LONDON — Know thyself.
Socrates and his fellow thinkers lived by those words and Stella McCartney took them to heart when she forged a surprise partnership with LVMH Moët Hennessy Louis Vuitton earlier this summer.
Less than 18 months before, McCartney had split from Kering, her partner of 17 years, wanting to go it alone and run the brand herself as she looked for potential minority investors. But the indie life wasn’t for her.
Her eponymous company had been born into the Kering stable, she’d never run a brand on her own and her ambitions in terms of size, scale, sustainable sourcing and animal rights are big. So she decided to partner with soft luxury’s other giant, LVMH.
She handed them a minority stake that valued the company at around 500 million euros, and took on the role of special adviser to founder-owner Bernard Arnault on sustainability.
McCartney’s move spoke to the challenges of managing an independent brand in a stormy moment for purveyors of luxury fashion. There is increased competition from lower-priced brands and retailers, uneven demand, and consumers who are more than happy to rent or recycle their wardrobes, or spend their disposable income on a new tattoo, a weekend jaunt to another country, or lower-priced items such as T-shirts and sneakers.
Bain & Co. said in its latest luxury study it is expecting a “paradigm shift in consumption,” one that favors access over ownership such as rental and the second-hand market. Bain argued that “sustainability, social responsibility and circular fashion” will take center stage as shoppers consider the environment, human labor and animal welfare before they purchase.
The consultancy also flagged the rise of “insurgent” luxury brands that will challenge established brands “with a more creative approach that goes beyond the product itself and impacts all facets of business, creating a more direct and continuous dialogue with consumers.”
All this considered, McCartney knew herself and made her choice. But these deals with luxury giants are not for everyone, and especially not for those who relish their freedom or who want to build a brand on their own terms.
Minority deals are also becoming rare as the big guns want to be able to control their assets.
“Historically, the larger luxury companies did take minority stakes in designer brands, but as the market has matured, it’s become clear that without a controlling interest that allows them to deploy all their resources on behalf of the designer, it is no longer something that is done,” said Marc Cooper, chief executive officer of the investment bank PJ Solomon. “In fact, many of these transactions that were done have been wound down.”
Indeed, McCartney and Kering parted ways as the latter began clearing out its portfolio to focus on its wholly owned luxury mega brands such as Gucci and Saint Laurent. As part of the process, Kering also let go of its majority stake in Christopher Kane, handing it back to the designer.
It wound down the Tomas Maier business after removing Maier from his job at Bottega Veneta, spun off the bulk of its stake in Puma, and sold Volcom to Authentic Brands Group. Kering retains its minority stake in Altuzarra, however.
As for LVMH’s new minority stake in McCartney’s business, Cooper said it was “unusual to see a major luxury company with a willingness to invest on a minority basis. It’s certainly something that Kering had no interest in doing.”
Last year, before the split was announced, Kering’s chairman and ceo François-Henri Pinault told WWD it would make no sense for Kering to be a minority shareholder in McCartney’s company. Either they remain 50-50 partners, he said, or Kering would sell its stake completely.
In early August, Farfetch purchased 100 percent of Italy’s New Guards Group, NGG, the licensee of Virgil Abloh’s Off-White brand, and other streetwear-focused companies, for $675 million. The move underscored the trend for big groups’ preference for controlling stakes in new acquisitions.
That said, the designers and brands bound to the big luxury groups have the time and space to create, while headquarters takes care of back-office and legal operations, balance sheets and the day-to-day stuff.
They can also leverage the big groups’ money and power across the globe, with property moguls, manufacturers and retailers. By contrast, the indies spend years forging relationships with factories and wholesale clients, and scrapping to make deals with suppliers, shippers and the techies who create their web sites.
“Given the unique nature of luxury, given the need for the best-in-town omnichannel capability and the control the big guys have of the best real estate in the market, it is very hard for an independent, great designer to start a brand. It is very hard – and full of complexity,” said Cooper. “Fashion is as much about execution as anything else. You can have a great designer, but if you can’t ship on time, then being great doesn’t matter.”
Luca Solca of Bernstein would agree that it’s tough for small, independent brands to compete.
“Our industry runs on fixed costs: media spend, store rent — if you are small, these costs will be an exorbitant portion of your revenues. If you are part of a large group, you can at least hope that you will get the best possible opportunities and synergies when it comes to recruiting and retaining the best talent,” he said.
While teaming with a powerful partner may have been McCartney’s route, it’s not always the answer, especially for those companies born as indies.
One of them is the London label Goat, which was founded by Jane Lewis in 2001 and is known for its clean, Sixties-inspired coats and dresses, chic separates for everyday and luscious cashmere knits.
Lewis took on her first minority investor, Amery Capital, in 2013 and has kept the business small, with turnover at less than 10 million pounds, and profitable. She runs the company on cash rather than debt, and doesn’t stage fashion shows because they’re not a good return on investment.
“To be master of your destiny, you have to have cash. Cash is king,” said Lewis during an interview at Goat’s Conduit Street store.
“If you don’t have a good bottom line or a steady business, then you have no flexibility. I do as much manufacturing as possible in the U.K., although it is very expensive. And to produce here, you need to have cash because the factories are not big enough and they need payment straight away.”
Lewis added that independent designers should always be talking creative and commercial in the same breath: “As a designer and a creative, you must also be able to run a business. If you can’t run a business, perhaps you need to acknowledge where your weaknesses lie, and make sure that you have a steady team around you.”
She said running a fashion business is about listening to the heart and the head. “There are some pieces that I produce that I know are very commercial and that can help oil the wheels of the business,” she said. “Then I have pieces that I designed with my heart, pieces I love creatively that perhaps will push the boundaries forward. And whatever you do you have to be best in class.”
Goat has its Conduit Street store, an e-commerce site, and sells to retailers including Matchesfashion.com, Harrods, Peter Jones, Fenwick Bond Street and Arnotts in Dublin. The business is 50 percent wholesale, 35 percent retail and 15 percent e-commerce.
A merger and acquisitions specialist based in London, who asked not to be named, said it is crucial for small, independent brands to prioritize profit over size. “Not every brand needs to be mega-mega and punch the lights out with turnover. They need to be accessible, speak to their key audiences — and turn a profit.”
Erdem Moralioglu is another, rare example of a luxury ready-to-wear designer who has remained independent and profitable.
The Erdem brand, which has a stand-alone store on South Audley Street in Mayfair, and sells at retailers including Harvey Nichols, MyTheresa, Net-a-porter.com, Saks Fifth Avenue and Jeffrey, notched 12.6 million pounds in turnover in 2018 and 442,000 pounds in profit.
“You can make it as a small company if you work well and you work smart,” said one industry executive who has spent a career shuttling between independent companies and the large luxury groups.
“As a small business, you can be nimble, keep your costs and headcount tight, prioritize your spending, and break the rules now and again. You’re free to use the suppliers and manufacturers that you want and free to decide what sort of business you’re creating. You don’t have to live up to any expectations but your own.”
The executive added that the backing of a big luxury group can be a great opportunity to attract great operational talent, sort out legal services, cash flow, production and deliveries. “But it’s not for everyone because the big groups still charge their smaller companies for services and overheads.”
Stefano Martinetto, the ceo of Tomorrow London Ltd., which owns and manages brands, would agree that being part of a big group isn’t easy: “They fill you with overheads and then a few years later the ceo changes and says ‘This brand has been losing money for the past five years — we should dump it.’
“Probably when the small brand joined the big luxury group, they were a tiny and profitable business,” added Martinetto, who is looking to add to Tomorrow’s stable, which includes a A-Cold-Wall, Polythene Optics and the French brand Coperni.
Indeed, financial backing from an investor is only useful if it’s deployed in a smart way.
“Money needs to be invested at the right moment, and the business needs time to grow. Then, there needs to be more investment, and more growth. Just throwing money after a business doesn’t make it better,” said the executive who has worked for big groups and small brands.
History has proven that indie businesses that stay the course can thrive.
Rick Owens built his eponymous business with his wife Michele Lamy and an Italian factory partner. Lamy leveraged that success, investing in emerging designer Gareth Pugh’s brand and helping Pugh navigate the commercial world.
Dries Van Noten, one of the original Antwerp Six, took on an investor for the first time last summer, handing Puig a majority stake. By then, Van Noten had operated as an indie for more than 30 years.
Like many Belgian designers, he had resisted most of the common paths to growth, forgoing pre-collections, advertising, celebrity dressing and a handbag push, and persisted in his own way.
At the time of the sale his business came chiefly from wholesale distribution and was turning over a little less than $100 million.
“Our business doesn’t have to grow every year a huge amount like when you are a part of a big group,” he said in a 2013 interview with WWD.
“I don’t need to have a store in every city. It’s a luxury that I can say I just want to continue the way that we are doing…to be creative and be busy with things I really love and not be forced to do all the bags and the shoes and the sunglasses and things like that.”
Joining a big group isn’t always a recipe for success, and there are those who argue that brands can thrive regardless of whether they have a parent with deep pockets.
“Could Gucci have succeeded without Kering? Probably,” said one London-based investor who spoke on condition of anonymity. “Gucci already had a solid distribution network, good leases, cash flow and a merchandise pyramid that was working. It had legs before it joined Kering.”
Indeed, Gucci’s star designer Alessandro Michele isn’t a new talent but a company veteran, having been recruited by Tom Ford in 2002 when Gucci Group was still a subsidiary of the company now known as Kering.
The London investor also questioned how good Kering and LVMH have been at nurturing and building their smaller brands.
“I think these big groups are industrial machines. They’re good at back-office synergies and marketing, but are they brand-building geniuses? I don’t know,” the person said.
In the end, it’s up to the designer to decide the price they pay for their ambitions, and their freedom.
Fashion consultant Julie Gilhart believes that while building a business may be tough-going, there is more opportunity than ever to thrive as an independent.
“It used to be that designers did clothes. Now it’s more a case of ‘I’m building a brand.’ Today, it doesn’t matter how fast and big you grow, it’s about how you build your brand, and the perception of your brand. Then you can do all kinds of things,” she said.
“Maybe you decide to grow your brand awareness and what you stand for. Maybe you don’t sell $300 million worth of clothing, instead you make $300 million because you are doing something that fits what the brand stands for. You have your clothing product, but maybe you are also doing creative projects for Apple. There are so many possibilities that we can’t even envision right now.”