La Source by Anne Deniau | Source: NY Times

What Christian Lacroix Did Next (NY Times)
“‘This is my couture,’ says Christian Lacroix, before his latest creations took to the stage in “La Source,” a magical realist ballet created in the 19th century and rarely seen since then. These fantastical costumes, mixing folkloric outfits with diaphanous pastel dresses, scattered with sparkling crystal, are for just one among a series of theatrical events across Europe that Mr. Lacroix has worked on since his couture house was shuttered in 2009.”

Hugo Boss confirms 2011 outlook after Q3 results (Reuters)
“German fashion house Hugo Boss  confirmed its outlook for 2011 as it reported forecast-beating third-quarter results… Adding to signs the premium and luxury sector has not yet been hit by the global economic slowdown… Hugo Boss, known predominantly for its sharp suits, is aiming to grow sales by between 15 and 17 percent on a currency neutral basis and core operating profit by between 25 and 30 percent for 2011 as a whole.”

Has campaigning for an ethical fashion industry had any impact? (Guardian)
“Campaigners have been battling for an ethical fashion industry ever since the first sweatshop scandals broke back in the 1990s… Progress might be slow, but it’s not all doom and gloom. Take the example of the campaign led by the Responsible Sourcing Network to stop forced child labour in Uzbekistan’s cotton industry. Over 60 global clothing companies, including Adidas and H&M, have now committed to ban Uzbek cotton from their supply chains.”

Photo Sharing App For Fashion Pose Raises $3 Million (TechCrunch)
“Pose, a mobile platform for real-time discovery and sharing of fashion, shopping and style, has raised $3 million in Series A funding from GRP Partners, True Ventures and Mousse Partners… Pose wants to help you share what you’re buying (or thinking of buying) with your friends. When you’re in a store and you come across and item of clothing you may want to buy, Pose invites you to take a snapshot. You can then tag it with your current location and the item’s price, and share it with friends.”

Meet Katie Hillier, the fashion world’s best-kept secret (Evening Standard)
“Once the head accessories designer at Marc by Marc Jacobs, where she created some of the most coveted bags of the decade – she continues to work there as a creative consultant – Hillier is now the expertise behind Victoria Beckham’s phenomenally successful bag line, and a consultant for Henry Holland’s House of Holland label and for designer Stuart Vevers, with whom she recently collaborated to re-imagine Loewe’s iconic Amazona tote bag.”

Daisy Lowe on the cover of the March 2011 ASOS Magazine | Source: ASOS

Online retailers discover the joy of journalism (FT)
“‘Mail-out magazines are a great way to create a shop floor for online retailers when they don’t have a physical space… Journalists have a different skill set. They know how to engage the readers, and engage communities of readers.’”

Egypt crisis has effects on luxury market (CPP Luxury)
“The current ongoing turmoil in Egypt has brought a complete hault to the country’s feeble luxury market. Stores such as Burberry, Ferragamo… have remained closed since the debut of the crisis.”

What Harrods and Torres can do for Britain (FT)
“We do not have to stand helpless before people’s fear of foreigners. They can be persuaded. British businesses and universities have begun to make the case for a confident, forward-looking approach to the outside world. It is time the government did so too.”

Fairytales and furniture for Christian Lacroix (Telegraph)
“Firstly, he has collaborated with the young, British author, Camilla Morton… by illustrating a fashion fantasy/fairytale… Equally romantic and fantastical will be Lacroix’s new furniture collection, which will be launched at the Milan Furniture Fair in April.”

A Brand Where Storytelling Is Part of the Design (NY Times)
“Urban Inc… has quietly segued into a higher-end market with Leifsdottir, a Scandinavian-inspired brand sold at Bergdorf Goodman, Neiman Marcus and Bloomingdale’s that is achieving a kind of stealth success with trendsetters and shoppers alike.”

Burberry Mens A/W Show 2011 in Milan | Source: Oki-ni CultureShoq

Today, BoF exclusively brings you Savigny Partners’ blow-by-blow analysis of the rapidly shifting luxury fashion business model which is undergoing transformation due to underlying shifts in consumer values, technology and globalisation

LONDON, United Kingdom — Luxury fashion is a very exciting business which can generate substantial returns if you get the formula right. Not only is there the ability to charge up to ten times the cost of manufacturing a garment and the potential to build a global business; apparel can be the beginning of a page-turning blockbuster, accessories and leather goods are the next chapter, fragrances and eyewear licenses the well-oiled plot. The story can have a happy ending with the promise of many sequels to come.

Success stories in this field are mouth-watering: Burberry’s share price climbed from 175p in November 2008 to 1,116p at the beginning of this year as the brand went from strength to strength and reportedly attracted the attention of a number of acquirers. Lanvin has embarked on a stellar growth trajectory with plenty of potential yet to come. However, not all blockbusters have a happy ending. The latest crisis has claimed a number of victims: Christian Lacroix, Gianfranco Ferré, Yohji Yamamoto, Luella Bartley to name a few.

In this article we will examine how the traditional designer business model has come under threat and what key factors we believe are necessary to ensure the success of a luxury fashion label today. Finally we will take a look at what lies ahead for the luxury fashion sector.

Is the designer brand becoming redundant?

The traditional designer brand business model is not for the faint-hearted. Typically, a design-rich but loss-making main line is invested in with the aim of capitalising on its cachet through a cash-generative diffusion line and, eventually through lucrative licensing deals. This model not only takes years to generate returns, but the ride is also a bumpy one with no guarantee of success. Christian Lacroix is a prime example of a label which, despite heavy investment in its main line/couture business, never saw the more commercial side of its activities take off sufficiently.

Life has also been made more difficult for designer brands, initially by the proliferation of fast fashion brands with a credible fashion offering. Zara, Mango and H&M have been extremely successful at attracting the fashion conscious consumer by interpreting catwalk trends with a time to market that would make Philip Green’s head spin. H&M took this one step further by pioneering designer collaborations, which created veritable stampedes in its stores and brought new customers to the brand. Top Shop has also been a trailblazer in this category: the brand showcases its Unique collection at London Fashion Week, its collaboration with Kate Moss has given it an edge and its recent opening of a flagship opposite Harrods demonstrates that it is looking beyond its traditional high street pasture.

And finally, traditional designer labels have been challenged by — and sometimes losing ground to, contemporary brands which offer a more accessibly-priced, less fussy fashion product. In this category both a Phillip Lim, who designs his eponymous line to a price point whilst still being able to fully express himself, and a Tory Burch, with a very-well merchandised line sourced mainly out of China, have found their audience in a relatively short time and have created thriving, financially successful businesses.

It is telling that Narciso Rodriguez and Hussein Chalayan both saw their brand being returned to them by their investors, and that such a star designer as Hedi Slimane is still without a major job in the industry. What lies ahead for top designers?

Managing seasonality

Designer labels have taken major steps to reduce seasonality risk by complementing their Spring/Summer and Autumn/Winter collections with pre-collections, cruise and pre-Fall collections, thus increasing the number of collections from two to up to six per year. These inter-seasonal collections tend to contain more commercial pieces than the main collections, often have more accessible price points and now account for the bulk of sales of a fashion brand. This is also music to retailers’ ears whose aim it is to get fresh stock into stores, so as to give customers a reason to come back, and shift the stock as quickly as possible. Some luxury brands have taken a leaf out of the book of leading fast fashion players such as Inditex, introducing flash collections in their stores.

Harnessing creative talent – the increasing importance of the merchandiser

The well-publicised demise of the Gianfranco Ferré fashion house exemplifies the need for a strong merchandising function: during the early noughties development costs for its main line collection escalated to 5m euros per season, and the number of pieces produced for market stretched as far as the eye could see. The first actions of the newly-appointed CEO upon taking over the troubled company was to control collection development costs by significantly reducing the number of SKUs, the number of styles produced and of prints ordered, and to make sure that each style was able to generate profits on relatively small sales volumes.

There the model was clearly in need of an urgent fix, but on an ongoing basis the role of the merchandising team, working with the design and product teams on one hand and the marketing and sales teams on the other, harnessing the creative talent and editing down the creative output to what will work or generally help the band, is absolutely critical. This helps to ensure that the market reception of the collection will be as good as possible, but is also true — and increasingly importantly so — in a world where the number of deliveries has increased and where efficient re-ordering and replenishment is where the real money is made.

Create a bestseller but know when to let go

Whilst every management team in the industry dreams about creating that iconic product or series of products which will become a cash cow, over-dependency can prove a curse if you push this too far and the market turns on you. This famously happened to French Connection, which rode the FCUK bike from 2001 until the wheels came off, resulting in the company dipping into loss for the first time in fourteen years in the first half of 2007 (the group is now rapidly recovering under the watchful eye of its Chairman & CEO, Stephen Marks).

One interesting path is that of Burberry, which initially had to rely too much on the dual deities of trench and check but made a considerable effort to diversify its product portfolio so as to avoid being branded as a one-horse pony, and on top of that successfully fended off the chav issue (to be reviewed in detail in a forthcoming issue of our newsletter).

Invest in retail but focus on the detail!

The last crisis claimed a lot of casualties as a result of over-dependence on the wholesale channel. Pain was felt in two areas: small boutiques not paying up on their orders, or proving to be too much of a credit risk going forward, and department stores panicking and batting down the hatches. Many fashion wholesale businesses were thus caught with their pants down and had nowhere to shift their rapidly devaluing stock. At the other end, whilst the experience for retail-led fashion brands was not by any means pleasant, the effects of the crisis were less hard felt. In this respect wholesale activities played for the fashion industry the same role as leverage did relative to the financial world: it can significantly enhance returns and offers easy growth, but when the market turns, the ground is taken away from under your feet.

Beyond this point, retail presence offers a number of advantages. First and foremost the ability to capture the retail margin – a fully-integrated fashion retail business can generate gross margins up to 80 percent (and sometimes more!), as compared with a wholesale business margin of 40 to 50 percent. Retail presence also allows for more control of the brand image and presentation. This is particularly important as a brand evolves as it can often get stuck in a time warp, with retail buyers ordering variations on what sold well in the last season instead of following with new products/designs, often seen as more risky.

Whilst location is key, store size is also vital to driving store economics. The late 1990’s saw the proliferation of mega-stores as shrines to brands. Many of these were loss-making: those of you who spend time in London will remember the monolithic Jil Sander store on Burlington Gardens, intimidating by its emptiness. When Change Capital Partners took over the company, its losses were well into double-digit millions. One of the first steps the new owners took was to close a few of its most unprofitable stores – the infamous London flagship for instance was relocated to a smaller premise on Bond Street. Losses were drastically reduced, and within a year the company was profitable.

White elephants such as this previous Jil Sander store never made good retail propositions, but you could understand why some management teams were keen on them: retail really helps drive wholesale. Department store managers will never own up to it, and we are sure Barneys and Bergdorf top brass were horrified when Lanvin announced the opening of its Madison Avenue store in the summer last year, but over time (and more quickly than people think), whatever turnover is temporarily lost for the neighbouring department stores will be made up and more, as the brand benefits from increased awareness, more prestige and a stronger, more complete image as a result of its own retail presentation.

So, own retail is most definitely good — as long as you can properly evaluate its cost/reward assumptions and avoid the white elephant trap.

A dynamic supply chain can drive profitable growth

Fashion is a uniquely complex business. The supplier base is increasingly global and increasingly specialised: there is therefore no guarantee a brand will be sourcing its product from the same country, let alone the same supplier, season after season. Distribution can be equally complex, the challenge of a global distribution network being compounded by an often fragmented customer base. The fashion business model is also very sensitive to production volumes; thus the supply chain has to be continually revisited during the growth phase of a brand.

One of the cornerstones of Burberry’s success has been the investment in its supply chain. Project Atlas, an overhaul of the company’s supply chain and IT systems, was launched in 2006, culminating in the roll-out of global SAP systems in 2010. This has given it a much improved granular understanding of every phase from design to the consumer, allowing the company to react rapidly to sales trends and capitalise on bestsellers. Burberry completely re-engineered its supply chain, cutting the number of distribution centres, freight carriers and suppliers and, through improved production planning, significantly reduced the use of air freight in favour of cheaper sea freight. These measures were estimated to deliver approximately £25m in annual savings, or 14 percent of operating profit. As a result of these measures the company can now also give fast fashion a run for its money through dramatically shortened times to market.

A future dominated by men and computers?

Besides the well-documented potential in China and other emerging markets, two areas of growth merit our attention: menswear and the internet.

Despite continuing success stories such as Lanvin’s, womenswear is pretty much a saturated segment in developed markets and therefore very competitive. On the other hand the men’s market accounts for a relatively much bigger slice of the luxury pie in emerging markets. Men are notoriously difficult to attract to a brand, but as a result also tend to be very brand loyal. There are also less cultural/sartorial differences across borders in menswear than there are in womenswear. All of these characteristics make this segment worth the chase, even if traditional menswear players have to alter their offering to give more room to sportswear and casual styles, away from suiting (suits are simply worn less in emerging markets). The potential of the internet has yet to be fully harnessed by luxury fashion players.

Richemont’s recent investment in Net-a-Porter (and the valuation the investment commanded) confirms the perceived potential of this medium. Burberry is ahead of the curve in this category — its Facebook page has the largest following of any luxury brand, its social media website www.artofthetrench.com is streets ahead of competition and it was the first brand to sell runway items from its Autumn/Winter 2010 show direct from the webcast to consumers. The potential for volume and margin in this area is huge — the only cloud on the horizon being the high level of returns (around 40 percent) creating a working capital headache.

Let fashion do what fashion does best….re-invent itself

The designer brand model in its purest sense has probably had its heyday. However, just as we thought we’d never see shoulder pads again when Joan Collins’ flamboyant character Alexis Colby left our screens, with a few alterations here and there they are back with vengeance. We should expect no less from the designer fashion business.

Pierre Mallevays is Founder and Managing Partner and William Plane is Director of Savigny Partners, a boutique advisory firm focusing on specialty retail and aspirational brands

Rick Owens Autumn 2011 Runway | Source: GQ.com

Paris Men’s: Fashion Hams and the Home Front (NY Times)
“Despite some of Mr. Helbers’s knowing design details, especially in the mix of textures, the dark clothes were plain enough to make you seem invisible, one more dude in the lonely crowd. But if you can afford Louis Vuitton, would you want that distinction?”

An Exclusive Sit-Down with Alexandre Plokhov (MANual)
“Like pretty much everyone else who follows menswear, we’ve been anticipating this week’s launch of Alexandre Plokhov’s namesake collection in Paris—which is why we were thrilled when the…designer invited us to his Flatiron District studio.”

Christian Lacroix Designing for Desigual (The Cut)
“The line has to be called Monseiur Lacroix since he can’t use his name on his designs anymore, and the first collection for fall 2011, presented this week at Barcelona Fashion Week, includes 30 pieces.”

Mulberry shrugs off retail gloom to ride the luxury boom (Telegraph)
“Mulberry’s strong performance is in marked contrast with most high street fashion retailers, who in general had a difficult Christmas trading period due to the snow and consumers’ concerns about the economy.”

The blurring lines of fashion (Telegraph)
“Everyone in fashion is turning their hand to another discipline as stylists become designers, bloggers go mainstream and editors become creative consultants… the way fashion exists now, that means anyone in the industry can turn their hand to a new role.”

Chaumet Attrape-moi...si tu m'aimes ring | Source: Chaumet

Jewelry With Stories to Tell (IHT)
“You don’t need 3-D glasses for the sculpted shapes to stand out and the colors to pop. But the high jewelry that had an open day during last week’s haute couture season is finely tuned to the latest fashion.”

Christian Lacroix’s New Creative Director is Up for the Challenge (Fashionista)
“Besides Sarah Burton at Alexander McQueen, there is no designer in the world with a more enviable/terrifying job than Sacha Walckhoff, the new creative director at Christian Lacroix.”

Armani Sales, Profit Fall Amid Downturn (WSJ)
“Italian fashion house Giorgio Armani said Monday its sales and profit dropped last year amid a consumer-spending slump brought on by the economic crisis… sales fell 6% to €1.52 billion ($1.92 billion) from €1.62 billion a year earlier.”

Prada says Chinese tycoon’s share-buying talk is unfounded (Chanelnewsasia)
“A Chinese tycoon has been quietly buying up shares in Italian fashion house Prada SpA in a bid to become the biggest shareholder, his company said on Monday, but Prada in Italy denied this as being completely unfounded.”

London Fashion Week prepares to welcome its second famous Rocha (Independent)
“With London Fashion Week just two months away, the hunt is on for the next British-based design star… the daughter of the designer John Rocha, among the young names hoping to catch the eye of international fashion press and buyers.”

Louis Vuitton Spring/Summer 2010 | Source: Louis Vuitton

Filching a Good Name for Internet Use? (IHT)
“A search for ‘Louis Vuitton’ on Google’s British Web site turns up an advertisement for ‘Designer Handbags 70% off’ — to the fury of LVMH, the French luxury goods conglomerate that owns the brand.”

Luxury earnings forecasts to rise (Reuters)
“Burberry, Richemont and Swatch Group touched a one-year peak on Thursday, but expectations about the sector’s recovery are still too low.”

Tiffany set to regain some sparkle (FT)
“Tiffany , the jeweller, was one of the first luxury retailers to signal that its US customers were beginning to emerge from recession shock, reporting a 12 percent increase in its US same-store sales.”

The Fall of the House of Lacroix (Newsweek)
“He never found his management match, a strategic alter ego—the Giancarlo Giammetti to his Valentino, the Robert Duffy to his Marc Jacobs…  He never had the CEO to transform the ideas into gold.”

Christian Louboutin: How killer heels conquered fashion (Guardian)
“He turned shoes into fetish objects, brought back the stiletto and counts Lady Gaga, Madonna and Oprah Winfrey as fans. But does he really think Barbie has fat ankles?”

Adidas Y3 Spring/Summer 2010 | Source: Adidas

Adidas Net Profit Drops 65 percent (WSJ)
“Adidas reported a sharper-than-expected 65% fall in quarterly net profit Wednesday, but said it expects a rise in 2010 sales and earnings.”

H&M plans two-for-one stock split (Reuters)
“The world’s third largest fashion chain by sales said on Wednesday its board would propose the split at its annual shareholders’ meeting on April 29 and it would take effect between May 20 and June 18.”

Tesco launches recycled clothing collection (Guardian)
“The news that Tesco have collaborated with an ethical fashion label to create a line of recycled clothing for the Florence & Fred label may raise a few eyebrows.”

Christian Lacroix eyeing comeback (Independent)
“Lacroix’s ready-to-wear and haute couture might be things of the past… but the label will be branching out into stationery, sunglasses, and home decoration.”

Fashion is still a feminist issue (Times)
“Did Miuccia Prada really say after last week’s show in Milan that she was a former feminist? I lent in closer.  Yes, that’s what she’d said all right. ‘Feminism?’ she sighed, ‘it doesn’t really exist anymore does it?”

Christian Lacroix by Annie Leibovitz, Vogue December 2003 | Source: Vogue

End of a fairytale: Christian Lacroix fashion house to strip down (Guardian)
“Christian Lacroix, the celebrated French designer whose fantastical creations and luxurious image captured the decadence of its age, was told today that the fashion house he founded over two decades ago is to cease making haute couture.”

J.C. Penney Is Betting Big By Adding A European Flair (WSJ)
“J.C. Penney Co.may be making its biggest fashion statement yet with the addition of a European fashion store within its own stores. J.C. Penney will begin selling merchandise by Barcelona-based retailer Mango in separate departments, or “mini stores,” within its own stores as a way of highlighting the trendy European merchandise for women.”

Fashion Entrepreneurs Capitalizing on High-End Rentals (Inc.)
“Companies that offer designer duds for rent are the saving grace of fashion-forward women who can’t afford such upmarket tastes in the recession… Membership-only designer rental companies that offer costly, elegant attire for just a fraction of the retail price have been experiencing a boom in the down economy.”

Fashion retailer Yoox prices IPO at 4.3 euros/share (Reuters)
“Italian online fashion retailer Yoox priced an initial public offering at 4.3 euros per share, towards the upper end of the indicated range, it said on Tuesday. Yoox will become the first company to float on Milan’s main MTA market after a 20-month hiatus caused by market turbulence. It will debut on Dec. 3.”

Stella McCartney to team up with Morrissey for vegan shoe range (Independent)
“Fashion designer and animal rights activist Stella McCartney has found the perfect collaborator for a leather-free shoe collection: cult singer and fellow vegetarian Morrissey. ‘I’m working with Morrissey on a line of leather-free shoes which I’m really excited about.’”

Christian Lacroix Autumn/Winter 08/09 | Source: Christian Lacroix

No firm buyer seen for Christian Lacroix fashion house (AFP)
“The outlook for beleaguered French couture house Christian Lacroix looked bleak at the weekend after potential buyers let a deadline pass to deposit cheques ahead of Tuesday’s bankruptcy court hearing.”

Upscale Retailers May Get Lift from High-Income Shoppers (USA Today)
“The holiday shopping season may just prove a little merrier than expected. Investors are betting that upscale shoppers will open their wallets this Christmas season after pinching pennies a year ago.”

Armani, Cavalli Target Online Shoppers to Boost Holiday Sales (Bloomberg)
“Italian fashion houses including Giorgio Armani SpA and Valentino Fashion Group SpA, which have traditionally spurned the Internet, are testing Web stores this holiday season in a quest for new sources of revenue.”

Mariella Burani sees agreement with banks on debt (Reuters)
“Italy’s Mariella Burani Fashion Group expects to reach a broad agreement with banks on its debt by the middle of next month with a formal deal seen by the end of the year, Chief Executive Gabriele Fontanesi said.”

Chinese big spenders have London’s luxury goods in their sights (Times)
“Four years after Britain was granted ‘approved destinations status’ by the Chinese Government, its newly affluent elite has already eclipsed the Americans and is challenging Middle Eastern and Russian tourists for the title of London’s most eager consumers.”

Christian Lacroix at Paris Haute Couture, July 2009 | Source: NY Daily News

One long-time designer is conspicuously absent from the Paris Fashion Week schedule for Spring/Summer 2010. Indeed, Christian Lacroix’s Haute Couture show in July (pictured above) was billed as possibly his last fashion show ever. But, while rumours continue to swirl of would-be white knight investors to save Lacroix — the latest is Hassan bin Ali al-Nuaimi, a nephew of the ruler of Ajman — BoF investigates the wider implications for protecting a ‘Culture of Luxury.’

PARIS, France — News this week about a potential rescue of Christian Lacroix brought to light the remarks France’s culture minister Frédéric Mitterrand made this summer, saying the loss of the couture house would be a “cultural disaster.” He added that he was willing to help find a solution for Christian Lacroix.

This may no longer be necessary. Still, it raises some interesting questions about the cultural role of luxury. European governments are, in principle, prohibited from supporting certain industries or sectors to the disadvantage of others. This follows from EU competition rules on state aid. However, the importance of promoting culture is recognised as an exemption.

High-end luxury items (be it clothes, leather goods, or jewellery) arguably form part of our cultural heritage. At the same time, they carry our heritage forward by reflecting today’s societal values. Just think about the line from Marie Antoinette to Vivienne Westwood. Luxury is also a source of ensuring European traditions in craftsmanship and artisanship are kept alive.

Indeed, the luxury industry is seen to seriously take on this role as a bearer of culture. There are numerous notable initiatives linked to the culture of luxury: Armani at the Guggenheim, Italian cinema at Le Bon Marché, “Silent Writings” at Espace Culturel Louis Vuitton, the Prada Transformer, the Chanel Contemporary Art Container, the Festival International de Mode et de Photographie à Hyères, just to name a few.

Luxury is by definition exclusive, with items accessible to a limited group. However, because of the inherent cultural aspect of these items, a slice of luxury is available also to a broader clientele through the type of initiatives mentioned above. They allow people to appreciate luxury as cultural objects displayed at museums, galleries, events, or in shop windows.

So with Frédéric Mitterrand’s remarks, might we be seeing an emerging readiness of European governments to recognise, and promote, the cultural values of high-end luxury products?

There does seem to be one interesting analogue. Governments have long supported audiovisual works, on the premise that they are both economic products, offering important opportunities for the creation of wealth and employment, and cultural products, which mirror and shape our societies.

The same could also be said of luxury products, which form an increasingly visible and rich thread of our cultural fabric.

Hanne Melin is a competition and IP lawyer based in Brussels.