Sunday, January 28, 2007

Luxe, calme et voluptè (part 1)

Two centuries ago, French poet Baudelaire was inviting people to mix luxe, calme et voluptè.
And so it was for many years: the ateliers of Chanel, Dior, Balmain, Valentino and others were sacred places : timeless and spaceless.
Every couturier owned his/her atelier and money was a mean to access this world yet it was not the main engine.
The rest of the world, normal people just dreamed about the masterpieces weared by charming (and affluent) ladies.

Black and white pictures of famous ladies taken by famous photographers (Marella Agnelli by Richard Avedon) were icons to be admired and works of art.

Fast forward forty years and there's a new King in town: the Stock Exchange.
Huge multibrand groups entered the fashion arena -- after winning victories over the main brands they bought -- and climbed the steps of the stock exchange.

Meet the new chariot drivers: the powerhouses of LVMH, PPR, Richemont.

LVMH owns Dior, Givenchy, Christian Lacroix, Pucci, Kenzo, Donna Karan, Louis Vuitton, Celine, Fendi, Ebel, Tag Heuer, Sephora, etc
PPR owns Gucci, Saint Laurent, Sergio Rossi, Stella McCartney, Boucheron, Roger and Gallet, Bedat, even the auction house Christie's, etc.
Richemont means Cartier, Piaget, Baume and Mercier, IWC, Jaeger Lecoultre, Vacheron Constantin, Dunhill, Lancel Montblanc, Chloè, etc.

Get the idea? Three groups make up the biggest slice of the fashion market.

What this means is that stock fluctuation now drives the fortune of designers and buyers for these brands: high revenues keep the job of the couturier safe while rising prices secure money to buy for the new affluent ladies.
The need to sustain the stock price and deliver revenues has generated a Starbucks effect, as defined by Stephane Marchand in his book Les Guerres du Luxe.

"It's what these marketing geniuses call the Starbucks effect, referring to the positive impact generated by the coffee giant to the entire coffee shops market. It's a vertical contamination that works with an halo effect: when some companies raise the perception of a market through innovation, new brands and advertising, the entire market gets the benefit."
And to complete the picture, mono brand stores open everywhere: dozens and dozens of stores in each city around the globe.
To make the wheel running the old couturier world is just not enough.
You need to get as large a slice of the market as possible and the highest margin on each product.

The adopted strategy is the strategy of the flagship product.

A special thanks to Valeria Maltoni


Valeria said...

Gianandrea translated *his* ideas on luxury goods and the application of business principles to the fashion names in a conversation we had offline and kindly tipped the hat to me in this post.

Let's a look at his thinking:

"What this means is that stock fluctuation now drives the fortune of designers and buyers for these brands." Isn't that how many businesses are run these days? Aren’t we so focused on short term market gains sometimes that the business and the long term health of a company suffer?

"And to complete the picture, mono brand stores open everywhere: dozens and dozens of stores in each city around the globe." So to keep the cache for these brands alive, the brand stewards are in fact replicating and duplicating themselves all over, which is doing exactly the opposite to promoting exclusivity. With an eye on the big picture: isn’t this going to hurt them eventually? As in my post on Tiffany & Co., aren't customers who are willing to pay a price for luxury going to forsake an oversold, thus potentially 'commoditized' brand?

Lewis Green said...

Starbucks is not focused on short-term results. All one need do is sit in on a quarterly analysts call, which I have done, to recognize that Starbucks is about long-term growth, fueled by short-term results.

That said, it is and always has been about margins for every business, including the fashion industry. Without cash flow, there is no money to create the new season's designs (or expand the Starbucks brand into new countries).

gianandrea said...

Valeria, your contribution to this post is invaluable. In my opinion the short term gains is not an added value. I strongly believe that incredibly smart strategies failed because of short legs on money and that such a reporting way is not update with the new world. You wanna an evidence: how many CEO, COO, etc are fired with huge amount of stock options? They work on stock price and not on the company value, and why? Because stock option are measured on stock value and this is not always representing the reality of a company. Let's be honest: do you believe that stock price is the real value of the companies?
How many companies with health books do you believe are at the NYSE or at the NASDAQ? How many potential Enron may be in the list?

Lewis, fashion in the 50s and 60s was not about revenue driven. Money came, but the business was not a business and the driver was to be famous and classy. No business plan, no stock exchange, no venture capitalist. In the 70s and 80s, everybody was buying everything at any price. It's when the bubble exploded in the 90s that managers came in and financial managers were hired. I tell this because I lived that time. The roaring 80s when just cause I was working in fashion, I was travelling in first class, sleeping at the Saint Moritz in the Park in New York, eating at 50 Wooster Street, twice a month from Milan: and I was not the boss. Was it wrong? It proved yes but that was how it was: nothing different from the first Internet era.

Valeria said...

You make a good point, Gianandrea -- and another observation that occurred to me in a conversation about organizations today can illustrate it further.

At some point, when a certain scale is achieved, companies stop being living systems and become just systems. As a character on Soprano's intent on killing an old friend would say: it's just business. Maybe, but is is good business?

nataliariank said...

It's not VOLUPTè but VOLUPTé:

luxe vakantiehuizen said...

very nice