ChinaFrugality drive athome makes littleimpact on Chinesetourists abroadPage 2

Inside »

Changes at topEconomy slowdownprompts stream ofcreative hiringsand firingsPage 3

Routes to marketStock exchangescompete withprivate equity andindustry rivalsPage 4

World economyMartin Wolfexplores growthprospects with twoeconomistsPage 5

FT SPECIAL REPORT

Business of LuxuryMonday June 3 2013 www.ft.com/reports | twitter.com/ftreports

At an exhibition in Paris dedi-cated to French savoir-fairein May, Frédéric Lefebvrewho runs the family firmRennotte Riot, displayed the

brass mouldings, handles and decora-tive elements in which the bronzerestorer specialises.

Based in southern Paris, thisemployer of 13 people that wasfounded in the 1880s has worked onthe palace of Versailles, France’s con-stitutional council and, more recently,on a Russian multimillionaire’s air-craft. “He wanted it in the Frenchstyle, so we made small bronze lionheads for the interior,” Mr Lefebvreexplained.

The work demands technical skills,the supply of which is dwindling.“Our work is very specialist andneeds a lot of training. It’s hard forme to find artisans with the rightskills,” he said.

Elisabeth Ponsolle des Portes, headof the Comité Colbert, the French lux-ury goods association, says more hasto be done to encourage youngsters topursue a career as a luxury artisan.

The association’s own work withschools has revealed that students areoften unaware of luxury trades, suchas a fragrance “nose” or a trunk-maker, but are curious to hear more.

“The subject of training is achallenge because savoir-faire andquality are essential to production,”she says over tea served in green andwhite-striped Bernardaud porcelain inher office, a stone’s throw from the

presidential Elysée palace. Sheis battling for the creation of aEuropean register of savoir-faire anddesignated titles for master artisans.This would be similar to Japan’s liv-ing national treasures list, which aimsto showcase intangible culturalassets.

The debate is about more than adesire to preserve a way of manufactur-ing. Culture and craftsmanship havebecome tools in luxury’s efforts to pro-mote itself as a strategic industry ableto trade on “made in Europe” labels.

Years of lobbying yielded a big

breakthrough in September, when theEuropean Commission acknowledgedluxury as a sector in its own right,instead of part of another industrysuch as textiles, cars or leather goods.

This is described as “our first publicachievement” by Armando Branchini,president of the European Culturaland Creative Industries Alliance(ECCIA), a lobby group.

For the first time, the EU’s execu-tive body had “recognised . . . thehigh-end industry as the pillar ofcultural and creative industries”, saidMr Branchini, who is also head of

Altagamma, Italy’s luxury goods asso-ciation which created the ECCIA in2010, together with France’s ComitéColbert, the UK’s luxury body Wal-pole, Meisterkreis in Germany andSpain’s Circulo Fortuny.

In Europe, the ECCIA was pushingat an open door. In the same year,Italian politician Antonio Tajanibecame the European Union’s com-missioner for industry, and heactively solicited the sector’s views.

The traditional view of luxury andfashion as an adjunct to other indus-tries and not a real manufacturing

sector “seemed absurd”, said MrTajani, speaking to the FinancialTimes this year. “Fashion and tour-ism are two key sectors for Europe’seconomy; they are part of the solutionto the continent’s growth agenda.”

Buoyed by strong demand fromChina in particular, Europe’s luxurygoods industry has grown by doubledigits in the last two years, while theeurozone economy has stagnated.

Luxury accounted for 3 per cent ofEurope’s economic output in 2010 and

Continued on Page 6

Strategic industry comes of ageCulture and craftsmanshiphave become tools topromote a business that isnow acknowledged inits own right, writesScheherazade Daneshkhu

For online coverageof the FT luxuryconference inVienna, June 2-3www.ft.com/luxury360

On FT.com »

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2 ★ FINANCIAL TIMES MONDAY JUNE 3 2013

Business of Luxury China

Scheherazade DaneshkhuParis correspondent

Martin WolfChief economics commentator

James KyngePrincipal, ftchinaconfidential.com

Rachel SandersonMilan correspondent

Elizabeth PatonUS fashion & luxury correspondent

Andrea FelstedSenior retail correspondent

Arash MassoudiReporter

Leyla BoultonCommissioning editor and head ofproduction, special reports

Steven BirdDesign

For advertising details, contact CharlotteWilliamson +44 (0)20 7873 6321 4038,email charlotte.williamson@ft.com

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From the moment Xi Jinping’saircraft touched down in Mos-cow in March, it was clearthat the world of Chinese lux-ury would be sent into flux.

The plane’s door opened to revealPresident Xi linking arms with hiswife, Peng Liyuan, a famous singer,dressed in a designer navy blue over-coat with matching handbag and alight turquoise silk scarf.

Within seconds, China’s tumultuoussocial media was in thrall. All ele-ments of her couture – both in Mos-cow and later in Tanzania where shewore pearl earrings and a lightChanel-style suit with matching hand-bag – were scrutinised, with millionsclamouring to know which brands MsPeng had chosen. As the answersemerged, it became clear that MsPeng had made more than just a fash-ion statement – she had personifiedBeijing’s preferred vision for luxuryin China.

The first lady’s fashion choices werefor more affordable, logo-free domesticbrands, marking a sharp contrastwith the prevalent Chinese taste forforeign, sometimes flashy, luxuryitems with famous brand namesprominently displayed.

Such an attitude is intimatelyaligned with some of the key mes-sages in a national campaign,launched by President Xi late lastyear, to promote frugal tastes and

smash the scourge of official corrup-tion.

While it may be some time beforethe dominance of foreign brand lux-ury in China diminishes, the combina-tion of Ms Peng’s allure – which someliken to the “Kate Middleton effect” –and the purposefulness of Mr Xi’scampaigns are already having animpact.

Three important changes are underway: some nascent domestic brandsare starting to win a wider following,domestic luxury spending is turningmore furtive and the buying of luxurygoods overseas by Chinese outboundtravellers is booming.

One of the brands Ms Peng chosewas Exception de Mixmind, whichwas so swamped with interest as aresult that its website crashed. Ma Ke,chief designer at Exception, has a sim-ple philosophy that chimes perfectlywith the new official zeitgeist.“Today’s fashion is no longer aboutfancy appearances that follow trends,”she was quoted by China Pictorial, anofficial magazine, as saying. “Instead,being fashionable should mean pursu-ing a return to the ordinary. Real lux-ury lies in the spirit a garment con-veys, not a high price.”

Other homegrown brands gaining aprofile include Shang Xia, touted asChina’s answer to Hermès, led byJiang Qionger, the daughter of Chi-nese architect Dong Dayou, who

designed the Shanghai museum. Thelabel was acquired by Hermès in 2010and is planning to open a first inter-national flagship store in Paris laterthis year. Qeelin is a jewellery labelbought by the French group PPR(which is about to change its name toKering) in December and is bestknown for combining Chinese cul-tural motifs such as pandas, goldfishand gourds with the French crafts-manship of its co-founder GuillaumeBrochard. Xander Zhou, sometimesbilled as the Chinese equivalent ofYves Saint Laurent, was launched in2007 and trades quirky variations offamiliar garments, such as shouldercut-outs on coats or jumpers.

So far, the inroads made by suchbrands are marginal. The animatingenergies of the Chinese luxury marketare not to be found within China atall but in a collection of overseas cit-ies that last year attracted about 83moutbound Chinese travellers.

The World Luxury Association(WLA) estimates that of the $50bnspent by Chinese on luxury last year,some 60 per cent was overseas. In themonth to February 20 (covering theChinese New Year period), the diver-gent trends are striking. While anestimated $8.5bn was spent overseas,up 18 per cent from the same periodin 2012, only $830m was spent domes-tically, down 53 per cent from a yearearlier.

According to a survey of some 1,200Chinese outbound travellers con-ducted by China Confidential, aresearch service at the FinancialTimes, Chinese tourists tend to leavefrugality at passport control. Thewealthiest 26 per cent of outboundtourists spent an average ofRmb32,628 ($5,241) on their mostrecent overseas trip, with shoppingaccounting for almost half the total(Rmb15,699). The survey was con-ducted in January as President Xi’sfrugality campaign got under way.

With luxury goods overseas oftencosting 45 per cent less than identicalitems at home, price is an importantmotivator behind the alacrity of Chi-nese to pick up bags in Milan, per-fume in Paris, coats in London,watches in Geneva and an array ofduty free products in internationalairports. Such sprees are oftenminutely planned before Chineseleave home with a long list of itemsthat they have pledged to buy forfriends, family and colleagues.

Price is not the only factor. A sensethat luxury goods bought overseas arelikely to be more genuine, safe andhigh-quality than those on sale inChina ranked high among reasons foroverseas shopping among respondentsto the China Confidential survey.

James Kynge is principal atftchinaconfidential.com

Presidentialcouple seeks toinspire moodof sobriety

ShoppingWhile frugalitymay be the officialline, Chinese tourists tend to leave such notionsat home, reports JamesKynge

0

5

10

15

20

Italy Germany France US Japan UK SouthKorea

Macau HongKong

SingaporeAustralia

Thailand

How much did you spend on the following items on your mostrecent overseas trip?Average spending by destination (Rmb ’000)

Source: China Confidential

Jewellery and watchesClothes, shoes and hatsBagsMake-up and cosmeticsElectronics

OthersCigarettes and alcoholBaby products

Souvenirs and local specialities

Chinese president Xi Jinping and his wife Peng Liyuan arrive in Moscow Getty

Genuine

High quality

Trust inthe origin

Cheaper

Better service

Other

Reasons for buying goods overseasPer cent

Source: China Confidential

2.4

56.0

50.2

48.9

47.3

31.2

FT research »For specialistresearch on wealthyindividuals, travel andconsumer trends:ftchinaconfidential.com

There is no doubt thatChina’s campaigns to pro-mote frugality and smashcorruption are hitting salesof luxury items fromwatches to clothes, cars,apartments and even toprivate jets. What is lessclear is whether the twincampaigns are likely to sof-ten or intensify, changefocus or just be quietlydropped.

The past teaches that allcampaigns in China have afinite lease. The “spiritualpollution” movement of theearly 1980s, the crusadeagainst “bourgeois liberali-sation” in the aftermath ofthe 1989 Tiananmen crack-down, the cause to promotethe thought of the “ThreeRepresents” a decade agoand several others have allserved their time beforefalling by the wayside.

But those hoping for aswift conclusion to the cur-rent campaigns against cor-ruption and gluttony maybe disappointed. The driveto rein in official excess car-ries several hallmarks ofreal determination at thehighest levels of govern-ment, suggesting that XiJinping, who was selectedas Communist party bosslast November, sees thefight against corruption asone of the defining aims ofhis administration.

The first of these hall-marks came in the daysafter Mr Xi’s elevation toparty boss. The man giventhe anti-crime portfolio inthe new politburo standingcommittee was Wang Qis-han, a former deputy pre-mier with a strong trackrecord for getting thingsdone in an uncompromisingmanner.

The second sign of high-level resolve was the speedat which the campaign wasscaled up. Already, well-publicised disciplinaryaction has been takenagainst officials caughtfeasting at the expense of

the public purse, buyingmultiple high-end proper-ties, giving expensive“gifts” to win favour, wear-ing luxury watches, drivingpremium brand cars andengaging in corrupt prac-tises.

In addition to this hunt-ing down of “flies as well astigers” – as Mr Xi put it –key structural changes areunder way, most notably incurbing local governmentabuse of the bond marketand managing aspects ofthe shadow financial sys-tem.

Perhaps the most impor-tant indicator of the poten-tial longevity of Mr Xi’scampaign is that the publicoverwhelmingly supports it,thus far at least. Users ofWeibo, China’s version oftwitter, have leapt intoaction, posting photographsof officials gorging them-selves on fine wine at sump-tuous banquets, or drivingluxury cars with militarynumber plates, wearingostentatious luxury itemsand pursuing debauchedlifestyles.

All this is having a sizea-ble impact on the sales ofpremium products and serv-ices. First-class airlineticket sales have eased by atenth in recent months, theprices of Maotai, a fiery tip-ple favoured at banquets,have been sliding as salesplummet and, according toShen Danyang, spokesmanfor the ministry of com-merce, sharks’ fin soup

sales have dropped 70 percent this year while edibleswallow’s nests, anotherdelicacy, have dropped40 per cent.

Luxury watchmakers,some of which haveexpanded rapidly in Chinain recent years, have seenthe market soften this year,particularly at the premiumend.

“All watches costingmore than 1,800 francs arehaving difficulties in Chinaat the moment,” said Jean-Christophe Babin, whenstill the TAG Heuer chief

executive before moving toBulgari (see page 3). Mid-range brands appear to bemore upbeat, with buyingby Chinese outbound travel-lers in particular compen-sating to some extent forthe drop-off in sales domes-tically.

In the other areas – suchas cars – foreign brands aresubject to official treatmentthat suggests domesticrivals may stand to benefit.The ministry of industryand information technol-ogy, for instance, has pub-lished a list of 400 types of

car suitable for official use.Unsurprisingly, the list isdominated by domestic andjoint-venture brands. It con-tains glaring omissionssuch as Audi, Volkswagenand Toyota, the hithertofavourite choices for self-re-garding officials.

Sales growth for luxuryvehicles, dominated by Ger-man brands Audi, BMWand Mercedes-Benz, slowedto 4 per cent in the firstquarter of this year, farbelow the 13 per centannual growth in the pas-senger car market, accord-ing to China’s association ofautomobile manufacturers.

BMW says it expects theslowdown to continue thisyear, with growth reachinghigh single digits – com-pared with 40 per cent lastyear – and a total of 326,000vehicles. Daimler, owner ofthe Mercedes-Benz brand, issomewhat more upbeat. Itstill plans to add 75 dealer-ships in China this year tothe current 262, says Huber-tus Troska, Daimler’s boardmember responsible forChina.

Chinese brands mean-while are making someinroads, mainly from gov-ernment offices. In signsthe frugality campaign mayspell further gloom for lux-ury car sales, the officialPeople’s Daily newspaperrecently suggested that aluxury tax would benefitsociety and that a tax onluxury cars, in particular,was a “reasonable” idea.

Anti-corruption drive makesforeign executives take noteFight against graft

All campaigns have afinite lease althoughthis one may last,says James Kynge

Actor Huang Xiaoming attends Mercedes-Benz China fashion week opening Getty

Social media usershave posted photosof officials drinkingfine wine or drivingluxury cars

FINANCIAL TIMES MONDAY JUNE 3 2013 ★ 3

Business of Luxury

The stagnating eurozone, aglobal tourism slowdownplus a crackdown in Chinaon ostentatious gift-givinghave all taken their toll on

sales and profits for many of theworld’s biggest luxury brands.

This has led to a stream of hiringsand firings, as companies search forinnovative yet experienced leaderswho can conquer emerging markets,size up growth opportunities andnavigate the merry-go-round of themergers and acquisitions world.

Here are some of the industry’shigh-profile managerial and creativeappointments of the past year.

Jean­Christophe BabinChief executive, BulgariThis charismatic former Procter &Gamble executive spent 12 yearsrunning TAG Heuer until his movewithin the LVMH stable to Bulgariin February. Widely credited as theforce behind an impressive reversalof fortunes at the Swiss watch brand,the 51-year-old stepped in at theItalian jewellery house to replaceMichael Burke (see profile below).Mr Babin is expected to raisethe global profile of thebusiness – although he willbe keen to avoid anotherscandal like the oneencountered in March,when Italian police seized€46m worth of Bulgariassets, including thejeweller’s flagship Romanstore, in a probe ofalleged tax evasionprior to its €3.7bnacquisition byLVMH in 2011.

Anna WintourArtistic director,Condé NastCondé Nast’smost high-profileemployee(pictured right)cemented herposition as jewelin the managerialcrown at the USpublishing house withthis March appointment.The editor-in-chief of

American Vogue – at one stagetouted as President Barack Obama’snext UK ambassador thanks to herpolitical fundraising talents – willnow oversee creative and personneldevelopment across all publications.The new position reflects recognitionof how valuable Ms Wintour is to thecompany – and the efforts it willmake to retain her. But the fact herexperience lies predominantly inprint – not digital – has led someelsewhere to question the move.

David ChuChief executive, Georg JensenThis Taiwanese-US design guru isbest known as the founder ofNautica, the US lifestyle brand hesold for $1bn to the VF Corporationin 2003. Mr Chu was initiallyappointed chief creative officer ofGeorg Jensen, the Danish luxurylabel, following its acquisition byMiddle Eastern investment houseInvestcorp in November 2012. InMarch, he became chief executiveand is expected to spearhead growththrough expansion in Asia.

Pierre DenisChief executive,

Jimmy ChooThe go-to shoe brand forHollywood starlets,socialites andbusinesswomen alike hashad a torrid time of

late. After the abruptdeparture of both

founder TamaraMellon and chiefexecutive JoshuaSchulman, theformer boss ofJohn Galliano

arrived in July tooversee atransition from anA-list accessorieschoice to lifestylepowerhouse. Newowner Labelux –the privately

owned holdingcompany controlled

by Joh. A Benckiser– will be wantingresults. Adiversification intoareas such as

fragrance and eyewear is presumablyintended to act as a stepping stonefor younger consumers to buy moreexpensive leather goods.

Michael BurkeChief executive and chairman,Louis VuittonThis 27-year LVMH veteran (picturedbelow) had stints of increasingseniority at Christian Dior, Fendi,and Bulgari before unexpectedlystepping in to lead Louis Vuitton inDecember after his predecessor JordiConstans retired due to ill health.The French-born Mr Burkeunderstands LVMH inside out,having worked with chairmanBernard Arnault since before thegroup was created. The brand facesslowing sales in core Asian andEuropean markets and is putting thebrakes on global expansion, shiftingfocus to its leather goods sector. Thebrand, which analysts estimatemakes up to 70 per cent of all €7bnsales for LVMH’s fashion and leatherdivision, needs to retain exclusivityand craftsmanship to keep its A-lister position in the industry –tricky given the increasingubiquity of its monogramlogo.

Bernard Fornas andRichard LepeuCo-chief executives, RichemontStepping down respectively aschief executive of Cartier,Richemont’s biggest brand,and group deputy chiefexecutive, Messrs Fornasand Lepeu jointly tookthe helm at the world’sthird largest luxuryconglomerate in March.Two months later,Johann Rupert, chairmanand founder, announcedhe would take a 12-month sabbatical fromSeptember whilepromising to return.

Björn GuldenChief executive,PumaThe formerprofessionalfootball playerwas poached from

Danish jeweller Pandora in April torun Puma, Kering’s core sports-lifestyle brand. Kering, currently inthe process of changing its namefrom PPR, seeks to reposition itselfas a luxury and lifestyle group, areaswhere it sees the strongest growth.Mr Gulden will have his work cutout when he assumes his position inJuly. A turnround in fortunes isrequired at the German sportswearmaker which has seen plummetingsales and a drop in net income of athird so far in 2013.

Stéphane LinderChief executive, TAG HeuerThis Swiss national was appointed tomanage one of the brightest stars inthe LVMH constellation in May aftermore than two decades at the brand.The one-time head of R&D hasexperience firmly rooted in product.He introduced both the sunglassesand haute horlogerie ranges tothe TAG Heuer portfolio. Mostrecently head of the North Americadivision, Mr Linder will focuson developing the womenswearcollection, entering emergingmarkets beyond Chinaand consolidating in-housemanufacturing capacity withthe aim of increasing self-sufficiency.

Alexander WangCreative director,BalenciagaAfter NicolasGhesquière’s 15-yeartenure ended abruptlylast November,parent companyKering spent just sixweeks searching fora successor. Stepforward the 29-year-old princelingof New Yorkdowntown cool(pictured right) whopioneered off-dutysports luxe with theeponymous label helaunched in 2007 afterdropping out fromParson’s art college. Nowoverseeing 32 collections ayear between the twobrands, Mr Wang’s

monochromatic, highly structuredfirst offering for the French designhouse in February was met withapproval from those gathered on thefront row. It is still unclear as towhether his sharp deviation fromBalenciaga’s rigorous haute modeheritage can translate into increasedsales.

Brendan MullaneCreative director, BrioniThe former Givenchy mensweardesigner was appointed a year ago,six months after Kering bought theiconic Italian brand in a bid to gaina better foothold in Asia’s boomingmenswear market.

Stefano PilatiHead of design, Ermenegildo ZegnaAfter failure to renew his Yves SaintLaurent contract made way forenfant terrible Hedi Slimane, thehighly capable Mr Pilati arrived atZegna in January. The brand isenjoying success in China and hasbegun expanding in sub-Saharan

Africa (see article on page 6).

Alasdhair WillisCreative director, HunterThe dashing entrepreneurand husband of designerStella McCartney took thecreative helm of the British

manufacturer best knownfor its Wellington bootin February, as it

expands rapidlyunder controlling

shareholderSearchlightCapitalPartners.

AlessandraFacchinetti,Creativedirector, Tod’sWith high-profile ifshortlived stints

at Gucci andValentino, MsFacchinettiappears equippedto take onoperations at theItalian accessoriescompany.

Top executives play game of musical chairsEconomic slowdownhas led to hirings and firings as owners seek innovative yet experienced leaders, reportsElizabeth Paton

Candidates must be ableto conquer emergingmarkets, and navigatemergers and acquisitions

4 ★ FINANCIAL TIMES MONDAY JUNE 3 2013

Business of Luxury

After successfully complet-ing the listing of a third ofhis luxury business inMilan last year, BrunelloCucinelli, Italy’s self-styled“King of Cashmere”, paideach of his 700 employees aspecial bonus of €6,300.

The payout, mostly givento knitters and weaversbased in his headquartersin a hill top hamlet inUmbria, was the latestexample of what MrCucinelli calls his philoso-phy of “humanist capital-ism”.

The former chartered sur-veyor has built his businessfor 30 years on the idea offostering traditional Italianartisanship and paying hisworkers above an aboveaverage wage. “Luxury con-sumers want to know, orwill want to know, thattheir goods are madehumanely,” Mr Cucinellimaintains.

Where once Mr Cucinelliwas in a minority that is nolonger the case. As logoshave gone out of fashionand industry surveys rou-tinely find consumersunhappy with customerservice in luxury goodsstores, experts say theentire concept of luxury isnow centred on artisanship.Manufacturing is king andcan make – or break – abrand.

“The only source of lux-ury is who makes the prod-uct. This is luxury today,”says Stefania Saviolo, a lux-ury goods industry expertat Milan’s Bocconi univer-sity and head of its mastersin fashion programme.

This shift in consumertaste can be clearly seen in

the sales of luxury brandstoday.

The marques where salesare growing sharpest arethose perceived by consum-ers to be based on artisan-ship and manufacturingexcellence such as Hermès,Chanel, Bottega Veneta,Céline and BrunelloCucinelli.

At Hermès, sales rose 22per cent in 2012 to €3.5bnoutpacing a rise of about 10per cent for the market atlarge. Operating profits atBottega Veneta rose 47 percent to €300m.

At Cucinelli sales rose 15per cent in 2012. Shares inthe company have doubledin value since it listed ayear ago, making MrCucinelli, 59, a billionaire.

While the shift in tasteaway from logos andtowards artisanship is inpart a reaction to the finan-cial crisis in the US andEurope bringing the curtaindown on an era of “bling”,analysts point out that themain reason is Chinesetastes.

“Most Chinese and Japa-nese luxury consumers stillassociate the Made inEurope label with superiorquality but increasingly feelthe prices need to be justi-fied not just on the basis of200 years of history but alsothe transparency of the sup-ply chain,” says ThomasChauvet, head of Europeanluxury goods research atCiti.

As Luca Solca, head ofluxury research at ExaneBNP Paribas, points out,“luxury goods are all aboutChina”. Chinese havebecome the largest consum-ers group by far with aquarter of the market. As aconsequence, the industryis adapting to meet theirdemands.

The exception to the ruleis Prada. The Milanese fash-ion house reported in itsprospectus to its 2011 IPOthat it made about 20 percent of its collections –clothing to shoes to

handbags – in China. It alsouses manufacturing in Tur-key and Romania.

That choice appears tohave had no effect on itssales. These increased 29per cent in 2012 driven bysales to Asian consumers athome and Chinese touristsshopping in Europe. Ana-lysts have come to the con-clusion that consumersdesire to have MiucciaPrada’s designs outweighsmanufacturing bias towardsEurope.

By contrast, Gucci andBottega Veneta, the starbrands of the Kering group(the new name for PPR) putunrivalled emphasis on theethics of their manufactur-ing process. They have anenvironmental profit andloss account in an attemptto show consumers thesocial and environmentalimpact of their supplychain.

It is an issue that mostparticularly pertains toItaly, where the majority ofthe world’s luxury goods –from leather goods to tex-tiles to ready-to-wear – are

made. Italy’s dominancein manufacturing luxurygoods is in part becausemuch of the traditional arti-sanship has been lost inFrance and the UK.

Bottega’s woven intrecci-ato infilato bags are madein Vicenza, in north-easternItaly. Here Bottega hasinvested in developing amanufacturing cluster,including a school, to pre-serve the artisan skills itneeds to meet surging Chi-nese demand for styles suchas its Cabat, with a startingprice of €4,800 for a nappaleather version.

Marco Bizzarri, chiefexecutive of BottegaVeneta, says “consumersare much more careful nowabout what they buy andthey are going back to lux-ury roots, where the prod-uct is everything”.

He adds: “This is not amarketing gimmick. Com-panies that are basedaround their product arethe strongest ones now.”

Mr Bizzarri says preserv-ing Bottega’s Made in Italyartisanship is key becausemany of its artisans are thesons of former artisans and“we cannot replicate thismodel abroad”. But in suchas Vicenza, he says, there isanother advantage: “It is asmall district, a small clus-ter. The flows of informa-tion are so quick that theycreate innovation. Thiswould never happen if wewere sending prototypesaround the world.”

Consumerspush big namesto account forsupply chainsManufacturing

How products arecreated can makeor break a brand,reports RachelSanderson

At work: employee at a Brunello Cucinelli factory Bloomberg

‘Customers stillassociate Made inEurope with qualitybut feel prices mustbe justified’

Six years after the height ofprivate equity’s interest inluxury fashion was markedby Permira’s acquisition ofValentino Fashion Group,investment firms seek freshopportunities in the high-endsector’s more modestlypriced competitors.In the last six months,

buyout groups have made ahandful of deals in the so-called contemporary market,or companies that offerfashion-led but accessiblypriced clothing, oftenmanufactured offshore.Here growth has been

fuelled by a shift in spendingpreferences since thefinancial crisis.Tory Burch, the

womenswear brand,welcomed two investmentfirms at the start of the yearto help with its expansion.The fashion house, which

sells totes to tunics, hasbuilt a loyal following withbudget-conscious women inthe nine years since itslaunch from Ms Burch’skitchen table.Having already taken the

US market by storm, thecompany is looking to openmore stores in Europe, theMiddle East and Asia.General Atlantic and BDT

Capital Partners, the newinvestors, say they willsupport the company’s pushabroad.Patricia Hedley, managing

director at General Atlantic,says: “In many cases, thereal appeal of working withus is when a company hasglobal aspirations.”Citing experience and

expertise from priorinvestments in Asia, GeneralAtlantic says it can give ToryBurch critical knowhow inareas such as supply chainmanagement and marketing.Other companies that

have brought in privateequity investors sinceNovember include New Yorklifestyle brand Rag & Bone,French ready-to-wear linesSandro and Maje, upmarketdenim maker True Religionand womenswear group JBrand.Each is looking to its new

partners to help with itsgrowth, while offering the

investors a potentiallylucrative opportunity to profitfrom the sector’s rise.Investment firms have

eyed opportunities in therapidly expandingcontemporary marketfollowing the recent successof companies such as JCrew and Michael Kors,which raised $944m from aninitial public offering in 2011on the US market andrecently did a secondaryoffering.Fashion insiders say the

contemporary market’sgrowth has come as high-end, designer-luxury brandsfocus on their wealthiestcustomers with high-marginaccessories, shoes, bags andfragrances.This has created an

opening for brands to fill thevoid for consumers, leftbehind by luxury brands,who still seek sleek apparelbut do not want to spend asmuch for the styles.The labels have also

benefited from the rise ofonline shopping, wherecustomers around the worldcan interact with the brandsbefore shops are openednear them.Andrew Rosen, chief

executive of Theory andHelmut Lang at FastRetailing, the fashion groupbehind rapidly expandingretailer Uniqlo, says creativedesigners working withbrands must remain at theheart of an enterprise for itto stay successful afteroutside investors are broughtin.“These companies need

more than just money. Theyneed founders andvisionaries that can build thebusiness in an ever-changingmarketplace. They need agood leader,” Mr Rosensays.Along with his role at Fast

Retailing, Mr Rosen hasinvested heavily in thecontemporary market withstakes in Rag & Bone, Alice+ Olivia and Gryphon.“At the end of the day, it

is about the products andwho is running them. Thefounders and visionaries ofthese companies arecritically important,” MrRosen adds.“When you look at the

Michael Kors story, thegroup that founded it is stillthere. The same is true atTory Burch.”With private investors

multiplying, thecontemporary market has sofar taken a differentdirection than the luxurysector, which is dominatedby LVMH and PPR.Fast Retailing is the

closest thing to such aconsortium as it owns JBrand and Frenchwomenswear companyComptoir des Cotonniers, inaddition to the companiesrun by Mr Rosen.As dozens of designers

and labels vie to be the nextsuccess story in thecontemporary market,investors can afford to bepicky. “We lookfor . . . companies that areestablished with somehistory, where there issomething unique . . . so thatit’s not a me-too product,”says Sandra Horbach,managing director at Carlyle.The private equity group wassaid to have expressedinterest in Sandro and Majebefore buyout group KKRacquired a 65 per stake in adeal valuing the Frenchlabels at €650m, includingnet debt. “In the sector, thebrand itself is reallyimportant,” adds Ms Hedley.“The brand name, the factthat it is in the know andthe fact that people have anaffinity to it are allsignificant.”

Arash Massoudi

Private equity Deals follow shift in consumer spending

Aspirations: Patricia Hedley

When Milanese jewellerPomellato wanted toraise funds to expandinto Asia, its first choicewas a listing on the

Milan stock exchange. In April,though, it opted for a buyout fromFrench global luxury goods groupPPR, soon to be renamed Kering.

The decision by Pino Rabolini,Pomellato’s founder, to sell his busi-ness to the French instead of sellingshares on the bourse, underlines adynamic animating the luxury goodsindustry. Amid rapid consolidationand fierce competition to acquireindependent luxury brands, theworld’s stock exchanges must fight togain attention.

“Stock exchanges are actually com-peting with Kering and LVMH,” saysClaudia D’Arpizio, head of the luxurygoods practice of Bain, the consul-tancy.

Luxury goods companies have beenamong the most successful listings ofthe past three years. Michael Korslaunched US fashion’s biggest everinitial public offering (IPO) in 2011.Prada, which listed in the same year,has become a star attraction of theHong Kong exchange. Shares in cob-bler-to-the-stars Salvatore Ferragamoand cashmere casual wear labelBrunello Cucinelli more than doubledin value in the past year on Milan’sexchange.

Bankers say they expect a healthyIPO pipeline this year. US sportswearbrand Vince is looking at an autumnoffering, according to Reuters. InItaly, lingerie-to-accessories groupCarpisa Yamamay and sportswearbrand Moncler will consider a listingthis year, say executives.

Meanwhile, bankers say several

prominent unnamed European and USbrands look to follow the example ofNew York-listed Coach. This year it ismaking a secondary listing in HongKong to boost its profile among Chi-nese investors and consumers.

Luca Peyrano, head of continentalEurope, primary markets for the Lon-don Stock Exchange Group, says inItaly, the richest territory for inde-pendent luxury brands with potentialto expand internationally, there is noshortage of companies suitable for adebut on the bourse.

An annual study by consultantsPambianco in association with theMilan stock exchange identifies 100Italian luxury, fashion and designsfirms ready to list on the bourse,including Dolce & Gabbana, Armani,Ermenegildo Zegna, Calzedonia,Yamamay, Twin-Set, MaxMara, Onlythe Brave, Loro Piana, Missoni andMoncler.

Mr Peyrano says the LSE Group,which runs the exchanges in Londonand Milan, is in “close discussions”with five or six of them.

Nonetheless, the conversion rate forIPOs remains low compared with thenumber of luxury goods firms chang-ing hands, according to bankers. Thisis not least because industry leaders,private equity funds and new inves-tors from emerging markets are alsoin the chase giving the owners of lux-ury brands plenty of options to getthe best valuation.

Ms D’Arpizio says many entrepre-neurs are keeping the door open to anIPO and another option – a “dualtrack” process – up until the lastminute as they seek the best valua-tion, particularly amid volatile equitymarkets.

Moncler is a one-time IPO candidate

that actually changed its mind. Man-agement had pursued an IPO in Milanin 2011 but a day before the roadshowwas due to start, the private equityowners, Carlyle, decided to sell theirstake to Eurazeo, another privateequity group, amid concerns aboutthe value it would gain in a volatilemarket.

Bankers were also doubtful thatMoncler’s business – spanning luxuryouterwear to lower priced apparel –would command the valuations of apure luxury company. As a result,Eurazeo is considering listing Monclerin the autumn but may restrict thelisting to the luxury brand and splitoff its lower-margin retail business ina bid to command a higher valuation.

The IPO route remains most attrac-tive for those entrepreneurs with astrong leadership record and who donot need or want a big conglomeratelike Kering or LVMH to provide man-agerial advice. The success of MiucciaPrada and Patrizio Bertelli, the wifeand husband team behind Prada, hasunderlined its potential.

Bankers see Ermenegildo Zegna, afamily-owned group with €1.3bn insales in 2012, as a potential IPO candi-date in this vein. Chief executiveGildo Zegna, however, repeatedlydenies that he is interested in listing.

Claudia Parzani, a partner and co-head of the luxury goods practice atlawyers Linklaters who advised onthe Ferragamo IPO, points outanother advantage of taking the IPOroute, especially in Italy. “Listing is away to overcome the traditional Ital-ian reluctance to [pursue] mergers,”Ms Parzani says. “For a niche com-pany wanting to expand, they can listin order to raise capital and then be ina position to take over rivals.”

Stock marketscompete withbuyouts

Listings Share offerings aremore attractive tostrongmanagers, saysRachel Sanderson

Ringing the bell:Michael Kors launchesinitial public offering Getty

‘A niche companywanting to expandcan list to raisecapital and thentake over rivals’

FINANCIAL TIMES MONDAY JUNE 3 2013 ★ 5

Business of Luxury Economic prospects

Since 2007, the worldeconomy has lain in theshadow of huge financialcrises. Crisis engulfed theUS, the UK and other

western high-income economies in2007 and 2008. From 2010, it engulfedthe eurozone. Japan never fullyrecovered from its crisis of the 1990s.Meanwhile, emerging countries havecontinued to grow robustly, thoughconcerns have grown about thesecountries too, not least over theability of China to manage atransition to slower and moreconsumption-led growth.

So how do Gavyn Davies ofFulcrum Asset Management andHuw Pill, chief European economistof Goldman Sachs see the economicfuture? What might it mean for theluxury industry?

Martin Wolf Is the world coming outof the crisis?Gavyn Davies Yes, though it is anarduous process, which might takeanother five years at least. Thebanking crisis is over in the US, butnot in the UK or the eurozone, bothof which need to implement morefundamental clean-ups.Although central banks havecontained the worst, output in thedeveloped countries is still a longway below trend and recoveryremains weak. The huge waste ofhuman and physical resourcescontinues.

In the longer term, the prognosis isfor a gradual elimination of excesscapacity, as growth recovers.The main catalyst is likely to be areturn to normal risk appetites inthe private sector. With commodityprices weakening, as supplyincreases, global deflation is abigger risk than higher inflation,though neither looks likely.

Quantitative easing is unlikely tobe reversed soon. It will not causeinflation in the foreseeable future.

Regulation and macro-prudentialpolicy can handle any bubbles itcreates.

MW What about the US?GD Much of the above applies to theUS. Private sector and bankdeleveraging has ceased, while fiscaltightening is having its maximumimpact about now. Growth mayaccelerate to 3 per cent, by nextyear. This should not cause anydifficulties: plenty of spare capacityexists – more than is implied by theunemployment rate, because labourparticipation can rise.

There are some recent signs ofdeclining core inflation. But inflationexpectations remain near to target.With expectations stable and thePhillips Curve [which shows thetrade off between inflation andunemployment] relatively flat, arecovery in demand is likely to bereflected in higher real output,rather than greater inflation. The USbudget position is sustainable untilaround 2020, after which it mightneed further action, notably onhealthcare and, to a lesser extent,social security.

MW What about Japan andparticularly, “Abenomics”?GD The bold plans of Shinzo Abe,the prime minister, and HaruhikoKuroda, the new governor of theBank of Japan, have been aspectacular success in movingfinancial markets, the yen andinflation expectations. But we do notknow whether they will permanently

raise domestic demand or reportedinflation. I am sceptical. But I doexpect exports to grow.

The risk that the general rise ininflation expectations will unhingethe bond market is limited, given thehuge BoJ purchases of long-dateddebt. The Abe measures onstructural and market reform arebetter than nothing, but are notlikely to raise the trend rate ofeconomic growth much.Nevertheless, the depreciation of thereal exchange rate should raiseJapanese growth, for a while.

MW What about prospects for theemerging world?GD Many of the major emergingeconomies, which have enjoyedstrong catch-up growth, are showingsigns of exhaustion: excessive creditgrowth, real estate bubbles, unduereliance on high commodity prices(which may have peaked in realterms) and a need to change growthmodels. Furthermore, the scope forcatch-up is diminishing, in somecases, including China’s. Withslowing growth, the possibility ofshocks triggered by imploding creditbubbles and sudden slowdownsexists. Such disappointments haveoccurred previously.

MW What are the big risks?GD The biggest risks lie in theeurozone. There are in addition,geopolitical risks, among which thegreatest concern North Korea, Iran,and Pakistan, as well as aresurgence of the revolts of the Arabspring. Finally, a financial crisisstemming from a decline inconfidence about government debtwould be frightening.

MW What policy measures are stillneeded?GD A further lengthy period ofextreme monetary accommodation isrequired. On budgets, governmentsshould try Ben Bernanke’s plan ofintroducing long-term, legislatedbudget consolidation while relaxingnear-term fiscal policy, throughspending on infrastructure. A moresymmetrical adjustment of thebalance of payments is essential,with a focus on Germany and China,and probably a further downwardshift in the currencies of manyadvanced countries, relative to thoseof emerging countries. The reformand recapitalisation of bankingsystems is unfinished business. Andof course most countries need a

better strategy for dealing withdemographic shifts and climatechange. It is a daunting list.

MW The biggest risks then are in theeurozone. So what does Huw Pillthink of its prospects? Is it coming outof its crisis?HP Last summer’s commitment byMr [ECB president Mario] Draghi todo “whatever it takes” to save theeuro brought the acute phase of thecrisis to an end. Yet, the ECB’sannouncement of its OutrightMonetary Transactions (OMT)programme last September does notmark the end of the crisis, butrather a step in its evolution.

The tail-risk of a rapid disorderlybreak-up of the euro area hasreceded. European financial markets– not least those for peripheralsovereign debt – have ralliedstrongly as the OMT has gainedtraction and credibility, even if, asyet, the OMT itself remains untestedin practice.

MW What are the remaining risksover the next year or two?HP The crisis has morphed into achronic economic malaise. Theeurozone is mired in recession. Fiscalconsolidation and private-sectordeleveraging continue to weigh ondemand. Dysfunctional capital andlabour markets hinder necessaryrestructuring and render adjustmentmore costly.

MW In the longer run, will theeurozone survive and, if so, whatneeds to be done to ensure this?HP The euro can survive thispainful period. But emergence fromthe euro area’s economic quagmirewill not be spontaneous. It requirespolicy action on at least twointerrelated and challengingdimensions.

First, at the national level,countries must undertake economicrestructuring: improvingcompetitiveness, correcting financialand external imbalances and fiscalconsolidation are necessary elements.But they weigh on spending andconfidence. In many peripheralcountries, it remains an openquestion whether social and politicalcohesion can survive the pressures.

Second, at the area-wide level,considerable effort is needed to makethe euro workable. Achieving thisrequires greater integration onvarious dimensions: of the financialsystem, of the fiscal system and ofregulation. Ultimately, this will alsoentail sharing the relatively strongGerman national and fiscal balancesheets with other countries. Germanpolitical and public opinion have yetto acquiesce in these transfers. Andachieving that acquiescence dependscrucially on the terms at which thetransfers are made.

For German public opinion toaccept the distributional implicationsof underwriting – and therebystabilising – the eurozone, it needs tosee concrete evidence of awillingness and ability to reform andconsolidate fiscal positions in othercountries. Germany is willing toshare risks with the rest of the euroarea, but only once those inheritedfrom mistakes in the past have beensignificantly reduced. Meanwhile,other countries argue restructuringis politically and socially feasibleonly if such economic stabilisation isfirst achieved, on the back of greaterand more visible German financialsupport.

In short, Germany wants reformbefore it provides financial support,whereas others seek that support tofacilitate implementation of reform.Managing the choreography requireseffective institutional and governanceat the zone-wide level.

While Mr Draghi and the ECBhave an important role to play, theeurozone sorely lacks a coherentgovernance mechanism to deal withthe deeper political anddistributional challenges. The

disappointing evolution of the debateon banking union over the past yearprovides ample evidence of thisimpasse.

For all the economic challenges theeurozone faces, the biggest risks tofurther progress are political. Risksin the political sphere – where risksto Italian governability and theforthcoming German federal electionsstand out – are paramount. Thebiggest risks at present remain thepolitical difficulties in facilitatingand implementing necessaryinstitutional reforms, at bothnational and zone-wide levels.

Martin Wolf concludes: The criseshave been contained, so far. But thechallenges remain large, particularlyin the eurozone. What might this allmean for the luxury industry? TheEuropean market is likely tostagnate, while the US market islikely to be stronger. But the rapidgrowth is likely to be largely in theemerging countries. The growth inincomes of people likely to buyluxury goods is also likely to befaster than that of the worldeconomy, given the forces for ever-rising inequality.

For online coverage of today’s paneland other sessions of the FT Businessof Luxury summit in Vienna June 2-3visit www.ft.com/luxury360 or join thedebate on Twitter #FTBizLux13

Crises contained but challenges loom largeWorld Economy

Martin Wolf explores globalgrowth scenarios withGavyn Davies and Huw Pill,his partners on a panel at anFT conference today

The incomes of peoplelikely to buy luxury goodsare likely to grow fasterthan the world economy

Martin Wolf

A recovery in demand islikely to be reflected inhigher real output ratherthan greater inflation

Gavyn Davies

Europe’s crisis hasmorphed into a chronicmalaise. A solution will notbe spontaneous

Huw Pill

6 ★ FINANCIAL TIMES MONDAY JUNE 3 2013

Business of Luxury

On a recent sweaty night atMurtala Muhammed inter-national airport in Lagos, aNigerian man struttedtowards the boarding gates

like somebody who knows – or ratherhopes – that he is being watched. Hewas pulling a carry-on Louis Vuittonsuitcase, with a smaller Louis Vuittonbag on top. His shoes were from LouisVuitton and so were his trousers, belt,shirt and sunglasses. It was over-the-top, even by the standards of Nigeria,where some of the elite love to flauntthe luxury brands purchases in theboutiques in European capitals.

Until very recently, flying abroadwas the only way for them to buyluxury goods. Now, things may bechanging. In April, ErmenegildoZegna opened a store in Lagos, thefirst luxury clothing brand to do so.Its setting – on Akin Adesola Street, abusy road that links the lagoon andocean on either side of VictoriaIsland, the city’s financial district – isnot glamorous. But Zegna, which hadnever had a store in sub-SaharanAfrica, is betting that customers moreaccustomed to shopping on BondStreet on or the Champs-Élysées willnot mind.

Zegna is considering opening a storein Angola, which, like Nigeria, has asmall but extremely wealthy elitethanks to its oil industry, and inMozambique, the site of large new gasfinds. Africa “is going to be a territorythat’s very important for luxury”,even if the market is still at an earlystage, according to Gildo Zegna, chief

executive. Describing the company’sstrategy in emerging markets, includ-ing Africa, Mr Zegna told the FT lastyear that it was targeting “the top 1per cent of the population, or perhapseven less”.

Zegna’s African expansion may ini-tially seem startling – both Angolaand Mozambique experienced devas-tating wars not long ago – but thecompany is not alone. Breitling nowdistributes its watches through whole-salers in at least a dozen Africancountries, including Ghana. The trendis less surprising when you look atAfrica’s place in the global economy.Sub-Saharan African economies areexpanding faster than any otherregion, bar developing Asia, with theIMF forecasting growth of 5.4 per centin 2013 and 5.7 per cent in 2014.Though many African countries aregrowing from a very low base – andincome distribution is often very une-qual – the number of wealthy, status-conscious people is rising and willcontinue to do so while commodityprices stay high.

For now, the only entrenched mar-ket for luxury goods in sub-SaharanAfrica is South Africa, which has thecontinent’s largest economy and alargely urban population. A recentreport by the consultancy Bain notedthat South Africa has 71,000 dollarmillionaires, 60 per cent of the totalnumber in sub-Saharan Africa. Thatis more than Saudi Arabia or theUnited Arab Emirates and not that faroff the 95,000 millionaires in Russia.Bain estimated that by 2020, 420,000

households in South Africa wouldhave disposable income of more than$100,000 and forecasts that the luxurygoods market, worth about $1bn ayear, will grow by 20-30 per cent forthe next five years.

In South Africa’s favour is its largenumber of high-end shopping mallsthat offer the sort of retail spaceattractive to international brandssuch as Louis Vuitton, Burberry,Gucci and Fendi, all present in thecountry. South Africa has its own lux-ury brands working mainly withleather and jewellery.

In Lagos, the continent’s most popu-lous city, with more than 12m people,there only two small malls of interna-tional standard – compared with 74 inJohannesburg – and even these maynot be of a high enough standard forthe likes of Louis Vuitton.

Francesco Trapani, head of LVMH’sjewellery and watches division, saidlast year that Africa remained “avery, very small market for us”. Her-mès said that despite looking at SouthAfrica, it had not yet found any suita-ble opportunities to do business or

open a shop on the continent. Yet asZegna’s foray into Lagos shows, theamount of money sloshing around –and the appetite for conspicuous con-sumption – means that some luxurygoods companies no longer feel con-tent simply to wait for change.

According to Euromonitor, Nigeriawas the second fastest growing mar-ket in the world for champagnebetween 2006 and 2011, by which timeit had became the 17th biggest con-sumer of bubbly in the world, with752,879 bottles drunk. Over the fiveyears to 2016 the trend will continue,with only France experiencing alarger rise in champagne consump-tion, by volume. And it’s not thecheap stuff – Moet, Veuve Clicquotand Dom Pérignon are all popularamong Nigeria’s elite.

Carmakers have taken note. Por-sche opened a dealership in Lagos lastyear, a short walk away from theZegna store. For luxury to take fullflight will require the emergence of amiddle-class. That said, for some lux-ury bosses, a narrow band of super-rich people will do for now.

Where somepurveyors ofthe good life arehappy to tread

Sub-Saharan AfricaA tiny elite of very richcustomers has emboldened some brands to setup shop inNigeria, reportsXanRice

A good night: empty bottles of champagne at a Lagos nightclub frequented by wealthy Nigerians Panos

Nigeria wasthe secondfastest-growingmarket forchampagnefrom 2006to 2011

From buying in franchisesto reinforcing their stampon their online presence,luxury groups are assertingcontrol of their operationsin both the physical andvirtual worlds.

“Luxury groups’ elec-tronic commerce strategiesmirror what is happeningin the physical world,” saysClaudia D’Arpizio, leadauthor of Bain consul-tancy’s annual luxuryreport.

Burberry, the British lux-ury group, has been at theforefront of taking controlof its online presence. Burb-erry World, as it calls itswebsite, includes an inter-net store, but also streamedcatwalk shows, social net-working and even speciallyselected music.

PPR last year formed ajoint venture with Yoox,the global internet retailer,dedicated to managing sitesfor a selection of Kering’sbrands – Bottega Veneta,Yves Saint Laurent, Alexan-der McQueen, Balenciagaand Sergio Rossi.

Behind the scenes, Yooxwill manage the onlineoperations of these brandsfor Kering, to help themmore quickly develop theirweb-based presence.

Experts say that just as inthe physical world, whereluxury groups still want tosell through top end depart-ment stores, they will alsowant to continue to sellthrough the best multi-brand sites.

Sites such as Net-a-Porter,Yoox, My-Wardrobe,MyTheresa and Feeluniquein beauty have all demon-strated that it is possible tosell luxury goods online.Moreover, they can reach awider and different audi-ence to that of standalonesites.

“The physical world ofluxury is more mature thanits online counterpart. Lux-ury boutiques set the

benchmark for the offlineretail experience, whilewith online, the situation isa bit different: we are at thebeginning of a long jour-ney,” says Federico Bar-bieri, electronic businessvice-president at Kering.

“In both the physical anddigital worlds, you abso-lutely still need good multi-brand stores,” he says.“They give the customer abroader range of productsto play with. Our brands’own sites go deeper, offer-ing the full assortment, apurer representation of thebrand and integrated offlineservices.”

Sarah Curran, founder ofmy-wardrobe.com, sayswhile there may be a periodof adaptation for multi-brand sites, they will con-tinue to play an importantrole.

“There is an adjustmentnaturally . . . I think the tworemain very different,” shesays.

With luxury brands offer-ing more limited edition orexclusive pieces on theirsites, Ms Curran saysbuyers at multi-brand siteswill have to work harderwith those brands to ensurethat there is an exclusive

element in the collectionsthey buy.

To prosper, Ms Curransays the multi-brand sites,as well has having strongbuying, styling and edito-rial content, need to providean engaging luxury experi-ence, from packaging toexcellent customer service.

Christine Cross, chiefretail and consumer adviserto PwC, says multi-brandsites, such as the websitesoperated by the top depart-ment stores, can provideluxury groups with exten-sive data about their cus-tomers and their purchas-ing patterns

New forms of multi-brandsites are emerging, blendingonline stores with editorialcontent.

The best multi-brand siteshave “become curators

rather than retailers,” saysGregor Jackson, partner atgpstudio, a brand consul-tancy.

According to Mr Barbieri:“There is room for differentonline multi-brand businessmodels. I see the new styleof curated online magazinesyou can shop from becom-ing more and more popular.We all need to grow ourpresence in the digitalspace and there are manyways to do it, but it must bedone in a selective andqualified way that best posi-tions our brands to a newgeneration of online con-sumers.”

Ms D’Arpizio says therehave always been a smallselection of physical stores– such as Colette in Paris orLondon’s Browns – wherethe very fashion-orientedconsumer shops.

“Now probably there aresome etailers that play thesame role but in a morepowerful way, because theyalso can deliver a lot of edi-torial content. You have thebest of both: the best ofVogue and the best ofColette on one site,” shesays.

Ms Curran maintains that“the multi-brand and ownbrands . . . can coexistonline, as they do on thehigh street.

“No one would dream ofsaying ‘because Burberryhas opened another flagshipstore, Harrods or Selfridgesor Harvey Nichols [will]lose sales’. No one wouldmake that assumption. It’sthe same with online.”

Where luxury groups maycut back their reliance onmulti-brand sites is withthose offering discountedluxury goods or so-calledflash sales.

Outlet and flash sale sitesare still expanding, says MsD’Arpizio, because they areadding new brands to theirportfolios, “but the big lux-ury brands are not pushingthis route to market anyfurther”.

Rob Feldmann, chief exec-utive of BrandAlley, a lux-ury flash sale site, says:“We have seen the high endbrands we work withbecoming a lot more selec-tive about where they selltheir products.”

Assertive groups act to maketheir mark on the virtual worldOnline retailing

Strategies mirrorwhat is happening inthe physical world,says Andrea Felsted

‘In both the physicaland digital worlds,you absolutelystill need goodmulti-brand stores’

Shoe-in: a businesswoman views Burberry’s website

10 per cent of its exports,according to consultantsFrontier Economics, in areport commissioned by theECCIA.

Luxury is one of the sec-tors in which Europe has aclear competitive advantagesince European brandsaccount for 70 per cent ofthe global market.

Emmanuel Combe, affili-ate professor at ESCP-Eu-rope, the business school,calculates that the Frenchluxury industry had a posi-tive trade balance of €34bnin 2011. That compared with€17bn for the French aero-space industry.

“In other words, hand-bags, perfumes and spiritscarry twice the weight ofaeroplanes in terms of com-mercial balance,” says MrCombe, who is also vice-chairman of the Frenchcompetition authority.“That demonstrates anextraordinary force for theFrench economy.”

As the creation of theECCIA indicates, the luxuryindustry has moved beyondnational frontiers to mobi-lise on a Europe-wide basis.

The Comité Colbert,founded in 1954 to representl’art de vivre française,recently opened its mem-bership to other Europeancountries, including Ger-many, Belgium, Poland andHungary.

“The context has com-pletely changed,” says MsPonsolle des Portes. “In1954 there was no EuropeanUnion.

Now, with the adoption ofthe Lisbon Treaty [of 2011]giving more powers to theEuropean Parliament, theregulatory regime comesfrom Brussels, which wefind ourselves visiting moreand more frequently. Wehave to convince Europeancommissioners and not onlythe French ministers now.”

The recognition of luxuryas a separate industrymeans that its special fea-tures and interests will be

Continued from Page 1 taken into consideration infuture legislation, says MrBranchini. One of thosecharacteristics is the indus-try’s argument that it mustcontrol the distribution ofits products to protect theirbrand and image.

When that came underthreat from internet retail-ers and EU competitionlaw, the industry securedan exemption allowing it tosell its goods through spe-cific outlets.

Now the industry’s aim isto prevent regulation thatpromotes the free transit ofgoods through Europe fromallowing counterfeit goodsto pass unchecked.

The protection of intellec-tual property and a push for

the opening up of exportmarkets – especially thoseof Brazil and India – areother priorities, along withfacilitating visas for tour-ists, who are big buyers ofluxury goods when abroad.

The industry’s growth isexpected to halve this yearfrom 10 per cent last year,according to a survey byAltagamma and the Bainconsultancy.

That still makes it one ofEurope’s fastest-growingsectors. This rising eco-nomic weight works twoways, however.

As one EU official said ofa global tendency towardsprotectionism: “France andItaly are very negativeabout free trade in theUnion. So if those indus-tries that benefit from freetrade . . . could be morevocal in telling their gov-ernments that free trade isgood for them, it mightinfluence government posi-tions.”

Strategic industrycomes of age

‘Handbags, spirits,perfumes, and soon, carry twice theeconomic weightof aeroplanes’