Luxury Industry News: Are Luxury Brands Just Shuffling Deck Chairs on the Titanic?

The Urban Dictionary defines “shuffling deck chairs on the Titanic” like this: “Actions taken solely for the feeling (or the appearance) of doing something about an unavoidable situation; actions that not only accomplish nothing but *blatantly* accomplish nothing.”

And as I was catching up on the several weeks of news in the luxury brand world that spun on without me (the nerve!) while I was out trotting (a very limited patch of) the globe, this is exactly the picture that I began to get — announcements, shakeups, appointments, resignations, all leading to . . . what, exactly?

The brand leaders appear to know that something needs to be changed, but as they’re charging forward with their lists of decisions that will Accomplish Something — or, at least, appease the shareholders into accepting that Actions Are Being Taken — there’s little to no public attention being paid to the water pouring into the forward compartments below.

THE ICEBERG:

Eric Reguly at the Globe and Mail calls the present economic turmoil in Greece “ground zero” for the financial earthquake presently shaking its way across the EU, sending shockwaves throughout global financial markets and causing investors to flee to whatever comparatively safe haven might still exist (so far, the U.S. dollar has been benefiting the most as world governments play a type of Last Man Standing game — all economic systems have mortal wounds, but the system that can stave off collapse the longest might just be the one to survive as all the money and talent scrambles for safety).

Mr. Regulay writes: “Greece’s fiscal problems belied its size . . . Its budget deficit last year was a whopping 13.6% of GDP, its public debt was 115% and its current-account deficit was 10% . . . (but) Some of the world’s largest developed countries have budget deficits almost as large, relative to the size of their economies … Almost every other country in the 30-nation Organization for Economic Co-operation and Development is watching its debt ratio climb relentlessly toward triple digits. Enormous debt loads used to be a problem for emerging economies. Today those burdens are also a problem for the allegedly wealthy countries.”

“Allegedly wealthy countries” being the key phrase in the above paragraphs — but I don’t want this to be strictly cut and dried economics, though I do think it’s necessary to understand what’s happening on the economic front if we’re going to understand what’s now happening with the game of musical chairs in the luxury industry.

So just a little more economic background, and then we’ll start tying it together:

1.) Panicky Greeks Paying Over $1,700 Per Ounce For Physical Gold: “The fear running through the Greek populace is that the nation’s government may default on some of its debts . . . the Bank of Greece reports that it is selling an average of more than 700 (gold) coins per day to worried Greeks … Bank officials estimate that at least 100,000 other coins changed hands on the black market. “

In other words, faith in government controlled currencies is shaky, and once faith in currencies is shaken, investors and consumers attempt to conserve the value of wealth and savings. Conserving Wealth = Drop In Consumer Spending . . . and guess who depends entirely on the continuing, and continually increasing, spending of consumers?

Only the entire luxury industry, silly.

2.) U.S. stock indexes swoon in sympathy with Europe: “The drop in the U.S. indexes follows even steeper declines in European markets and paralleled a drop in some currencies and commodities . . . ‘It is part Greece, part oil disaster and part unsuccessful terrorist plot and everyone is running for safety,’ said Stuart Hoffman, chief economist at PNC Financial, pointing to the rally in U.S. Treasury bonds and the dollar.”

Just as retail brands have gone global, making trouble in one region trouble for the brand as a whole, the financial systems are also global — and when one starts to crumble, it puts strain on all the rest.

For example, What Is the Next Sick Economy of Europe?: “The crisis in Europe is no longer confined to Greece. What was originally a budget crisis in a relatively small economy of the euro area has become a systemic crisis involving the whole euro area. In particular, Portugal, Spain, Italy and Ireland are all affected by potential contagion.”

In the article linked above, Domenico Lombardi, a nonresident senior fellow at the Brookings Institution and an expert on the European economy, states that, “The euro is a global currency. It’s the second largest currency in the world after the dollar, so whatever happens to the euro has repercussions for all the other economies in the world.”

Not to mention the repercussions for all the brands that have planted flagships in all the other economies of the world.

3.) The Chicago PMI report, a monthly index of business conditions in the Illinois, Indiana and Michigan region (that was stated by Briefing.com to have a “91% correlation with the national” indexes), showed its largest drop for the year to date: “Prices Paid, Order Backlogs and Employment all coming in at 2010 lows, in signs that the fiscal stimulus benefits are all virtually over. Once the inventory inversion begins, look for the overall business barometer to make a sharp correction to the downside as the sugar high is on its last fumes.”

By “inventory inversion”, the author is referring to the recent trend of restocking that has been making financial reports from brands and manufacturers look better in comparison to last year when retailers preferred to run out of their existing back stocks of goods before ordering more.

For instance, Prada is reporting an increase in retail sales across all its regional sectors, but this doesn’t mean that consumers are necessarily rushing out to buy again, only that Prada’s boutiques and retail partners have ordered more stock for their shelves compared to last year when restocking was put on serious hold across the board. And with brands deciding to rely more on their own boutiques for sales, weak retail sales numbers can be disguised or masked in numerous ways (a little bit of Peter to cover for Paul), unlike wholesale numbers from third-party retailers (wholesale numbers which, unsurprisingly, are down).

*Note: Hypothetically, when, say, Prada reports a 40% decrease in retail sales in May 2009 compared to May 2008, then reports a 20% increase in retail sales in May 2010 compared to May 2009, that’s not good news. It’s not terrible, awful, horrible news (like the hypothetical 40% decrease in retail sales!), but a 20% increase on a vastly decreased number doesn’t even g
et a brand within flare-shooting distance of the water it was once treading.

Regarding sales-figure manipulation by brands, a case in point is the following article, where employees of Prada’s Japan boutiques are claiming that their bosses ordered all employees (at the threat of losing their jobs) to purchase more and more Prada merchandise at retail prices (not staff discounts) to artificially boost sales numbers: “Prada’s lawyers and executives return to court to respond not only to accusations of gender-based discrimination and abuse of employees, but also to charges that it forced employees to buy Prada bags and other items in order to mask its falling sales.”

But why would a company do this? #1) Because no region wants to be the one with the lowest sales numbers in the company, and #2) Consumers are fickle and might very well balk at purchasing goods from a company that appears on the decline, as that would indicate a decrease in overall social-status desirability — pretty much the kiss of death for luxury brands that are completely reliant on the imagery of exclusivity and covetability.

Which leads us to:

SHUFFLING THE DECK CHAIRS ON THE TITANIC:

1.) Brit designer Giles Deacon is officially at the creative helm of Emanuel Ungaro: “This is not the first time that the fashion house’s owner has attempted to give itself a drastic makeover – it has in recent years attempted to give the company a face-lift by appointing several new creative directors. In the last few years alone we’ve had Giambattista Valli, Peter Dundas, Vincent Darre, Esteban Cortazar and then Lindsay Lohan.”

The appointment of Deacon follows the famously bad (and blatant publicity-stunt) decision to hire Hollywood rehab-addict Lindsay Lohan as a creative director, a widely derided move which cost then CEO Mounir Moufarrige his job. Can you imagine? — “Hey, I lost my CEO position because I made a bet on Lindsay Lohan — yeah, I know, the cokehead Hollywood party girl. Why didn’t anyone stop me?!”

Sometimes no publicity truly is better than bad publicity.

Below is a video clip of the kind of work that Giles Deacon creates for his own namesake brand (Fall 2010 collection) — and which Ungaro hopes will help them clamber out of the hole they dug for themselves with the Lohan debacle:

In related news, Ungaro is shutting down its money losing menswear division.

2.) Tamara Mellon takes on chief creative role at Jimmy Choo: “Mellon has been named founder and chief creative officer of Jimmy Choo, a change from her previous title as founder and president of the luxury footwear and accessories label. The company said Mellon’s role will remain the same, overseeing brand image, including product design, public relations and advertising campaigns.”

But a change in title means a change in direction, and where Mellon had been increasingly taking on outside responsibilities (i.e. the Halston partnership with Harvey Weinstein and Sarah Jessica Parker), this announcement signals a renewed focus on the Choo in what are obviously troubled times for trend chasing, high-priced brands.

3.) Jean Paul Gaultier leaves Hermes to be replaced by Lacoste designer Christophe Lemaire: “Jean-Paul Gaultier, the enfant terrible of French fashion, is stepping down as designer of women’s ready-to-wear for Hermes . . . Christian Lemaire, the creative director of apparel company Lacoste, will replace the designer who earned rave reviews from the fashion world during seven years at Hermes. Lemaire has worked at Christian Lacroix, launched his own clothing line, and revitalised Lacoste since 2001.”

The appointment of Lemaire has led industry analysts to speculate that Hermes intends to change its women’s wear focus from high-end avant garde to more consumer friendly sportswear (“There is a history at Hermès, if you go back to the 1920s, of chic-sportive fashion” said Pierre-Alexis Dumas, the general artistic director of Hermès) — but the underlying scuttlebutt has been that Gaultier’s designs, while critically approved, have not been connecting with customers at the retail level, and now that the once Must-Have Birkin has seen a drop in demand, the Hermes bottom line can no longer afford a revenue deficit clothing line.

Video clip below of the Lacoste Fall 2010 collection. How much influence might this easy sportswear look have on future runway shows from Hermes?

4.) LVMH restructures its fragrance division to bring diverse brands under one roof and allow for the easier launching of new brands: “LVMH Fragrance Brands will comprise the France-based company’s Givenchy, Kenzo, Pucci and Fendi lines . . . the process involves leveraging the existing sales structures of the company’s established fragrance houses . . . ‘We are turning the current sales forces of Kenzo and Givenchy (a mix of local market sales forces and export and travel retail representatives) into a combined sales force, creating a multibrand sales structure which is then in the position to launch Fendi and widen the presence of Pucci,’ President Alain Lorenzo explained.”

I know a good number of people who will be happy to hear that the Fendi fragrance line will be resurrected, but the LVMH restructuring is also an indicator of the souring global market for discretionary purchases like perfume. And watches. And jewelry.

5.) Brioni Group appoints Allesandro Dell’Acqua to breathe new life into Brioni women’s wear: “‘The appointment of Alessandro Dell’Acqua,’ said CEO Perrone, ‘represents the Group’s desire to strengthen the womenswear collection, which has been source of great satisfaction for some time. I believe our partnership with Alessandro will allow us to achieve our objectives and help to make the Brioni woman a style icon in the fame market.'”

In other words, “If we don’t quick put some oomph into our women’s wear, we’re toast!” Dell’Acqua recently came out on the losing side of a legal battle to keep the rights to his own name once he left his company, so partnering with Brioni is a win-win for both parties: Dell’Acqua is handed the creative reins of a reputable and well-financed global company, and Brioni gets a much needed jolt of Italian sex-appeal (for which Dell’Acqua is famous) in their rather staid veins.

Video clip below of Dell’Acqua’s Spring 2009 collection, before he parted ways with his own company:

His structured looks, and attraction to the now trendy palette of neutral tones, could prove to be a terrific fit for the Brioni label.

6.) Gucci Group promotes a McQueen insider to be the new creative director of the Alexander McQueen brand: “The house of Alexander McQueen has named Sarah Burton, a longtime colleague of the late designer, to be the new creative director of the brand . . . Burton joined McQueen’s company in 1996, a year before graduating Central Saint Martins College of Art and Design. She most recently served as head of design for womenswear . . . Susan Cernek, Glamour’s senior online fashion and beauty editor, said hiring from within was respectful to McQueen — and kind to any designer who would be trying to fill such big shoes.”

With the appointment of Lacoste designer Lemaire to head up Hermes, and Sarah Burton to design for McQueen, brands appear to be turning away from high-profile hires that overshadow the names of the brands themselves. Even the appointment of Dell’Acqua to Brioni follows this trend, for while Dell’Acqua is recognized within industry circles, the Brioni name is far more well-known to the mainstream consumer.

Along these same lines, global casual brand Theory announced that it had hired Olivier Theyskens, most recently ousted as head designer for Nina Ricci, to design a capsule collection in a bid to distinguish itself from sportswear focused competitors like J.Crew, Lacoste and Banana Republic. Theyskens is a critical darling, though his work for the Ricci brand was so finely detailed and labor intensive that the prices were higher than most customers were willing to pay (hence, they gave him the boot). In light of that, I’m interested to see what he can create for a casual, mass-produced brand like Theory.

But on the other hand, can a designer so accustomed to including intensive handwork on his pieces bear to work with a mass-production brand like Theory for more than thirty minutes without blowing a fuse? I predict fireworks. Get your popcorn ready and pull up a chair.

7.) Carolina Herrera appoints a new company president: “Caroline Brown is replacing Mario Grauso, who left the company in September to join Vera Wang. From the beginning of June, she will oversee the fashion house’s global business which includes the pret-a-porter line and bridal wear. Herrera explained that the choice was easy as Brown ‘brings great experience to the company’ . . . Brown boasts recent CEO positions at Armani, Akris and J Christopher Capital.”

And American heritage brand Woolrich Woolen Mills isn’t taking its recent re-emergence into the retail spotlight for granted, passing on the opportunity to renew their five-year contract with designer Daiki Suzuki to hire preppy J. Press designer Mark McNairy: “McNairy, who hails from the Ivy League clothier J. Press, says . . . ‘I think I’ll end up adding a military aspect and some Ivy League. In the late fifties and early sixties, Woolrich had a sportswear collection that wasn’t necessarily geared for the outdoors and was more about the piece goods like Ivy League styles and duffle coats.'”

Woolrich’s traditional buffalo-check flannels have recently caught on with savvy fashion insiders while lumberjack plaids nabbed precious screentime in the Twilight movie series, but with Ivy League fashions also rising in prominence, it’s a smart move for them to catch both waves. That is, should both waves actually reach shore.

8.) Louis Vuitton ads banned for misrepresenting how their products are manufactured: “Instead of sexy models flaunting handbags and lots of skin, Louis Vuitton’s current ad campaign features Vermeer-inspired images of demure young women hand-finishing purses and wallets at a workshop table … There’s just one tiny detail missing. Hardly any Vuitton bags or wallets are handmade . . . Indeed, the factory managers – who had been recruited from companies making such things as mobile phones and yogurt containers — talked proudly about the strides they had made in automating every step of the process. Just about the only Vuitton products still made by hand, they told me, were custom-made items produced at its historic atelier in the Paris suburb of Asnières.”

The UK’s Advertising Standards Agency banned Louis Vuitton from using two of these heritage-inspired ads, since the images are likely to mislead consumers into believing that LV’s machine-made products (which consist of the majority of their brand lineup) are actually made by hand.

The attraction of heritage — a brand that has been around for a long time and with a reputation for finely crafted work, mostly hand done — is a powerful motivator for consumers, and research results have concluded that consumers are willing to pay up to fifty times more for items they believe are produced by a reputable company with a history of exceptional craftsmanship.

But Louis Vuitton is too big a company, producing far too many products for its global stable of boutiques and third-party retailers, to make the hand-crafting of products a commercially viable option in the 21st century — yet they still want to cash in on this halo. The UK Standards Agency’s slap on the wrist sends the signal that companies can’t shuffle their advertising to have it both ways, implyi
ng to consumers that they use artisanal crafting methods when, in reality, their goods are machine-produced in large modern factories in order to increase efficiency and boost profit margins.

In a sort of corollary to the above, the mainstream consumer is starting to revolt against the global luxury/fashion industry’s equation of sexual misogyny and ethical licentiousness with advertising gold. From increasingly influential 14 year old Tavi Gevinson’s fashion blog: “I’ve tried to avoid giving my opinion on (Terry Richardson’s) actual photography, because the quality of the photos are irrelevant to the fact that he had to sexually harass people to get them. I don’t think that saying ‘his photos are great’ or ‘his photos are awful’ validate any argument, but some are quite misogynist . . . I understand that sexual liberation for women is very feminist, and if modeling in any of these photos made a woman feel liberated, that’s actually really great. But here we are looking at what the photograph itself is saying, regardless of the story behind it.”

Is it a coincidence that maxi dresses are coming back into style at a time when easy money is evaporating and the public consciousness is tasting the fruits of its borrowing a go-go behavior? Loose is out, responsible is in — but the public and the major players in the luxury industry don’t seem to be on the same page quite yet.

When I was in Paris, I walked past a Pierre Hardy boutique. The window was full of what I’ve heard referred to as “stripper shoes” — excessively strappy, bondage-wear looking pumps with five to six inch stiletto heels: “They’re an orthopedist’s nightmare, a sorority girl’s dream, and a challenge to wear in a way that doesn’t scream ‘Ashley Alexandra Dupré!’ On the bright side, at least they’re versatile. These are shoes that would look equally appropriate at the Hamptons Polo Classic and in the back seat of Tiger Woods’ Escalade. They go from day to night to lady-of-the-night in a flash.”

Yet walking around the streets of Paris, the shoes I saw women mostly wearing were low heeled boots or flats. Simple. Practical. Unadorned. High quality leather and very nicely made, but not at all flashy. It’s almost as if the high-fashion luxury brands are completely out of touch, and out of step, with the consumer mind. From the sound of Tavi Gevinson’s blog (and the hundreds of comments to her articles), the consumer mind isn’t much appreciating the obvious disparity.

9.) Luxury goods conglomerate Richemont purchases a hefty stake in online luxury retailer Net-A-Porter, but warns that the outlook for the overall luxury sector remains iffy: “Cartier maker Richemont warned on Thursday that Europe’s uncertain economic prospects could hit demand for expensive watches and jewelry despite recent signs the luxury goods sector was starting to recover. ‘What is going on in the western world is not very encouraging, look at Europe and what may happen in the U.S. as well,’ Deputy Chief Executive Officer Richard Lepeu told journalists on a conference call after the group posted a disappointing annual profit.”

But while European luxury brands may smile to themselves as the weakening Euro means that shoppers from other countries are more willing to splash out for their goods, a weakening currency is a far cry from a collapsed currency, and a collapsed Euro is just what the analysts are afraid of.

And that’s how we tie it all together — the case of economic jitters presently roiling governments, markets and the populace is the fly in the alleged recovery ointment. Despite companies like Burberry, Prada and Tiffany posting tidy profits, the luxury liner is taking on water. From the looks of all the name shuffling above, the brands appear to see the need to grab a bucket and bail furiously, but will it be enough?

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