Will Lagerfeld succeed in redefining the recipe for a successful fashion business ?

Karl Lagerfeld KARL

The ‘’aspirational factor’’ has been playing a crucial role in the success of many international luxury brands, which have made the transition from a fashion house business concept to a fashion powerhouse generating billions in turnover worldwide. By creating so called ‘’second lines’’ or ‘’diffusion lines’’, luxury fashion houses have mastered market positioning in such a way to target a wider consumer segment without compromising on their reputation. The ‘’main line’’ or ‘’first line’’ which usually serves as a reference, is usually much pricier than the second line or even third line, in some cases.

In the past decade, some of the major players such as Giorgio Armani and Prada Group have created another differentiation and that is, the first line (main brand Prada, in the case of Prada Group) is made in Italy, versus second lines, (Giorgio Armani – Emporio Armani, Armani Jeans; Prada -Miu Miu) being mostly made in Asia. In a way, this has been serving the purpose of justifying a higher price for the main line. To illustrate the differences between lines, fashion companies have created distinct store concepts, most of these fashion companies operating separate retail stores for each line.

In order to increase sales, fashion companies have employed yet another tactic and that is, selling secondary lines not only through distinct mono-brand retail outlets  but also through the wholesale channel – to multi-brand stores and department stores. Companies which have resisted the creation of secondary lines (i.e. Gucci, Dior, Chanel etc) have, in time, gained a significantly higher positioning.

Ralph Lauren and Burberry are two of the major fashion powerhouses which have implemented yet another very sensible strategy by including all their lines under one store concept. Ralph Lauren’s flagship store concept which features from ready to wear from all different lines, from the lowest priced Polo line to the highest priced Purple and Black Lines, to home collections including furniture serve the purpose of a showroom, making for a true statement of the positioning of the brand.

Burberry has resorted to yet another successful strategy by referring to its product offering as ‘’democratic luxury’’. This has had a tremendous positive impact on the sales of the brand, especially during the past 5 years, which have been marked by a world financial crisis.

In 2004, Karl Lagerfeld, the fashion designer of high end luxury brands Chanel and Fendi, has taken the world by surprise by signing a limited edition ready to wear collection for the mass market retail chain H&M which was a huge success, paving the way for a series of collaborations between mass market fashion retailers such as H&M, Uniqlo or GAP and luxury fashion brands – H&M: Jimmy Choo, Versace; Uniqlo – Jil Sander, GAP – Valentino. But just how much was Lagerfeld’s success with H&M driven by his notoriety as an individual designer or by his position as a designer for Chanel or Fendi – None of the two luxury brands have second lines, therefore, could it be that aspirational consumers were looking to buy an ‘’affordable’’ product signed by the designer of Chanel and Fendi, subconsciously associating it with the two luxury brands?

In spite of his immense success at Chanel, Lagerfeld has been failing to develop a successful business with his own brand. As early as last year, Lagerfeld stopped showing his line at the Paris Fashion Week, announcing he will re-launch his company. Until 2010, Lagerfeld’s fashion company used to be owned by US based Tommy Hilfiger. Under the ownership of Tommy Hilfiger, Lagerfeld’s brand has failed to produce any success, with limited distribution and minimal retail presence. When Tommy Hilfiger was acquired by PSV, Karl Lagerfeld was not part of the deal and his company was taken over by investment fund Apax. Pier Paolo Righi, formerly at Tommy Hilfiger and NIKE, took over as CEO. In an interview with WWD last week, Righi presented his strategy for Karl Lagerfeld basing its revival strategy of the company on a new affordable line called KARL which would be mostly available online. The new KARL line will be launched during Paris Fashion Week in January and will make its debut online through an agreement with NET-A-PORTER (January 25th 2012), to then, be available online, from the end of February on the karllagerfeld.com website. Described as timeless chic, the new KARL line will embody a fresh look, based on rock themes.

Righi did not provide financial expectations, but said the new business should generate tens of millions of euros. He also mentioned a series of licensing deals, with companies such as F.D. Fashion Design for the Lagerfeld Men’s line due to launch in the Fall of 2012, Marchon for eyewear or Coty for fragrances. The 100 pieces KARL collection will be priced 60 to 300 euros. Asked whether Lagerfeld will continue his collaborations and brand associations, Righi said they will still be considered. Karl Lagerfeld has previously collaborated with Evian for a dedicated water bottle, Volkswagen for an advertising campaign etc

In 2012, Lagerfeld also plans to launch Karl Lagerfeld Paris line, an ‘’affordable designer segment’’ which will be higher priced than the Karl line, starting at 300 euros, up to 2.500 euros. Surprisingly, the Karl Lagerfeld Paris line will be licensed to Italian Ittierre Group, on a 5 year contract. Ittierre has recently emerged from a bankruptcy procedure, having had to sell fashion house Gianfranco Ferre. Last year, Dolce Gabbana took control of the production of its D&G line terminating a 10 year licence agreement with Ittierre. Recently, Ittierre lost another major licence agreement for Roberto Cavalli’s line. Ittierre’s failure has been attributed mostly to distribution rather than the actual production. With the aim of ever increasing turnover, Ittierre seemed to have lost control of the distribution of the key brands which it was licensing.

In his strategy for Karl Lagerfeld, Righi also included pop up stores, select department stores and a few mono-brand stores. I cannot help but wonder whether a Karl Lagerfeld pop up store will be nearly as successful as the ones Lagerfeld created for Chanel, probably the most famous ones being in the resort of St Tropez and Dover Street Market concept store in London.

Although Lagerfeld insists his position at Chanel has no time limitation and he has no intentions to retire, it is hard to believe his tenure will extend beyond 2013. It remains to be seen whether, without his association to a powerful luxury brand such as CHANEL, Lagerfeld will master the same success and also whether his new business model will serve as an inspiration for other designers.

Oliver Petcu