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What’s Going on At Marc Jacobs?

Three and a half years since Marc Jacobs stepped down from Louis Vuitton to focus on his namesake label, the brand is facing big challenges. Where will it go from here?
A former Marc Jacobs store in the West Village | Source: BoF
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When Marc Jacobs exited Louis Vuitton three and a half years ago, Bernard Arnault, chairman and chief executive of LVMH, said the designer was leaving to focus on his namesake label, which was gearing up for an IPO within two to three years.

At the time, some observers suspected talk of a public listing was simply PR spin to smooth the way for the arrival of Nicolas Ghesquière, Vuitton’s incoming creative director. But Arnault outlined a high-level roadmap for the future of Marc Jacobs, focused mainly on growing the brand’s product range and fortifying distribution by upgrading and expanding its retail network. The company also planned to reposition and grow its lower-priced line Marc by Marc Jacobs, which, a few months before, had made two significant appointments: Katie Hillier as creative director and Luella Bartley as women's design director.

That was then.

In the intervening years, Marc Jacobs has reversed course on its Marc by Marc Jacobs strategy, folding the line into the Marc Jacobs brand, and closed several stores as part of an aggressive restructuring plan.

Now, it seems the transformation of the brand is taking much longer than anticipated and positive momentum has yet to materialise — let alone the kind of performance that would justify an IPO. Indeed, on a January earnings call, shortly after the inauguration of Donald Trump, Mr Arnault sounded a very different note, going so far as to say: “I’m more concerned about Marc Jacobs than the US president.”

By the end of March, there was only one remaining Marc Jacobs store on the stretch of Bleecker Street in New York’s West Village that was pioneered by the label and once housed four of its stores, selling everything from hardware-heavy it-bags to kitschy-cool pens shaped like lipsticks, all stamped with the brand name. The last store standing: Bookmarc, a Marc Jacobs-branded book store that sells no fashion. In recent years, the label has also shuttered stores in Paris, London and Milan.

What went wrong?

When LVMH first mentioned its plans to take Marc Jacobs public, accessible luxury juggernaut Michael Kors was still riding high off its 2011 flotation, one of the largest and most successful IPOs in the history of fashion. On their first day of trading on the New York Stock Exchange, shares in the company rocketed up 25 percent, valuing Michael Kors at $3.8 billion, or 44 times its net earnings in the previous four quarters. By the beginning of 2014, the brand’s market capitalisation was $15 billion. “If we could do something along those lines, or even half, everyone will be happy,” Arnault said during LVMH's 2014 annual results presentation.

But Kors' market capitalisation peaked at $20 billion and the retail market has since taken a turn for the worse, especially for widely distributed brands selling mid-priced product. Today, Michael Kors' market capitalisation is just over $6 billion. There’s little doubt the wider retail climate has hurt Marc Jacobs — and yet the brand is certainly facing its own set of specific challenges.

On LVMH’s latest earnings call on Monday, chief financial officer Jean-Jacques Guiony acknowledged that Marc Jacobs was “probably one of the few negative performances we have in the group.” On Tuesday, the label announced its decision to shutter its men’s business, ending a license agreement with Staff International, after the delivery of the Autumn/Winter 2017 season. But men’s was never a sizable part of the business and the move was characterised as part of a strategic decision to “focus on the core women’s business.” And, for the moment at least, LVMH seems steadfast in its commitment to Marc Jacobs.

Despite dramatic budget cuts, Marc Jacobs’ most recent women’s show — held in near-monastic silence in the cavernous Park Avenue Armory on the final day of New York Fashion Week — served to underscore the raw talent of its namesake designer. The question becomes how to effectively harness it — and where Marc Jacobs might go from here.

There are a few potential scenarios:

A. LVMH could take advantage of the fact that its overall fashion portfolio is performing well and take as much time as necessary to restructure the Marc Jacobs business, stripping it down much as the designer did his runway show. Starting from scratch means maintaining a firm belief that Jacobs' creative talent will once again lead to positive results in the long term.

B. LVMH could double down on Marc Jacobs’ beauty business, where the brand name — which continues to impart a knowing cool — still resonates. This means launching new fragrances and refreshing old ones through its partnership with Coty and also raising the profile of Marc Jacobs Beauty, the brand’s cosmetics line developed and produced by Kendo, LVMH's brand incubator. (Ramp-up efforts have already included bringing on celebrity make-up artists as brand ambassadors.)

C. Marc Jacobs' status as a world-class designer remains alluring and there is always a chance that a thirsty bidder will make an impossible-to-ignore offer to buy the brand, compelling LVMH to sell, much as it did with the troubled DKNY in 2016.

Given the time and resource that has already been put into the restructuring of the Marc Jacobs brand, the group’s mostly likely approach will be a combination of scenarios A and B. Arnault has long championed Jacobs and made him into a household name.

“The company, in my view, is making a big improvement in its product,” said Guiony this week. “In the meantime, we have to reduce the cost base. There is no plan B. There is no plan C,” he continued. “It will take the time it takes to fix this business, which we think is a very promising business [that] has proven quite complicated to develop, but we are great believers of the future of Marc Jacobs.”

Disclosure: LVMH, which owns Marc Jacobs, is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholder’s documentation guaranteeing BoF’s complete editorial independence.



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