Does It Matter Where It Is Made?
Excuses, Excuses
It took me eight months. I had surgery; I stood frozen in time. I kept procrastinating. For this condition, one of my friends of the past even took a special medication to unfreeze her writer’s block to allow her to finish her doctorate. Maybe my next blog will be written in a blissful delirium.)
I kept reading about the most successful blogs. I realised, the most successful blogs were the blogs about how to write a successful blog. It kept me frozen for even longer.
And here I am my reader, in front of you. I came undone. I longed to write this blog for a very long time. In my previous blogs, I tried to protect you, from the gentle hands of the brands seduction. I tried to explain to you, that the trends/brands and what you are wearing should not define you. You define them, and you create your style.
But, who am I to tell you this? A hopeless fashion romantic? A believer in the miracles of individual operators and independent fashion brands? Well, I decided to write about the Rulers of the fashion world, about the brands. They also need to come undone).
Does It Matter Where It Is Made?
Look at today’s woman and what do you see? The clothes which are more or less anonymous, the shoes which are more or less signature(less). Only her bag tells her story, her reality, her fantasy, her dreams.
From 1990-s, most of the fashion magazines were saying – “if you could not afford the new look every year, you can always update it with a new bag.” The new bags are being discussed now at the fashion weeks with the same intensity as Donald Trumps’ ascendancy to the presidency (God Forbid!).
Lots of luxury handbags are made in China. Top brands, brands that we carry. Brands that would vehemently deny that their bags are made in China. According to Dana Thomas, the author of the book “Deluxe: How Luxury Lost its Lustre” during her visit to the factory producing those luxury bags in Chinese Province of Guangdong, she was sworn to secrecy about the names of the brands she saw and witnessed being manufactured. “Each brand makes the manufacturer sign confidentiality agreement. In turn, the manufacturer does not let the competition know which other brands he is also producing.”
The “brand’s team” is led to a separate part of the factory where only their “Made in France” bags are manufactured. “It is as complicated as keeping a slew of mistresses,” – Tomas says.
Most of the brands won’t admit to the “Made in China” truth. In reality, the luxury brands cannot openly move their production to China without damaging their image. The labour costs for manufacturing luxury goods are steadily rising in Europe. There are two solutions: to increase the prices and face not so happy shareholders and the customers or to move the production elsewhere where production would be cheaper.
Few of the brands would admit to their not so Paris romantic manufacturing roots. But even the purists of the luxury brands should understand that most of the hardware, primarily the locks, might come now from China (Guangzhou). The zipper might have the passport of Japan. The embroidery might be made in India or Northern China. The leather could come from Italy or “worse”, from Korea. We are citizens of the global village; our rooftops are touching each other.
Due to the labelling laws in Europe, the “Made In China” sticker has had an easy workaround. Imagine the bag produced in China, par the handle. Then this bag travels to Italy. On arrival of the bag, the Italian made handle is attached. Voila, it suddenly becomes legitimately “Made In Italy” bag. To continue the story, sometimes the tops of the shoes are made in China, and then the Italian made soles are attached to them in Italy to “elevate” those shoes to the Italian made level, so to speak.
But again, why is it so important that the brands are made where they claim to be made?
Firstly, the honesty factor is paramount for the consumer. When the consumer spends the equivalent of his/her monthly salary, on the branded item, it is imperative the brand treats the customer with the same respect.
Secondly, the consumers of the logos/brands are also buying into the history of the house, into the images of Audrey Hepburn, clad in Givenchy and carrying her forever Louis Vuitton bag. They are buying into austerity and purity of Miuccia Prada, not realising that Prada bags have been manufactured in China since 2005. Better than, they are manufactured in even cheaper “Made In Vietnam” factories now. They are buying into Donna Karan image of luxurious New Yorker, not realising that the luxury New York is now made in China.
Thirdly, when the cost to produce the item becomes lower when it is “Made in China”, so should the price of the final product, should it not? Not so. Dana Thomas mentions in her book after her visit to the factory in Guangdong finished; she travelled that night back to Hong Kong. The end of the journey and the end of the day took her to Harvey Nichols for a couple of drinks with her friends. In Harvey Nichols, that night, Thomas saw the same bag she spotted in the factory with a hefty price tag of $1200. This bag cost only $120 for the luxury brand to manufacture at that secret Guangdong location.
The lower are the costs, the bigger are the profits, the larger could become the volume of production. Our non-suspecting logo/brands consumers are no longer investing into the images of Audrey Hepburn or romanticism of the brand; they invest in a mass market luxury reality. Why is it still luxury? Because of the price tag? Because of the marketing? Because the brand consumers will still be following the brand, until the death do they part?
During the last three years, the sales of Louis Vuitton canvas bags fell dramatically in China. The Chinese started to call them “the bags for the secretaries.” Their appetite shifted towards more discreet and label-less bags from the other brands.
My chosen menu of today is LVMH, Hermes, Lanvin and the outsiders such as Fung Brands. I am going to tell you all about how “Where Is It Made” works for each of them.
THE BRANDS
In reality, there are about ten biggest fashion corporations in the world. They make our lives impossible with day/night dreaming and longing. They force us to judge of who is who around us and even further, to make our life choices. If anything, we can blame the brands for our own partner’s choices.
For more than a century, the luxury fashion business, was, in reality, a conglomerate of family companies which produced beautiful items from the finest fabrics and materials. It was a niche business for the creme de la crema of the society. From the late 1980-s, business magnates started to invest in the fashion business and began to buy up these companies with the purpose to turn them into billion-dollar global brands producing millions of logo-embellished items for the middle market. The executives labeled this rollout the “democratisation” of luxury. The creme de la crema of the society descended to the middle class. And there is nothing wrong with it.
Let’s Talk About LVMH
LVMH Moët Hennessy Louis Vuitton SE is better known as LVMH. It is a French multinational luxury goods conglomerate, headquartered in Paris, France. Since Louis Vuitton family story had come to an end in 1987, we cannot not mention it here.
Louis Vuitton had been the maker and supplier of luggage to the rich and famous for more than 100 years. In 1987, the company emerged together with Moet Hennessy, thus creating the world biggest conglomerate Moet-Hennessy Louis Vuitton (LVMH). The 1980s were extremely successful years for Louis Vuitton. The marketing of the Vuitton name was extensive, and the brand was promoted in a very smart way. In 1983, Louis Vuitton became the preliminaries sponsor of the America’s Cup. Three years later, the company created the Louis Vuitton Foundation for opera and music.
Henry Racamier was the husband of Gaston Vuitton’s daughter Odile. He took over management of the company in 1977. Under Racamier management, the company started acquisitions of the companies with a reputation for top-notch quality. It purchased a major interest in haute couture house of Givenchy and the champagne producer of Veuve Cliquot. Louis Vuitton’s acquisition philosophy was “to treat the brands with kid gloves”. It was respectful, it was discreet, it was never- ever greedy, nor it was aggressive. Since June 1987 and the $4 billion mergers with Moet-Hennessy, (company, specialising in the production of champagne, spirits, wines, and perfumes), Louis Vuitton expanded its investments in the luxury business. Louis Vuitton also allowed a narrow escape for Moet-Hennessy from the impending threat of takeover. The tandem respected the autonomy of each company.
“Never Set The Wolf To Guard The Sheep.”
The happy marriage became unhappy only after a few months. The underlying issues were the size of Moet-Hennessy (three times bigger than Louis Vuitton). The size of Louis Vuitton shares shrank to a pitiful 17%.
Racamier was led to believe that Moet-Hennessy was trying to take over Louis Vuitton. Racamier needed an independent mediator to end the war and start productive peace. This person was the young property developer and financial engineer Bernard Arnault
By that time, in 1984, Arnault had already bought the Financière Agache, a luxury goods company, which was in control of Boussac. Since Boussac owned Christian Dior, and the department store Le Bon Marché, Arnault also became a CEO of Christian Dior and Le Bon Marche in a matter of days. Young property developer/engineer/independent mediator, he certainly, was not.
Hoping to stay within LVMH with the help of Arnault, Racamier soon saw, however, that Arnault had ambitions of his own. The French bank Lazard Freres and the British liquor giant Guinness PLC came handy. Arnault secured for himself a staggering 45 percent controlling interest in LVMH stock.
An 18-month legal battle started between Racamier and Arnault. During this battle, even Chevalier stepped down, becoming just another fish in the catch. Nothing helped: not even Louis Vuitton’s strong performance, accounting for 32 percent of LVMH sales Racamier could not continue fighting since he did not have the support of Moet and Hennessy family against Arnault. Arnault, eventually, weeded out Vuitton’s top executives and began to bring together his fragmented luxury empire. In line with the Arabic saying, “if the camel once gets his nose in the tent, his body will soon follow.”
LVMH Acquisitions
In 2013, LVMH released a fantastic video on the brands acquisitions
The Diagram of Acquisitions by LVMH.
Does it make the company the biggest elephant with the biggest appetite? Yes and no. Not many brands suffered as a result of those acquisitions. Hermes and their non-acquisition are a different story. R.M Williams should have felt they found a gold mine when acquired by LVMH…
The only major shareholder of LVMH is now Groupe Arnault. It is the family holding company of Bernard Arnault. The group controls 47.64% of LVMH’s stock, (42.36% through Christian Dior and 5.28% directly). The group holds 63.66% of the voting rights (59.01% by Dior and 4.65% directly). LVMH also has 66% of the drinks division, Moët Hennessy, with the remaining 34% owned by Diageo.
For a major shareholder like Bernard Arnault would it be easy to walk away from the stock exchange altogether? Not difficult, I would think since he would not need to sell the shares to himself. His dependence on the share price would be marginal.
In March 2015, Forbes estimated Arnault’s wealth to be $37 billion. As for the last year Arnault was the 13th richest person in the world and the richest in France.
Arnault promoted decisions towards decentralising of the group’s brands. I never saw a joint advertising of any of LVMH brands, except, on one occasion, the advertising of Beluti shoes and Krug champagne.
Where is it made?
In 2012, LVMH launched the project called The Journées Particulières.
LVMH showcased the incredible “diversity of métiers and savoir-faire within LVMH Houses across the world.” (From LVMH News). The first two editions met tremendous success. Beautiful Haussmann lofts, beautiful workshops, the places, where the magic happens. If I were an LVMH customer, I would be entranced.
But the truth is somewhat different. In 2004, at the luxury conference in Hong Kong, Bertrand Arnault categorically denied any possibility of LVMH brands produced in China. The same year, Celine moved production of its bags to China. A brown leather tag inside its Macadam bags said:
the design belonged in Paris”, but the “proud production” happened in China with the high attention to quality and detail.
It is also not surprising that since the acquisition, the following brands of LVMH at least partly moved their production to outside of France/Italy/USA:
- Kenzo
- Loewe
- Donna Karan and DKNY
- Mark Jacobs
- Givenchy
Why would Arnault allow this? He could certainly afford the brands to be made where they truthfully belong. The answer is never simple. In my opinion, (and I would love to interview Monsieur Arnault one day), he never came from one of LVMH brands heritage background, not even from Christian Dior’s heritage(his first catch). Arnault looks at the brands and their acquisitions as the means to his success. If it does not require a heritage based production, so be it. If it does at the same time, require more marketing expenses to persuade the customer, that is indeed a heritage based production, so be it, too. It is nothing wrong with success, and it is nothing wrong with somebody being successful. The model works perfectly well. At the same time, if I were an LVMH customer, I would appreciate the Monsieur Arnault’s honesty.
In Summary
I will never drink Chandon coming from China, or, for that matter, from any other of the countries outside France. I will never buy into the mass luxury market, champagnes, wines, and Belvedere excluding. LVMH won’t suffer as a result. The elephant of LVMH will survive no matter what. The “bag for the secretaries” might give way to a more luxurious bag, or might be deleted from Louis Vuitton production altogether. LVMH is the most successful fashion/retail company in the world. It sells the embellished aristocratic heritage to the masses. It sells the dreams of luxury to the middle class. That is LVMH formula for success.
Let’s Talk About Hermes
“A business generating nothing but profits is poor indeed.” – Pierre Alexis Dumas, President of the Fondation d’entreprise Hermès.
I must admit, I love Hermes. Thus, I have slammed the first nail in the coffin of my label-less religion.
I love Hermes for the different reasons. Not the least of them is the behaviour of the company in the times of the Second World War. It is blemishless, to say the least.
“We don’t have a policy of image; we have a policy of product.” – Former Hermes CEO Jean-Louis Dumas. With this leitmotif, the company has existed for almost 200 years. I don’t want to go into the brand history. It is well-known to my readers, and it is still “in the family”. I wished to underpin just another success story and “Where Is It Made.” in Hermes case.
LVMH BID – The War of Handbags
Hermes is the 10th most successful fashion company in the world, nine rows behind LVMH. The two companies, however, cannot be more different. To be fair, there is a similarity which might have started almost 200 years ago when both businesses were born. It lies in the production of objects associated with travel.
LVMH had started buying up Hermès shares in 2002, using the hedge funds who don’t want to disclose their purchases. After this had come to light in Oct. 2010, Arnault maintained that his intentions toward Hermès were “friendly,” but Hermès again saw Arnault as the wolf entering the role of a babysitter for their sheep. Then-CEO Patrick Thomas at the time said: “If you want to seduce a beautiful woman you don’t start raping her from behind.” In his interview in 2011 to WSJ, Thomas also made not so politically correct point about the two companies religious differences: “The family(Hermes) is Protestant, and Protestants have a very different approach to money than the Catholics”.
In 2011, the 6th generation of Hermès founder Thierry Hermès finally got together and formed a holding company. They called it H51 in a genuine spirit of the Cold War, I believe. The company held 50.2% of the shares locked up for the next 20 years.
Where is it Made?
In a world of the luxury handbags made in China, Hermès still employs the great artisans in France, who make each of its famous Kellys and Birkins, individually, by hand. While most of its competitors buy rolls of pre-made fabric from China to print their silk scarves, Hermès weaves its fabric in Lyon from silk raised on its farm in the mountains of Brazil. While most of the Hermes competitors license perfume creation to the monster large laboratories that also make air fresheners, detergent scents, and food flavouring, Hermès has an in-house nose (Jean-Claude Elena) who meticulously creates each new perfume in his lab near Grasse, South of France. This attention to detail and dedication to integrity has given Hermes a license of trust by the customer.
Hermès controls the production of 80% of the products it sells, using few carefully selected sub-contractors only in segments for which it lacks expertise, as in ready to wear (France or Italy), Watches (Swiss). Hermès still hand-produces in France most of its products maintaining its traditions and using the craftsmanship of its employees. It takes approximately 15 hours to produce Kelly or Birkin handbag.
Hermès does not market the Birkin at all. Instead, the company relies on the bag’s “exclusivity and prestige”, on the celebrities wearing the bag. In fact, Hermes does not have a marketing department. If the world knew how many bags came out from Hermes oven every year, the lights of excitement would likely dim. The only fact Hermès wants us to know about the bag’s availability is that you probably can’t get one.
The Secret of Success
Hermes is the It luxury brand in the world. The highest attention to detail in manufacturing, craftsmanship, brand exclusivity and family values – all of these contribute to the core of Hermes. The group is also a unique example of a successful premium business model. Its share price has been multiplied by 60 since 1993 and unlike other luxury brands, the group proved resilient during the crisis returning superior returns to its shareholders, who for 73% of them are heirs of the founding family. Hermes has always remained acutely desirable while being committed to the tradition of “making things the way the grandfathers of our grandfathers did.” At Hermès, any workable premium solution relies solely on mystique. After all, selling a commodity boils down ultimately to one thing: price versus the margin. Selling the beautiful objects that people already accumulated from so many other luxury brands? The objects which people don’t need but still desire? Like this cotton beach towel? It will make them poorer by $1,000. It is, I imagine, what Hermes would think, a small price to pay to belong.
In Summary
In my view – I am a half way Hermes customer. I would never buy a Birkin or a Kelly. It is an inconspicuous mass luxury. Inconspicuous(as in no logos), but recognisable, mass market luxury nevertheless.
I love Hermes scarves, though, I think, they are worth collecting.
I love and love Hermes cooperation with the Parisian Designer Pierre Hardy. I also love Hermes ready-to-wear silly conservative clothes.
Hermes, however, is still playing cat and mouse with the customer. Why their prices are so high? Because they can! They can charge us, the gullible devotees. Their marketing is based on the fairy tale of exclusivity and very limited numbers. Hermes is a the quintessential “Hard To Get Bride” of the fashion world. At least, their heart is in the right place – they are remarkably honest about “Where Is It Made”.
What Happens When The New World Buys The Old World
Does the world collapse? Does Almighty send ten plagues to punish offenders? Not really. In fact, it already happened.
Lanvin
When Taiwanese entrepreneur Wang Shaw first bought Lanvin in 2001, she was considered a pioneer. Lanvin is the oldest French Fashion house, dating back to 1905, with Jeanne Lanvin as a founder. She started making clothes for her daughter, Marie-Blanche de Polignac. The clothes were a big success and instantly came in demand by the circle of wealthy people for their children. After the children’s clothes success, Jeanne Lanvin continued as a designer for the grown ups. She became one of the most influential French designers during the 1920-1940s. After Jeanne Lanvin’s death, the house ownership went to her daughter. Marie-Blanche de Polignac was childless when she died in 1958, and the ownership of the House of Lanvin since went as a result, to a cousin, Yves Lanvin.
The ownership of the house changed hands from Squibb USA to Britain Middle Bank, then to Orcofi (Vuitton Family) and later to L’Oreal. During this period, the factory managed to stay in Nanterre where all perfumes (“My Sin” since 1924 and “Arpege” since 1927) were made and bottled. The real decline started since 1995 when L’Oreal took over ownership of the house. L’Oreal would appoint any available of the CEOs to be the head of Lanvin from the array of circulating CEO’s under its vast umbrella.
In August 2001, when Lanvin, the oldest French fashion house was still in operation, it was taken private again by investor group Harmonie S.A., headed by Mrs. Shaw-Lan Wang, a Taiwanese media magnate. I honestly think she did it for good luck because of the pure coincidence of the names. Come October 2001, and Alber Elbaz was appointed the Lanvin artistic director for all activities, including interiors. In 2006, he introduced the new packaging for the fashion house, featuring a forget-me-not flower color. In accordance to Suzy Menkes, it was Lanvin’s favorite shade which Madame Lanvin saw in the fresco “Fra Angelico.”
The injection of Vitamin C (C, being capital) helped the brand enormously. It also helped that in May 2009 when Michelle Obama was photographed wearing a popular line of Lanvin’s sneakers while volunteering at the food bank. The sneakers were retailed at $540. On September 2, 2010, it was announced by H&M that Lanvin would be their guest designer collaboration for the Winter 2010 collection. On November 20, 2013, Lanvin became the official producer of Arsenal FC, a London-based football club.
On October 28, 2015, Lanvin announced that Elbaz was no longer at the company. According to Elbaz, his removal was “the decision of the company’s majority shareholder.” In accordance to me, he is primed to become The Designer of Christian Dior. It would be only politically correct for the company associated in the past with the Nazis and John Galliano to hire a Jewish, Israeli-born Elbaz. From one hand, in accordance to Charles De Gaulle. “The graveyards are full of indispensable men.”. From another hand, “who knows?”
Where is it made?
Lanvin is made where it is supposed to be made – in France. The perfumes still come from Nanterre. Lanvin financials moved from red to black in 2008 for the first time in decades. Lanvin profits reached 15.3 million Euros in 2013. They fell immediately after Elbaz departure. They are still is in the black. Lanvin would still stay afloat with the firm hand managing it and under the guardianship of the Taiwanese owner. They will never move their production to China since the heritage is too important for Mrs. Shaw-Lan Wang.
First Heritage Brands and the Others.
Since Madame Wang made her first brave step, many non-European investors have followed the suite, spending hundreds of millions on the established European luxury houses in need of a makeover and a cash injection. They are Fang Brothers (Pringle of Scotland), Singaporean magnate Christina Ong (Mulberry) and Megha Mittal (Escada), Qatar Luxury Group (Valentino, Le Tanneur and Cie), Kazakh-born Goga Ashkenazi (aka Vionnet).
In 2011, William and Victor Fung of Fung Group (owner of global sourcing giant Li & Fung) joined their ranks, forming First Heritage Brands, a subsidiary of Fung Investments with the sole purpose of investing in European luxury brands to develop their international potential, especially in China. LVMH veteran Jean-Marc Loubier became the First Heritage Brands “Hunter”. He managed the acquisition of the French shoemaker Robert Clergerie, as well as Delvaux, the oldest luxury leather goods manufacturer in the world, both in 2011. The following year, the firm added ready-to-wear brand Sonia Rykiel to its portfolio, relaunching the label with a new artistic director and opening stores for company’s contemporary line, Sonia By Sonia Rykiel.
Where is it Made
I remember when Delvaux was in financial trouble before the acquisition, everybody was wondering if their production would move to Vietnam since their then CEO Francois Schwennicke moved to live in Vietnam. Belgium was indignant – how could the “Hermes of Nothern Europe” be produced in Asia? But nobody raised a finger in Belgium to help the national icon. When Hong Kong-based, First Heritage Brands acquired Delvaux in 2011, Belgium was indignant once again. Belgium journalists were sure all Delvaux bags would now come from China. Not so. Delvaux is still produced at the factory in Arsenal, almost in the centre of Brussels. Robert Clergerie is still manufactured in Italy and France, only Sonia by Sonia is produced in China. I have a niggling feeling it was already produced there before the acquisition.
60% of Mulberry is still produced in the UK, with 40% of production outsourced to Turkey and China (the same factories Givenchy are using). Valentino is still made in Italy since Qatar Foundation invested in their factories too. Pringle of Scotland is not so lucky – it should be renamed as Pringle of China. Pringle of Scotland still holds a royal warrant from Queen Elizabeth II. Queen Elizabeth II might not be aware it is Made in China.
According to Jean-Marc Loubier: “We are looking at companies with idiosyncrasies, product and know-how that haven’t been so well [leveraged] in the last 20 years, but have something to say in the future. We want to make them global.
Our analysis is that we are experiencing the second wave of the development of luxury consumption after its world massification. The early but important actors with their powerful and huge brands will stay and develop, but there is an interesting space and need for a new offer.”
In my opinion and in general, the newcomers care much more about the brand heritage; they still have a point to prove to themselves, to the whole world. Li & Fung are the main suppliers to the Walmart. First Heritage Brands are the world away from Wallmart. The New World Buyers keep their names hidden behind the brands they acquire.
Epilogue
Made in China, my reader, means what it means – made in China – it could be an excellent quality product, it could be a product of a Chinese designer of an excellent quality and beauty, it might be your sought after luxury product-pretend also made in China. The three stories are those of luxury. It is up to you to decide whether:
- You don’t care where your brand comes from as long as it is your brand of desire. God forbid you to see a photocopy (a fake) of the object of your desire.
- You don’t care how much you pay for the brand as long as it is made where it claims to be made, as long it is so exclusive that you won’t be able to spot it in the vicinity of 100 metres from you. Further afield, your bag uniqueness is not guaranteed.
- You don’t care whether it is a brand recognised by everybody, you care that you and your chosen brand make a unique tandem of class and style. In most of the cases, it will be produced in their birthplace.
- Just remember there is nobody there to judge you on your choices.