Yves Saint Laurent: Another Road to French Luxury

31 05 2009

Yves Saint Laurent

Yves Saint Laurent: A History

In a similar route of Dior, Saint Laurent made his debut on the fashion scene with French textile tycoon, Boussac. The termination of their business relationship serves as the origination point for the YSL brand story, which I’ll outline for the sake of “brevity”. It’s amazing how fun business can be!

1936 YSL is born in French Algerian port of Oran

1955 YSL joins the creative staff at Dior

1958 After Dior’s death, YSL makes his debut collection (trapeze line) as new Creative Director of the Dior Maison, age 21

1960 YSL launches the beat style at Dior, and Boussac quickly replaces him with Marc Bohan (Sounds a little like the Marc Jacobs grunge line at Perry Ellis, no?)

ysl mondrian 1962 YSL launches his own line with life and business partner, Pierre Bergé, backed by American financier, J. Mack Robinson

1963 Robinson sells his shares, and American fragrance brand Charles of the Ritz obtains 80% share of the couture house against 20% held by YSL and Bergé

1965 Infamous Mondrian collection debuts

1966 Relatively affordable pret-á-porter line, Saint Laurent Rive Gauche, is launched

1967-8 Makes headlines with launch of ethnic, safari and nude looksNYTimes/Getty image of YSL 1969

1972 Pharmaceuticals giant E.R. Squibb takes over Charles of the Ritz, along with control of YSL perfume and cosmetics, allowing YSL and Bergé purchase full control of group’s couture activities

Full ownership of couture activities gave YSL and Bergé the right to expand the business beyond couture, using the brand’s name through licensing agreements.

“Haute couture will stay for perhaps another five or ten years. I’m only keeping the salon going because I cannot ethically justify putting 150 people out of work.” ~Yves Saint Laurent, 1971

ysl opium1977-8 Launch of Opium perfume and creation of YSL Beauté

1986 YSL and Bergé buy Charles of the Ritz back from E.R. Squibb, acquiring full rights to the YSL fragrances and cosmetics, expanding their business 10 times over; many financial partners were required for this purchase, among them Carlo de Benedetti, who came to own the largest share of the company after YSL and Bergé themselves.

1989 To meet burgeoning debts, YSL is forced onto the secondary stock market in Paris

1991 De Benedetti demands to be released from his investment amidst the global recession of the early 90s; Bergé and YSL, unable to find new investors, drive themselves further into debt buying him out of his share

ysl & pierre berge1992 Another major investor, Wasserstein-Perella Bank, indicates that it must sell it’s 15% investment in the YSL Groupe; Bergé demands that their replacement investor be European (to avoid having a multinational company)

L’Oreal makes an offer for 100%, but Bergé does not want the company to be run by consumer goods giant, Nestle (L’Oreal will acquire YSL Beauté). LVMH also expresses interest, but backs out after Bergé requests that he and YSL maintain creative control over the YSL brand and its primary competitor, Dior (remember, LVMH structures its brands to avoid collaboration, brand dilution, and in this case, sabotage).

YSL and Bergé, unable to come to an agreement for an investor, begin selling off their personal shares, and are subsequently investigated for insider trading. (Check out the 1992 film documentary by Hamish Bowles on YSL here.)

1993 The groupe is sold at 100% to French national company, Sanofi, for a reported $650 million. YSL maintains position as creative director of his couture line

1997 After years of losses on the YSL brand, Sanofi shops around for a new buyer for YSL

pinault1999 After serving as white knight in rescuing Gucci from a hostile takeover from LVMH, Francois Pinault (head of PPR and majority stakeholder of the Gucci Group at 53.2%) acquires the YSL brand

The Couture Division (including pret-á-porter and fragrances) is sold to Gucci Group, where Tom Ford is named Creative Director of YSL Rive Gauche in addition to his role as Creative Director for Gucci.

The Haute Couture Division stays under direct control of Pinault through his holding Artemis, and remains under the creative direction of YSL.

“The DNA of Yves Saint Laurent is completely different from the DNA of the Gucci brands. These dreams are kept alive by our creative directors and our designers.” ~Robert Polet, Gucci Group CEO

2000 Gucci Group immediately applies its direct-control mantra for production and distribution on the YSL brand, terminating more than 150 licensing agreements and creating a network of +62 directly-operated stores in order to create brand image and service consistency, but this attempt drives YSL further into the red

YSL's final bow (AFP)2002 YSL’s final show as creative director of YSL Haute Couture

“I have today decided to bid farewell to the world of fashion I have so loved.” ~Yves Saint Laurent, 2002

2004 Tom Ford leaves Gucci Group, and is replaced by Stefano Pilati as Creative Director of YSL couture

2005 YSL brand profits fall from €169m in ’04 to €162m, with losses ballooning to €76.4m

2006 Valerie Hermann, a veteran of LVMH, assumes position as CEO of YSL

After her first full year, YSL revenues rise 19% and operating losses fall 24.9%

“With the fixed costs I have, I need more volume.” ~Valerie Hermann, YSL CEO

Lessons in Luxury from the French
  • The French model for luxury presents a growth pattern that typically occurs through brand extension and/or brand-buying, in the case of conglomerates.
  • Individual brands pursue growth primarily through brand extension, with very limited second line development (YSL Rive Gauche is an exception, not the rule).
  • Most French brands have moved from singular couture brands into luxury conglomerates, where specific skills and resources may be shared through brand synergy, but unique brand image must be carefully managed.
  • It’s a good idea to keep your brands separated, from the creative director down to the production staff, in order to maintain unique brand identities.
  • Too many licensing agreements can dilute the brand image when not properly controlled, but a group-wide policy of one-size/strategy-fits-all can have the same effect.
  • Today, the labels of former couturiers make their money in accessories, fragrances and cosmetics. Couture is needed to hold uphold the luxury brand image (for now), but the market for couture has nearly disappeared.
  • Without the high profit margins of couture sales, luxury fashion companies must rely on volume sales in lower price categories. This impacts the image of what some feel a luxury company should be (for example, a guy I look up to, Seth Godin), but without a couture market, the industry must look for a new strategy.

“I’ve always said that the couture would die with Yves Saint Laurent. Now it’s a domino effect. The couture has lost its raison d’etre. Couture isn’t art. It’s not meant to be hung in a closet like a painting. The women who wore couture no longer exist; the art de vivre that spawned couture has died. If houses such as Chanel and Dior one day get proof that they can sell as many bags and fragrances without a couture show, they’ll stop couture, too.” ~Pierre Bergé, 2004, upon hearing that Emanuel Ungaro would leave couture (Vogue)

Sources: International Directory of Company Histories, Vol. 23. St. James Press, 1998; Vogue Magazine; http://www.fundinguniverse.com; personal notes

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Dior & LVMH: The French Business Model for Fashion & Luxury

30 05 2009

Christian Dior (1905-1957) was born in Normandy, France, and in his short 52 years managed to revolutionize the business model for the fashion industry. Years later, his company would become a key holding of Bernard Arnault’s LVMH, the conglomerate that revolutionized the business model for luxury.

There are many available histories of Dior himself online, so let’s dive into the business side of things.

The Brand’s Origins

As many are well aware, Dior became famous with the New Look after WW2, and was integral to bringing French fashion back to the forefront after the occupation years.

Dior was the first to exploit his name with licensing agreements, which at the time tailored products to local markets and offered unique price per value products at varying price ranges. (It is very difficult to do this today- a company must maintain consistency across all markets because information is so easily exchanged over the internet and worldwide travel. People don’t like to see plastic pens being offered by their favorite luxury brands in certain markets when they are paying the big bucks for couture by the same brand at home. If products are to be specialized for separate markets, they must remain within the same quality and price range as all products offered elsewhere.)

new-look-diorDior was the first to give a name to each collection, alluding to future generations of designers, both high and low end, who name their collections based on an inspirational theme. He used garment models and made spectacular fashion shows, which are of course used by everyone today (we’ll see how that keeps up as carbon footprints and insane exchange rates mixed with a faltering economy effect travel plans).

Many copies of the New Look and subsequent collections were made around the world, proving that one man could influence the style of the world while isolated in his studio. This is no longer possible today.

From Single Brand to Luxury Conglomerate

LVMH CEO Bernard ArnaultBy 1984, as a result of diminished stylistic value after the death of the brand’s namesake and a brand image spread thin through various uncontrolled licensing agreements, Dior was on the verge of bankruptcy. Bernard Arnault took a major stake in the textile group Boussac Saint Fréres, to whom Dior belonged, and converted it into the Christian Dior S.A. Holding.  Just 5 years later, in 1989, the holding became a major shareholder of LVMH at 42%. Arnault had become the president and chairman of the largest luxury group in the world in a number of years. Christian Dior was divided into the CD Couture Management Group and the LVMH management group for a brand turnaround.

Reviving Dior

ferre for dior 1991-2Because the French luxury brands are typically older than those borne of Italy, the UK and the US, they have already faced the brand transition that must occur if a brand is to continue after the death or retirement of the founder (“founder’s dilemma”). We have yet to see examples of this in the US market, with a few notable exceptions, but in Italy, two prominent houses are currently undergoing the transition this year: Valentino and Gianfranco Ferré.

dior by john galiano 1997It was, in fact, Gianfranco Ferré who was placed as the Art Director of Dior in 1986, however, he did very little to move the brand forward. After understanding that fashion needs a wow-factor, the company wisely placed wild boy John Galliano at the helm of Dior in 1996. Galliano had a way of making headlines, and advanced through the company as quickly as he helped bring Dior back to the forefront of the fashion scene. He began as the Head Designer of women’s haute couture and ready-to-wear collections, and became the Art Director for all Dior women’s brands by 1999.

John GallianoGalliano created a buzz through his design of outrageous characters on the runway, making his fashion shows a mix of art exhibit and theater. However, in addition to revamping the look of the brand through his couture creations, he also focused on beautiful ready-to-wear and accessories and cosmetics (the real money makers today). This is where the real success of the brand’s renewal came from.

CD fragrancesAs you can see by looking at the CD and LVMH websites, a great deal of the marketing budgets are set aside for fragrances (64%) and only a small portion for fashion (6%). Today’s Christian Dior is therefore not so much a house of haute couture as it is a part of the luxury cosmetics industry. However, without the built-in marketing genius of Galliano and his couture shows, all other lines and products under the brand would be devalued. He is needed to sell the dream.

Conglomerates: The Modern French Model for Luxury

Today the French model gives complete freedom to designers in high fashion only. In the end, even the wildest designer must be able to design the bag of the season and design ready-to-wear that is in fact wearable. This is often done in collaboration with marketing and merchandising teams.

lvmhLuxury conglomerates such as LVMH allow line and brand extension, as well as brand-buying to serve various levels of clients and all the needs of the high-end clients. LVMH carefully manages brands to have the correct balance of cash cows and strugglers. They also work to ensure that there is limited collaboration between brands within the holding to limit the dilution of brand identities (this includes dedicated production staff per brand, often within the same facility). When buying a tired old brand, the holding company must also decide if it’s worth the time and effort needed to revamp the brand.

A Sustainable Element

edun logoThe most recent brand acquisition of LVMH is the ethical fashion label Edun, brainchild of U2’s Bono and his wife, Ali Hewson (LVMH took a minority stake, estimated at 45%).  This brand has been at the forefront of sustainable fashion and advocacy, and has implemented guerrilla marketing tactics and pop-up stores recently. It also provides a great compliment to the LVMH portfolio, at a time when consumers want their purchases to mean something beyond frivolity. Caring is the new black, and philanthropy is beginning to represent status at an increasing rate. One would hope that the brand’s acquisition will not hamper their youthful marketing or ethical initiatives. There is every reason to believe that the brand will be nurtured to continue in this way, in spite of the lackluster economy.

At this month’s annual shareholders’ meeting, Chairman Arnault announced that first-quarter revenues gained 0.4 percent to 4.02 billion euros, or $5.26 billion, and added “April continues this trend, with a very slight improvement” [WWD] Louis Vuitton continues to be the group’s biggest cash cow, continuing to grow with their no-sale-ever policy. The profits from the booming brands are used to further nurture the newcomers, and those brands whom might be struggling.

For me personally, coming from a background in sustainability, it is inspiring to see this recent development within LVMH. The idea that the primary example of French luxury, the powerhouse of LVMH, has made a commitment to advance Edun also suggests that the holding will create synergies between the ethical brand and it’s other holdings. Perhaps the future of luxury may be a sustainable one, after all.

By the way, the LVMH site has included some information on the main page about CSR activities the holding participates in.

A word on digital marketing (because I must): the LVMH site also hosts an online magazine, which is a nice start, but it proves *visually non-engaging* at best. Keep working, guys!





The French System for Fashion & Luxury

14 01 2009

French fashion has long been reflective of social and economic hierarchy, illuminating the distinction among classes. Beginning with the Royal Court of the Sun King, France became the capitol of rich fashion. After Charles Worth created the business of haute couture in the 1800s, Paris became the creative center for a business model that has evolved greatly, yet still remains centered around the spirit of haute couture.

Haute couture is identified as unique pieces constructed with precious materials, made-to-measure, and made for special occasions- not daily wear. A dress of this nature today should run you on average between 20,000 and 30,000 euro and up. Where there were once more than 30,000 clients per year for the highest form of French fashion, today there remain less than 3,000, and most of these are irregular clients. Hence, haute couture is not a big business anymore; it is unaffordable and impractical, as there are fewer and fewer occasions in today’s world to wear such items. Therefore, it has become much less profitable than it once was, having lost the link with modern life.

Most companies that made their name in haute couture today sell mostly accessible products and democratic accessories like lipstick, perfumes, and so on. However, to continue to sell these more “basic” goods at high profit margins, they must continue to produce high fashion. People are now buying the legacy of couture, rather than the couture itself. Therefore, to make the big bucks selling goods at the bottom, you must be positioned at the top.

According to French law as of 2008, 50 garments per season must be produced by hand, by at least 20 skilled in-house workers for a fashion company to be considered a house of haute couture. (This model is changing under the current economic situation, in order to protect the existing haute couture legacy; too many couturiers were closing their doors under the weight of these expensive restrictions.) These companies lack a bottom-up business model, and have no second-lines: consider French powerhouses Dior and Chanel, as opposed to Armani, Ralph Lauren, Dolce & Gabbana, etc.

john_galliano_paris_menswear01Brand images and communications demonstrate a high level of arrogance and provocation. Have you ever wondered how or why that “crazy stuff that nobody is ever going to buy” makes it onto the catwalk? The most elaborate and provocative designs are taken onto the runway because the goal is not mass profitability, but to demonstrate creativity and uniqueness. Consider the wild boys Jean Paul Gaultier for Hermes, or John Galliano for Dior (below).

john_galliano_dior_paris_fashion_week

In fact, most clients are unaware of exactly who is the designer behind today’s major labels. Instead, they typically know what celebrities are wearing them (the Poiret legacy lives on!).

To summarize, the French business model is derived from a long tradition of craft and individualism. Couture was the original product of the French fashion and luxury system, which is now integrated with accessories. The image of sophistication and provocation are used to produce the sense of luxury, which is what the companies are selling. Viola!

Here’s my hastily-made visual (with apologies to France):

French luxury business model





Fashion History: France After WW2… Dior Revolution

12 01 2009

France

Recovery of the fashion industry was not easy in France after WW2. The geography of fashion has distant roots, and world capitals rely on a large accumulation of materials from around the world. As a Nazi-occupied island, isolated from the rest of the world, Paris lost their monopoly on fashion, with competition growing stronger in New York, London and Italy. In order to recover, French ateliers returned to the haute-couture stage, but with innovative cooperation between the fashion and textile industries.

The Theatre de la Mode was a traveling exhibition of more than 150 wire-frame dolls, each about 70cm tall, dressed in miniature couture clothing (see photo, above). These small sizes were used to save on expensive materials, while still demonstrating the tangible qualities of the garments’ designs and construction. More than 50 French couture houses participated in the exhibition.

In 1946, Christian Dior (1905-1957) came on the scene, opening his own couture house. He was contacted by the French Minister of Fashion (what a title!), a man named Lucien Lelong, and asked to partner with French textile tycoon, “The Cotton King” Marcel Boussac, in order to reinvigorate the fashion and textile industries of France on a global scale. Jacques c, a young civil servant, was hired to serve as business administrator. Dior launched his first collection in 1947 in cooperation with Boussac. The collection embraced the “New Look”, which recalled the formerly popular S-shaped silhouette without the underlying cage. Dior abandoned the masculine look, and emphasized luxury and opulence. The look was indeed new after years of the plain, shapeless ration dresses of WW2, and came with huge amounts of layered textiles and embroideries. Dior and Boussac used their marketing skills to promote the extensive use of fabrics (promoting the textile industry) and opulent details and construction (promoting the fashion industry) by playing to the optimism that followed years of suffering.

“No one person can change fashion- a big fashion change imposes itself. It was because women longed to look like women again that they adopted the New Look.” Dior, 1947

There was a backlash to the New Look in the States in 1946-7, when people thought it inappropriate to display such opulence after such great suffering, and for women to bind themselves again after working in the place of men and revolutionizing their fashion in accordance. They weren’t the only ones speaking out against the New Look. Coco Chanel re-emerged and gave many interviews against Dior, saying that his design was an easy dress to impose on women, but that they needed to be able to be comfortable in their daily lives and be able to move independent of assistance. She remarked, “A woman should do her shopping without being teased by the housewife. Whomever laughs is always right.” (Ironically, the North American market would become Dior’s biggest by the mid-50s.)

Over time, Rouët worked to extend the brand into a range of licensed items, exploiting the financial rewards of export deals and licensing contracts. Dior understood and exploited the promotional value of press coverage, and frequently made headlines while catering to Hollywood’s best and brightest, and by giving headline-generating names to each of his collections.

For a more in-depth look at the life and work of Dior, check out his biography at the Design Museum site.





Fashion History: From WW1 through WW2

11 01 2009

WW1



As far as fashion in concerned, WW1 produced a strong discontinuity in the way women dressed (of course, the men were wearing uniforms). The increasing employment of women in industrial activities had relaxed strict dress codes, and allowed women to wear cotton trousers for the first time. As women’s roles in Western society changed, modern fashion changed along with it. Paul Poiret’s extravagantly-modelled business failed after WW1 erupted, as a result of his failure to understand the evolutionary landmark of the War and it’s impact on society and fashion. He failed to adapt to meet the modern needs of his clients, thus opening up a market for Coco Chanel.

Easy-to-wear clothing had diffused into mainstream society, and the use of “poor” materials proliferated. (Wool was necessary for uniforms and interwar unemployment created a further need for substitute and recycled materials.) Garbielle Chanel best exemplified the discontinuities in fashion, brought on by WW1. Chanel began work in the major garrison town of Deauville, where she met an officer who provided the capital for her to start her own millinery.

Chanel believed that a woman could be active and still remain elegant. She put this philosophy into her designs, shortening skirts and using jersey in womenswear. Of course, jersey had previously only been used for men’s underwear and sportswear, so this was considered revolutionary at the time. Her dresses stressed the new social role played by women, incorporating simplicity and masculinity.

Chanel was among the first to validate the fashionable qualities of black, exemplified in her little black dress (beginning in the late 1930s). She felt that for daywear and eveningwear alike, that is was unnecessary to dress in a very opulent way.

In terms of a business model, Chanel ran the house and created the designs, but had her vendeuse in the shops for customer assistance. Assemblers were separated into workrooms by the piece of apparel or accessories being constructed, and further by function (weaving, embroidering, etc.). The work was seasonal and the company was completely hierarchical.

Chanel began diversification of her brand through the production of perfumes and jewels. In the 1930s, the constructed pins made from stained glass. Chanel was the first designer to place great importance on bijoux. She maintained one symbol from her past among “doubtful” women- the camellia, trademark flower of high class prostitutes. She turned this symbol into a luxury accessory. Jewelry was an important decorative element upon the simple, clean Chanel dress.

She launched Chanel No. 5 for her 40th birthday in 1921, named so because it was the fifth perfume trial. However, this was developed in the days before licensing. Chanel accepted only 10% of the Parfum Chanel stock without royalty, and was only granted 2% sales royalty in 1947 by Pierre Wertheimer, owner of the manufacturing company. The unique bottle design of Chanel No. 5 was very simple, geometrical and linear, demonstrating the “essential” nature of the fragrance. Furthermore, it carried a simple, easy-to-remember name. Its scent was the first not to use a natural fragrance, but to incorporate an artificial one derived in a chemist’s laboratory.

Chanel used her own name in all matters, on all products and campaigns. With No. 5, she was selling her look and lifestyle, and therefore her branded self. This branded marketing was so effective that Chanel No. 5 remains one of the top-selling perfumes today. (The company estimates that one bottle is sold every 55 seconds.) However, the next time you are at the perfume counter with a friend, try a blind sniff test putting No. 5 up against a more modern fragrance, like Chanel’s Mademoiselle. These days, 99% of the time, No. 5 will not be appreciated unless the person smelling it knows that it is Chanel’s classic fragrance. It’s nothing against the fragrance- it’s just a bit outdated for our modern noses, and a little heavier than what most consumers today are after. Yet it flies off the shelves. That is some serious brand power!

By the second half of the century, Chanel was making more money in accessories and perfume than in apparel itself. Chanel stopped her business during WW2 and immediately after, due to market shortage, supply shortage and her public affair with a Nazi officer. She finally came back in the 1960s with her infamous suit, which was confident and comfortable, and represented a counterplay to the New Look by Christian Dior.