Demand for luxury goods slumped after surging during the coronavirus pandemic in Europe and the United States and after China restarted economic activity.
Andrea Felsted/Bloomberg Opinion
Fashion people are obsessed with what designers are doing. Investors should be like that too.
Earlier this month, Chanel named Mathieu Blazy, creative director of Bottega Veneta, part of Kering SA, as its new top designer in an unprecedented round of musical chairs that saw Hedi Slimane leave Celine and Kim Jones leave Fendi. Nominated by LVMH Moët Hennessy. Louis Vuitton SE.
Such high-level creative activity is indicative of the luxury sector’s woes, with demand this year at its lowest since the financial crisis, excluding the disruption caused by the coronavirus five years ago, according to Bain & Company. expected to be weak.
Illustration: Louise Ting
As companies look for ways to reconnect with customers after price hikes, one strategy is to bring in hot new designers to give wealthy shoppers a chance to open their Louis Vuitton wallets again. However, the top creative must fit well with the brand and, importantly, not overshadow the label on the bag or shoe.
The roots of the creative divide lie in the glorious boom and bust of the past five years. From late 2020 to mid-2022, consumers, especially in the U.S., turned to Rolex watches and Gucci handbags because they had little else to spend their money on. When China began to tighten its grip in 2023, Chinese consumers, finally released from strict lockdowns, took over.
This wave of demand could cause brands to drive up prices. Erwan Lambourg, an analyst at HSBC Holdings, estimates that the average price of Europe’s iconic products has increased by 54 percent since 2019.
Against this background, there was little need for innovation. A kind of creative complacency arose with the belief that luxury consumers would continue to pay ever higher prices.
But over the past year, demand has shrunk. This is where the new lead designer shines. One way to excite shoppers is to introduce innovative looks rather than cut and paste classics. Fresh creative talent can be the catalyst for many must-have products.
Top designers are highly paid (although this is rarely revealed), but if he or she can achieve this transformation, the rewards for the label could be huge. Jean-Jacques Guiony, LVMH’s outgoing chief financial officer, told investors in October that linking team creativity to commercial success was one of the most cost-effective growth drivers.
Perhaps the best example of how talented individuals can reignite a tired brand comes from Kering’s Gucci under former creative director Alessandro Michele. Ten years ago, his maximalism soared sales that by the time he left in 2022, Gucci’s revenue had more than doubled to 10.5 billion euros ($10.9 billion).
However, a new creative director can’t solve everything. Their vision is critical in setting the overall direction, but they also control how their products are commercialized – which products end up on store shelves, and how they communicate with customers in advertising and marketing. It is also important to be able to communicate this clearly.
Also, the influence of new designers is not instantaneous. It may take about 18 months for him or her to assemble a team, research the archives, develop the collection, and reach its full potential. Introducing a radically new aesthetic requires clearing out old inventory that squeezes margins. This may not be much of an issue at this point, as the luxury goods market is likely to remain volatile for the next year or so. But Daniel Langer, chief executive officer of consultancy Equite and professor of luxury strategy at Pepperdine University, says that designers can fit well into the overall spirit of a home and the story it weaves around it. He said there was a need to be there.
Of course, a designer shouldn’t be bigger than the name on the store door. “A smart brand that goes beyond its niche needs a star team, not a star designer,” said Flavio Sereda, portfolio manager of GAM Holding AG’s Luxury Brands Fund.
Take Hermès International SCA, for example. Nadège Vanhee is the creative director of the company’s ready-to-wear range for women, but the company is still best known for its iconic bags. This may be one reason why Chanel chose Blazy, a relatively young designer, rather than an industry heavyweight like Slimane.
So which brands and designers should investors pay special attention to this year?
Chanel, owned by Blazy, is a clear example. Chanel is owned by billionaire brothers Alain and Gerard Wertheimer, whose fortunes also influence publicly traded peers including Hermès and LVMH’s Dior. According to Rambourg analysis, this unlisted home has been one of the most price-active since 2019, with large 2.55 flap bag prices up 91%. Businesses need to reinvigorate themselves and prove to customers that their double C logo is still worth paying for. No wonder Chanel’s head of fashion, Bruno Pavlovsky, told The Business of Fashion that the brand was “ready to reinvent itself.”
Bottega Veneta, part of Kering, has appointed Calven creative director Louise Trotter to replace Blazy. His resignation is a blow to the French conglomerate as it seeks to revive Gucci. Bottega Veneta was the only luxury brand in the company to see sales increase in the third quarter. It is currently in a creative transition period. But Mario Ortelli, CEO of luxury goods advisory firm Ortelli & Company, said: No one can resist. ”
Trotter achieved critical acclaim at Lacoste and Carven, but has primarily worked for luxury brands, primarily clothing. Bottega Veneta is pure luxury and focuses on accessories. It is increasing pressure on Kering to improve its other companies, led by Gucci.
In contrast, Celine has a good chance of succeeding after Slimane. He introduced menswear and set the tone by introducing bags featuring the double C Triomphe logo. New designer Michael Ryder, formerly of Ralph Lauren, is building on this trend by adapting the aesthetic, much as Anthony Vaccarello has done since succeeding Slimane at Yves Saint Laurent in 2016. should be able to continue.
Of course, investors will be wondering where the next creative crack will occur.
Whether designer Daniel Lee, appointed by former CEO Jonathan Akeroyd, will stay on as Burberry Group Plc pivots from trying to be Britain’s answer to LVMH to pairing Ralph Lauren with Moncler SpA There are questions about this. Given that Gucci has struggled to increase sales under Sabato de Sarno, his tenure will understandably be in the spotlight.
Given that the typical tenure for a designer is five to seven years, it’s also worth keeping an eye on Maria Grazia Chiuri, who has been creative director of womenswear at Dior since 2016. The house’s sales have slowed after impressive growth, while LVMH is undergoing a series of leadership changes as CEO Bernard Arnault appoints the next generation of leaders. . Chanel’s clothing changes could have an impact here as well.
Meanwhile, former Dior creative director John Galliano has left Maison Martin Margiela, which is part of the privately held OTB Group. Where will he appear?
But perhaps the biggest signal for investors is when the designer merry-go-round stops spinning very quickly. This would indicate that the sector is stabilizing after a dire period.
For while luxury and sport are becoming increasingly closer together, with LVMH sponsoring the Paris Olympics, creative directors, similar to football coaches, who leave when results are disappointing, have long-term relationships. This is not good for an industry that prides itself on its innovative thinking.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer goods and retail industries. Previously, he was a reporter for the Financial Times. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
