Thursday, June 25, 2009

From Suits to Underwear to Furniture: Armani Does It All!

The fashion industry today is dominated largely by publicly traded companies and large conglomerates. LVMH owns Louis Vuitton, Kenzo, Celine, Fendi, Marc Jacobs, Pucci, and Givenchy. PPR owns Gucci, Bottega Veneta, Balenciaga, Alexander McQueen, Stella McCartney, and Yves Saint Laurent. Hermès and Burberry are publicly traded. With the heavy emphasis on profits, many family-owned fashion houses, such as Prada and Versace, have been tempted into giving up complete control over their companies and doing the same thing. One man, however, has never even considered taking his fashion company public or allowing ownership to fall into someone else’s hands; that man is Giorgio Armani.
Giorgio Armani and his business partner and boyfriend, Sergio Galeotti, founded the fashion company in 1975 with only $10,000 dollars of start-up capital, which they used to buy materials and rent a small office on Corso Venezia in Milan. He started off by creating unstructured suits for men and then later applied the same design tactics to his women’s wear line. Armani’s clothing quickly gained popularity by appearing in various films and magazines, and by 1982, Armani’s designs were being sold all over Europe and the United States with global sales hovering around $40 million.
Instead of going public or trying to acquire other fashion brands in the attempt to create another luxury group, Armani decided to use a business model called intra-brand expansion, where a company uses one name to sell a wide variety of products in separate lines. Giorgio Armani remained the signature label, which produced the most expensive and high-quality pieces of clothing geared towards adults, but other clothing lines were quickly added. Armani Collezioni provides classic pieces at a slightly less expensive price while Emporio Armani (the most largely distributed Armani line) offers more youthful, trend-inspired pieces geared towards young adults. Furthermore, the brand now includes Armani Privé, the haute couture line which only produces made-to-wear clothing; Armani Exchange, an affordable line of urban wear for younger customers; Armani Jeans, a denim line sold only in department stores; and Armani Junior, a collection of clothing for young children. In addition to his clothing lines, Armani has also created a high-end home furnishings line named Armani Casa and a line of make-up, perfumes, and cologne under Armani Cosmetics. More recently, Armani has associated his name with the construction of several hotels, vacation resorts, and restaurants. Some worry that overusing a name may result in a brand’s loss of status, but Armani’s unique business model allowed it to generate revenue upward of $2 billion in 2008 and the company continues to grow throughout its many brands.
Giorgio Armani’s brands have also done extremely well during the current economic crisis. Women’s Wear Daily reported in early May 2009 that Armani has shown resilience in the face of a tough economy, the result “propelled by growth across all brands and regions.” While recession and heavy investment depleted profits, Giorgio Armani SpA was still able to increase sales by 1.5 percent in 2008. At constant exchange, the sales increase rested at 2.4 percent, with revenues in Greater China rising over thirty percent, which offset the brand’s four percent drop in Japan. “There is no doubt that 2008 has been a difficult year for the fashion and luxury market,” said Giorgio Armani, but he continued to publicize his brand’s strength and the “solidity” of his company’s “successful business model.” Armani also said that he maintains his beliefs in the company’s vision, goals, strategic choices, and that “this belief encourages us to maintain a long-term view in any initiative we undertake.”
Today, there is much rumor and speculation about what will happen to the Armani brand in the future. Armani is almost 75 years old, and has been approached several times by fashion reporters with one question, “When are you going to retire?” There were rumors in July 2004 that Narciso Rodriguez was asked to take over upon Armani’s departure, but officially, the designer says he has no plans to leave anytime soon. He just opened up a beautiful Manhattan flagship store in the fall, and he recently showed his 2009 Resort Collection, which received rave reviews. Nothing is certain about where the label will be in ten years from now, but for the time being, Armani lovers have nothing to worry about! Keep impressing us Giorgio!

Monday, June 22, 2009

Luxury and Economic Recession

I recently finished writing my senior thesis for the Global Studies department at UCLA. The thirty-five page paper is entitled, Luxury and Recession: How the Fashion Industry Defies Global Economic Downturns. Because I have been working on this paper for the past 6 months, this blog has not been updated until very recently. Now, I have lots of new material to share, and I hope to make many posts throughout the summer months. Since I have spent so long thinking about how economic recession (something we seem to be hearing way too much about these days) and luxury are inexorably intertwined, I thought I would write about it here as well.
Despite the fact that high fashion has always been directed towards the world’s wealthiest customers, many luxury companies have direct historical ties with recession. Some fashion houses have even rose to fame specifically for how they handled their affairs during hard economic times. Right before World War One, a man by the name of Paul Poiret dominated the fashion scene in Paris, creating dresses for women that used large amounts of colorful, expensive fabrics which blurred the lines between art and clothing. When war broke out, these fabrics became scarce and his outfits became impractical for the generation of women who now needed to go to work in factories and in the fields in order to support their family while their husbands were at war. Gabrielle ‘Coco’ Chanel perceived the need for a more simple and refined style, and she presented the world with the little black dress, which was easy to move about in and used far less material than Poiret’s ornate gowns. By adapting to difficult times, Chanel gave women their first “staple” item of clothing, and created an outfit and a fashion brand that has not gone out of style for nearly a century.
Twenty years later, during the 1930’s German Occupation in France, paper, cardboard, and other sorts of packaging became scarce and many materials became rationed for use in the war. Hermès, one of the few fashion houses that did not close shop during World War II, used the only color of packaging material that they had available: vibrant orange. Hermès used it for boxes and bags and almost overnight it became the house’s signature color, and it is still used to this day.
Again, almost fifty years later in 1978, Miuccia Prada took over her grandfather’s Italian luggage company and showed the world how design could defy economic downturn. Prada wanted everything that came out of her shop to be new: new in design and new in concept. In the early 80’s, the world was still recovering from the economic damage brought on by the OPEC Oil Crisis, and Prada perceived the need for a high fashion bag that met the needs of women of the times. She began looking at other materials besides the traditional leathers, which had been stigmatized as excessive and lavish by previous fashion houses like Chanel and Hermès, whose opulence did not seem to have a place during the economic downturn. She instead turned to a nylon parachute fabric, which was light and durable (and far less expensive than leather, crocodile, or silk) and she created the first high fashion backpack. At first, critics were skeptical at the deviation from the usual notions of luxury, but the nylon backpack ended up being a huge success and turned Prada into a household name. Since then, she has used the nylon fabric to create purses, messenger bags, wallets, and luggage, all the while keeping the fashion house as reputable and prestigious as her competitors.
It is always difficult to do business in a troubled economy, but for the fashion houses mentioned above, innovation during a time of crisis proved to pay off. This should be a lesson for designers and fashion houses today - remembering that creativity and originality will be handsomely rewarded, even during a recession.

Saturday, June 20, 2009

When East Met West: Examining the Japanese Fashion Market

While China has been the new obsession for fashion companies seeking new territory, Japan was the first Asian market to openly embrace Western luxury brands into their economy and it remains the country with the third largest retail spending in the world. When the Japanese economy took off in the late 1960’s, the large Japanese middle-class found that they were ready to start living a more grandiose life-style. In another country, one might have expected to see the construction of impressive mansions, but in densely populated cities like Tokyo, this proved to be an impossible feat. Instead, the Japanese turned to high fashion, dressing themselves in expensive silks and furs, and accessorizing with lavish jewels and expensive leather wallets and handbags. Japanese consumers claimed that they decided to buy luxury products for reasons of durability, yet researchers believe that a larger sociological mentality plays a bigger role in the Japanese obsession with high fashion. Japan is both a classless (85 percent of Japanese citizens believe themselves to be middle-class ) and conformist society, and the combination of the two makes them very receptive to brand marketing. Dana Thomas writes that, “by wearing and carrying luxury goods covered with logos, the Japanese are able to identify themselves in socioeconomic terms as well as conform to social mores. It’s as if they are branding themselves.”
With the Japanese focusing on logo-centric fashion brands, it is no wonder that Louis Vuitton is so successful in the country. Vuitton pioneered the Japanese market when it began retailing in five different Tokyo department stores in March 1978 and another in Osaka six months later. In the first year, those six stores sold 5.8 million dollars worth of Vuitton products and had doubled sales to $11 million by 1980. In 2007, it was estimated that approximately 2/5 of the Japanese population owned a Vuitton product. Vuitton’s success let countless other fashion houses, such as Prada, Gucci, and Hermès to try and get their products to Japanese consumers. Clay Chandler, journalist for Fortune Magazine, writes that even “after the ‘bubble economy’ burst, with Japan’s jobless rate hovering at an all-time high, stocks languishing, and bankruptcies raging - shoppers still can’t get enough $4,000 handbags and $1,500 shoes. The fashion industry is counting on shoppers in the industrial world’s sickest economy to keep it afloat.” Today, analysts estimate that 20 percent of all luxury goods are sold in Japan and another 30 percent to Japanese citizens traveling abroad, meaning that Japanese buy half of all luxury goods sold in the world today.
While the market in Japan has been historically important for the luxury goods industry, it may soon be giving way to markets like China, Russia, and India. The Economist reported in September 2008 that the Japanese star of the luxury goods industry may be losing its shine, as sales slid in Japan for brands such as Hermès, Gucci, Tiffany, Chanel and Armani. Pioneer brand Louis Vuitton experienced a six percent slide in the first six months of 2008, the first time sales have dropped for the company since its arrival in the country in 1978.
Many factors play into the decreasing demand for high fashion in Japan. Primarily, the weak economy and the steady appreciation of the euro against the yen in recent years have made it more difficult for Japanese customers to bring themselves to buy European luxury imports. Furthermore, the population of young, single, wealthy Japanese citizens still living at home with their parents (and subsequently, a large customer base for ostentatious purchases) is starting to age, leaving fewer fashion-crazed consumers in their place. Lastly, it seems as though tastes are starting to change in Japan regarding luxury purchases – there is more of an interest in craftsmanship and long-term value in each purchase, instead of simply buying logo-covered status symbols. The important question is whether Japan is an isolated example, or whether it signals a broader shift in consumer values, as explained earlier in the paper. If customers in other developed countries are no longer impressed by logos, will the big brands change their companies’ images or will they come to rely more heavily on fast-growing emerging economies, where the new rich will continue purchasing status and glamour at any price?

Wednesday, June 17, 2009

LoVe Louis Vuitton

Without a doubt, Louis Vuitton is the dominant fashion brand of the world today, generating more money in sales than any other brand in the luxury market. Louis Vuitton was founded in 1854 in Paris by Monsieur Louis Vuitton, who was a master trunk-maker for members of the French aristocracy. While he started out with one single shop on the Rue des Capucines, Vuitton’s merchandise became so popular that only five years later he was able to start expanding his business, purchasing land throughout France in order to set up workshops where his products could be manufactured. He worked with his son, Georges Vuitton, who designed the famous monogram canvas in 1896 and then registered it as the company trademark in 1905. This monogram logo now adorns a variety of Louis Vuitton products, from bags to belts to neckties and has become synonymous with the brand itself. Even as monarchies began to crumble, Louis Vuitton continued to expand as more and more people wished to buy into the dream of luxurious living. War in Europe hurt Vuitton immensely however, and little was done in terms of growth until the early 1980’s, when Henry Racamier (son-in-law of Renée Vuitton) took over and began vertically integrating the company. He opened Vuitton-owned and operated boutiques, effectively cutting out the middleman and increasing profit margins by 40 percent. In 1984, Vuitton went public on the Paris Bourse and the New York Stock Exchange, and the company’s sales had reached $143 million, turning the once small, family-owned business into a global corporate giant.
While Racamier brought Vuitton onto the world stage, the current Chairman of LVMH, Bernard Arnault, is responsible for making the brand what it is today. After a hostile acquisition of the company in April 1990, Arnault began revamping the company’s image – recreating the old notions of luxury travel and reinvigorating the design side of the company. Louis Vuitton quickly evolved from a luggage company into a fashion company, which produces everything from ready-to-wear clothing for men and women, to accessories such as wallets, sunglasses, scarves, and jewelry. Creative Director of Vuitton, and currently the world’s most celebrated designer, Marc Jacobs says that the brand’s image today is all about “mass-produced luxury. Vuitton is a status symbol. It’s not about hiding the logo. It’s about being a bit of a show-off.” This notion of mass-produced luxury and recognizable status has become intertwined with the brand, and is largely responsible for keeping Louis Vuitton so successful throughout the years, despite whatever downturns might be occurring in the economy at the time.