says, are appetite for luxury goods in the Its signature products – of Tod’s, and he refers on as do customers in more tems, and marketing. its Hogan and Fay brands. Louis Vuitton, Hermès and those markets than in house about quality shoes and bags – are made several occasions during The downturn is testing In 2008 the group had reve- Chanel. mature markets, and day by of leather, a raw material the course of a nearly hour- all brands. It is also chal- nues of €708m and net “Is Tod’s vision modern? I day more people are coming and globalisation that has remained almost long interview to the DNA You can see the lenging the “Made in Italy” income of €83m, and, while think, very,” he says. And into this market.” unchanged since it was first of his company, by which true vision of Tod’s segment of the Italian econ- the Della Valle family has do luxury goods companies But as for China as a It is not too difficult, in the discovered. A new advertis- he means precisely that omy, with wholesale pro- majority ownership and full and fashion companies have competing producer, Mr high-ceilinged elegance of ing campaign will take the artisanal heritage that is through Italian ducers complaining of van- control, it is quoted on the the same customers? Della Valle is sceptical Palazzo Della Valle on the company back to basics, synonymous with the Ital- families . . . who live ishing margins and profits. Milan stock market, where “Maybe 50 per cent.” about its ability to produce Corso Venezia in Milan, to with a focus on Italian fami- ian concept of luxury and, “A luxury goods company it is worth about €1.2bn. Mr Della Valle says that luxury goods. be seduced by the charms lies and their lifestyles – one might say, with the privileged but also has to have control of its The challenge is to marry the goal in the next five “It lacks the structure of of a certain kind of Italian actual Italian families, how- Italian concept of family. image,” he says. “For Tod’s, tradition with modernity in years is “to complete the small companies, the tradi- lifestyle. Here is the head- ever rich and privileged – “You can see the true serious lives the thing is to communicate a way that not all Italian globalisation” of Tod’s, for tion, the concept of excel- quarters of Tod’s Group, rather than on celebrities. vision of Tod’s through Ital- this tradition, the genera- luxury goods and fashion which he has been laying lence” that Italian luxury which has become a power- “The Italian lifestyle is in ian families,” Mr Della mature markets. “They tions of work that have producers have managed. the groundwork. “I’d like goods producers have inher- house in the marketing of our DNA, and in our group Valle says. “These are peo- have an extraordinary gone into our products. For Tod’s has done it, Mr Della Tod’s to be much bigger ited and which they must that vision to the world’s we believe in our DNA,” ple who live privileged but sense of what luxury is, and us it’s an absolute priority.” Valle says, by maintaining than it is now, without maintain as a competitive wealthy and discerning. says Diego Della Valle, the also serious lives; real peo- they aspire 100 per cent to To achieve it, one must one key vision: “We’re a diluting the brand,” he advantage, he says. “Made The atmosphere is delib- chairman and chief execu- ple, not actors or models.” the same sorts of things put quality before quantity, luxury goods company, not says. in Italy doesn’t necessarily erate: where some Italian tive of Tod’s Group. This image is especially that others do,” he says. and one must maintain the a fashion company.” He expects China and mean expensive goods,” he fashion houses have Dressed in a blue blazer important in new markets, It is an expensive busi- group’s traditions even as it This distinction between India to account for as says. “It means excellent expanded ever further into and jeans and comfortable- such as China and India, he ness preserving that DNA globalises, which it has fashion and luxury is cen- much as 25 per cent of reve- goods.” Exchange rates blamed for price differences

in the number of people goods are usually set six POWER OF PRICING travelling to London from the months or more in advance, Imran Amed continent, many of whom had creating a lag in the brands’ apparently come with one ability to make any changes examines the effect of purpose: to shop. Burberry once prices have been set. currency fluctuations attributed some of the 20 per “In particular, those brands cent spike in its third-quarter who sell through wholesale on the industry and UK sales to tourist flows from channels and multi-brand consumer behaviour China and Europe. stores have limited flexibility In response to this mass to adapt pricing later,” says Mr Last July, reporting LVMH’s consumer migration, luxury Solca. “It is at the moment first-half results, Jean-Jacques companies, including Louis when brands sell a collection at Guiony, chief financial officer Vuitton and Dior, reduced a specific price after the of LVMH, made a pointed prices in Japan by 7 to 8 per fashion shows and selling observation: group operating cent late last year, while campaigns that they effectively profit increased by only 7 per Chanel, Chloé and Versace take a currency risk.” Travelling light: a suitcase bobs around in the Pacific along with thousands of tonnes of packaging and other waste Greenpeace cent, due to the impact of the reduced their US prices by So while brands with biggest currency fluctuations similar amounts. But even after vertically-integrated retail the group had ever seen. At these adjustments, a study operations, such as Hermès and constant exchange rates conducted by Luca Solca, Louis Vuitton, can be more operating profit would actually luxury analyst at Sanford reactive and change their Build for a lifetime and it have risen 19 per cent. Bernstein, found that average prices mid-season, others must When asked for his thoughts prices for a basket of Louis also consider their wholesale in January on the outlook for Vuitton and Gucci handbags partners, especially if they 2009, he remained cautious: were 30-50 per cent higher in want to maintain consistent “It’s difficult to say how things China and Japan than Europe prices within the same will pan out in 2009 until we compared with about 15 per geography. won’t end up on the dump know better how things unfold cent a year ago. In the US, the Proposed solutions to the from a currency perspective,” same handbags were 20 per channel conflict issues include he said. “Volatility is at an cent more expensive than in developing separate collections ENVIRONMENT craft – to the garbage patch to This is, in some senses, the LeCoultre Reverso watch, with unprecedented level and or “splitting the assortment so highlight the toxic threat it ultimate in recycling and in the a face that flips over to protect making any predictions is that a big chunk is not Fiona Harvey asks poses, and the damage that our economy of the use of resources the glass while playing polo, highly risky.” comparable across channels,” what approach the throwaway habits are doing to which environmentalists which he has owned since 1999. Most luxury companies find says Ms D’Arpizio. “This would the oceans. preach. “It will last me forever,” he themselves with the majority of better enable brands to respond industry should take The boat and journey are “Durability does make these says. A problem arises, how- their costs in euros but up to to currency fluctuations as well towards waste being sponsored by IWC Schaff- products more environmentally ever, when high-end consumers 80 per cent of their revenues in as protect themselves from hausen, the high-end watch sustainable – the fact that they use their wealth not just to buy other currencies. In the past, discounting in the wholesale company. Mr de Rothscild can be used for a long time is the best, but to buy far more they have protected themselves channel, which is another he Great Pacific Gar- argues that there is something good,” says Anthony Klean- than they need. “If someone just against fluctuations through ‘Volatility is at an important pricing issue.” bage Patch is a vast in the very nature of a long- thous, senior policy adviser to buys 10 of these [luxury goods] the use of hedging but in the unprecedented level However, she says, brands Tarea of sea north-west of standing luxury brand that WWF, the green campaigning and puts them in a drawer, how current economic climate, should not be making pricing Hawaii, estimated at chimes with the values he is try- group. is that good for the environ- things change so quickly that, and making any decisions with the sole about seven times the size of ing to reinforce by his voyage, He says that making goods ment?” asks Mr Kleanthous. according to Claudia D’Arpizio, predictions is highly objective of achieving Ireland, containing billions of including that seeing consumer that not only have a value in So campaigners would prefer luxury goods expert at Bain & consistency across markets, but pieces of plastic detritus. goods as inherently disposable themselves, but also have a consumers to be conscious that Co in Milan: “While currency risky’ should move towards dynamic The floating rubbish dump is is a waste of resources. “IWC is value at re-sale, can mean that it is good to buy durable items, hedging is a useful technique, Jean Jacques Guiony pricing with in-season price the result of the winds and cur- a brand that seems to continu- products go on to have lives within their budgets, but not to we are also advising our clients Finance director, LVMH adjustments, right down to the rents of the oceans carrying ally attract a loyal, long-term with other consumers once their over-consume. They also urge to focus on pricing.” country level. away the mess from our throwa- and – most importantly – pas- luxury goods owners to donate Unlike hedging decisions, According to the Sanford way society – though most of sionate customer, who is gener- their items to second-hand own- which originate with a CFO, Europe, compared with 5 per Bernstein report, brands with the plastic packaging, bags, nap- ally very often obsessed by the ‘If someone just buys ership once they have finished pricing decisions are made at cent a year ago. the most sophisticated pricing pies, fishing nets, toys, bits of brand and everything it stands 10 of these [luxury with them, and only to recycle the brand level. Furthermore, many brands, strategies, such as Louis equipment and disposable trin- for,” he says. them if absolutely necessary. While brands have always set including Gucci and Hermès, Vuitton, are “fine-tuning prices kets of various kinds that we The idea of luxury goods is goods] and puts them Mr Kleanthous also warns different prices for different seem to have maintained by market in the euro area”. dump is left in landfills, some of that they are built beautifully in a drawer, how is that this “built-to-last” ethos markets, recent currency shifts artificially low prices in Burberry creates a global it finds its way to the sea. and built to last. This is the does not absolve luxury goods have opened up wide, markets such as the UK, pricing architecture, where Much of the rubbish bobs very antithesis of the ideas that good for the companies from needing to take unintended differentials in apparently to bolster spending individual regions can provide around coastal waters or is behind the throwaway society greater care to protect the envi- prices for the same product in by tourists and locals alike. input on final pricing based on washed up ashore, but the that have led to the creation of environment?’ ronment, he warns. “It depends different markets. This has led While these price differentials benchmarking, while always remainder can be carried long the vast mess of floating detri- also on the efficiency of the to a kind of fashion arbitrage are a return to the norm in the ensuring that overall margin distances, and the Garbage tus the Plastiki plans to chart. owners have tired of them. This products, of the waste involved and poses a new management sense that they reflect targets are met in the end. Patch is where several signifi- Luxury goods companies are is a message that resonates with in their production, in the challenge. historical industry standards, “By strategically lowering cant ocean currents and winds picking up on the fact that their the environmental values of energy required and in where In recent years, it was differential pricing is more prices in some markets, brands converge. products can offer consumers a thrift and the green mantra of the raw materials come from commonplace for British obvious than ever before. may be able to capture share The plastic, much of it broken way to consume economically – “reduce, reuse and recycle” – to and how they are used,” he shoppers to jump on aircraft to Aided by information gleaned in a rapidly changing industry into small pieces, is a danger to if not in cash terms, in environ- “reduce” consumption, reuse explains. New York to complete their from frequent international context,” Ms D’Arpizio says. marine and bird life. Fish and mental terms – by buying a “products” and “recycle” when But luxury goods companies Christmas shopping with the travel, the internet and brands’ “Alternatively, they could birds mistake the small pieces product that will last for many products have reached the end have the opportunity to present benefit of a strong pound, but own e-commerce sites, maintain higher prices for food, and cannot digest years rather than a disposable of their useful lives. their products as relevant to the late last year, after the pound consumers are starting to elsewhere, which would allow them, either choking or starving mass-produced imitation that These three values are pre- green pattern of consumption – fell more than 20 per cent question whether differences them to reinvest in their as a result. Or they get caught will end up in the dump. sented in that order because buying a smaller number of against the euro and more than are justified, particularly in brands. Unfortunately, many up in the longer strands and die. Some watch companies, such reducing consumption of higher-quality goods and serv- 25 per cent against the dollar, today’s value-conscious brands currently lack the David de Rothschild, a scion as Patek Philippe, have for some resources, and of waste, is the ices – which may become essen- it was the British who stayed environment, and especially in information systems to execute of the banking family, is an time deliberately marketed their best option, followed by reuse tial if we are to succeed in mar- at home, while eurozone and mature and expensive markets this kind of strategy in a adventurer turned eco-warrior, products as heirlooms in the which is also green, and recy- rying economic growth with the US shoppers descended upon such as Japan. scientific way.” whose latest project is to make making – they are to be passed cling is a last resort. lower consumption of natural London to snap up bargains, Yet for the brands, making a boat from plastic bottles and on through generations. Jewel- Luxury goods owners buy into resources. Which could help, in bolstered by heavy discounting strategic changes is not as easy Imran Amed is an adviser to recycled waste. He is sailing the lery companies take the same this idea. Watch enthusiast future, to cut the size of the on the shop floor. as it sounds. The problem is the fashion industry and is boat – the Plastiki, in a pun on line – a diamond is, after all, George MacDonald says his ocean’s enormous garbage In December, Eurostar this: following the age-old Editor-in-Chief of Luxury the famous Thor Heyerdahl forever. favourite possession is a Jaeger- patch. reported a 15 per cent increase fashion cycle, prices for luxury Society FINANCIAL TIMES MONDAY JUNE 15 2009 ★ 5 Business of Luxury

Time for lipstick index to pucker up

Even people in the beauty Though “the impulse Innovative business are not convinced buying of beauty in the Sex the lipstick index is a valid & The City era is over”, measurement anymore. because her business is “When you look at beauty about a small, affordable in a global way you have to item she still plans on wider be very careful,” says distribution and hopes for retail NPD’s beauty specialist her best year ever in 2009. Karen Grant. “In the US, “A new make-up look, or make-up is the largest even a lipstick, is a much prestige beauty category cheaper way of changing and accounts for 38 per your look than buying a cent of the $8.4bn prestige new outfit,” says Nicky ideas go market. In France, make-up Kinnaird, founder of the accounts for only 14 per beauty company Space NK, cent of sales, while which has 62 stores in the fragrance accounts for 64 UK and Ireland and 13 in per cent, so would a lipstick the US. Still, Ms Kinnaird on the net indicator really be what believes 2009 “will be a you’re looking for in period of consolidation, France?” She adds that in whilst still keeping our eyes ONLINE Boden will appear on its the US, make-up has been on real estate market site this summer. And from the fastest-growing beauty opportunities”. With people Beauty and fashion August, kid’s, men’s and category for the past spending more time at women’s accessories and decade, with lip-gloss in the home Ms Kinnaird has seen on the internet is apparel from Gap will fur- ascent, but lipstick sales sales of scented candles coming of age, says ther augment asos.com’s are actually declining. Any grow, rather than lipstick. Elisa Anniss 800-strong brand offering uptick in lipstick sales has Meanwhile, Bliss founder, (which ranges from High been short-lived – the last Marcia Kilgore, shifted from Street names to boutique one happened in the two luxury to value in 2006 with n times of war and fare such as McQ by Alex- months following 9/11, and the launch of beauty brand uncertainty, make-up ander McQueen, Sass and they have recurred relatively Soap & Glory. In 2008, the Iis considered a female Bide and PPQ). rarely since then. brand notched up sales of panacea: the one lux- The site’s successes have “Lipstick has been off the £18.2m with the line. “I am ury item that stays in also wooed senior retail per- dial for a long time, but I’m democratic at heart, and demand no matter what sonnel away from British totally obsessed with it,” believe that all people happens in the world out- bricks and mortar. “People says New York-based should have access to great side. want to work somewhere innovator Poppy King, who product and great design,” Hence the “Lipstick where sales are increasing,” launched Lipstick Queen in says Ms Kilgore. “I love to Index”, a term coined fol- says chief executive Nick January 2007. Although Ms make the masses happy – lowing an observation made Robertson. King is realistic about and it doesn’t cost a lot by Estée Lauder chairman “With matchesfash- lipstick’s power to defy the more to do that.” Leonard Lauder post-9/11: ion.com it surprised us how downturn, she remains as the market goes down, quickly the site grew into upbeat. Elisa Anniss lippy sales go up. And yet, an ever-expanding market,” according to a Mintel report says Tom Chapman, owner Is even the lipstick index being replaced online? Dreamstime that came out in April, lip- of the UK high-end bou- stick’s power as a pick- tique group He notes that recent years the Yoox brands and become an of Jimmy Choo they have it also brings us closer to sented as a private sale, it Bauer media, which owns me-up is not holding tru- the online store has swiftly Group’s focus has shifted online portal: their offering seen shoe sales jump 30 per our customers, when pre- not only protects the brand, British women’s magazine ethis time. Mintel’s survey, become the number one from being an upscale TK includes Prada and Tod’s as cent in the first quarter of crunch they were becoming but also gives the consumer Grazia. in the US, UK and France, womenswear outlet in the Maxx to becoming an inter- well as brands like Lanvin, 2009. As for Jimmy Choo’s remote.” the idea that they are “It’s a way of leveraging found that from a list of company. net luxury goods specialist Jasmine de Milo, and very own website, sales A recent online retail and within an inner circle.” our magazines on line,” cosmetics, lip colour was “We forecast a contrac- – the group also operates Givenchy and their cus- online have shot up 80 per travel report by Forrester In 2007 the Gilt Groupe – explains Cocosa’s managing the item women would be tion of bricks-and-mortar e-commerce sites targeting tomer reach extends to the cent year to date, according Research estimates that www.gilt.com – launched in director Andrew Robb, who most likely to spend less on, sales in 2009, with 110 per the EU, US and Japanese to chief executive Joshua about 28m consumers – that the US while UK site says that each 48-hour sale while more was being spent cent growth online,” says markets on behalf of Italian Schulman. is one in two UK consumers Cocosa – cocosa.com – sells the product of a single on shampoo and cleansers. Mr Chapman. “This growth brands including ‘[Online stores] “This crisis is doing our – shop online, outspending launched in 2008. designer and offers a care- Why? It seems the lipstick is coming from new mar- Marni.com, Emporioarm- bring us closer to industry a service,” says their European and even The Gilt Groupe is the fully edited selection of past index has been replaced by kets and consumers as well ani.com, Costumena- Guy Salter, deputy chair- their US counterparts. brainchild of Alexis May- and existing seasons. “I the online index. as existing bricks and mor- tional.com and Emiliop- our customers, man of the luxury organisa- By 2014, Forrester fore- bank and Alexandra Wilkis believe the recession will be Consider the recent tar consumers who are pur- ucci.com. In February, when pre-crunch tion Walpole. casts 37m UK online buyers Wilson, and offers 36 hour- good for Cocosa, because results of the UK’s largest chasing in increasing num- Bally.com and “For a long time no one will spend £56bn online – long sales of styles from a brands will want new chan- online fashion and beauty bers online, possibly due to Moschino.com joined its sta- they were was questioning the way of perhaps partly lured by the single designer. Distinctly nels to reach the con- retailer asos.com. Its pre- their wish not to be seen so ble, and there are plans to doing business and when newest online fashion American in flavour, the sumer.” close trading update overtly as consumers.” collaborate on an additional becoming remote’ trading was good it was dif- trend: invitation-only shop- group has previously announced sales up 104 per- Meanwhile, Yoox Group, six online stores by 2010. ficult to see opportunities. ping, pioneered by the offered brands such as ONLINE EXCLUSIVE cent to £165m for the 12 the Italian online company Likewise, Theresa, the UK, Poland, Romania as Now, if you compare the French site vente- Michael Kors, Oscar de la months to March 31, 2009. founded by Federico Mar- Munich fashion destination, well as France, Spain and costs of a store roll-out with prive.com. Renta, Valentino, Thakoon, Jonathan Birchall analyses Now international brands chetti in 2000, finished 2008 which launched Italy. As the only independ- the cost of extending what “There is a demand for Anthony Nak, Botkier and global retail trends based on are clamouring to access its with net sales of €101m, mytheresa.com in 2006, has ent purveyors of Roger you do online, the latter is designer fashion at mark- Shoshanna. data from credit card sales customer base: Mango, marking year-on-year also benefited from its rela- Vivier footwear online, as more cost-effective and one down prices,” says Mr Cocosa, by contrast, is www.ft.com/luxuryretail Hackett, Gant and Mini growth of 48 per cent. In tionships with luxury well as one of the stockists of the long-term benefits is Salter. “And when it’s pre- the brainchild of 6 ★ FINANCIAL TIMES MONDAY JUNE 15 2009 Business of Luxury Horrors of past are now just a memory

LICENSING tunity to venture into areas that you wouldn’t normally have access to, as Lucie Greene investigates the initial financial outlay, product whether the benefits development and manufacturing side is costly, lengthy and complicated,” outweigh the dangers of says Lulu Guinness, of the epony- diluting the brand mous London-based luxury accesso- ries label, which currently has licences for umbrellas, eyewear (opti- ention licensing to luxury cals and sunwear), bedlinen, Mac- brand executives and Claren baby buggies, as well as Japa- Mchances are you’ll be nese licences for gloves, small leather greeted with a shudder. goods, and handkerchiefs sold exclu- Memories of the 1970s and Pierre Car- sively in Japan. Still, Guinness points din’s ignominy are still fresh as ever. out a key difference between today’s But these are testing times, particu- licences and those of the past: larly for younger brands low on “Licensing only works when you have resources, not to mention publicly- a rigorous signing-off procedure and if traded companies, where profitability you are absolutely stringent during – recession or no recession – is neces- the design processes.” sity, not choice. There’s no question “It helps that it’s easier to manufac- licensing can help. And there’s no ture good quality inexpensively,” says question we are seeing a thaw. Mr Ekstract. “It used to be that you According to Luxury Briefing – an could really see the difference industry information service – the between the high street and designer. $192bn licensing business is set to Now the gaps are much narrower.” grow by 4.7 per cent over the next few Today designers retain creative con- years, with a significant proportion of trol, the contracts are shorter, and are this from the luxury industry. carefully managed. “Brands have Guy Salter, deputy chairman at learnt their lessons. They make sure Walpole, a luxury organisation, products meet quality standards. You admits: “Luxury licensing is having a can’t afford to lose the credibility with renewal, but it’s gradual. There has consumers or that’s it, it damages the been a renaissance as people have brand,” says Mr Ekstract. seen that it can play role as part of Thus distribution and discounting balanced portfolio. Although, every- are all now seen as a key areas for thing is relative. It’s never going to be regulation. Last April, for example, like it was in the 1970s.” the European Court of Justice ruled A quick round-up of the past year that trademark owners could legally also reveals a slew of licensing deals. oppose the resale of their goods by In December Gucci Group (owned by discount stores. The move followed PPR) divested its perfumes and cos- the case of Christian Dior Couture metics division YSL Beauté to L’Oréal against its former licensee Société (YSL, Stella McCartney, Oscar de La Industrielle Lingerie (SIL) for selling Renta, Boucheron and Ermenegildo Dior lingerie to discount retailer Zegna products). Meanwhile, chil- Copad International. dren’s wear witnessed a giant luxury- “It’s all very well to say: ‘more con- licensing boom, with virtually every trol’, but appeasing that is a different designer hopping on board, including matter. It’s very challenging to police, Ballantyne and Jean Paul Gaultier particularly if in remote territory like who joined recent converts Little Tapping the brand: the Prada phone introduces the luxury label to a younger generation AFP/Getty China,” says George Wallace, Director Marc Jacobs, Moschino, Chloé and at MHE Retail, a retail consultancy, John Galliano among others. Still, to Ilaria Alber-Glanstaetten cific regional markets. “There has sion reported its first-ever positive who also cautioned against relaxing In menswear, Roberto Cavalli signed chief executive at Provenance, the been significant licensing in chil- recurring operating profit in the licences in different territories. “The with Gibò and Marc Jacobs signed luxury arm of M&C Saatchi, these dren’s clothing area because they financial year 2008. market today is more global. You over its menswear to Renzo Rosso’s deals do not indicate a strategic shift. don’t have the capability to distribute For smaller brands with limited have to have a consistent image Staff International. Vera Wang’s Lav- “If you look closely at the history of the product themselves,” says Steven resources, licensing product catego- throughout, and quality. You don’t ender Label now has a licence for most brands, there was always a level Ekstract, Publisher of License! Maga- ries (if handled well) also remains a want the customer to see three differ- accessories with the Accessory Net- of strategic licensing,” she says, point- zine. “It’s the same with eyewear – good way to expand and build pres- ent iterations of the brand.” work Group; DKNY has licensed out ing out that while there’s undoubt- only two or three manufacturers pro- ence in the market – see Topshop’s So, says HSBC luxury analyst Anto- intimate apparel to Maidenform edly been growth in the area, most duce all the eyewear for designer ‘It’s all very well to say: licences with young British and ine Belge, while “smaller brands may Brands Inc for spring 2009; Marc current licensing deals are occurring brands. But they do a good job; pro- ‘more control’ but American designers, and the agree- turn to licensing, large established Jacobs has licensed swimwear to Any- in specialist or peripheral categories duce good designs, so the relationship ments between young British design- brands won’t. Louis Vuitton has no wear Swimwear; and Jil Sander has such as swimwear or accessories, and works well.” appeasing that is a ers including Giles Deacon, Danielle licences, and I can’t see that changing licensed inner wear and swimwear. usually involve smaller or independ- Within beauty and fragrances par- different matter. It’s very Scutt, Peter Pilotto, Todd Lynn, and – whatever the climate. It’s more Finally, Prada signed a license for ent labels, rather than key power- ticularly, licensing can also be Preen and London-based eyewear likely that larger brands will consider electronics, Armani and Versace for house brands. extremely profitable. Following its challenging to police’ manufacturer Linda Farrow. dropping a category if they are under hotels, and Marc Jacobs for condoms. Often, they are also kept within spe- licence deal Gucci Group’s YSL divi- “Licensing gives you a great oppor- pressure, rather than licensing it out.”