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Luxury groups versus independent luxury companies

 

FENDI Fall Winter campaign 2011-2012

From a business perspective, the past decade has seen luxury defined more and more as an industry, with specific sectors: fashion & accessories, jewellery & watches, fine wines & spirits, hotels &SPA s, cars, yachts and private jets. In 1987, Bernard Arnault created LVMH, which, to date, remains the world’s largest luxury group, comprising of the most diverse array of sectors. Richemont Group and Gucci Group (now a luxury pole integrated in PPR Group) have followed suit, establishing themselves as direct competitors to LVMH, however, each more specialized - Richemont, on watches and jewellery, and Gucci Group on fashion and leathergoods.

While some have regarded luxury groups as ”collections of luxury brands” or holding companies with interests in different sectors,  I believe their creation has been of utmost importance not only defining luxury as an industry but also providing a platform to train luxury industry business professionals, with a broad expertize in luxury as an industry, without necessarily being specialized in a particular sector. And recent history has proven, time and again that successful business professionals could easily make the transition between sectors – for instance a successful business professional with a strong background in fashion can be as successful in hospitality or SPAs, the common denominator being understanding the luxury consumer. Successful luxury industry business education programs have emerged and more and more students have the opportunity to study across various luxury sectors.

In a closer observation of the fashion brands of LVMH and PPR, one can notice that none of their most successful brands commands so called ”second lines” – lower priced lines of the same brand. By comparison, competing major independent brands such as Ralph Lauren, Giorgio Armani or Burberry have all been thriving thanks to their lower priced collections. I cannot help but wonder – are such brands more secure when part of a group, so they are distanced from such ”temptations” of lower priced lines ? is the individual success of each brand enough to secure such strategies are not implemented ? do independent brands command more strength to ”afford” strategies of lower priced lines segmentation?  

As for other luxury industry sectors such as jewellery and watches, brands owned by independent companies have proven to be equally successful to brands which are part of a group. In the watches division, independent brand Rolex still has no directly competing brand, equal in size, which is be part of one of the major groups speciality groups such as Swatch or Richemont. It remains whether this principle will be enforced by the latest acquisition of a major independent player, Bvlgari, by LVMH Group, especially considering Bvlgari’s apparent shift towards increasing its output of accessories.

This year was marked by exceptional controversy, LVMH being involved in the two important transactions – the take over of Italian jeweller Bvlgari and the acquisition of a 21,4% stake in French independent maison Hermes. While many have argued Bvlgari will lose its Italian heritage, LVMH’s significant stake in Hermes was met with harsh criticism from Hermes which blamed LVMH for its intentions to take over the French brand. Hermes has been arguing it does not share the same values with LVMH which, according to Hermes, is volume oriented, while Hermes is a true artisan brand.

Despite the two highly publicized controversies, one should not overlook the success groups have had in reviving dormant or underperforming important brands. The best such examples are Fendi and Celine – owned by LVMH, Bottega Veneta and Balenciaga - owned by PPR and Van Cleef Arpels – owned by Richemont Group. I also wonder whether brands such as Givenchy, Boucheron or Yves Saint Laurent would still exist today, had they not been controlled by groups.

Another very specific luxury sector is hospitality which has been marked by a growing crisis of identity and positioning in the past decade. Once considered luxury hotel chains, Hilton, Sheraton and Marriott are no longer considered luxury brands, having over-expanded in the past decade, compromising in many cases by branding properties mostly through franchising rather than management agreements, giving way to an inconsistent business model. As a response to losing ground on the ”luxury front”, Hilton has been aggressively pursuing the development of its higher end brand, Waldorf in the past three years, while Marriott has created two new luxury brands, Edition Hotels and Autograph Collection. Starwood Hotels, the owners of Sheraton are expanding their St Regis brand while Sofitel, the luxury brand of French hotel group Accor has also sought to reposition its luxury offering by creating Sofitel Legend sub-brand in a need for regaining its positioning.

In hospitality, unlike in the case of fashion or jewellery sectors, expansion is mostly dependant on investors, all international luxury chains being management or marketing chains. The growingly unstable international economic environment has been putting pressure on the already sensitive relationship between owners and hotel management chains. For those wondering why so many international luxury hotel chains have become more and more inconsistent in their offering is the fact that the crisis made owners put off much needed investments – renovations, improvements etc. Other luxury hotels such as Four Seasons and Mandarin Oriental have remained consistent in their offering, without rushing to create sub-brands or new luxury brands to compete from a volume perspective with the luxury hotel brands owned by hospitality groups i.e. Starwood Hotels or Marriott.

to be continued 30th October, 2011