NEW YORK, United States — Walk into a luxury retailer this season, and it's ready-to-wear items, from Vetements sweatshirts to Alexander Wang bomber jackets, that are vying for "it" status with handbags, the high-margin, low cost-per-wear status symbols that have driven a significant proportion of luxury goods growth for the last decade. Today, personal accessories — mostly made up of handbags, which have favourable retail dynamics, including high sales densities and full-price sell-through rates — account for almost 30 percent of the total global luxury market, up from 18 percent in 2003, according to a report released by Exane BNP Paribas. But, as competition to tap this increasingly crowded market grows, the handbag sector is producing fewer and fewer “it” styles — the widely desirable, quickly iconic designs that can drive revenue for labels season after season.
Even for high-end bags, overexposure is a problem. “[It’s happening] faster, therefore the lifecycle of a bag is becoming shorter and shorter,” says Mario Ortelli, a luxury analyst at Sanford C. Bernstein. “The bags that are probably evergreen are Hermès and the 2.55 for Chanel, but it’s difficult.”
“Handbags are still a status symbol. There is just much more competition than a few years ago,” says Luca Solca, a luxury analyst at Exane BNP Paribas. As competition grows, brands must invest more in developing new handbag styles. “Innovation is the name of the game,” Solca adds. “In the market which is more competitive and more crowded, you need to work harder.”
As a result, brands are also looking beyond bags, particularly to products like shoes, jewellery and ready-to-wear. At French conglomerate Kering, for instance, leather goods (predominantly handbags, but also smaller items like wallets) still represented 53 percent of the €7.9 billion (almost $9 billion) the company’s luxury division earned in revenue for the 2015 fiscal year, followed by ready-to-wear (16 percent), shoes (12 percent) and jewellery and watches (10 percent). But building strength across categories — from blouses to coin pouches — is more important than ever. “Trying to make each category strong seems the blueprint of best in class luxury brands,” Solca says. “Think of Hermès.”
In particular, brands seeking to tap growth in other categories have been focussing on ready-to-wear. “There is an increase in attention on ready-to-wear lately,” Ortelli says. “When customers arrive to the market, initially they build a bag wardrobe. Now, they’re building up their clothing wardrobe. If I look in markets like China, ready-to-wear was very limited. Now, it’s growing fast.” Even Louis Vuitton, a brand with a balance sheet dominated by its almost 800 handbag SKUs, has emphasised the importance of selling artistic director Nicolas Ghesquière’s ready-to-wear collection. “It’s [already] bigger than most people think,” Louis Vuitton chief executive Michael Burke told BoF in 2014. “Vuitton’s ready-to-wear business is bigger than all but a handful of other ready-to-wear houses.”
But apparel still creates some of the biggest challenges for fashion brands. Clothes are difficult to fit and have high cost per use when compared to hard luxury items — like watches and jewellery — and accessories, including bags and shoes, although shoes come with their own challenges. “It’s easier to wreck a pair of shoes,” Ortelli says. And can sales of ready-to-wear really drive a business?
At Gucci, where creative director Alessandro Michele has brought a new bohemian sensibility to the company’s once-blingy image, ready-to-wear is growing more rapidly than handbags. In part, this is due to the fact that a large percentage of the company’s handbags offering has yet to reflect the aesthetic shift brought about by Michele. “Ready-to-wear is growing much faster than bags, because the vibe is different,” Ortelli says. Indeed, in December 2015, Gucci chief executive Marco Bizzarri told BoF that, in the early part of 2016, only 50 to 60 percent of leather goods on the shop floor would reflect the brand’s new sensibility. (The rest are holdovers from former creative director Frida Giannini’s tenure.)
There is clearer evidence that ready-to-wear is driving significant results at Saint Laurent, another Kering-owned brand, where former creative director Hedi Slimane, who recently exited the label, built a wardrobe of perennial items, including ready-to-wear staples like biker jackets, instead of relying on an “it” bag to drive sales. In 2015, sales revenue was €973.6 million (over $1.1 billion), up 38 percent year over year.
Valentino has also driven impressive growth with ready-to-wear. “[Saint Laurent and Valentino] are two good examples of brands that have hit the sweet spot,” Solca says. “They have been able to capture the spirit of the time — and, as a result, media and consumer attention — with their creativity.”
Valentino, which delivered about $1 billion in revenue in 2015 — up 48 percent from 2014 — is on track to IPO in 2017. Unlike most of its direct competitors, ready-to-wear makes up a third of the house’s sales. What’s more, the house does not have a classic “it” bag. Instead, creative directors Maria Grazia Chiuri and Pierpaolo Piccioli, who originally led Valentino’s accessories department before their promotion in 2008, had a hit with their “Rockstud” shoes, as well as formal gowns and novelty items including sneakers and souvenir jackets. Both Saint Laurent and Valentino were apparel-first brands, however, unlike labels such as Louis Vuitton or Loewe, which have a heritage in leather goods. At Valentino, ready-to-wear once made up 80 percent of the company’s business, according to Ortelli, who adds: “The bigger Valentino becomes, the more weight shoes and leather goods will have to carry.”
At some brands, raising prices has also contributed to the rise of clothing as a revenue driver. Vetements, the breakout label of 2015, doesn’t deal in “it” bags. Rather, brand leader Demna Gvasalia and his pack of co-conspirators have managed to create intense fervour around single pieces of ready-to-wear clothing, in particular jeans fashioned out of vintage denim priced upward of $1,400 in the US. While the labour associated with constructing such garments may be expensive, the margin is certainly higher than on a traditional pair of jeans and likely closer to the margin earned on a handbag.
“There is a greater trend to build a full brand,” says fashion consultant Julie Gilhart of the shift in thinking away from a dependence on “it” bags. “What's a best seller now may have a short life, and then what? Smart brands know to grow holistically and broad. They have to build a business through all categories.” To be sure, there have always been labels for which sales of ready-to-wear surpassed, or at least rivalled, sales of accessories, such as Rick Owens, Dries Van Noten or Acne. These are brands that are less beholden to the proverbial albatross an “it” accessory can become, à la Balenciaga’s motorcycle bag, Proenza Schouler’s PS1 or Alexander McQueen’s skull scarf. (Some brands can spend years trying to recreate these kinds of successes instead of taking a more well-rounded and balanced approach.)
Indeed, it seems being ready and willing to diversify is a condition for success in the current market. But it’s not as if brands have given up on “it” bags. As Sarah Rutson, vice president of global buying at Net-a-Porter, admits: “Each brand is always looking to find that one bag.”