Figure 2.1 The Evolution of the Luxury Industry
The twentieth century was when the best-known luxury brands of today came to prominence. Though these brands may have been established earlier, the 1900s saw them gain the distinct identity that they still possess. While the first half of the century generally saw fashion relegated to the background in favor of robust economic development, the second half saw the luxury economy grow to become a major contributor to the modern-day economy. Through the course of this chapter, we intend to look at the major milestones in the evolution of luxury in the twentieth century.
Several luxury and prestige brands such as Louis Vuitton, Burberry, and Chanel were launched in the nineteenth and early twentieth centuries, when a strict social class system defined society and royalty and aristocracy reigned supreme. During this period, designers like Christian Dior, Yves Saint Laurent, and Guccio Gucci designed clothes and leather goods exclusively for the noble men and women of society. Their work was an art form that took several weeks and sometimes months to produce, and this was all a part of the “luxury and prestige” experience. During this period, it was the norm to literally dress in one brand from head-to-toe.
In the present twenty-first century environment, the story is different. The luxury market is no longer reserved for the elite. It has transcended boundaries. At the beginning of the century, luxury consumers were a small segment of the population who all looked the same. First, a class of wealthy people have emerged the world over. In the last three to four decades however, a vast amount of wealth has been accumulated by individuals due to several economic, social, and technological breakthroughs. Second, there has emerged a sea of luxury brands, and this has affected the high entry barrier that the industry guarded for centuries. It has also given luxury consumers more choice than ever before. Third, the rapid growth of digital information and communications technology has given consumers more variety in luxury product offerings, easier access to view the choices, and lower switching costs, especially on the Internet. This has empowered the consumers to become more individualistic, experimental, and bold enough to mix luxury and high-street fashion in one outfit; something that their mothers and grandmothers would have considered a taboo in the past.
The result of this change is the phenomenon of trading-up and trading-down. The new wealthy class that is enjoying its ability to acquire luxury products practices “trading-up.” “Trading-down” is the practice of mixing the use of luxury items with fashion brands. This practice is also popularly called “the democratization of luxury.” Therefore it is no longer a surprise to find a wealthy celebrity wearing jeans from H&M, earrings from Chanel, shoes from Coach, a shirt from Zara, and a bag from Louis Vuitton.
In 2013, companies and even luxury companies are seeing China as the land of opportunities. The other way of looking at luxury from a historical point of view is to review the actual evolution of the brands and companies and evaluate if there is any difference in their success depending on their structure and business model. Traditionally, the luxury sector was highly fragmented, characterized by a large number of family-owned and medium-sized enterprises. In the past two decades, it has been increasingly dominated by multibrand luxury conglomerates. Some small niche brands do survive as independent companies, such as Goyard, but they are in some danger of being acquired. Acquisitions occur for a few different reasons. As in the case of LVMH, a company may be trying to gain market share and control as much of the industry as possible, or as in the case of Hermès, a company may be seeking vertical integration to be in control of their own production and supply chains. The industry is now dominated by conglomerates. The day of the family-owned business is over unless it is financed by a private wealthy family such as Tiffany, Chanel, Armani, Ralph Lauren, or a number of others.
Luxury has evolved over time from family businesses to conglomerates, from old luxury to new luxury, from uber luxury to affordable luxury. Figure 2.2 denotes the evolution of family businesses to multibrand corporations in the luxury industry. The connections and validations have to be made by royalty – whether it is as old as the Roman Period, when the Emperor was given silks as gifts, or the modern era, when brands give celebrities gifts that they wear or use in public to legitimize the products. The main evolution has occurred in the way that luxury has been promoted during the years. We have discovered that desire or the dream factor of luxury has always been the same and will probably always remain the same. As long as consumers aspire to own the things they cannot afford and the same things are always more rare, more beautiful, or more coveted, then the concept of luxury will remain the same.
Figure 2.2 From Family Business to Multibrand Corporation
The cycle continues – Europe will look East either to benefit from acquiring new and exotic products such as silk and gemstones and ivory or, as is currently the case, they will look toward expanding to the East because that is where the growth is. Figure 2.3 depicts the circular path of luxury heritage. Globalization is an eternal subject, with maybe some changes of form through the centuries. As the saying goes, the more it changes, the more it remains the same.
Figure 2.3 The Circular Path of the Heritage of Luxury
How Has It Changed?
Plus ça change, plus c'est la même chose.
Two decades ago, the luxury industry model was almost completely dominated by the family businesses. However, the winds of change were felt in the 1990s, especially by one man – Bernard Arnault. The ensuing rivalry between Bernard Arnault, the owner of Dior Group, and Henry Racamier, husband of Mademoiselle Vuitton, owner of Louis Vuitton, created a historic structural shift within the industry as each selfishly fought for market control through growth and acquisition. Until then, luxury was about fashion. Within this struggle, Bernard Arnault came out the winner and went ahead for consolidation to create the luxury empire of today. He transformed the fashion into a business. Buying and selling companies with intricate financial maneuvers, he conquered the luxury space by making Louis Vuitton Moët Hennessy (LVMH) the largest luxury conglomerate in the world. The interesting point to note about this conglomerate is that each brand was allowed to carry on its own culture and know-how and to be managed separately. However, if it was felt that the brand needed a push, Arnault stood right behind it. Furthermore, he created the famous notion of “star brands” that were timeless, modern, fast-growing, and highly profitable. He would find new brands and mix and match a suitable designer and an apt management team for the brand. He would revamp the production, control, storage, distribution, to offer a completely new and unique package to the customer. Thus, it led to the development of the counterintuitive idea of “constrained freedom,” wherein the brands were allowed latitude; however, the latitude was limited to the lines that Arnault drew.
Some French companies, such as Hermès, which was owned by the families of Dumas, Puech, and Guerrand, and Chanel, which was owned by the Weirthemer family, could stay partially and fully independent. Hermès, the legendary leather-goods fashion house established in 1837, remained family owned. The Wertheimer family has owned Chanel since 1954. They never introduced Chanel to the stock market. The house is showing longevity in its independence, which is rare in the sector. Not listed on the stock market, the Maison Chanel continues to meticulously keep their financial data a top secret. Its aura of mystery is cultivated by the owners, Alain and Gérard Wertheimer, who drive the company firmly and discreetly.
In France, the Comité Colbert, founded in 1954 by Jean-Jacques Guerlain, consists today of 75 houses of French luxury that have different histories, cultures, sizes, and management. However, they share common