By  on January 5, 2005

PARIS — When it comes to managing luxury fashion brands, is the more the merrier?

Ongoing troubles at Jil Sander, Givenchy, Helmut Lang and Yves Saint Laurent — to name but a few — have renewed debate over the viability of the multibrand strategy. A challenging climate for luxury after a strong 2004 also could put the business model under pressure.

But roughly five years after Prada, Gucci Group, LVMH Moët Hennessy, Louis Vuitton and Compagnie Financière Richemont went on their famous acquisitions sprees, industry experts argue the conglomerate approach may yet prove its mettle — even as others search for a new business model in the post-Tom Ford era.

Michael Zaoui, managing director and chairman of mergers and acquisitions for Morgan Stanley in Europe, said the “jury is still out” as to whether the multibrand formula is a winning one. The reason? There is no compelling evidence to date that the stocks of luxury groups trade at higher multiples than single-brand companies.

“[Conglomerates] don’t do worse,” Zaoui noted. “Still, there’s a long way to go before you have truly diversified luxury groups that can rely substantially on more than one brand for growth and profitability.”

Indeed, most conglomerates rely heavily on one cash cow.

According to market estimates, Louis Vuitton generates 66 percent of operating profits at LVMH, while Cartier delivers 77 percent of Richemont’s operating profits. And, reflecting the loss-making nature of many of its other brands, Gucci contributes 141 percent of Gucci Group’s operating profits, while Prada generates an estimated 136 percent of Prada Group’s profits.

Still, the multibrand approach remains attractive. Just last month, Tommy Hilfiger Corp. acquired Karl Lagerfeld’s trademarks as a first step toward building a portfolio, while Jones Apparel Group expanded into luxury retailing with the purchase of Barneys New York. Even Sean John has set out to build a miniconglomerate, backing Zac Posen.

Antoine Colonna, luxury analyst at Merrill Lynch in Paris, argued the multibrand model has merits. For example, a diversified group such as LVMH can rely on its champagne and cognac businesses if fashion or fragrance ebbs, and Richemont works because it owns various watch and jewelry brands with different positioning.

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