MONTE CARLO — Luxury goods companies going on shopping sprees — or branching out into technology or interior design — are trends that are firmly in the past as the sector tries to recover from the recession.
Somber times demand a return to the core values of luxury, above all exclusivity, and a reassessment of the business as customer expectations change, executives agree.
Speaking at the Financial Times’ Business of Luxury summit, which ended here Tuesday, Bernard Arnault, chairman and chief executive officer of LVMH Moët Hennessy Louis Vuitton, the world’s largest luxury group, said most of the growth in the last five to six years was largely due to an overleveraged economy, not to real growth, at least in the West. As a result, a large number of companies ended up buying other firms because they had cash at their disposal.
“Some investors pushed by the frenzy of doing something were going to invest in almost everything,” Arnault said. “As luxury was perceived as an industry where you can make money easily, they were pushed to buy brands without knowing how to make them work.”
By contrast, Arnault slowed LVMH’s deal-making activity during the boom years, divesting loss-making brands like Christian Lacroix in 2005 and venturing into small investment deals like the purchase last year of watchmaker Hublot in a move to strengthen its watch division.
Arnault’s view is shared by Berndt Hauptkorn, ceo of privately held group Labelux, a relatively new player in luxury goods. The company, based in Vienna and Milan, is owned by family-controlled firm Joh. A. Benckiser. It controls perfume maker Coty Inc., jeweler Solange Azagury-Partridge, fashion designer Derek Lam and Swiss leather goods company Bally.
“During this period of growth, there were concepts that were superficial, that didn’t deliver in terms of product quality,” Hauptkorn said, arguing these brands won’t survive the economic downturn unscathed. “There will be a shakeout because there was overcapacity in the market. It will be a market with stronger brands and with a clearer message.”
Diego Della Valle, founder and ceo of Tod’s SpA, said the last 10 years, when the luxury goods sector was booming, were years of frustration for his company, because competitors were rapidly diversifying and, as a result, were booking fast-growing sales and profits.
“Several times I had to fight for our vision against external pressures, which were demanding we did perfumes, or mobile phones,” Della Valle said. “My answer was that it wasn’t our competency. If I want a mobile phone, I want to buy it from Nokia.”
Della Valle said his refusal to diversify is paying off now since consumers are demanding exclusivity and quality as they begin to spend on luxury goods again.
The industry has begun to realize that once the economy recovers, customers will place a particular emphasis on values like quality and craftsmanship, but also exclusivity, as well as commitment to social and environmental responsibility.
Laurent Claquin, senior executive for corporate social responsibility at French retail-to-luxury group PPR, said consumers expect not just perfection from luxury, but also sincerity about the social and environmental credentials, which many luxury groups are now touting.
He indicated PPR-owned brand Stella McCartney as the fashion house that has set the bar for this new trend, after refusing to use leather or fur for her collections, launching an organic skin care range and vetting her subcontractors.
“Stella’s ecological principles are consistent with the way she runs the company,” he said, noting the success of the brand is living proof that companies can be profitable and socially responsible at the same time. As a result, PPR has begun applying some of these principles to its own operations. For example, the interior lights of Gucci boutiques in China are switched off after 11 p.m., while the group has begun using sea freight to ship its goods worldwide, according to Claquin.