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 & Chanel

24 05 2009

The following is a case study I developed, investigating how one of the leading French Luxury companies fits into the proposed business model framework.

I’m especially interested to see how CHANEL will perform in the digital environment, since they have taken the initiative to dip their toes in the 2.0 waters. If anyone has any thoughts on this, I’d love to hear them!

Some links:

Lagerfeld’s Twitter Feed

CHANEL’s Facebook Fan Page

CHANEL’s Official Webpage

Here is my presentation:





Fashion History: France & WW2

20 05 2009

di mauros suede sandals with allied flagsIf you’re a history buff, looking for creative inspiration during hard times, or happen to be bored in Paris, there is an exhibit going on now at the Mémorial du Marechal Leclerc de Hauteclocque et de la Libération de Paris – Musée Jean Moulin, twin museums dedicated to the French Resistance and Liberation of Paris. The exhibit shows a vast collection of fashions and accessories from the era, and runs through Nov. 15, 2009. You can see first hand examples of how Parisians were using whatever materials they had available in order to maintain there forward-thinking edge in fashion.

I personally think this exhibit represents a duality in Paris, at a time when haute couture could not be made due to market and supply shortages, and where Paris was itself isolated from the global audience. Here you can see how everyday-people in Occupied Paris incorporated radical and creative pieces into their daily wardrobes, demonstrating the early ingredients of a culture that would take France beyond the couturiers of the French Court of Louis XIV, and into the modern spotlight of high-fashion after the war.

Photo By E.Emo and S.Piera/Galliera/Roger-Viollet





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: 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.





Fashion History: From the Belle Epoque through WW1

11 01 2009

Orientalism

An intense fascination for the Orient was the largest influence on stylistic change at the turn of the century. The Ballets Russes was first performed in Paris in 1909, and quickly became a blockbuster sensation across Europe. Dancers performed oriental tales, dressed in brightly colored costumes of unprecedented combination. The designs, like that to the left, were originally created by Leon Bakst. It was the first time that a theater event had any major impact on the way we dress.

Consider how great the impact of celebrities -actors, sports stars, musicians, etc.- is on fashion now!

While Charles Worth was catering to upper-class women, Jacques Doucet (1853-1929) was designing stage sets and dressing actresses. Young designer Paul Poiret (1879-1944) worked for Doucet in this regard, until he gave away a design model to a young actress, who had the pattern realized by another designer. (This is one of the first of MANY cases questioning the copyright of a fashion design.) He then went on to work at the House of Worth.

Worth’s legacy had been 19th century dress. After his death in 1895, his two sons were unsure of how to move his style forward (this is the first case of a fashion house having to carry on without their namesake). Poiret presented them with a new style, which was rejected as low-class by Worth’s heirs (if you think this sounds like Marc Jacobs’ 1992 grunge collection for Perry Ellis, which got him fired while rocketing him to superstar status, you are catching on… history does repeat itself). Poiret then went out on his own. He was a marketing genius and focused on window displays, adding shock value by giving them a theatrical stage quality to get attention.

The Poiret dress had no crinoline, no corset and was more tubular than S-shaped, with a higher waistline. However, the corset did not completely disappear; Poiret’s dresses still needed undergarment support, though not as tight. The fabrics were in brighter, happier colors than Worth’s sober patterns.

Aside from helping to free women from the corset and crinoline, Poiret’s greatest contribution to the fashion world was his attention to the means of communication and diffusion for his creations. As fashion magazines were often too sober for his colors, Poiret started a cooperation with young artists, Paul Iribe (right) and Geirges Lepape, to draw his dresses. Again, we are seeing here another first example: this time of an in-house marketing team.

Poiret went further to create a symbol (trademark) of his maison: the rose. This would not only serve as his logo, but the pattern would be incorporated into many of his designs, such as the famous Joséphine dress (1907), named for the Empress Joséphine.

He generally paid more attention to the overall effect than to the fine details of dress construction, and threw a huge party to sell something more than a dress, but rather, a dream. The Féte de la Mille et Deuxiéme Nuit was the name of Poiret’s 1910 traveling party, in which he toured his models throughout Europe. The traveling party was Persian-themed with authentic props, decoration, musicians and so on. Guests came in Persian costume, creating a buzz and word of mouth marketing for the house, which led to mass attention from the press and the world. This was followed by a US tour in 1913.

Poiret was also the first to extend his brand beyond fashion, into perfumes, cosmetics and furnishings (brand extension). As many ground-breaking brand strategies as Poiret introduced into the fashion industry, he could very well be considered the godfather of modern fashion branding.

For a great article on Poiret, check out this article at style.com: Fashioning the Century.





Fashion History: From the Invention of Fashion to the Industrial Revolution

10 01 2009

The following is an account of the history of fashion, as told by Italian professors along with some library and online research. Enjoy.

The birth of fashion occurred somewhere around the end of the 1300s. We can trace the history of fashion through several key sources:

  • Dresses & Garments: these artifacts become more rare before the 17th century, and the artifacts we have were typically of the most expensive nature, as cheaper garments were worn more frequently and were more likely to be ruined.
  • Fabrics: these give us an idea of the technology and distribution systems the existed in different periods and regions, providing insight into markets and distribution chains
  • Figurative arts: these are of course subjective, depending on what the artist (or the artist’s patron) wanted you to see, based on their own values, symbols and priorities (for example, a Renaissance master might use more expensive colors to demonstrate wealth in his patron’s clothing, and we have no way of knowing what is factual and what is not)
  • Archives: accounting records and postmortem inventories often documented dresses, as these were among the most valuable items transmitted to heirs
  • Literary texts
  • Oral history

Okay, so we’ve got our sources down. Back to the history!

Prior to the mid-14th century, in Classical Periods, colors were dull and derived from a limited palette (typically white, yellow, red and some blues… all were dull). Clothing was neither cut nor sewn, but was draped indifferent to the body shape. Think: toga. Mid-14th century Europe brought about the appearance of a new type of clothing, with strong differentiation among men (short and tight, with silk tights) and women (long and close-fitting). Ah, how the times have changed!

Clothes began to show the body, and were cut to form. Men wore bright, contrasting colors, short blouses and tight silk or wool stockings, with an emphasis on the groin region (although this was shunned by the Church). Note the image to the left of The Martydom of Saint Sebastian, by Vincenzo Foppa 1489. Women’s fashion was equally tight around the bust, with a low neckline, and typically hung quite low (the longer the dress, the richer the woman).

We call this era the birth of fashion because there were changes in style taking place, there was an increase in options, and there was an increase in the speed of change of style (in contrast with previous uniformity in appearance). Furthermore, in previous times, unnecessary items were publicly burned by the devout. This was the first time in several hundred years where accessories could be displayed. There were also more available colors and construction techniques to provide increased options.

The birth of fashion was not merely about changes in style. It is also connected with the commercial revolution in Europe. People still typically wore rags in this period, and masses would wait outside of hospitals to beg for or steal the clothing of the recently deceased. However, new technologies invented in the 14th-15th centuries enabled great economic expansion. Eye glasses were invented, enhancing science and optics industries, and enriching the economy by allowing those with poor vision to work better and longer, and to see smaller objects in the manufacturing process. (Glasses at this time were basically magnifying glasses.)

People left serf conditions on farmland to move into cities for freedom and the ability to buy and sell. Innovation, itself, was centered in the urban communes. This was a new world, open to talent and ambition, based on different values from those in the countryside. Within the walled cities, people were getting rich. Here, fashion was born.

Clothing became the means through which the new business community (merchants and craftsmen) could affirm its social, political and economic status over traditional dominating classes. The use of clothing as a means of attesting one’s social status is confirmed in the sumptuary laws, whereby appearance was a public decision, not a personal choice. More specifically, these laws dictated what could be worn, and by whom. Sumptuary laws were most common in England.

Regarding new technologies, draped clothes were eclipsed by sewn garments thanks to buttons. Buttons allowed men’s tights to fasten and women’s form-fitting dresses to be worn. Sleeves became important as detachable elements because they gave the appearance of a whole new dress, and could be easily removed for more frequent laundering.

Colorful clothes were made possible due to improvements in dying. People in the Middle Ages placed great importance on color. The contrast in light versus dark, the social value of colors in the church or politics, and combinations of patterns or stripes prevailed. Take, for example, the famous Van Eyck painting, The Arnolfini Marriage, 1434. The husband is darkly dressed, demonstrating his seriousness, and that he is thrifty and committed. His wife wears green, demonstrating loyalty to her husband and wealth, while the white accents symbolize her purity. It was extremely difficult to find black or green clothing in this era, so this family is shown to be extremely wealthy.

Modern age trend setters were focused solely in the royal courts of Europe. The Spanish Court was known as the Black Triumphant. The Papal court also demonstrated magnificent elegance. Yet most important was the French court under Louis XIV. Versailles became the center os creation and diffusion of fashion, and Lyons became the center of silk production. The daily-changing spectacle that ended in revolution continues to influence fashion and culture through the tales of Marie Antoinette to this day. At the time, fashion ideas were transmitted through portraits, individuals (ambassadors or princes), gifts, and second-hand-clothes (the first example of ready-to-wear). We can see in this portrait of Louis XIV, he was quite a fashionable guy, with his wig, fur mantle, draped garment, silk stockings, and red heels!