Reassessing French luxury’s recent business history: the rebuilding
of a business model and of a corporate image
Hubert Bonin, professor at the Institut d’études politiques de Bordeaux and at the GRETHA UMR CNRS
5113-Bordeaux 4 University [www.hubertbonin.com]
Conversely with the legend of a perennial superiority of French luxury companies,
their history has been much “contested” by the forces of economic history (especially
the effects of the conjuncture, of bad management, and of competition). Their
business history is therefore as much that of their failures and disappearance than of
their power over Europe; and they had to be “reinvented” at several times, through
cycles of growth and of decline. The years 1830-1860s (Monarchy of July and Second
Empire) favoured the upsurge of craftsmen benefiting from the booming high
bourgeois classes and of the capitalism of the Court (wood-craft, Lyon silk, bronze,
etc.); the development of industry, trade and banking enlarged the outlets for a new
generation of firms mixing craftsmanship, industrial processes and exports, from the
1870s to the 1930s1 – despite the lost of the Russian market in 1918: what were called
“the articles of Paris” became a leverage for high added value merchandises to be
produced in France and often exported.
But a huge majority of the names quoted in the almanacs or the journals for
bourgeoisies in the interwar did not resist the depression, the war, the change of
business models in the 1930s-1950s – even if some family firms reacted in these
times through inventiveness (Hermès, Van Cleef & Arpels2 or Cartier, for instance)
and found they away among stars and princesses and if young and inventive creators
renewed the fashion trends (Chanel3, Christian Dior4). There was no historical
necessity that a dozen of French companies joined the bunch of leading firms in the
luxury sector – and in fact French industry failed to assert itself back in the sector of
luxury cars, in front of German carmakers, for instance. We intend to determine how
and why French groups were built from the 1960s in the luxury and near-luxury
sector5 and became leading forces of the globalisation of high-range consuming goods
at the turn of the 21th century.
R. Bienaimé, « La parfumerie française », in L’Illustration économique et financière, special
issue L’expansion commerciale, 26 January 1924, pp. 34-35, with articles about Houbigan,
Roger & Gallet, Ed. Pinaud, P, Lubin, Rigaud, Piver and Lesquendieu (pp. 36-48); but all
these brands (except Roger & Gallet) were swept off business history afterwards... The same
about haute couture houses presented in the same issue: Paquin, Beer, Worms, Drecoll,
Doucet, Paul Poiret, etc., and only Lanvin survived.
2 Sylvie Ralet, Van Cleef & Arpels, Paris, Éditions du Regard, 1986. Marc Petit, Van Cleef &
Arpels. Reflets d’éternité, Paris, Éditions du Cercle d’art, 2007.
3 François Baudot, Mémoire de la mode. Chanel, Paris, Assouline, 1996 and 2003. Amy de la
Haye & Shelley Tobin, Chanel, la couturière at work, Woodstock-New York, Overlook Press,
1994. Élisabeth Weissman, Coco Chanel, Paris, Maren Sell, 2007.
4 Christian Dior, Christian Dior by Chistian Dior: The Autobiography of Christian Dior,
Harmondsworth, Penguin, 1958.
5 For a global survey, see Louis Bergeron, Les industries du luxe en France, Paris, Odile
Jacob, 1998. Jacques Marseille (ed.), Le luxe en France, du siècle des Lumières à nos jours,
Paris, Publications de l’Association pour le développement de l’histoire économique, 1999.
Nancy Green, Du Sentier à la Septième Avenue. La confection et les immigrés, Paris-New
York, 1880-1980, Paris, Seuil, 1998. Sophia Richou & Michel Lombard, Le luxe dans tous ses
états, Paris, Économica, 1999. Jean Castarède, Le luxe, Que sais-je ? series, Paris, Presses
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1. A trend toward a dissolution of French luxury’s image in the 1970s1980s
The crisis which shook European and French capitalism in the 1970s-1980s also
reached the luxury sector. Several firms oscillated on the verge of losing ground
definitely against some Italian (Giorgio Armani, Versace, Prada, MaxMara, Roberto
Cavalli, Ferragano, etc.), German (Hugo Boss), or even American companies (Ralf
Lauren), which seemed more inventive and reactive on one side, and more able to
mix brand making and marketing. Christian Dior, for instance, had been included
within the Boussac-Saint-Frères-Agache-Williot and became only a piece of a larger
group dedicated to consuming goods in textile, clothing and distribution; and its
perfume and clothwear sectors had to be separated in 1968 because flagrances had
become mere financial assets even if Marc Bohan succeeded in preserving the
reputation of Dior haute couture (from 1957 to 1989). Yves-Saint-Laurent, though
created only in 1958, suffered from a crisis of management and of ownership; its
perfume branch was sold to an American pharmaceutics company, Squibb; L’Oréal6
hesitated between a marketing culture intimately dived into the modern mass
distribution model which took form in the 1960s-1970s; even if it belonged to the
Wertheimer family since 1924, Chanel had to resist the death of Coco Chanel (in
1970) and the change in mood among junior generations; Grès, Paco Rabanne, André
Courrèges and Ted Lapidus had to face the issue of replacing their pioneering creator
of the 1960s-1970s (or even before, for Grès, founded in the 1940s) and find out a
stable financial basis – like Balenciaga (because the creator retired in 1968); YvesSaint-Laurent swayed between a closed-shop strategy dedicated to dozens of
costumers and haute couture, and a more offensive strategy opened to luxury
confectionery, and it lacked financial resources and managerial capacities to start its
reengineering; Hermès balanced between the respect of heritage and tradition (the
Kelly sack, the Hermès carré since 1937) and new inflows of creativeness, between
shrinking to a small-sized company or being a member of the “cour des grands”.
Even if they preserved their rare portfolio of skills, Chaumet7 and several jewels
companies lacked the financial reserves to change their standards and their
institutional image of elite craftsmanship, and even a few ones were broken by badfinancial governance. The specialist in perfumes Guerlain’s brand image dwindled
because it missed a renewal of its commercial patterns, and was sold out.
The Paris luxury market place seemed to stock to old-times culture, with American
stars – the Grace Kelly syndrome – and grandes bourgeoises as main targets, with
haute couture as a classical symbol but without a clear-cut strategy between selling
brand franchises for the mass-market or building a stable luxury mood; and one
might perceive retrospectively that French luxury firms were insensitively drawn out
of market forces, like were the palaces of the hotel market in Paris or in subsiding
sea-resorts, which had to be thoroughly refurbished in the 1980s-1990s. Finally the
fate of the car industry – missing the revival of luxury brands of the interwar and
universitaires de France, 1992. Marc de Ferrière Le Vayer, « L’industrie du luxe en France
depuis 1945 : un exemple d’industrie compétitive ? », Entreprises et Histoire, 1993, n°3. See
the academic researches of the Centre de recherche luxe, mode, art and its Cahiers de la
recherche. Dominique Allérès, L’empire du luxe, Paris, Belfond, 1992.
6 François Dalle (who presided over the firm), L’Aventure L’Oréal, Paris, Odile Jacob, 2001.
7 Janie Samet, Chaumet, Paris, Assouline, 2000.
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hurting some invisible ceiling in face of German (or on a few segments, Italian)
competitors – threatened the French luxury economy. Its reputation became old
fashioned because of a lack of investments in capital structures to consolidate the
basis of luxury firms and allow them to restart their innovative process, and in
relevant market positioning, whilst a few Italian or American fashion-makers
succeeded in accompanying the media revolution favouring glamour magazines,
conquered by colour pictures. The new and inventive fashion small and middle-sized
companies which flourished then (Marithé & François Girbaud, Sonia Rykel, Thierry
Mugler, Chloé, Kenzo since 1970, etc.) did not reach the financial scope which was
necessary to reach further objectives than seducing a small well-off clientele. Paris
was then on the verge of seeing the heart of luxury creation transferred to other world
capitals, like it became the case in the arts sector (auctions companies and galleries,
in favour of New York or London); and Milan, London or even New York could have
become all at sudden the capitals of glamour and luxury. Even if our development
lacks figures and precise analysis to prop up our assertions, our perception of this
recent history might seem relevant: A sense of “decline” can thus be reconstituted if
we consider frankly the historical evolution of the luxury sector; and absolutely there
was no historical necessity to move Paris as the word capital of luxury good at the end
of the 20th century. Sure, history constituted a substantial heritage for Paris houses –
and this explains the Louis Vuitton museum or the “Cartier collection” preserved at
its boutique rue de la Paix, renewed in 2006; but sticking too much to history could
explain drifting away from market moods and managerial requisites8.
2. Business structures as leverage to an economic rebirth of French
luxury
We pretend that the first cause to the renewal of French luxury companies were the
stabilisation and reinforcement of their capital basis and therefore of their
management: this helped them to cement their forces and feel a new sense of trust in
their future, thus paving the way to fresh investment strategies. Renewed stakeholding equipped them with the ability to restart strategies of development.
A. The match between two family investors
A few capitalist predators9 humming around assets to be sold when industrial groups
collapsed in the 1980s were keen in detecting a few business “nuggets” (pépites)
among dwindling values of productive forces. Real estate manager Bernard Arnault
took thus in 1985 the control of Agache-Williot-Boussac-Saint-Frères, and finally only
kept its affiliate Christian Dior, which was afterwards rejuvenated with inflows of
capital and management teams and regained the perfume sectors in 1989; it helped
him draw a strategy consisting with the building of a luxury group through external
growth; a few years later, B. Arnault took profit of familial dissensions and of a drift
between family stake-holders and the manager to conquer the control of Louis
Vuitton (already owner of Givenchy perfumes and Veuve Cliquot champagne) and of
About a global story of luxury houses, see the journalist Janie Samet, Chère haute couture,
Paris, Plon, 2006.
9 See Michel Villette & Catherine Vuillermot, Portrait de l’homme d’affaires en prédateur,
Paris, La Découverte, 2005.
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Moët-Hennessy: unified into LVMH10 (but under the official umbrella of Christian
Dior, both a financial holding for the group and a subsidiary for its own luxury trademark), the firms were thereafter able to follow a constant path towards their
“reinvention” and constant international developments. B. Arnault presided over a
policy of constant external growth to enlarge the scope of his group, as a way to avoid
competitors to purchase some brilliant (but stagnating) brands and a way to amortize
the new group’s portfolio of managerial skills – as we shall study it later one –
through new ranges of products (Céline in 1987, Kenzo in 1993, Guerlain in 1994, for
instance). This move was achieved in two decades – from 1985 – and led to a
collection of 64 brands in 2006 (perfumes: Dior, Guerlain, Givenchy, etc.; clothwear:
Kenzo, Céline, Pucci, etc.) and, especially, to a leadership in champagne, far ahead of
Vranken-Pommery, Boizel-Chanoine and Pernod-Ricard, and in cognac.
Whilst taking over several distribution firms, another tycoon, François Pinault,
purchased Yves-Saint-Laurent haute couture and perfumes house11, then Italian firm
Gucci in 2001, and was sacred the rival of Arnault; even if luxury only represented
FRF 3,6 billion (with only 162 million for Yves-Saint-Laurent) against the global 17,9
billion turnover of its PPR group in 2006, it became another anchoring force for
luxury activities. Yves-Saint-Laurent himself benefited from inflows of capital, trust
and managerial abilities thanks to the personal investment of his companion Pierre
Bergé, who provided the firm with the stability which was favourable to its
creativeness – up to his retirement in 2005.
Cartier itself, which appeared as a sleeping jewellery house, was stimulated by the
inflow of capital provided by its new financial owner Richemont and the part played
by an entrepreneurial manager, which reawakened altogether brand-image and
creativeness, Alain-Dominique Perrin, for almost two decades, able to draw the
nouveaux riches of all over the world to refurbished workshops of inventiveness.
B. The rebirth of family houses
If some family firms did not reach the requirements of competitiveness, like
Christophle12, what we could call “the Chanel model” prevailed in several luxury
company where the family-business type still kept its competitive edge. At Chanel,
created in 1910,the Wertheimer family had acceded to the ownership in 1954 and,
since this date, discreetly led a strategy of stable investment and growth: If old-timer
Chanel was shaken by the revolutionary trends brought by its new creator Lagerfeld
since 1983, a subtle balance between stake-holders (the Wertheimer owners), the
creator, and the managers (Michel Piétrini, Bernard Lehmann, or Philippe
Guibourgé, which launched a range of prêt-à-porter in the 1980s, etc.) has been
established. From the 1980s, a new generation of Hériard-Dubreuil family stakePatrick Éveno, « La construction d’un groupe international, LVMH », in Jacques Marseille
(ed.), Le luxe en France, du siècle des Lumières à nos jours, Paris, Publications de
l’Association pour le développement de l’histoire économique, 1999, pp. 291-321. Bernard
Arnault, La passion créatrice. Entretiens avec Yves Messarovitch, Paris, Plon, 2000. Nadège
Forestier & Nazarine Raval, Bernard Arnault ou le goût du pouvoir, Paris, Olivier Orban,
1990. Airy Routier, L’ange exterminateur, Paris, Albin Michel, 2003.
11 Yves Saint-Laurent perfumes was sold by pharmaceutics firm Sanofi-Synthelabo to LVMH
in 1988, which resold it to PPR in 1999.
12 Marc de Ferrière Le Vayer, Christophle, deux siècles d’aventure industrielle, 1793-1993,
Paris, Le Monde Éditions, 1995.
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holders was pushed at the head of Rémy-Martin spirits group; and the same occurred
in parallel at the head of champagne Taittinger, which opened doors there also to
stable growth and recurrent investments to prop up brand making and industrial
capacities. The family networks converged at Hermès to give leeway in 1978 to JeanLouis Dumas, a member of the fifth generation within the family13 which revealed the
right man in the right place to rebuild the brand image of the company, to extend its
strategic scope, and to renew its management.
In the meanwhile, a capitalistic pact between the family Bettencourt14, who had
inherited the control of L’Oréal, and Swiss Nestlé, which hoped to diversify into
health-care products, helped stabilising the course of the group, which could count on
self-financing without being pumped by greedy investors; and they both succeeded in
organising a managerial succession from the group-builder to a new generation of
managers (François Dalle, then Lindsay Owen-Jones from 1988 to 2006) without
introducing nasty managers selected within the inner family circles. Such choices
revealed decisive to restart the process of growth but essentially to reshape the
strategy of brand-building and of the corporate image of L’Oréal. The group built
then a sub-group around a portfolio of premium and luxury brands, the core of which
being the Lancôme brand (owned by L’Oréal since 1964), reinforced through a policy
of organic growth and diversification [see later down] – this portfolio being quite
distinguished from middle-range brands (L’Oréal Paris, Plénitude, GemeyMaybelline, etc.) and providing the firm with 25,2% of its turnover in 2005.
C. Paris burdened with failed strategies
These capitalistic moves were not all crowned with success. In the 1980s, several
group builders tempted to unify luxury brands: Italian tycoon Carlo de Benedetti’s
French holding Cerus federated thus Yves-Saint-Laurent clothing house, then in 1986
Yves-Saint-Laurent perfumes (bought back from drug company Squibb); the financial
fund Investcorp purchased several brands; financial investor Erich Fayes and its
holding Zanimob tried to federate Balmain, Ted Lapidus, etc.; fur group Révillon,
under the control of financiers, enlarged its scope to global luxury, like the clothing
Biderman group or the financial group Worms (Lancel, Kenzo, Fred). Bt all these
attempts failed at the end of the 1980s or the beginning of the 1990s because the
relevant combine of key managerial requirements was not achieved: mere financial
investment did not suffice to create a business culture of luxury management;
marketing skills were not enough promoted; an efficient business model had to follow
the wave of purchases, because organic growth based on an actual business culture
had to accompany the external growth. And all these ephemere groups had to be
dismantled because of a lack of profitability – thus paving the way to spin-off moves
and to the reinforcement of the other emerging groups.
3. A commercial strategy dedicated to quality
Émile-Maurice Hermès died in 1951, leaving his tenure to his step-son Robert Dumas, who
died in 1988, leaving way to his son Jean-Louis Dumas, the CEO from 1978 p to 2006. The
sixth generation followed him, with Pascale Mussard and Pierre-Alexis Dumas; see “Pascale
Mussard et Pierre-Alexis Dumas. Les classiques modernes”, Les Échos-Série limitée n°49,
December 2006, pp. 16-18.
14 Bruno Abescat, La saga des Bettencourt. L’Oréal, une fortune française, Paris, Plon, 2002.
13
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Three strategies were at stake: a diversification towards mass consumption and the
sale of goods intended to a rapid turnover among consumers; or a selective upward
move towards high-quality goods. The first one mixed marketing, brandmanagement, and internationalisation, through the sale of franchises; and Pierre
Cardin company mainly favoured this practice, all over the world, for clothing or
perfumes, or accessories, royalties piling up through royalties; it was a middle-high
range strategy, developed with success by Pierre Cardin15, who played the cards of
Paris glamour and of Maxim’s (which he purchased too). The paillettes of Paris, with
the resurrection of the bateaux-mouches, of the Lido and the upsurge of the Crazy
Horse, sustained such a growth and the relative success of this strategy.
Conversely, the key luxury companies chose to follow another path, which had to link
narrowly high quality and glamour, to rebuild the perception of luxury brands and
globally of Paris reputation, as a way to differenciate more clearly the patterns of
quality between luxury and mere high-range lines. Such a strategy was based on a
“no-default” quality; but they had to face the negative effects of dwindling workforces
and moreover of declining portfolio of skills, because of the retirement of “petites
mains” and crafts(wo)men of the 1940s-1970s and of the closure of textile companies
able to link high quality and small series due to the global crisis of textile throughout
Europe. Hermès defined thus this strategy of vertical integration or control for the
sake of quality with utmost constancy: it invested to develop its own little factories to
elaborate its leather products and purchased a few Lyon workshops to reinforce its
silk activities. The management of a portfolio of half-industry half-craftmanship skills
and a trend towards vertical integration became the key to quality standards. A
similar strategy was adopted by Louis Vuitton, where the CEO Henri Racamier started
in the 1980s developing vertical integration through the reinforcement of several
workshops16 – a strategy intensified by Hermès from the 1990s in order to preserve a
capital of technical knowledge, by Cartier with workshops in France and Switzerland,
and by the champagne companies, which favoured the extension of their own
vineyards and long-term contracts with little producers, to guaranty patterns of wine.
The integration of small teams of craftswomen for haute couture and the renewal of
the portfolio of tradition skills among small suppliers (for accessories), helped to
sustain the brand image. In fact, networks of suppliers were reinforced, to produce
accessories and, moreover, packaging items (for perfume, etc.). Some forms of
putting-out systems were refreshed, either in the Paris region or in the provinces, to
foster the supply-chain downstream and to allow the luxury companies to face
growing orders.
Globally, the quest for quality was cemented by the rebuilding of a Paris institutional
image, through the role played by the Comité Colbert – a professional syndicate
which gathers the luxury companies as its lobbying office –, the Comité Vendôme
(which has gathered since 1936 the houses present place Vendôme), or the Union des
fabricants17, which comprises all firms dedicated to French quality and reputation
See Benjamin Loyauté, Jérôme Faggiano & Nils Herman (eds.), Pierre Cardin Évolution,
Paris, Flammarion, 2006.
16 Louis Vuitton, L’art de traverser le temps, Paris, EuroRSCG, 1996.
17 Hubert Bonin, « La contrefaçon et les guerres industrielles : l’Union des fabricants et l’INPI
acteurs de la lutte contre la contrefaçon » ; Christine Laï, « L’Union des fabricants » ; Olivier
Londeix, « Défendre l’image de marque et l’identité des entreprises de luxe face à la
contrefaçon : le rôle du Comité Colbert depuis une douzaine d’années », in Gérard Béaur,
15
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and which lobbies against counterfeiting, both having succeeded in convincing the
State and the Parliament to reinforce laws and action against counterfeitors.
4. A corporate image based on inventiveness
What had blurred Paris institutional image throughout the black decades of the
1930s-1940s had been the perception of dullness imposed by the decline of prosperity
and wartime, but also caused by an actual downturn of creativeness. Surely, during
the 1950s-1960s, new waves of creators imposed a refreshed rhythm to Paris fashion,
owing to Christian Dior’s revolution (1947: “the new look”), to the rebound of Chanel,
and to several animators of fashion in clothing and accessories (Pierre Cardin, etc.)
and younger houses (Kenzo, Girbault, etc.). But the grip of Paris was at stake in the
1980s: first, the change in stake-holding could be seen as a leverage to creativeness
because “creators” could deliver their “message” as they benefitted with trust from
their investors and with the support of good managers and marketeers. Second,
outlets were enlarged by the enrichment caused by the apex of the second industrial
revolutions and the consolidation of grandes bourgeoisies all over the western world.
Thanks to the stable stake-holding and the continuity of investment inflows, Paris
houses regained their reactivity and creativeness. Yves Saint-Laurent could go on
delivering his imaginative products; flamboyant fashion-creators, like Karl Lagerfeld
(at Chanel from 1983, and though his own house too), discreet designers (at Hermès),
and flamboyant fashion-, style-, and colour- makers were recruited to shake “old
houses”: they had to “conceive the cult products of tomorrow without outfashioning
classical products” (a journalist). John Galliano18 at Christian Dior since 1996 was a
beacon of such a strategy to transform Paris into an “event-maker” place, with the biyearly collections shows becoming quite a Festival de Cannes show – all the more
when the Festival de Cannes itself became a branch of Paris fashion makers through
the shirts and jewels born by stars... TV news, TV special reports, ad movies (for
perfumes)19, and glamourous journals sustained this momentum towards the
promotion of inventiveness: “designers” and “creators”– instead of mere clothwear
specialists in drawing haute couture legendary exceptions – started a renewed
competition with Milan and other chic places to draw whole ranges of “labels’ – and
some houses were equipped with an artistic director (for instance Ivana Omazic, at
Céline from 2004): Christian Lacroix, Alexander McQueen (Givenchy), Stefano Pilati
(Yves-Saint-Laurent), Alber Elbaz (women’s line at Lanvin), Gianfranco Ferré
(successor to Marc Bohan at Christian Dior in 1989), Marc Jacobs (at Louis Vuitton),
Tom Ford (at Yves-Saint-Laurent from 1999), Nicolas Ghesquière (at Balenciaga20
from 1998), Antonio Marras (who succeeded to Kenzo Takada in 1999 at Kenzo), etc.
seemed to mix arts, haute couture, design, public relations, stardom and glamour,
and innovation – in the wake or alongside the almost “model” of Karl Lagerfeld at
Chanel since 1983. And even at Guerlain21, the small perfume company which was
included within LVMH, a new manager and creator, Jean-Louis Guerlain, asserted
Hubert Bonin & Claire Lemercier, Fraude, contrebande et contrefaçon, de l’Antiquité à nos
jours, Geneva, Droz, 2007.
18 Colin McDowell, Galliano romantique, réaliste et révolutionnaire, Paris, Assouline, 1997.
19 See Marc Martin, Trois siècles de publicité en France, Paris, Odile Jacob, 1992.
20 Balenciaga, Paris, Les arts décoratifs-Thames & Hudson, catalogue of the exhibition
Balenciaga, 2006.
21 Maryline Desbiolles, Le printemps de Guerlain, Paris, Le Cherche Midi, 20005.
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himself as an “entrepreneur” who shook its dusty reputation and enlarged the range
of perfumes and beauty products.
The business model linking haute couture, jewellery, perfumes, high range
accessories into fashion shows which transformed creators and designers into stars
by themselves – among starring models – helped recreate Paris as a driving force on
a worldwide level. Creativeness was extended to classical leather products where new
lines and types were conceived (Louis Vuitton, with new lines like Epi in 1985 or
Taïga in 1993; Hermès), thus enlarging the range out of mere “cult products”; to silk
neckershiefs and other clothing pieces (Hermès); but also to champagne through
ranges of “crus millésimés” and special prestige assemblages with special packaging
and to perfumes with yearly prestigious “juices” diversifying and spurring the outlets
– even if basic perfumes like Chanel 5 stayed as cult products. Commercial talents
allowed big groups to stimulate creativeness among “niche brands” at the periphery
of the mega-brands of the firm: they are pioneering for imagination and new
fashions, with more reactivity – like PPR-Gucci with the “lines” and brands
Balenciaga, Sheila McCartney or Alexander McQueen.
On another level of creativeness, the link established between luxury ranges and
scientific inventiveness became the key to the success of high-ranges of L’Oréal
firm22. Whilst designers insisted on external appearance, scientists at L’Oréal (almost
3,000 in 2007) provide products dedicated to guarantee the duration of skin and hair
appearance, against age, stress or fatigue, in particular among stars (featuring in TV
ads), but more importantly, among women with a high purchase power, either active
ones (businesswomen, etc.) or permanently in social representation (grandes
bourgeoises within networks of fashionable sociability). L’Oréal’s brand building
activates all these outlets to provoke consuming habits and to pose its Lancôme (or
also ) range as necessary and irresistible as key healthcare and beauty tools – against
for example the US firm Estée Lauder’s firm (with its extra-luxury range Crème de la
Mer). The Paris image of “beautiful women” is thus mobilised to create some kind of
a “Paris mood” which had to be shared by all the stratus of rich and glamourous
women all over the world aspiring to durable beauty and able to pay for it.
5. Business strategy dedicated to added value and profit margins
Such strategies for inventiveness or creativeness explain the diversification of groups
committed to fashion, beauty, healthcare, etc.: they had to combine a business model
which managed both mass consumption and luxury outlets, without confusing brand
image and blurring high ranges by lower ranges.
A. Procterians and managers at the hull of luxury
The turning point has been, from the 1990s, the recruitment of famous “Procterians”,
that is marketing specialists trained at Procter&Gamble, but also at Unilever or
similar mass commercial houses, to take the reins of commercial policies at French
Hubert Bonin, « ‘The French touch’: international beauty and health care at L’Oréal (since
1907) » (with Carole Pailhé and Nadine Polakoswki) », in H. Bonin (ed.), Transnational
Companies (19th-20th Centuries), Paris, PLAGE, 2002, pp. 91-102. François Dalle, L’aventure
L’Oréal, Paris, Odile Jacob, 2001. Michel Barzohar, Une histoire sans fard, Paris, Fayard,
1996.
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luxury brands, under the impulse of B. Arnault at LVMH. They introduced rationalised
methods to manage the diversification, segmentation and differenciation which had
to constitute the basic codes in order to balance profitability, the conquest of market
shares, and the preservation of the identity of each brand. A methodical analysis
ought to collect the data about the progression of these marketing people among the
executive teams of luxury firms23 – but a few books24 have already scrutinized the
development of modern forms of management within luxury firms. LVMH succeeded
for example to reinvent the management of declining and low-profit Dior perfumes in
the 1990s thanks to these marketing guys: the ousted manager had privileged
volumes against profit and brand-image through a dual policy allowing Dior products
to be sold within “parallel networks” of diversified shops aiming at lower prices,
despite the classical network among “selective shops” dedicated to higher prices and
to distinguished customers… At Cartier, under the cover of flamboyant A.D. Perrin,
Bernard Fornas, the head of marketing at Cartier International since 1994, who had
been trained at Procter&Gamble, consolidated the new business culture of the firm,
which led him to preside over Cartier – and the same occurred at Christian Dior
company through Sideney Toledano, the CEO of the group (which in fact covers the
entire Lvmh group). Even Chanel welcomed in 2007 a manager at its
chairwomanship, Véronique Morali, the deputy-head of an investment company for
17 years.
B. In search of distinction and differenciation
The key strategy was therefore “distinction”: managers distinguished clearly “good
brands” from “luxury brands” or “premium” brands25. Some companies do not
prospect lower ranges (Hermès, Louis Vuitton, Longchamp, etc.), except when
occasionally or regularly they lure customers in their shops through accessories sold
cheapier, in order to create shopping events and once more to reinforce their
reputation in creativeness... Some other companies raised insensibly their ranges of
prices to separate more and more their luxury brands or ranges from mere highrange products: this rise in perception and brand-making occurred for instance for
champagne from the 1990s – to separate prestige bottles from current bottles
dispatched massively with low profit margins. Like German car-makers Mercedes,
BMW or Porsche – which stuck to price policies intending to draw prestige-pulled
customership with high purchase-power –, fashion firms specialised in luxury or
comprising a large sector in luxury brands pushed prices upwards alongside a
selective policy of gathering only segmented customership. Such a business model
had to rely on a subtle balance to succeed in renewing fashion-victims’ trends and
rushes. The permanent reinvention of brand image is even stimulated by the offer of
“limited editions” of series of products, in order to spur the sense of “rarity”, of
uniqueness, among rich people fond of supreme distinction.
See Dominique Allérès, Luxe… Stratégies-marketing, Paris, Économica, 1997 (second
edition). Gilles David & Catherine Kuszla, « Contrôle et créativité. Luxe, mode, art », in
Dominique Allérès (dir.), Luxe, mode, art, un management spécifique, Paris, Économica, reed. 2003.
24 Dominique Allérès, Luxe, un management spécifique, Paris, Économica, 1995. Dominique
Allérès, Luxe... stratégies, marketing, Paris, Économica, 1990, third edition in 2003.
25 Dominique Allérès (ed.), Marques de luxe. Signification et contenu, Paris, Économica,
2005. Dominique Allérès, Mode. Des parures au marques de luxe, Paris, Économica, 1992.
23
10
The issue for some of these companies was to develop altogether mass production
and luxury productions, without blurring brand image. The porftolios of marketing
skills were mobilised to establish the commercial distinction able to provide highrange products with “the distinction” necessary to justify their price – even if the
distribution of mass-products and of some high-range products is completed through
the same supermarkets, airports facilities, or beauty and healthcare chains. For
example, differences in packaging (card-board boxes, colours, etc.) and skilful
merchandising help “differenciate” ranges, besides prices; “corners” dedicated to
premium products have been constituted all over commercial outlets. L’Oréal,
involved altogether in mass beauty-care and in luxury ranges, became some kind of
an artist in declining several ranges alongside purchase-power and prices,
confronting Procter&Gamble, Unilever, and Shiseido. The purchase of beauty and
healthcare chains by LVMH (downtown Sephora shops in 1997; airport DFS boutiques
in 1996, in order to develop duty free shops for well-off customers) has been
perceived as a strategic move to exert more control on “selective distribution”, on
patterns of merchandising, and the same for the intrusion of L’Oréal into the Body
Shop network.
Anyway the challenge is unendlessly to reach the right balance between the expansion
of outlets for luxury ranges and an excessive “democratisation” of sales; the risk of
symbolic “depreciation” of luxury brands or objects is always at stake, because selling
accessories or lighter and less expensive products could lead to diminish the
perceived value down to commonplace ranges; even Cartier had to stop its Must
range in the 1990s because of its utmost success since 1973 in favour of ranges
expressing more rarity and thus desirability. Each brand has to inject fresh symbolic
values to its perception in order to re-consolidate its differenciation; and marketing
techniques have to be renewed constantly to maintain the relevant balance.
C. Diversification to accessories, beauty, and perfumes
Last, commercial strategies involved diversification, that is the enlargement of
activities to “accessories” (gift items, housewear, cosmetics, flagrances and perfumes:
each trade-mark started “declining” its brand image from its core products to
peripherical ones. Hermès delivered scarfes, as a by-product, (200,000 in 1978, one
million at the end of the 1980s) and built a portfolio of fourteen ranges in the 2000s;
its turnover increased from the equivalent of 42 millions euros in 1978 to 1,4 billion
in 2005, which changed the nature of the small family house into a big actor of the
Paris place (with 6,000 employees).
Table 1. The diversification of Hermès’ turnover (in 2001)
Leather goods
27%
Clothwear
15
Art of life
12
Watches
10
Ties
6
carrés
8
perfumes
5
Arts of the table
4
Others activities (of which John Lobb)
9
11
This trend explains that each luxury clothing brand was to cover accessories like
shoes, leather products, perfumes, sacks26, light pieces of cloth (scarfs, etc.); each
boutique had to provide all needs to appearance and beauty to customers – even if
specialised perfume companies like L’Oréal or contracting suppliers got in fact the
franchise of the brand. One key lever to expansion has been watches; Cartier started
promoting its ranges of watches as soon as the 1970s, from jewellery pieces to mere
premium ones (“Must” of Cartier in 1973); its business model was copied from the
1990s by LVMH (which purchased Tag Heuer, Ebel, Chaumet, Zenith, etc., and
developed Dior), and the world of fashion-victims asserting their social position or
their love through premium watches became a key commercial target: even Chanel
offered its first watch (Première) in 1987, but as an opus of jewellery. Accessoriesdriven business helped consolidating profits of clothes-driven brands or leather
apparel-driven ones.
Table 2. The diversification of LVMH
The sales of
LVMH group in
the second term
of 2006 (billion
euros)
Cloth fashion and leather products
2,466
Wines, champagne, and spirits
1,220
Perfumes and cosmetics
1,169
Watches, jewelry, accessories
0,315
Networks of selective distribution
1,798
total
The current
operational
profits of LVMH
in 2006 (billion
euros)
1,633
0,962
0,222
0,080
0,400
3,172
D. Worldwide expansion
From the 1980s-1990s, all the firms have been involved in declining such strategies
alongside an international strategy: the “French touch” is posed a reference to entice
customer, to create a mood favourable to sense a “need” to get French luxury
products – and even cognac re-emerged from its decline as a fashionable drink in
Chinese bars and boîtes. By chance, grandes bourgeoisies flowered in developed
countries where people involved in innovation, new types of enterprises and finance
created new layers of demand for luxury goods, among “parvenus” (self made people)
wishing to acquire the social attributes needed to magnify their economic position –
alongside classical psychological processes which had flourished on several periods
throughout history. And Asian customership was constantly enlarged, from Japan to
South Korea and then to China, those people flying to Paris to take part to glamour,
culture and luxury shops – whilst Côte d’Azur itself regained momentum – before
Russian and Central European customers joined them. Despite counterfeiting drives,
luxury brands helped create an economy of glamour, part of the entertainment
revolution which is part of the third industrial revolution. Products with high added
value and high profit margins contributed to consolidate the financial basis of the
luxury firms. Moreover, the expansion of firms into chains of stores dedicated to their
brands has become another strategy of joining customership downtown and
worldwide whereas reinforcing the perception of the luxury and brand-building:
events crowned the opening of Louis-Vuitton boutiques in Paris and New York;
Hermès shops celebrated a strategy of drawing the brand out of Faubourg SaintHonoré street and spreading it in every chic areas in the world (through 240 shops
26
About the myth of luxurious sacks, see Judith Miller, Sacs à main, Paris, Gründ, 2007.
12
directly owned and controlled), whilst the sole brand Christian Dior network jumped
from 16 boutiques in 1996 to 160 in 2006. The LVMH group sold only 12% of its
turnover in France in 2006, instead of 30% in 1988.
Table 3. Worldwide expansion of Hermès (turnover in 2001)
France
21%
Europe (besides France)
17
Japan
27
Asian and Pacific areas (besides Japan)
16
Americas
15
Table 4. Worldwide expansion of LVMH (turnover in 2005)
France
16%
Europe (besides France)
20
United States
26
Japan
14
Asian and Pacific areas (besides Japan)
17
6. French groups or European groups? What about the Italian and
Spanish “touch”? What about French mood?
At the very end of our study, an issue has to be raised about the French roots of these
luxury groups: what portfolios of skills and which capital are covered by “the French
touch”?
A. Efficient French luxury groups
Surely, middle-sized firms like Hermes, Chanel or the new Taittinger formed after the
sale of hostellery chains and the rebuilding of a Taittinger champagne entity with the
help of a bank, are dedicated frankly into French ranges and products. But the
mammoths of the professions, LVMH, PPR and L’Oréal are becoming more and more
European-sized groups and even worldwide ones. They allowed French luxury to
reinvent itself through brand-building, management, and diversification. The growth
of the turnover and profitability reached peaks; more important might seem the
immaterial value of the assets of these luxury groups, as rues of accounting allow to
measure the “goodwill value” of Christian Dior-LVMH balance sheet reveals for
example that the global value of the brands owned by the group was assessed at 8,495
billion euros in 2004 (Louis Vuitton at 2,058; Hennessy at 1,067; Moët at 732,
Parfums Christian Dior at 610; Guerlain at 441; etc.). Another estimation reached
10,495 billion euros (IFRS standards) or 8,624 (French standards) – an amount which
could be confronted to the funds of the firm (9,784 billion alongside IFRS accounting
standards or 13,034 alongside French standards), as if the funds invested in the
successive purchases had in fact bought only “immaterial assets”, or more efficiently
to the global assets of the group, estimated then at 29,095 billion (IFRS rules) or at
25,873 billion (French rules): the mere value of brands constituted therefore 36,1% or
33,3% of the assets. Even family groups succeeded in consolidating their basis
through worldwide expansion and diversification, like Hermès:
Table 6. The expansion of Hermès at the turning point of the 21th century (million euros)
1992 1993 1994 1995 1996 1997 1998 1999 2000
2001 2002
Turnover
374
435
523
583
638
741
767
927
1151
1227
1242
Net profit
27
32
44
62
70
81
89
119
175
202
?
13
B. Foreign portfolio of skills or capital hidden behind French brands?
Such a renewal and upsurge of French luxury groups helped revigorating
competitiveness and financial prosperity, and also the glamour and attractivity of the
“French touch”. But the “French” basis of such a move has to be somewhat
questioned indeed.
a. Italian (and Spanish) brands controlled by French groups
First, French groups became more and more Italian (and sometimes Spanish) ones,
thanks to their huge profits. Pinault’s group PPR – which is selling some of its
distribution assets, like Le Printemps in 2006 – purchased for instance the Italian
luxury company Gucci27 in 1999 and transformed it as the holding of its luxury
activities (Boucheron, Yves-Saint-Laurent wear and perfumes) – before choosing
Venice as the location of his personal arts museum (Pinault Foundation); and Gucci
purchased in 2004 the Bottega Veneta, a well-known leather company at Vicenze. In
the meanwhile LVMH28 took control over Spanish leather products Loewe and over
several Italian companies, like Fendi, as arms to accompany the Italian fashion trend;
it even bought a beacon for the Italian industrial districts, Rossi Moda, which
(between Venice and Padua, in La Breda), produces in Italy the whole ranges of
leather products (Loewe, Céline, etc.) sold by LVMH (except Louis Vuitton). They are
now managing separate portfolio of “national” brands alongside specialised
customerships, and they promote an “Italian touch” or a “Spanish touch” in
competition with the classical and renewed French touch which was supposed to be
their core objective. The strategy of favouring internal competition within the groups
between luxury brands aims apparently in the transformation into a multi-brands
and multi-nationality brand. Like Volkswagen with Audi, Skoda, SEAT or else, such
multi-brands and multi-ranges firms are following a new business model where the
corporate brand is not identified with a single brand, but covers separate segments of
brand-image and price-positioning.
b. Foreigners as Paris creators of style
One should not also forget indeed that several key actors of Paris fashion place have
not been (like Japanese Kenzo Takada) or are not French, but are part of French
culture and glamour (Galliano, Ford, etc.). Some of them have been trained at the
London StMartin’s School of Arts (like Galliano) which reveals that France is lacking
professional schools – like the Parsons School in New York – able to mix
inventiveness and management – thus explaining the efforts in Marseille or in Paris –
with the renewal and extension of the private school Esmod, for instance, created as
soon as 1841 – to compete with London or Milan
c. Foreign groups as French and European brand makers
Last, two key promotors of French brands are not French at all. The Richemont
group, the owner of Cartier, Vacheron or Boucheron, has been constituted in 1988 by
Doug Lloyd & Sarah Meyer, Gucci by Gucci, Paris, La Martinière, 2005.
Rosemary Laudouar, “The story of a worldwide success: The Moët-Hennessy Louis-Vuitton
group (1987-2000)”, in H. Bonin (ed.), Transnational Companies (19th-20th Centuries),
Paris, PLAGE, 2002, pp. 83-90.
27
28
14
South-African family investors (Rupert), who had got enriched by their cigarettes
activities; the firm, already engaged into profitable diversifications, separated its
tobacco activities from luxury in 1993 into Vendôme Luxury, now the second luxury
firm in the world behind LVMH. Sure, its international profile is based on European
brands (Dunhill, UK; Montblanc, Germany; Baume & Mercier, Lange, Piaget, JaegerLecoultre, Switzerland); but this South-African and Swiss entity owns key French
brands: Cartier, Lancel, VanCleef&Arpels (purchased between 1999 and 2004), and
Chloé, thus managed from an international centers of interests, even if they preserve
their pure Paris glamour.
Second, the world leader in perfumes, Coty, is located in Paris – and luxury within its
turnover increased from 35% in 2001 to 55% in 2006, thus the third leader in luxury
perfumes (brands Cerruti or Calvin Klein, as franchises, and several brands linked
with music or movie stars), after L’Oréal and LVMH –, but it is owned by an American
company, the capital of which is provided by the German Benckiser firm…
Third, the very stategy of L’Oréal itself is not only committed to French brands and
glamour: in parallel with the promotion of its key Paris Lancôme luxury brand and to
the franchise for Lanvin flagrances, it has developed its American brand Helena
Rubinstein, purchased in 1988 and also on the beauty line, and has started
transforming the franchise Armani for flagrances into a blockbuster, thus spurring
internal competition within the group as a way to compete more efficiently with
internationalised rivals, themselves managing diversified portfolios of brands.
Conclusion
Still in the thinking machine…
46,099 characters on 1st March 2007