Byline: Sara Gay Forden / Katherine Weisman

MILAN — The American megabrands might be wrestling with licensing’s enduring quandary — growth versus control — but European design houses are wielding more power over their names than ever before.
After years of overexposure, French designers are rethinking their licensing strategies and paring down dramatically. Italian designers, who have always taken a more cautious approach to licensing, have also pulled back disappointing licenses and are establishing more in-house businesses.
French fashion companies, once followers of Pierre Cardin’s blanket approach, have long embraced licensing as a way to grow. But now, many are realizing that their brands are operating in a global context, not a local one.
The international consumer has become finicky and demands quality branded merchandise at the right price. As a result, a couture house cannot keep its cachet by having different kinds of pantyhose at different price points in different markets.
French houses are not rejecting outright the concept of licensing, because, as executives said, they are an effective way of expanding a brand into non-core categories such as watches or eyewear. They are, however, striving to make sure that their license partners worldwide are complying with the design, quality and distribution terms of the contracts so that the company offers a global product and image.
And many firms, from Christian Dior to Thierry Mugler, have slashed their number of licensing agreements not only to present an internationally coherent product range, but to get the full financial return on the merchandise and not just royalties.
At Christian Dior, the house has done away with licensing agreements, like the one with Jones Apparel Group for Christian Dior suits, or last year’s renegotiations with Japanese license partner Kanebo, which included costly steps such as Dior buying back 15 of Kanebo’s Dior stores and discontinuing Kanebo’s license for women’s ready-to-wear and accessories.
Dior was a house with myriad products of varying quality and at widely ranging price points, observers noted. Like many other French companies, Dior even had master licenses in foreign markets where the master license partners often sublicensed out branded products.
The big problem: Dior products around the world bore little resemblance to those sold in the Dior Paris flagship. The goal at Dior, as it is at many Paris houses, is to directly control the manufacture and distribution of merchandise such as apparel that is close to the heart of the brand, but they license products — such as watches or even lingerie — that require technical know-how a fashion house usually doesn’t have. These specialists also often have their own channels of distribution other than department or specialty stores.
Thierry Mugler’s only remaining license is for eyewear, noted president Didier Grumbach, who explained that the company has been trimming licensing agreements for several years. While the company didn’t start licensing right off the bat, it was a tool Mugler used to boost sales once the brand became known.
By 1986, Mugler had agreements for jeans, knitwear, men’s wear, shoes, accessories and for Japan, “like everyone else,” Grumbach said. He stressed that unlike other fashion houses, Mugler and not the licensee always maintained control of distribution. Now the company is of the critical size where shareholders want to build sales for the long term and be as vertical as possible “so as not to dilute the trademark.” Grumbach said.
But not all companies are in a position to give up licensing or pare the number of agreements for core or non-core activities. Many houses are striving to turn around “old” or neglected brands. At Balmain, president Alain Hivelin’s first concern upon buying the house in 1995 was to refocus the apparel design, relying on the talents of Oscar de la Renta for haute couture and, for fall 1998, the Ivoire luxury ready-to-wear line, Bernard Sanz for men’s wear, and the recently-appointed Andrez Gn for diffusion rtw and accessories. Now that the creative team is in place, the company is evaluating all of its licensing agreements.
“The main struggle for us was to make sure with our product managers that licensees were totally following our criteria for design and quality control,” Hivelin explained. “Partners that didn’t follow the rules were either cut out or contracts were renegotiated.” Sure, there were some lawsuits, but Hivelin boasts that Balmain won all of them.
“Most of our partners are willing to play by the rules because we represent sometimes up to 50 to 60 percent of their revenues,” Hivelin noted. The company now has about 120 licenses worldwide.
Since the company is essentially relaunching the Balmain brand, the company needs the licenses to build the business. “The day a house can control 100 percent of production, quality and distribution is best, but that involves millions of dollars in investments, and even in opening stores. It is not possible to do all of this at once,” Hivelin said.
“So many companies here ruined the image of their brand by having their name on different products, and different quality products all around the world,” observed Guy Laroche president Ralph Toledano.
Historically, he noted, French fashion once dominated the world, and French brands, led by Pierre Cardin, were the first to take advantage of licensing agreements. The problem is that many firms who licensed did not have the couture base that Cardin laid out years before he began signing deals.
American firms have learned from the mistakes that the French made, Toledano pointed out. Rather than assign one company in a given market a license to a particular product, Toledano and other executives noted that American firms have been astute in giving a strong industrial company a worldwide license for a particular product.
Like Balmain, the house of Laroche is repositioning itself under the creative eye of designer Alber Elbaz. The house controls the production and distribution of its apparel but still needs the mix of licenses and in-house ownership. Currently, Laroche has about 60 licensing agreements.
But the father of them all, Pierre Cardin, remains king, with the most licenses.
According to vice president Herve Duquesnoy, the house has about 800 now, and either renews or starts more than 10 agreements annually. The company watches over these contracts via Cardin-owned offices worldwide.
“Licenses are not miraculous. You need to have a great brand, and there is a hierarchy of the value of brands worldwide,” Duquesnoy said. “If we didn’t have the control we do, the Cardin brand would not still be around.” And the company wouldn’t be able to boast an ex-factory volume of $1.5 billion for Cardin goods worldwide.
Even a web of licenses cannot glue together a relationship that’s falling apart, however. In a deal reached in July and signed last month, Karl Lagerfeld bought back his business from the Vendome group of the U.K. for one symbolic franc. The designer got back his name and licenses for branded goods and accessories — there are more than 20 — and Vendome kept his rue du Faubourg St. Honore store and company headquarters in Paris. The two parted company bitterly, with Vendome calling Lagerfeld’s business “a zero” and the designer complaining that Vendome had badly mismanaged the house.
“You have to use me right. Chanel and Fendi do,” Lagerfeld told WWD. The designer said through a spokeswoman that he intends to maintain the licenses himself. His fragrances, which are made and distributed under license to Elizabeth Arden, were not affected by the deal.
In Italy, top designers are moving steadily and with determination to increase their control over all the links in the fashion chain — even moving beyond creative and advertising control to the point of taking over the production and distribution of key products themselves.
As the market for fashion grows more and more competitive, they feel strongly that the common denominator for success is control.
“In Italy, designers are working harder than ever to control the product, the quality of production, the distribution and the image,” said Carlo Pambianco, a Milan fashion industry consultant.
“More and more, the designers are taking what they can in-house. When they don’t produce directly, they try to control as much as they can,” Pambianco said. “For example, all distribution contracts give designers the right to exclude clients they don’t feel are in line with their image,” Pambianco added.
Some stalwarts never succumbed to the seduction of licensing in the first place: Ferragamo, Prada and Bulgari have steadily expanded their businesses by keeping it all in-house.
Bulgari even did the seemingly impossible when it shunned the world’s multinational fragrance companies — who were considered the only feasible way to reap success in the beauty market — and struck out on its own in the perfume business. The Bulgari fragrances have been so successful that this year, Ferragamo even scrapped a planned deal with Estee Lauder and set up two joint fragrance ventures with Bulgari to develop Ferragamo and Ungaro perfumes.
Others have battled to get segments of their businesses back from licensees. For example, when Armani jeans manufacturer Simint SpA, in which Armani had a minority stake, started to flounder and was on the verge of going bankrupt, Giorgio Armani stepped in, bailed the company out and turned it around. He now controls the majority of Simint, while the rest is listed on the Milan stock exchange.
When Gianni Versace didn’t like the way his fragrance business was working out, he bought out former 50-percent partner ICR and created his own Gianni Versace Profumi.
Trussardi, also a former ICR partner, did the same.
Like the Americans, the issue for Italian designers isn’t so much whether to license, but how to keep control.
“The bottom line is that giving a license shouldn’t mean losing control,” said Armando Branchini, a Milan-based consultant who specializes in the luxury goods sector.
“Pierre Cardin is an example of a designer who has given out licenses without worrying too much about keeping control,” Branchini said. “This isn’t true with designers, such as Giorgio Armani, who keep strict control over strategy and marketing,” Branchini said.
“A tight integration among design, manufacturing and distribution activities has always been one of the key strengths of the Armani group,” said Armani’s managing director, Pino Brusone. “We have always directed our efforts to controlling our licenses, especially those who do not belong to the Armani group.”
“We can count on the strong, continuing relationships we’ve developed with them, and up to now we’ve never experienced material problems,” Brusone said.
Another recent example of how the Italians are increasing their control came this spring, when Gucci won a major battle with its fragrance licensee, Wella, for creative control over the image and advertising of Gucci fragrances, which landed back on the perfume map with the launch of Gucci Envy this spring.
Wella had produced its own campaign, which Gucci creative director Tom Ford didn’t feel was consistent with the company’s overall image. After some tough arm-wrestling, Gucci got what it wanted — and then came out with its own campaign for the fragrance.
“The key issue for us was creative control,” said Domenico De Sole, president and chief executive officer of the Gucci Group. “Now the advertising will be totally consistent with the rest of the Gucci image,” he said at the time. Gucci has also worked out a tighter deal with its watch manufacturer, Severin Wunderman, about image control.
For Italy’s top clothing manufacturers, preserving a designer’s image is sacred. Often, their reputations depend on it.
The manufacturers can also play a significant role in boosting the designers’ images because they also contribute to media budgets, usually in terms of a percentage of sales.
Aeffe and Ittierre, which manufacture signature, second and jeans lines for Italian, French and American designers, were started with the idea of working side-by-side with designers to develop collections.
Aeffe’s strength is in manufacturing technically “difficult” collections that require unusual details and couture-like handwork.The company, based in San Giovanni in Marignano on the Adriatic coast, manufactures lines for Alberta Ferretti, Moschino, Jean-Paul Gaultier, Rifat Ozbek and, most recently, Narciso Rodriguez, whose first collection debuted in Milan Sunday.
Aeffe provides each designer with his or her own creative and commercial offices and staff, which work closely with the design house itself.
The company prides itself on allowing its designers the freedom to concentrate on the creative process, taking the nuts and bolts of production, sales and delivery out of their hands. Ittierre specializes in jeans and young lines and, like Aeffe, gives each designer a separate staff and creative and commercial offices.
Last year, Ittierre opened the company Ittierre Jeans and has just announced that it plans to open Ittierre Couture, which will specialize in first lines. Currently, Ittierre manufactures lines for Gianni Versace, Dolce & Gabbana and Gianfranco Ferre.
Ittierre’s strategy has been to develop “total-look” collections together with the designer — not just the clothes but the bags, the shoes, the scarf and the hat. After arduous market research, Ittierre’s managing director Giancarlo Di Risio approached Gianni Versace with the idea for the Versus collection.
A year later, Di Risio and Versace cooked up the idea for Versace Jeans Couture. Di Risio also helped launch D&G, Dolce & Gabbana Jeans and more recently Gianfranco Ferre Jeans.

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