Is Brand Consolidation Working

screen-shot-2017-02-16-at-1-35-54-am

NEW YORK, United States — The Marc Jacobs show remains one of the most popular and anticipated runway events of New York Fashion Week. But on Thursday, when the designer presents his Autumn/Winter 2017 collection at the Uptown Armory on Lexington Avenue, some may see his work in a different light — not least because of recent remarks made by Bernard Arnault, chairman and chief executive of LVMH, the brand’s parent company. “I’m more concerned about Marc Jacobs than the US president,” said Arnault on a late-January earnings call.

Even if the comment was partly facetious, Arnault followed up with an honest evaluation of the brand’s current health. “Marc Jacobs is a challenging situation,” he continued. “That’s the only business which is in the red. We will pull out, I’m sure, but in the fashion industry you have to be cautious… When things are in fashion, [it’s] fine, and when they go out of fashion, not so fine.”

These statements starkly contrast with comments publicly made by Arnault just two years ago, when Marc Jacobs was thought to be preparing to spin off as a standalone company buoyed by an IPO. “Marc Jacobs wasn’t even a $10 million company when we invested in it. Now it’s making a billion euros a year in revenue. There are other designers we’ve invested in who haven’t matched that type of performance. Perhaps they weren’t as talented,” Arnault said back in April 2014. “Marc Jacobs is the most emblematic designer in the United States. [An IPO could mean] that over the next five to 10 years, one company could equal a third of the value of the group. You can see the kind of promise all of this holds.”

Much has changed for Marc Jacobs since 2014. For one, the brand has revamped its business model, folding its widely distributed “diffusion” collection — Marc x Marc Jacobs — into its main line, offering a wide range of product at a wide range of prices, under a single unified brand. “Marc is that kind of designer, and I think that this is that kind of house, where luxury isn’t about price, it’s about experience, quality and design,” Marc Jacobs chief executive Sebastian Suhl told BoF in January 2016. “Time will tell — and success will tell — if we’re doing the right thing. But I am quite convinced that we are, because it comes naturally to this house. It’s not an invented, canned strategy.”

Suhl was unavailable to comment further for this story, but his previous remarks underscore a wider industry shift towards brand consolidation. “In the 1990s, distribution was more weighted on wholesale than retail. You needed different lines that lived under an umbrella brand,” explained Mario Ortelli, head luxury goods analyst at global asset management firm Sanford C. Bernstein. “The market is now driven more by direct retail than wholesale, and the companies that have suffered the most are the ones with the most diversified brands.”

Indeed, the drivers of brand consolidation are simple: today, consumers are more educated than ever; they have access to more product at a range of price points and increasingly shop high-low. And as department stores and other retailers shrink their orders and licensing becomes a less popular strategy, brands are working to develop a stronger, more direct relationship with the end consumer. A single brand vision can further this.

The market is now driven more by direct retail than wholesale, and the companies that have suffered the most are the ones with the most diversified brands.
Marc Jacobs is just one of several high-profile labels to consolidate their sub-brands in recent seasons. Dolce & Gabbana and Burberry have implemented similar strategies. And it wouldn’t be surprising if other megabrands followed suit, as the retailers that sell their diffusion lines — in particular, struggling department stores like Macy’s — consolidate themselves. But is the approach working?

Right now, the results are inconclusive at best. Arnault’s frank remarks about Marc Jacobs may have been prompted by a range of challenges within the business. But Burberry, too, has offered little proof that collapsing its Prorsum, London and Brit collections together under a single “Burberry” label late last year has helped to accelerate sales. Burberry declined to comment for this story, but sources close to the company say executives are pleased with the move thus far and that consolidating Burberry’s multiple sub-brands was as much about building a more direct relationship with consumers as adapting to their new high-low consumption habits. In the three months ending December 31, 2016, the company generated about $917 million in retail sales, with sales at stores open at least one year up 3 percent.

Dolce & Gabbana, which folded its lower-priced D&G brand into the main label in 2011, offers the most clear indicator thus far that the strategy of brand consolidation has long-term value. In April 2015, the private company announced that annual revenue surpassed $1 billion in the 2014/2015 fiscal year, up 7.1 percent from the previous year. The increase can be attributed, at least in part, to the opening of new retail stores and directly managed shop-in-shops. “Dolce & Gabbana paid an enormous bill for many years,” said Ortelli. “Now it’s starting to regrow. They made a big sacrifice in the short term, but it worked in repositioning the brand.”

Of course, it was possible for Dolce & Gabbana to take a short-term financial hit because it’s a private company, free from the demands of public shareholders. What’s more, like Marc Jacobs and Burberry, the new Dolce & Gabbana still benefits from royalties generated by licensing deals in beauty and other non-core categories.

But is a single unified brand the right approach for all brands? Prada, for instance, has taken another tack, developing Miu Miu — once considered a “little sister” of the main line — into a brand with its own aesthetic and following.

“It depends on how you message, and it depends on who your consumer is,” said Gary Wassner, chief executive of factor Hilldun Capital Corp and chairman of Interluxe Holdings, which backs Jason Wu, the New York-based designer label that launched a moderately priced line, dubbed Grey, in 2016. “With Jason in particular, we’re talking about two different consumers, in different economic brackets. That’s what you call sister collections,” he continued. “We’re not taking what Jason is and diffusing it; we’re creating a collection for a younger generation.”

But whatever the choice in strategy, it’s clear that neither approach is a quick fix for today’s challenging retail environment. “It can be difficult to sustain a monobrand,” said Ortelli. “But if you change the structure in a way that makes sense for your business, sometimes you are able to make a turnaround.”

BY LAUREN SHERMAN
FEBRUARY 16, 2017 05:28 – Shared from BOF

Advertisements

About thelivingfashion

I love fashion and travel!!
Gallery | This entry was posted in Uncategorized and tagged , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s