The Business Battle of Fashion

The fashion industry is glitzy, glamorous and dreamy. Fantastic pieces of clothing, jewelry and accessories occupy our thoughts, have us yearning for them.

However, the recent decade has proved that being creative, edgy and different are not enough for a designer to maintain independence of his or her label ownership. The three biggest giants of the fashion universe, LVMH (or Louis Vuitton – Moët Hennessy), PPR (previously known as Pinault-Printemps-Redoute) and Richemont (Compagnie Financière Richemont S.A.), are moving fast and swift to takeover as many labels as possible.

The World’s Major Fashion Giants

LVMH, headed by Bernard Arnault (now one of richest people in France). Among the 60 prestigious brands it is currently owning (or at least holding a majority of interests in), there are Louis Vuitton, Emilio Pucci, Marc Jacobs, Guerlain, Bulgari, Givenchy, Céline, TAG Heuer, Sephora (!), and DFS Galleria, just to name a few. It is considered to be the most powerful fashion giant, with 3,040 stores around the world, and net profit of a cool 5.3 Billion Euro. While writing this article, I read through the group’s latest annual & financial report and the figures were simply mind boggling.

Most people think LVMH owns Christian Dior. In reality, Christian Dior S.A. (the holding group) owns the majority of stake and voting rights to LVMH. Bernard Arnault’s family holding company, Groupe Arnault SAS, controls a big majority of Christian Dior S.A. How did it get so complicated, I don’t know.

François Pinault (Photo source: Forbes)

PPR, while many consider as the smaller competitor of LVMH, is no lightweight powerhouse either. It currently owns Gucci, Yves-Saint-Laurent, Bottega Veneta, Stella McCartney and Alexander McQueen, among many. The most prominent figure of PPR is François Pinault, another one of the wealthiest Frenchmen.

Another giant that you and I may have overlooked is Richemont. It is not as frequently mentioned as LVMH and PPR (I hadn’t heard about it until I had to do a case study in business school), but nevertheless, Richemont is the two’s direct competitor. A Swiss-based company, it is almost natural that a good part of Richemont’s subsidiaries are luxury and high-end watch brands like Officine Panerai, Piaget, Jaeger-LeCoultre, A. Lange & Söhne and IWC Schaffhausen – the price tags of watches from these brands make our bags look like a bargain. On the clothing, accessories and jewelries’ side, Richemont owns Chloé, Van Cleef & Arpels, Net-a-Porter (!), Azzedine Alaïa, Shanghai Tang, and a joint venture with Ralph Lauren Watch & Jewelry Co.

The Ugly Side of Fashion Business

It’s like working for a company that bears your name, but you don’t own the company. A lot of these labels were acquired because it was a good business decision (perhaps more capital injection?), or because of poor management. Being creative just doesn’t cut it anymore – designers who still own their labels are striving hard to make it on their own, or surrender to an acquisition deal.

The more popular a label gets, and the more they produce, the harder it gets to continue having the creative edge while maintaining the business-side efficiently. If they are struggling on the business economics, they become targets for takeover by the giants – meaning they essentially would lose some independence, controls, and also the financial upside of successfully run brands. Many have lost to the skirmish – just look at the list of labels the fashion heavyweights hold.

Those Who Resist

Few are savvy enough to resist takeovers from the fashion powerhouses.

In 2011, Michael Kors enjoyed a lot of success; the brand is celebrating its 30th year anniversary, received the amfAR Award of Courage at this year’s star-studded amfAR Inspiration Gala and tied the knot with his longtime partner, Lance Le Pere. The highlight, however, the fact that Michael Kors Holdings went for an IPO, and raked higher share price than expected (it is now traded under the ticker KORS). Michael Kors was the first American apparel designer that went public for the last several years. In the above picture, he is pictured with his doting mother, Joan.

Kenneth Cole is also seeking to buy back its public shares so that Kenneth Cole Productions Inc., will go back as a privately-held company, and thus the control remain in, well, Kenneth Cole, who currently still hold the majority of the stake and voting power. Cole said in a letter to the company’s board that market challenges have created an increasingly competitive environment and that it is now important to take on a more entrepreneurial perspective to help develop the company’s products, brands and business with a long-term approach.

Takeover battle between Hermès and LVMH is a hot topic in the industry at the end of last year. It is no secret LVMH had been trying to steadily increase its share in Hermès, while the Hermès’ current stakeholders keep resisting. The most recent update on the battle is that the French court ruled that Hermès is cleared in its plans to create a holding company that will lock in descendants of the founding family for 20 years. This was a major blow to LVMH, who actually already holding 22 percent of interest in Hermès

 

 

What Does This Mean To Us?

Unless you hold a stock to a fashion brand, you probably won’t experience a setback to any of this news. It is often true that a brand that is poorly managed could be better after a takeover – it may run efficiently, release collections more timely, and better maintain its inventory, which for consumers, are all what matter.

However, if you are an entrepreneur in the creative industry, be warned that being creative will no longer suffice when you bring your creations to the masses. This serves as a reminder to all of us to not neglect the business side of our venture, no matter how difficult (and annoying) it is. The reality remains – business economics is one of the most important challenges that creative entrepreneurs face.

images via (in order of appearances): WallStreetJournal.com; lvmh.com; ppr.com; richemont.com; huffingtonpost.com; hermes.com