Reassessing French luxury’s recent business history: the rebuilding of a business model and of a corporate image

Hubert Bonin, professor at the Institut d’études politiques de Bordeaux and at the GRETHA UMR CNRS 5113-Bordeaux 4 University [www.hubertbonin.com]

Conversely with the legend of a perennial superiority of French luxury companies, their history has been much “contested” by the forces of economic history (especially the effects of the conjuncture, of bad management, and of competition). Their business history is therefore as much that of their failures and disappearance than of their power over Europe; and they had to be “reinvented” at several times, through cycles of growth and of decline. The years 1830-1860s (Monarchy of July and Second Empire) favoured the upsurge of craftsmen benefiting from the booming high bourgeois classes and of the capitalism of the Court (wood-craft, Lyon silk, bronze, etc.); the development of industry, trade and banking enlarged the outlets for a new generation of firms mixing craftsmanship, industrial processes and exports, from the 1870s to the 1930s1 – despite the lost of the Russian market in 1918: what were called “the articles of Paris” became a leverage for high added value merchandises to be produced in France and often exported.

But a huge majority of the names quoted in the almanacs or the journals for bourgeoisies in the interwar did not resist the depression, the war, the change of business models in the 1930s-1950s – even if some family firms reacted in these times through inventiveness (Hermès, Van Cleef & Arpels2 or Cartier, for instance) and found they away among stars and princesses and if young and inventive creators renewed the fashion trends (Chanel3, Christian Dior4). There was no historical necessity that a dozen of French companies joined the bunch of leading firms in the luxury sector – and in fact French industry failed to assert itself back in the sector of luxury cars, in front of German carmakers, for instance. We intend to determine how and why French groups were built from the 1960s in the luxury and near-luxury sector5 and became leading forces of

1 R. Bienaimé, « La parfumerie française », in L’Illustration économique et financière, special issue L’expansion commerciale, 26 January 1924, pp. 34-35, with articles about Houbigan, Roger & Gallet, Ed. Pinaud, P, Lubin, Rigaud, Piver and Lesquendieu (pp. 36-48); but all these brands (except Roger & Gallet) were swept off business history afterwards... The same about haute couture houses presented in the same issue: Paquin, Beer, Worms, Drecoll, Doucet, Paul Poiret, etc., and only Lanvin survived.2 Sylvie Ralet, Van Cleef & Arpels, Paris, Éditions du Regard, 1986. Marc Petit, Van Cleef & Arpels. Reflets d’éternité, Paris, Éditions du Cercle d’art, 2007.3 François Baudot, Mémoire de la mode. Chanel, Paris, Assouline, 1996 and 2003. Amy de la Haye & Shelley Tobin, Chanel, la couturière at work, Woodstock-New York, Overlook Press, 1994. Élisabeth Weissman, Coco Chanel, Paris, Maren Sell, 2007.4 Christian Dior, Christian Dior by Chistian Dior: The Autobiography of Christian Dior, Harmondsworth, Penguin, 1958.

the globalisation of high-range consuming goods at the turn of the 21th century.

1. A trend toward a dissolution of French luxury’s image in the 1970s-1980s

The crisis which shook European and French capitalism in the 1970s-1980s also reached the luxury sector. Several firms oscillated on the verge of losing ground definitely against some Italian (Giorgio Armani, Versace, Prada, MaxMara, Roberto Cavalli, Ferragano, etc.), German (Hugo Boss), or even American companies (Ralf Lauren), which seemed more inventive and reactive on one side, and more able to mix brand making and marketing. Christian Dior, for instance, had been included within the Boussac-Saint-Frères-Agache-Williot and became only a piece of a larger group dedicated to consuming goods in textile, clothing and distribution; and its perfume and clothwear sectors had to be separated in 1968 because flagrances had become mere financial assets even if Marc Bohan succeeded in preserving the reputation of Dior haute couture (from 1957 to 1989). Yves-Saint-Laurent, though created only in 1958, suffered from a crisis of management and of ownership; its perfume branch was sold to an American pharmaceutics company, Squibb; L’Oréal6 hesitated between a marketing culture intimately dived into the modern mass distribution model which took form in the 1960s-1970s; even if it belonged to the Wertheimer family since 1924, Chanel had to resist the death of Coco Chanel (in 1970) and the change in mood among junior generations; Grès, Paco Rabanne, André Courrèges and Ted Lapidus had to face the issue of replacing their pioneering creator of the 1960s-1970s (or even before, for Grès, founded in the 1940s) and find out a stable financial basis – like Balenciaga (because the creator retired in 1968); Yves-Saint-Laurent swayed between a closed-shop strategy dedicated to dozens of costumers and haute couture, and a more offensive strategy opened to luxury confectionery, and it lacked financial resources and managerial capacities to start its reengineering; Hermès balanced between the respect of heritage and tradition (the Kelly sack, the Hermès carré since 1937) and new inflows of creativeness, between shrinking to a small-sized company or being a member of the “cour des

5 For a global survey, see Louis Bergeron, Les industries du luxe en France, Paris, Odile Jacob, 1998. Jacques Marseille (ed.), Le luxe en France, du siècle des Lumières à nos jours, Paris, Publications de l’Association pour le développement de l’histoire économique, 1999. Nancy Green, Du Sentier à la Septième Avenue. La confection et les immigrés, Paris-New York, 1880-1980, Paris, Seuil, 1998. Sophia Richou & Michel Lombard, Le luxe dans tous ses états, Paris, Économica, 1999. Jean Castarède, Le luxe, Que sais-je ? series, Paris, Presses universitaires de France, 1992. Marc de Ferrière Le Vayer, « L’industrie du luxe en France depuis 1945 : un exemple d’industrie compétitive ? », Entreprises et Histoire, 1993, n°3. See the academic researches of the Centre de recherche luxe, mode, art and its Cahiers de la recherche. Dominique Allérès, L’empire du luxe, Paris, Belfond, 1992. 6 François Dalle (who presided over the firm), L’Aventure L’Oréal, Paris, Odile Jacob, 2001.

2

grands”. Even if they preserved their rare portfolio of skills, Chaumet7 and several jewels companies lacked the financial reserves to change their standards and their institutional image of elite craftsmanship, and even a few ones were broken by bad-financial governance. The specialist in perfumes Guerlain’s brand image dwindled because it missed a renewal of its commercial patterns, and was sold out.

The Paris luxury market place seemed to stock to old-times culture, with American stars – the Grace Kelly syndrome – and grandes bourgeoises as main targets, with haute couture as a classical symbol but without a clear-cut strategy between selling brand franchises for the mass-market or building a stable luxury mood; and one might perceive retrospectively that French luxury firms were insensitively drawn out of market forces, like were the palaces of the hotel market in Paris or in subsiding sea-resorts, which had to be thoroughly refurbished in the 1980s-1990s. Finally the fate of the car industry – missing the revival of luxury brands of the interwar and hurting some invisible ceiling in face of German (or on a few segments, Italian) competitors – threatened the French luxury economy. Its reputation became old fashioned because of a lack of investments in capital structures to consolidate the basis of luxury firms and allow them to restart their innovative process, and in relevant market positioning, whilst a few Italian or American fashion-makers succeeded in accompanying the media revolution favouring glamour magazines, conquered by colour pictures. The new and inventive fashion small and middle-sized companies which flourished then (Marithé & François Girbaud, Sonia Rykel, Thierry Mugler, Chloé, Kenzo since 1970, etc.) did not reach the financial scope which was necessary to reach further objectives than seducing a small well-off clientele. Paris was then on the verge of seeing the heart of luxury creation transferred to other world capitals, like it became the case in the arts sector (auctions companies and galleries, in favour of New York or London); and Milan, London or even New York could have become all at sudden the capitals of glamour and luxury. Even if our development lacks figures and precise analysis to prop up our assertions, our perception of this recent history might seem relevant: A sense of “decline” can thus be reconstituted if we consider frankly the historical evolution of the luxury sector; and absolutely there was no historical necessity to move Paris as the word capital of luxury good at the end of the 20th century. Sure, history constituted a substantial heritage for Paris houses – and this explains the Louis Vuitton museum or the “Cartier collection” preserved at its boutique rue de la Paix, renewed in 2006; but sticking too much to history could explain drifting away from market moods and managerial requisites8.

2. Business structures as leverage to an economic rebirth of French luxury

7 Janie Samet, Chaumet, Paris, Assouline, 2000.8 About a global story of luxury houses, see the journalist Janie Samet, Chère haute couture, Paris, Plon, 2006.

3

We pretend that the first cause to the renewal of French luxury companies were the stabilisation and reinforcement of their capital basis and therefore of their management: this helped them to cement their forces and feel a new sense of trust in their future, thus paving the way to fresh investment strategies. Renewed stake-holding equipped them with the ability to restart strategies of development.

A. The match between two family investors

A few capitalist predators9 humming around assets to be sold when industrial groups collapsed in the 1980s were keen in detecting a few business “nuggets” (pépites) among dwindling values of productive forces. Real estate manager Bernard Arnault took thus in 1985 the control of Agache-Williot-Boussac-Saint-Frères, and finally only kept its affiliate Christian Dior, which was afterwards rejuvenated with inflows of capital and management teams and regained the perfume sectors in 1989; it helped him draw a strategy consisting with the building of a luxury group through external growth; a few years later, B. Arnault took profit of familial dissensions and of a drift between family stake-holders and the manager to conquer the control of Louis Vuitton (already owner of Givenchy perfumes and Veuve Cliquot champagne) and of Moët-Hennessy: unified into LVMH10 (but under the official umbrella of Christian Dior, both a financial holding for the group and a subsidiary for its own luxury trade-mark), the firms were thereafter able to follow a constant path towards their “reinvention” and constant international developments. B. Arnault presided over a policy of constant external growth to enlarge the scope of his group, as a way to avoid competitors to purchase some brilliant (but stagnating) brands and a way to amortize the new group’s portfolio of managerial skills – as we shall study it later one – through new ranges of products (Céline in 1987, Kenzo in 1993, Guerlain in 1994, for instance). This move was achieved in two decades – from 1985 – and led to a collection of 64 brands in 2006 (perfumes: Dior, Guerlain, Givenchy, etc.; clothwear: Kenzo, Céline, Pucci, etc.) and, especially, to a leadership in champagne, far ahead of Vranken-Pommery, Boizel-Chanoine and Pernod-Ricard, and in cognac.

Whilst taking over several distribution firms, another tycoon, François Pinault, purchased Yves-Saint-Laurent haute couture and perfumes house11, then Italian firm Gucci in 2001, and was sacred the rival of

9 See Michel Villette & Catherine Vuillermot, Portrait de l’homme d’affaires en prédateur, Paris, La Découverte, 2005.10 Patrick Éveno, « La construction d’un groupe international, LVMH », in Jacques Marseille (ed.), Le luxe en France, du siècle des Lumières à nos jours, Paris, Publications de l’Association pour le développement de l’histoire économique, 1999, pp. 291-321. Bernard Arnault, La passion créatrice. Entretiens avec Yves Messarovitch, Paris, Plon, 2000. Nadège Forestier & Nazarine Raval, Bernard Arnault ou le goût du pouvoir, Paris, Olivier Orban, 1990. Airy Routier, L’ange exterminateur, Paris, Albin Michel, 2003.11 Yves Saint-Laurent perfumes was sold by pharmaceutics firm Sanofi-Synthelabo to LVMH in 1988, which resold it to PPR in 1999.

4

Arnault; even if luxury only represented FRF 3,6 billion (with only 162 million for Yves-Saint-Laurent) against the global 17,9 billion turnover of its PPR group in 2006, it became another anchoring force for luxury activities. Yves-Saint-Laurent himself benefited from inflows of capital, trust and managerial abilities thanks to the personal investment of his companion Pierre Bergé, who provided the firm with the stability which was favourable to its creativeness – up to his retirement in 2005.

Cartier itself, which appeared as a sleeping jewellery house, was stimulated by the inflow of capital provided by its new financial owner Richemont and the part played by an entrepreneurial manager, which reawakened altogether brand-image and creativeness, Alain-Dominique Perrin, for almost two decades, able to draw the nouveaux riches of all over the world to refurbished workshops of inventiveness.

B. The rebirth of family houses

If some family firms did not reach the requirements of competitiveness, like Christophle12, what we could call “the Chanel model” prevailed in several luxury company where the family-business type still kept its competitive edge. At Chanel, created in 1910,the Wertheimer family had acceded to the ownership in 1954 and, since this date, discreetly led a strategy of stable investment and growth: If old-timer Chanel was shaken by the revolutionary trends brought by its new creator Lagerfeld since 1983, a subtle balance between stake-holders (the Wertheimer owners), the creator, and the managers (Michel Piétrini, Bernard Lehmann, or Philippe Guibourgé, which launched a range of prêt-à-porter in the 1980s, etc.) has been established. From the 1980s, a new generation of Hériard-Dubreuil family stake-holders was pushed at the head of Rémy-Martin spirits group; and the same occurred in parallel at the head of champagne Taittinger, which opened doors there also to stable growth and recurrent investments to prop up brand making and industrial capacities. The family networks converged at Hermès to give leeway in 1978 to Jean-Louis Dumas, a member of the fifth generation within the family13 which revealed the right man in the right place to rebuild the brand image of the company, to extend its strategic scope, and to renew its management.

In the meanwhile, a capitalistic pact between the family Bettencourt14, who had inherited the control of L’Oréal, and Swiss Nestlé, which hoped to diversify into health-care products, helped stabilising the course of the 12 Marc de Ferrière Le Vayer, Christophle, deux siècles d’aventure industrielle, 1793-1993, Paris, Le Monde Éditions, 1995.13 Émile-Maurice Hermès died in 1951, leaving his tenure to his step-son Robert Dumas, who died in 1988, leaving way to his son Jean-Louis Dumas, the CEO from 1978 p to 2006. The sixth generation followed him, with Pascale Mussard and Pierre-Alexis Dumas; see “Pascale Mussard et Pierre-Alexis Dumas. Les classiques modernes”, Les Échos-Série limitée n°49, December 2006, pp. 16-18.14 Bruno Abescat, La saga des Bettencourt. L’Oréal, une fortune française, Paris, Plon, 2002.

5

group, which could count on self-financing without being pumped by greedy investors; and they both succeeded in organising a managerial succession from the group-builder to a new generation of managers (François Dalle, then Lindsay Owen-Jones from 1988 to 2006) without introducing nasty managers selected within the inner family circles. Such choices revealed decisive to restart the process of growth but essentially to reshape the strategy of brand-building and of the corporate image of L’Oréal. The group built then a sub-group around a portfolio of premium and luxury brands, the core of which being the Lancôme brand (owned by L’Oréal since 1964), reinforced through a policy of organic growth and diversification [see later down] – this portfolio being quite distinguished from middle-range brands (L’Oréal Paris, Plénitude, Gemey-Maybelline, etc.) and providing the firm with 25,2% of its turnover in 2005.

C. Paris burdened with failed strategies These capitalistic moves were not all crowned with success. In the 1980s, several group builders tempted to unify luxury brands: Italian tycoon Carlo de Benedetti’s French holding Cerus federated thus Yves-Saint-Laurent clothing house, then in 1986 Yves-Saint-Laurent perfumes (bought back from drug company Squibb); the financial fund Investcorp purchased several brands; financial investor Erich Fayes and its holding Zanimob tried to federate Balmain, Ted Lapidus, etc.; fur group Révillon, under the control of financiers, enlarged its scope to global luxury, like the clothing Biderman group or the financial group Worms (Lancel, Kenzo, Fred). Bt all these attempts failed at the end of the 1980s or the beginning of the 1990s because the relevant combine of key managerial requirements was not achieved: mere financial investment did not suffice to create a business culture of luxury management; marketing skills were not enough promoted; an efficient business model had to follow the wave of purchases, because organic growth based on an actual business culture had to accompany the external growth. And all these ephemere groups had to be dismantled because of a lack of profitability – thus paving the way to spin-off moves and to the reinforcement of the other emerging groups.

3. A commercial strategy dedicated to quality

Three strategies were at stake: a diversification towards mass consumption and the sale of goods intended to a rapid turnover among consumers; or a selective upward move towards high-quality goods. The first one mixed marketing, brand-management, and internationalisation, through the sale of franchises; and Pierre Cardin company mainly favoured this practice, all over the world, for clothing or perfumes, or accessories, royalties piling up through royalties; it was a middle-high range strategy, developed with success by Pierre Cardin15, who played the cards of Paris glamour and of Maxim’s (which he purchased too). The

15 See Benjamin Loyauté, Jérôme Faggiano & Nils Herman (eds.), Pierre Cardin Évolution, Paris, Flammarion, 2006.

6

paillettes of Paris, with the resurrection of the bateaux-mouches, of the Lido and the upsurge of the Crazy Horse, sustained such a growth and the relative success of this strategy.

Conversely, the key luxury companies chose to follow another path, which had to link narrowly high quality and glamour, to rebuild the perception of luxury brands and globally of Paris reputation, as a way to differenciate more clearly the patterns of quality between luxury and mere high-range lines. Such a strategy was based on a “no-default” quality; but they had to face the negative effects of dwindling workforces and moreover of declining portfolio of skills, because of the retirement of “petites mains” and crafts(wo)men of the 1940s-1970s and of the closure of textile companies able to link high quality and small series due to the global crisis of textile throughout Europe. Hermès defined thus this strategy of vertical integration or control for the sake of quality with utmost constancy: it invested to develop its own little factories to elaborate its leather products and purchased a few Lyon workshops to reinforce its silk activities. The management of a portfolio of half-industry half-craftmanship skills and a trend towards vertical integration became the key to quality standards. A similar strategy was adopted by Louis Vuitton, where the CEO Henri Racamier started in the 1980s developing vertical integration through the reinforcement of several workshops16 – a strategy intensified by Hermès from the 1990s in order to preserve a capital of technical knowledge, by Cartier with workshops in France and Switzerland, and by the champagne companies, which favoured the extension of their own vineyards and long-term contracts with little producers, to guaranty patterns of wine. The integration of small teams of craftswomen for haute couture and the renewal of the portfolio of tradition skills among small suppliers (for accessories), helped to sustain the brand image. In fact, networks of suppliers were reinforced, to produce accessories and, moreover, packaging items (for perfume, etc.). Some forms of putting-out systems were refreshed, either in the Paris region or in the provinces, to foster the supply-chain downstream and to allow the luxury companies to face growing orders.

Globally, the quest for quality was cemented by the rebuilding of a Paris institutional image, through the role played by the Comité Colbert – a professional syndicate which gathers the luxury companies as its lobbying office –, the Comité Vendôme (which has gathered since 1936 the houses present place Vendôme), or the Union des fabricants17, which comprises all firms dedicated to French quality and reputation and which lobbies

16 Louis Vuitton, L’art de traverser le temps, Paris, EuroRSCG, 1996.17 Hubert Bonin, « La contrefaçon et les guerres industrielles : l’Union des fabricants et l’INPI acteurs de la lutte contre la contrefaçon » ; Christine Laï, « L’Union des fabricants » ; Olivier Londeix, « Défendre l’image de marque et l’identité des entreprises de luxe face à la contrefaçon : le rôle du Comité Colbert depuis une douzaine d’années », in Gérard Béaur, Hubert Bonin & Claire Lemercier, Fraude, contrebande et contrefaçon, de l’Antiquité à nos jours, Geneva, Droz, 2007.

7

against counterfeiting, both having succeeded in convincing the State and the Parliament to reinforce laws and action against counterfeitors.

4. A corporate image based on inventiveness

What had blurred Paris institutional image throughout the black decades of the 1930s-1940s had been the perception of dullness imposed by the decline of prosperity and wartime, but also caused by an actual downturn of creativeness. Surely, during the 1950s-1960s, new waves of creators imposed a refreshed rhythm to Paris fashion, owing to Christian Dior’s revolution (1947: “the new look”), to the rebound of Chanel, and to several animators of fashion in clothing and accessories (Pierre Cardin, etc.) and younger houses (Kenzo, Girbault, etc.). But the grip of Paris was at stake in the 1980s: first, the change in stake-holding could be seen as a leverage to creativeness because “creators” could deliver their “message” as they benefitted with trust from their investors and with the support of good managers and marketeers. Second, outlets were enlarged by the enrichment caused by the apex of the second industrial revolutions and the consolidation of grandes bourgeoisies all over the western world.

Thanks to the stable stake-holding and the continuity of investment inflows, Paris houses regained their reactivity and creativeness. Yves Saint-Laurent could go on delivering his imaginative products; flamboyant fashion-creators, like Karl Lagerfeld (at Chanel from 1983, and though his own house too), discreet designers (at Hermès), and flamboyant fashion-, style-, and colour- makers were recruited to shake “old houses”: they had to “conceive the cult products of tomorrow without outfashioning classical products” (a journalist). John Galliano18 at Christian Dior since 1996 was a beacon of such a strategy to transform Paris into an “event-maker” place, with the bi-yearly collections shows becoming quite a Festival de Cannes show – all the more when the Festival de Cannes itself became a branch of Paris fashion makers through the shirts and jewels born by stars... TV news, TV special reports, ad movies (for perfumes)19, and glamourous journals sustained this momentum towards the promotion of inventiveness: “designers” and “creators”– instead of mere clothwear specialists in drawing haute couture legendary exceptions – started a renewed competition with Milan and other chic places to draw whole ranges of “labels’ – and some houses were equipped with an artistic director (for instance Ivana Omazic, at Céline from 2004): Christian Lacroix, Alexander McQueen (Givenchy), Stefano Pilati (Yves-Saint-Laurent), Alber Elbaz (women’s line at Lanvin), Gianfranco Ferré (successor to Marc Bohan at Christian Dior in 1989), Marc Jacobs (at Louis Vuitton), Tom Ford (at Yves-Saint-Laurent from 1999), Nicolas Ghesquière (at Balenciaga20 from 1998), Antonio Marras 18 Colin McDowell, Galliano romantique, réaliste et révolutionnaire, Paris, Assouline, 1997.19 See Marc Martin, Trois siècles de publicité en France, Paris, Odile Jacob, 1992.20 Balenciaga, Paris, Les arts décoratifs-Thames & Hudson, catalogue of the exhibition Balenciaga, 2006.

8

(who succeeded to Kenzo Takada in 1999 at Kenzo), etc. seemed to mix arts, haute couture, design, public relations, stardom and glamour, and innovation – in the wake or alongside the almost “model” of Karl Lagerfeld at Chanel since 1983. And even at Guerlain21, the small perfume company which was included within LVMH, a new manager and creator, Jean-Louis Guerlain, asserted himself as an “entrepreneur” who shook its dusty reputation and enlarged the range of perfumes and beauty products.

The business model linking haute couture, jewellery, perfumes, high range accessories into fashion shows which transformed creators and designers into stars by themselves – among starring models – helped recreate Paris as a driving force on a worldwide level. Creativeness was extended to classical leather products where new lines and types were conceived (Louis Vuitton, with new lines like Epi in 1985 or Taïga in 1993; Hermès), thus enlarging the range out of mere “cult products”; to silk neckershiefs and other clothing pieces (Hermès); but also to champagne through ranges of “crus millésimés” and special prestige assemblages with special packaging and to perfumes with yearly prestigious “juices” diversifying and spurring the outlets – even if basic perfumes like Chanel 5 stayed as cult products. Commercial talents allowed big groups to stimulate creativeness among “niche brands” at the periphery of the mega-brands of the firm: they are pioneering for imagination and new fashions, with more reactivity – like PPR-Gucci with the “lines” and brands Balenciaga, Sheila McCartney or Alexander McQueen.

On another level of creativeness, the link established between luxury ranges and scientific inventiveness became the key to the success of high-ranges of L’Oréal firm22. Whilst designers insisted on external appearance, scientists at L’Oréal (almost 3,000 in 2007) provide products dedicated to guarantee the duration of skin and hair appearance, against age, stress or fatigue, in particular among stars (featuring in TV ads), but more importantly, among women with a high purchase power, either active ones (businesswomen, etc.) or permanently in social representation (grandes bourgeoises within networks of fashionable sociability). L’Oréal’s brand building activates all these outlets to provoke consuming habits and to pose its Lancôme (or also ) range as necessary and irresistible as key healthcare and beauty tools – against for example the US firm Estée Lauder’s firm (with its extra-luxury range Crème de la Mer). The Paris image of “beautiful women” is thus mobilised to create some kind of a “Paris mood” which had to be shared by all the stratus of rich and glamourous women all over the world aspiring to durable beauty and able to pay for it.21 Maryline Desbiolles, Le printemps de Guerlain, Paris, Le Cherche Midi, 20005.22 Hubert Bonin, « ‘The French touch’: international beauty and health care at L’Oréal (since 1907) » (with Carole Pailhé and Nadine Polakoswki) », in H. Bonin (ed.), Transnational Companies (19th-20th Centuries), Paris, PLAGE, 2002, pp. 91-102. François Dalle, L’aventure L’Oréal, Paris, Odile Jacob, 2001. Michel Barzohar, Une histoire sans fard, Paris, Fayard, 1996.

9

5. Business strategy dedicated to added value and profit margins

Such strategies for inventiveness or creativeness explain the diversification of groups committed to fashion, beauty, healthcare, etc.: they had to combine a business model which managed both mass consumption and luxury outlets, without confusing brand image and blurring high ranges by lower ranges.

A. Procterians and managers at the hull of luxury

The turning point has been, from the 1990s, the recruitment of famous “Procterians”, that is marketing specialists trained at Procter&Gamble, but also at Unilever or similar mass commercial houses, to take the reins of commercial policies at French luxury brands, under the impulse of B. Arnault at LVMH. They introduced rationalised methods to manage the diversification, segmentation and differenciation which had to constitute the basic codes in order to balance profitability, the conquest of market shares, and the preservation of the identity of each brand. A methodical analysis ought to collect the data about the progression of these marketing people among the executive teams of luxury firms23 – but a few books24 have already scrutinized the development of modern forms of management within luxury firms. LVMH succeeded for example to reinvent the management of declining and low-profit Dior perfumes in the 1990s thanks to these marketing guys: the ousted manager had privileged volumes against profit and brand-image through a dual policy allowing Dior products to be sold within “parallel networks” of diversified shops aiming at lower prices, despite the classical network among “selective shops” dedicated to higher prices and to distinguished customers… At Cartier, under the cover of flamboyant A.D. Perrin, Bernard Fornas, the head of marketing at Cartier International since 1994, who had been trained at Procter&Gamble, consolidated the new business culture of the firm, which led him to preside over Cartier – and the same occurred at Christian Dior company through Sideney Toledano, the CEO of the group (which in fact covers the entire Lvmh group). Even Chanel welcomed in 2007 a manager at its chairwomanship, Véronique Morali, the deputy-head of an investment company for 17 years.

B. In search of distinction and differenciation

The key strategy was therefore “distinction”: managers distinguished clearly “good brands” from “luxury brands” or “premium” brands25. Some companies do not prospect lower ranges (Hermès, Louis Vuitton, 23 See Dominique Allérès, Luxe… Stratégies-marketing, Paris, Économica, 1997 (second edition). Gilles David & Catherine Kuszla, « Contrôle et créativité. Luxe, mode, art », in Dominique Allérès (dir.), Luxe, mode, art, un management spécifique, Paris, Économica, reed. 2003.24 Dominique Allérès, Luxe, un management spécifique, Paris, Économica, 1995. Dominique Allérès, Luxe... stratégies, marketing, Paris, Économica, 1990, third edition in 2003.

10

Longchamp, etc.), except when occasionally or regularly they lure customers in their shops through accessories sold cheapier, in order to create shopping events and once more to reinforce their reputation in creativeness... Some other companies raised insensibly their ranges of prices to separate more and more their luxury brands or ranges from mere high-range products: this rise in perception and brand-making occurred for instance for champagne from the 1990s – to separate prestige bottles from current bottles dispatched massively with low profit margins. Like German car-makers Mercedes, BMW or Porsche – which stuck to price policies intending to draw prestige-pulled customership with high purchase-power –, fashion firms specialised in luxury or comprising a large sector in luxury brands pushed prices upwards alongside a selective policy of gathering only segmented customership. Such a business model had to rely on a subtle balance to succeed in renewing fashion-victims’ trends and rushes. The permanent reinvention of brand image is even stimulated by the offer of “limited editions” of series of products, in order to spur the sense of “rarity”, of uniqueness, among rich people fond of supreme distinction.

The issue for some of these companies was to develop altogether mass production and luxury productions, without blurring brand image. The porftolios of marketing skills were mobilised to establish the commercial distinction able to provide high-range products with “the distinction” necessary to justify their price – even if the distribution of mass-products and of some high-range products is completed through the same supermarkets, airports facilities, or beauty and healthcare chains. For example, differences in packaging (card-board boxes, colours, etc.) and skilful merchandising help “differenciate” ranges, besides prices; “corners” dedicated to premium products have been constituted all over commercial outlets. L’Oréal, involved altogether in mass beauty-care and in luxury ranges, became some kind of an artist in declining several ranges alongside purchase-power and prices, confronting Procter&Gamble, Unilever, and Shiseido. The purchase of beauty and healthcare chains by LVMH (downtown Sephora shops in 1997; airport DFS boutiques in 1996, in order to develop duty free shops for well-off customers) has been perceived as a strategic move to exert more control on “selective distribution”, on patterns of merchandising, and the same for the intrusion of L’Oréal into the Body Shop network.

Anyway the challenge is unendlessly to reach the right balance between the expansion of outlets for luxury ranges and an excessive “democratisation” of sales; the risk of symbolic “depreciation” of luxury brands or objects is always at stake, because selling accessories or lighter and less expensive products could lead to diminish the perceived value down to commonplace ranges; even Cartier had to stop its Must range in the 1990s because of its utmost success since 1973 in favour of

25 Dominique Allérès (ed.), Marques de luxe. Signification et contenu, Paris, Économica, 2005. Dominique Allérès, Mode. Des parures au marques de luxe, Paris, Économica, 1992.

11

ranges expressing more rarity and thus desirability. Each brand has to inject fresh symbolic values to its perception in order to re-consolidate its differenciation; and marketing techniques have to be renewed constantly to maintain the relevant balance.

C. Diversification to accessories, beauty, and perfumes

Last, commercial strategies involved diversification, that is the enlargement of activities to “accessories” (gift items, housewear, cosmetics, flagrances and perfumes: each trade-mark started “declining” its brand image from its core products to peripherical ones. Hermès delivered scarfes, as a by-product, (200,000 in 1978, one million at the end of the 1980s) and built a portfolio of fourteen ranges in the 2000s; its turnover increased from the equivalent of 42 millions euros in 1978 to 1,4 billion in 2005, which changed the nature of the small family house into a big actor of the Paris place (with 6,000 employees).

Table 1. The diversification of Hermès’ turnover (in 2001)

Leather goods 27%Clothwear 15Art of life 12Watches 10Ties 6carrés 8perfumes 5Arts of the table 4Others activities (of which John Lobb) 9

This trend explains that each luxury clothing brand was to cover accessories like shoes, leather products, perfumes, sacks26, light pieces of cloth (scarfs, etc.); each boutique had to provide all needs to appearance and beauty to customers – even if specialised perfume companies like L’Oréal or contracting suppliers got in fact the franchise of the brand. One key lever to expansion has been watches; Cartier started promoting its ranges of watches as soon as the 1970s, from jewellery pieces to mere premium ones (“Must” of Cartier in 1973); its business model was copied from the 1990s by LVMH (which purchased Tag Heuer, Ebel, Chaumet, Zenith, etc., and developed Dior), and the world of fashion-victims asserting their social position or their love through premium watches became a key commercial target: even Chanel offered its first watch (Première) in 1987, but as an opus of jewellery. Accessories-driven business helped consolidating profits of clothes-driven brands or leather apparel-driven ones.

Table 2. The diversification of LVMHThe sales of

LVMH group in the second

The current operational profits of

26 About the myth of luxurious sacks, see Judith Miller, Sacs à main, Paris, Gründ, 2007.

12

term of 2006 (billion euros)

LVMH in 2006 (billion euros)

Cloth fashion and leather products 2,466 1,633Wines, champagne, and spirits 1,220 0,962Perfumes and cosmetics 1,169 0,222Watches, jewelry, accessories 0,315 0,080Networks of selective distribution 1,798 0,400total 3,172 D. Worldwide expansion

From the 1980s-1990s, all the firms have been involved in declining such strategies alongside an international strategy: the “French touch” is posed a reference to entice customer, to create a mood favourable to sense a “need” to get French luxury products – and even cognac re-emerged from its decline as a fashionable drink in Chinese bars and boîtes. By chance, grandes bourgeoisies flowered in developed countries where people involved in innovation, new types of enterprises and finance created new layers of demand for luxury goods, among “parvenus” (self made people) wishing to acquire the social attributes needed to magnify their economic position – alongside classical psychological processes which had flourished on several periods throughout history. And Asian customership was constantly enlarged, from Japan to South Korea and then to China, those people flying to Paris to take part to glamour, culture and luxury shops – whilst Côte d’Azur itself regained momentum – before Russian and Central European customers joined them. Despite counterfeiting drives, luxury brands helped create an economy of glamour, part of the entertainment revolution which is part of the third industrial revolution. Products with high added value and high profit margins contributed to consolidate the financial basis of the luxury firms. Moreover, the expansion of firms into chains of stores dedicated to their brands has become another strategy of joining customership downtown and worldwide whereas reinforcing the perception of the luxury and brand-building: events crowned the opening of Louis-Vuitton boutiques in Paris and New York; Hermès shops celebrated a strategy of drawing the brand out of Faubourg Saint-Honoré street and spreading it in every chic areas in the world (through 240 shops directly owned and controlled), whilst the sole brand Christian Dior network jumped from 16 boutiques in 1996 to 160 in 2006. The LVMH group sold only 12% of its turnover in France in 2006, instead of 30% in 1988.

Table 3. Worldwide expansion of Hermès (turnover in 2001)

France 21%Europe (besides France) 17Japan 27Asian and Pacific areas (besides Japan) 16Americas 15

Table 4. Worldwide expansion of LVMH (turnover in 2005)

France 16%

13

Europe (besides France) 20United States 26Japan 14Asian and Pacific areas (besides Japan) 17

6. French groups or European groups? What about the Italian and Spanish “touch”? What about French mood?

At the very end of our study, an issue has to be raised about the French roots of these luxury groups: what portfolios of skills and which capital are covered by “the French touch”?

A. Efficient French luxury groups

Surely, middle-sized firms like Hermes, Chanel or the new Taittinger formed after the sale of hostellery chains and the rebuilding of a Taittinger champagne entity with the help of a bank, are dedicated frankly into French ranges and products. But the mammoths of the professions, LVMH, PPR and L’Oréal are becoming more and more European-sized groups and even worldwide ones. They allowed French luxury to reinvent itself through brand-building, management, and diversification. The growth of the turnover and profitability reached peaks; more important might seem the immaterial value of the assets of these luxury groups, as rues of accounting allow to measure the “goodwill value” of Christian Dior-LVMH balance sheet reveals for example that the global value of the brands owned by the group was assessed at 8,495 billion euros in 2004 (Louis Vuitton at 2,058; Hennessy at 1,067; Moët at 732, Parfums Christian Dior at 610; Guerlain at 441; etc.). Another estimation reached 10,495 billion euros (IFRS standards) or 8,624 (French standards) – an amount which could be confronted to the funds of the firm (9,784 billion alongside IFRS accounting standards or 13,034 alongside French standards), as if the funds invested in the successive purchases had in fact bought only “immaterial assets”, or more efficiently to the global assets of the group, estimated then at 29,095 billion (IFRS rules) or at 25,873 billion (French rules): the mere value of brands constituted therefore 36,1% or 33,3% of the assets. Even family groups succeeded in consolidating their basis through worldwide expansion and diversification, like Hermès:

Table 6. The expansion of Hermès at the turning point of the 21th century (million euros)

1992

1993

1994

1995

1996

1997

1998 1999

2000 2001 2002

Turnover 374 435 523 583 638 741 767 927 1151 1227 1242Net profit 27 32 44 62 70 81 89 119 175 202 ?

B. Foreign portfolio of skills or capital hidden behind French brands?

Such a renewal and upsurge of French luxury groups helped revigorating competitiveness and financial prosperity, and also the glamour and

14

attractivity of the “French touch”. But the “French” basis of such a move has to be somewhat questioned indeed.

a. Italian (and Spanish) brands controlled by French groups

First, French groups became more and more Italian (and sometimes Spanish) ones, thanks to their huge profits. Pinault’s group PPR – which is selling some of its distribution assets, like Le Printemps in 2006 – purchased for instance the Italian luxury company Gucci27 in 1999 and transformed it as the holding of its luxury activities (Boucheron, Yves-Saint-Laurent wear and perfumes) – before choosing Venice as the location of his personal arts museum (Pinault Foundation); and Gucci purchased in 2004 the Bottega Veneta, a well-known leather company at Vicenze. In the meanwhile LVMH28 took control over Spanish leather products Loewe and over several Italian companies, like Fendi, as arms to accompany the Italian fashion trend; it even bought a beacon for the Italian industrial districts, Rossi Moda, which (between Venice and Padua, in La Breda), produces in Italy the whole ranges of leather products (Loewe, Céline, etc.) sold by LVMH (except Louis Vuitton). They are now managing separate portfolio of “national” brands alongside specialised customerships, and they promote an “Italian touch” or a “Spanish touch” in competition with the classical and renewed French touch which was supposed to be their core objective. The strategy of favouring internal competition within the groups between luxury brands aims apparently in the transformation into a multi-brands and multi-nationality brand. Like Volkswagen with Audi, Skoda, SEAT or else, such multi-brands and multi-ranges firms are following a new business model where the corporate brand is not identified with a single brand, but covers separate segments of brand-image and price-positioning.

b. Foreigners as Paris creators of style

One should not also forget indeed that several key actors of Paris fashion place have not been (like Japanese Kenzo Takada) or are not French, but are part of French culture and glamour (Galliano, Ford, etc.). Some of them have been trained at the London StMartin’s School of Arts (like Galliano) which reveals that France is lacking professional schools – like the Parsons School in New York – able to mix inventiveness and management – thus explaining the efforts in Marseille or in Paris – with the renewal and extension of the private school Esmod, for instance, created as soon as 1841 – to compete with London or Milan

c. Foreign groups as French and European brand makers

27 Doug Lloyd & Sarah Meyer, Gucci by Gucci, Paris, La Martinière, 2005.28 Rosemary Laudouar, “The story of a worldwide success: The Moët-Hennessy Louis-Vuitton group (1987-2000)”, in H. Bonin (ed.), Transnational Companies (19th-20th Centuries), Paris, PLAGE, 2002, pp. 83-90.

15

Last, two key promotors of French brands are not French at all. The Richemont group, the owner of Cartier, Vacheron or Boucheron, has been constituted in 1988 by South-African family investors (Rupert), who had got enriched by their cigarettes activities; the firm, already engaged into profitable diversifications, separated its tobacco activities from luxury in 1993 into Vendôme Luxury, now the second luxury firm in the world behind LVMH. Sure, its international profile is based on European brands (Dunhill, UK; Montblanc, Germany; Baume & Mercier, Lange, Piaget, Jaeger-Lecoultre, Switzerland); but this South-African and Swiss entity owns key French brands: Cartier, Lancel, VanCleef&Arpels (purchased between 1999 and 2004), and Chloé, thus managed from an international centers of interests, even if they preserve their pure Paris glamour.

Second, the world leader in perfumes, Coty, is located in Paris – and luxury within its turnover increased from 35% in 2001 to 55% in 2006, thus the third leader in luxury perfumes (brands Cerruti or Calvin Klein, as franchises, and several brands linked with music or movie stars), after L’Oréal and LVMH –, but it is owned by an American company, the capital of which is provided by the German Benckiser firm…

Third, the very stategy of L’Oréal itself is not only committed to French brands and glamour: in parallel with the promotion of its key Paris Lancôme luxury brand and to the franchise for Lanvin flagrances, it has developed its American brand Helena Rubinstein, purchased in 1988 and also on the beauty line, and has started transforming the franchise Armani for flagrances into a blockbuster, thus spurring internal competition within the group as a way to compete more efficiently with internationalised rivals, themselves managing diversified portfolios of brands.

Conclusion

Still in the thinking machine…

46,099 characters on 1st March 2007

16