Ralph Lauren became the single most profound industry-transformer of the past century by maneuvering his product offering, brand extension and marketing to evolve from a neckwear designer into a brand ambassador for an entire lifestyle, thus creating the “Lifestyle Industry”. Throughout the past forty years, although the company has experienced financial ups and downs, acclaim and criticism alike, it has remained one of the most successful fashion businesses in the world.

The following is my effort to capture the story of the Polo Ralph Lauren company, moving from the history of the man behind the brand to the structure of the business.

Ralph Lauren: The Man

Ralph Lifschitz was born into a working-class family in the Bronx, New York City in 1939. Coming from a long line of Orthodox Jews, Ralph’s late mother is rumored to have wanted her youngest son to become a rabbi. However, young Ralph’s father was a house painter, and Ralph himself had ambitions of becoming a millionaire- according to his high school yearbook.

Young Ralph was apparently driven to become the ideal “self-made man” from an early age. Throughout his youth, he worked summers in the Catskills, where he observed the wealthy American lifestyle that would capture his imagination. Later, Ralph worked in New York department stores and spent his savings on expensive clothes, becoming the best dressed of his classmates by the age of 12.

By 16, he and his brother Jerry had both changed their names from Lifschitz to Lauren. The idea of dressing for the position (or lifestyle) you hope to attain has served as a mantra for Ralph Lauren’s subsequent success, as he has enabled millions to do just that.

People ask, ‘How can a Jewish kid from the Bronx do preppy clothes?’ Does it have to do with class or money? It has to do with dreams.  -Ralph Lauren

After serving in the US Army for two years (1962-64), Lauren was discharged and quickly married Ricky Lauren. They have three children together.

While selling ties at Brooks Brothers, Lauren attended night school in business at City College in NYC. While working in the “preppy” world of Brooks Brothers and observing other like-minded companies, Lauren realized there was a largely unserved market for people like himself, who wanted to dress within a certain “blue-blood” lifestyle, without appearing stuffy or breaking the bank. He began to tap into this market by veering away from the popular “skinny tie” to create wide, colorful neckwear.

A tie was the way a man expressed himself. I believed that men were ready for something new and different. They didn’t want to look as if they worked for IBM. A beautiful tie was an expression of quality, taste, style.  -Ralph Lauren

Ralph Lauren took inspiration from the yearbooks of Princeton, Harvard and Yale, and from old photographs of prominent Americans, as well as his own personal idea of the images that represent the classic American heritage and the “sporting gentleman.” He went on to develop the largest lifestyle company in the world.

In 1987, after the removal of a benign brain tumor, Lauren began a longterm commitment to philanthropy. The Polo Ralph Lauren Foundation was created for the purpose of providing support for philanthropic programs including education, healthcare in medically under-served communities, the arts and community-based initiatives. His family and company have supported historic preservation activities and numerous cancer research initiatives, including the Pink Pony campaign for breast cancer. In addition, Lauren founded the Ralph Lauren Center for Cancer Care and Prevention in 2001.

Lauren’s company was floated on the stock market in 1997, and Forbes now lists him as one of the world’s billionaires. He and his wife, Ricky, have five homes, each filling in a chapter of Lauren’s ideal American existence. There is the apartment in Manhattan and two houses not far away: a beach house in Montauk, at the tip of Long Island, and an estate in Bedford (see Architectural Digest, November 2004), an hour north of New York City. There are also two more distant places: a ranch in Colorado (see Architectural Digest, November 2002) and a two-house retreat in the posh Round Hill resort, near Montego Bay on Jamaica (see Architectural Digest, November 2007).

It seems that Lauren’s childhood dreams have been dwarfed by his larger-than-life reality.

The best thing you can do is go away from this saying, ‘I can do this too,’ because it’s all possible, and I’m living proof.  -Ralph Lauren

Below is a one-hour interview from 1993 where Ralph Lauren speaks with Charlie Rose about his life, his inspirations, and his business. (You may have to drag the scroll bar to get this ancient video going.)

The History of Polo Ralph Lauren

1939: A Star is Born

Ralph Lifschitz was born in the Bronx, & later changed his name to Lauren.

1960s: Chasing the Dream

Lauren studied business at City College in Manhattan while working as a glove salesman. He later began working for tie-manufacturer A. Rivetz & Co, who refused to produce his wide-tie design in the era of skinny-ties. Lauren dropped out of school just before graduation, and convinced clothier Beau Brummel to manufacture his Polo line of neckwear. Within a year, Lauren took out a $50,000 private loan from clothier Norman Hilton and founded the Polo Fashions, Inc. business with his brother, Jerry (the name would become the Polo/Ralph Lauren Corporation -PRL- in 1987).

The ties were first sold in small menswear shops and later in fashionable department stores. Bloomingdales originally refused to sell the ties unless Lauren agreed to remove his label in order to reduce the tie-width. Lauren refused, and Bloomingdales had only to look at the success of his sales figures to understand that they were mistaken. Lauren’s colorful wide ties found a niche – even at Bloomies, and the brand was expanded to include men’s business attire and sportswear. The company designed, manufactured and distributed the entire Polo collection.

From the beginning, Lauren established clear stylistic codes that embraced the myth of the American aristocracy by merging classic American style with the refinement, tailoring and sensibility of European fashion.

1970s: Branded Genius

Lauren won the Coty Award for menswear, and immediately produced a line of men’s dress shirts cut for women, in addition to the now infamous Polo shirt with the breast logo. Both lines were a huge success, but by 1972 the company was almost bankrupt. The young entrepreneur had proven himself a genius at establishing a strong brand identity with lightning-speed, but had difficulty managing the finances and logistics of a fashion business.

Lauren invested $100,000 of his own savings into the company and recruited Peter Strom from his post at Norman Hilton to become his business partner. Lauren then owned 90% of the company, while Strom owned 10%.

Strom and Lauren proved themselves a dynamic working team. As Strom reported to the New York Times:

We divide the work this way: I do everything Ralph doesn’t want to do; and I don’t do anything he likes to do. He designs, he does advertising, public relations; I do the rest.

In this spirit of doing what you like and what you’re good at (not bad advice, by the way), Strom and the Lauren brothers scrutinized their business structure and adapted it to what they did best: design and marketing. Manufacturing of the women’s line was licensed out to experienced producer Stuart Kreisler, who was enthusiastic about building the Lauren brand.

Under the licensing agreement, Lauren would design, and Stuart Kreisler would manufacture and distribute the line while sharing advertising costs, with Lauren earning 5-8% of the wholesale revenues. The structure of this agreement would serve as the model for future PRL licensing efforts.

In addition to this agreement, Strom insisted that all retailers carrying Polo products would be required to sell the entire line, including the most expensive suit (which cost $350). While this initially eliminated 2/3 of the retailers carrying Polo, the retailers who remained developed a loyal working relationship with Lauren.

By the end of the decade, Lauren had moved the company from the brink of failure into an emerging powerhouse. He also created a smash-hit Westernwear collection in addition to fragrances for men and women. He designed the wardrobes for The Great Gatsby (1973) and Annie Hall (1978), influencing the way millions dressed -although without the product placement that would bring Armani fame in American Gigalo in the 80s. He had also won the American Fashion Award, and was elected into the Coty Hall of Fame for both menswear and womenswear.

With the company finances back in order, Lauren returned to building his brand image and began to invest in extensive advertising spreads that used powerful imagery to tell the story of the Polo Ralph Lauren lifestyle. A movement that went beyond clothing was born.

1980s: Building the Lifestyle Empire

Lauren continued his brand expansion to include childrenswear, eyewear, underwear, jeanswear, shoes, accessories, housewares, furs, luggage, and a range of other products. However, unlike most companies who suffered brand image dilution from rapid expansion using licensees, the image of Polo was only strengthened. There were several reasons for this anomaly, but the main ones were that Lauren designed everything himself or held final design approval, and retail imaging was carefully controlled by the brand through franchises or shop-in-shops.

Only two product categories gave the brand substantial problems: fragrances and the home collection. The fragrance sales were lacking until Lauren found the right licensing partner in Cosmair, Inc. who was willing to help develop and promote the products. Sales in Polo, Polo Sport, Lauren and Safari fragrances skyrocketed.

The home collection, on the other hand, received widespread praise for brilliant comprehensive design, but suffered at the hands of the licensee. It was originally licensed for production and distribution to the J.P. Stevens Company, who had difficulties getting the products to retailers on time and demonstrated poor quality control. In addition, they required that retailers construct specific free-standing boutiques within their stores to display the items- at a cost of $250,000 each! Retailers obviously balked at this figure. The result: low-quality home goods and expensive requirements for stores = unhappy customers and retail partners. It took the company years to recover the home collection.

Nevertheless, all Polo products embraced an idealized aspect of the American cultural experience, and this concept was reflected in the store design and advertising. The Santa-Fe collection was added to the brand in 1981, providing Navajo-inspired designs that were a global success. To produce the ultimate in-store brand experience, the company went through an elaborate process of historic restoration to create the first flagship store in the 1890s Rhinelander mansion on Madison Avenue, opened in 1986. This would be followed by the development of a London flagship on Bond Street and the brand’s largest international store in Paris.

The company now has stores in more than 31 countries, and controls more than 50 brand outlets at a significant distance from regular retailers to prevent inter-brand competition while controlling the brand image.

1990s: New Frontiers

Difficulties did not allude the brand. The recession of the early 90s saw cutbacks in Polo’s retail operations. According to retailers and various news sources, many manufacturers had begun copying Lauren’s designs and selling them at lower prices.

However, PRL continued to roll in the cash with the introduction of the Polo Sport and Double RL Jeans lines, and Lauren received the CFDA Lifetime Achievement Award in addition to awards for best menswear, womenswear and retailer.

The company’s continued success positioned them for the profitable sale of 28% of the company to a Goldman Sachs & Co. investment fund for $135 million in 1994. The company then went public in 1997 on the NYSE when Lauren sold 18 million of his personal shares for $465.4 million. He still retained 90% of company voting rights, enabling himself to maintain control over the direction of the brand.

Throughout the 90s, the company continued with brand expansion projects, and shifted several of its licensing agreements in an effort to provide high-quality products at several price points, thus embracing the full lifestyle offering. By the end of the 1990s, nearly 300 licensing agreements were in place. Of the brand’s 200+ retail outlets, about half were operated through licenses, and yet the brand image remained intact.

As the new century approached, the company continued to grow while maintaining a strong image rooted in the idealized dream of American culture. Ralph Lauren further diversified the brand through the development of the Purple Label (tailored menswear) in 94 and the opening of the RL restaurant in Chicago in 99. He also began to demonstrate the philanthropic nature of the company before it became fashionable, spearheading efforts in historic preservation in the States and the fight against cancer.

In the late 90s, the company acquired Club Monaco to get a handle on the younger market which competitor Tommy Hilfiger had captured, yet had remained allusive to Ralph Lauren. The RALPH line was then created to target the “daughter of the Lauren market”.

2000s: Media Master

Ralph Lauren had grown from a tie-designer into a lifestyle mogul in just 30 years, creating the industry path to success that others would scramble to follow. However, the company’s spirit of innovation didn’t stop with the 90s.

In 2000 the company formed a multimedia marketing joint venture with NBC and affiliates, and ValueVision (operator of the Home Shopping Network). With the new media capabilities this partnership enabled, the company began to explode with cutting-edge communications strategies that would leave the rest of the industry years behind.

PRL’s first television campaigns began immediately. Polo.com was developed in 2000, providing one of the first mono-brand e-commerce sites in fashion history. It was followed in 2001 by the online magazine outlining all things celebrity, sport, art and culture that would appeal to the ideal American persona that Lauren had built. That same year, Runway.Polo.com was launched, providing fashion fans with a look behind the scenes in collection-development and fashion shows, while offering style and beauty tips. Just one year later, the Home site was launched, exploring every item in the collection and offering decorating tips to readers.

By 2003 the International Website had launched, providing a glimpse into the Ralph Lauren lifestyle for the first time for many new markets around the world. The Create-Your-Own project also debuted online, enabling users to interactively “design” their own Polo shirts by selecting from available color combinations and graphics. The venture proved very successful and was repeated in subsequent years.

The technological integration continued with the creation of the Virtual Window Shop, a touch-screen monitor on the window of the Madison Avenue store that allowed customers to shop “online” anytime, even after the store’s closing hours. More than increasing the number of virtual shoppers at the store site, the window really served to generate hype and publicity for the brand. The window piece was featured in most fashion publications worldwide, in addition to business news and technology publications. The window, in effect, became a tourist destination.

In 2008, consumers with SmartPhones were enabled to shop from the pages of their favorite magazines by scanning Quick Response (QR) codes in PRL ads with their mobile phones. Several iPhone applications were also launched to attract brand fans to interact from anywhere they could get a signal.

In the never-ending brand battle to win the hearts of the next generation, PRL launched the Rugby line in 2004 (yes, that’s before Gossip Girl) in an effort to attract the “burgeoning college” market. The Rugby line provides aspirational lifestyle products in a preppy, youthful style through a vertical retail format (meaning the PRL controls logisitics, distribution and retail). Rugby.com was worked over in 2008 to provide e-commerce, mobile commerce, media content, and the make-your-own features that had proven so popular with Polo.

By 2007, its 40th year in business, Polo Ralph Lauren was a $4.3 billion enterprise with a presence in 80 countries. Offerings at nearly every price point — from value to luxury — covered men’s and women’s apparel, home goods including paint, accessories, fragrances and eyewear at the time of the brand’s anniversary celebration and commemorative book release.

Lauren himself has been awarded the CFDA’s American Fashion Legend Award and the first-ever Voter’s Choice Award, and continues to lead and support numerous philanthropic endeavors.

PRL remains a flexible business model, integrating retail, wholesale and licensing to most effectively provide the world of Ralph Lauren to consumers. The company’s brand names include, among others: Ralph Lauren, Polo by Ralph Lauren, Ralph Lauren Purple Label, Black Label, Blue Label, Lauren by Ralph Lauren, Polo Jeans Co., RRL, RLX, Rugby, Ralph Lauren Childrenswear, Ralph Lauren Baby, Ralph Lauren Home, Lauren by Ralph Lauren Home, American Living, Chaps, and Club Monaco.

In spite of 4th quarter losses at the end of Fiscal Year 2009 (which closed on March 28, 2009), net revenues for the year grew 3% to $5.02 billion from $4.88 billion in the previous year. These gains are attributed to increased wholesale and retail sales, but have been diminished by the loss of some licensing fees as PRL has bought back licensing rights in key markets to strengthen the brand image abroad. The company continues to focus on longterm growth, enhancing development abroad — especially in SE Asia — and pushing the pattern of innovation in products and operations in the coming years.

The current economic crisis ensures that Fiscal 2010 will be challenging for PRL, but the company strategy of brand protection (bound by brand building and extension, specialty retail including web, and international expansion) has most speculators confident that the company will continue to thrive.

Ralph Lauren: The Brand

All lines of PRL represent the idea of the American Aristocrat, rich in European heritage with a mix of New England urbanity and a rugged country flair.

The look embraces a style that is sporty, preppy, wealthy, traveled, and timeless while remaining modern.

Within this ideal, each line represents its own niche, although there has reportedly been some confusion among customers as to what each line stands for (perceived brand overlap). This is understandable, given the number of lines the company has produced. Below I have placed some of them into positioning maps by style and price-point (there are many lines missing from this map, some available only in specific markets- like Lauren for Men, others discontinued or owned by the company but not in use). Obviously, all styles from elegant to athletic fall within the broader “classic” category.

PRL Communications & Marketing

In the early years, Polo Fashions was marketed solely through the efforts of the department stores that carried the brand’s products. The advertisements included store window features and newspaper ads.

In addition, Ralph Lauren was one of the first designers to have his own shop-in-shop within individual department stores. Through the techniques of set design, he created a specifically branded environment to house his products while reflecting the attitude of the Ralph Lauren lifestyle.

Film would serve as Ralph Lauren’s inspiration in his collections and in his future marketing efforts. Many have complained that he is not a “true” designer, taking images from films and other sources and designing collections around them. But what creative has not done this?

In 1974 the name Ralph Lauren wascatapulted into the fashion industry forefront after the release of The Great Gatsby, a monumental film in which Lauren designed the wealthy characters’ wardrobes.

Just three years later, Lauren would again work with a film to create the looks for Annie and Alvy, the main characters of Woody Allen’s infamous Annie Hall. With this film, Allen created a classic film school staple in ironic comedy, and Lauren created a style icon in Diane Keaton.

In the mid-1970s, PRL dedicated about $400,000 per year to marketing efforts. Once or twice a year, the company produced 20-page spreads to be released to several major magazines, instead of the standard one- or two-page ads most other brands released monthly. The spreads looked like movie stills, capturing the lives of characters within a film based on upper-class Americana.

Lauren explained the marketing strategy:

When we appear, we’ll be a star. It’s like Frank Sinatra. If you see him once a year on TV, it’s an event. If you see him every week, it’s no big deal.

Over the years, as PRL released more lines targeting different age groups of men and women within the brand’s style, the ads were adapted, always maintaining a cinematic style. All advertising images continue to represent a chapter of the American story, from an elite perspective.

Lauren himself had come to personify the lifestyle he was selling, and appeared in many ad campaigns and in various magazines with his family.

In addition to traditional media advertising, PRL had continued to focus on the physical environment of each store, having grown from shop-in-shops in the 70s to hundreds of flagships and freestanding stores worldwide. Each store is designed for the specific environment, from New York to Milan to Palm Beach. While decorative features my be unique for each site, all embrace a classic upper-class American lifestyle image.

After PRL’s media partnership with NBC was established in 2000, TV spots were added to the communications strategy, finally demonstrating the brand in actual film shorts for apparel, home and fragrances.

The media partnership also provided the capabilities PRL needed to develop a branded website that could capture the Ralph Lauren sensibility, lifestyle, and clothing. Directed by Lauren’s son, David, the website contains products and media content, intended to bring the brand to life in the virtual realm. Lauren has described this combination of merchandising and entertainment as “Merchantainment.” Added to this feature is Ralph Lauren RL TV, which includes behind-the-scenes footage of fashion shows and photo shoots, Lauren-esque celebrity and athlete interviews, and any additional content that might appeal to the ideal Ralph Lauren lifestyle-consumer.

In 2008, applications were released to integrate these functions on the iPhone and other smartphone devices.

Examples of PRL’s cinematic commercial spots are everywhere on YouTube. Here is just a handful:

The Polo Ralph Lauren Business

Now a publicly-traded company, the Polo Ralph Lauren business model is built around six primary objectives designed to keep the brand strong while bringing in the big bucks:

• Creating unique businesses primarily centered around one core and heritage-driven brand;
  • The ability of PRL to maintain a singular “American Aristocrat” image has provided unity across the brand in all product categories, and has enabled the company to take a leadership role in this now-saturated market. (If you create the market, you basically own it until someone else does it better, and so far nobody has done it better than RL.)

• Diversifying and expanding products and prices, distribution channels and geographic regions;
  • PRL is creating something for everyone in most price ranges to ensure that anyone who WANTS to own a piece of this imagined American lifestyle can.

• Improving brand control and positioning;
  • When the company has direct control over distribution and quality control, they can ensure that the brand represents the same image everywhere. This is important in an era when customers travel the world and have access to infinite information online. If the brand is poorly represented in one market, a customer seeing this is less likely to think the brand’s product is worth a high price in a more successful market.

• Focusing on selective strategic partnerships;
  • The company needs the best partners to represent their image properly, produce products and deliver them with expertise, and reduce costs in line with company goals. When PRL selected a poor licensing partner for their Home Collection, a lot of damage was done to the brand through low quality products, delayed delivery, and high costs.

• Implementing infrastructure improvements that support a worldwide business;
  • This doesn’t just mean building the best “American-style” stores in key markets, but creating a logistics system that enables the company to do efficient business around the world and training employees everywhere to represent the image of Ralph Lauren in the same way throughout various cultures.

• Funding expansion through strong operating cash flow.
  • This enables the company to use its own money from sales and royalties to fund activities that would otherwise require great external debt. Not only is this good financial management, but it gives the company the freedom to invest in critical initiatives without having to depend on an external party.

Currently, PRL is focused on growing the brand internationally, opening stores in new markets and strengthening the perceived brand image in key areas.

Additional plans outlined in the annual report include further brand extension and product diversification (expanding the Lauren line in Europe, and growing the offering of accessories), increasing direct-to-consumer marketing in key markets (including TV, print, online, etc. and focusing first on Paris), and cost-saving strategies (reducing operational costs and profit margins to provide a lower price range to customers).

International Expansion of PRL

While proving a lifestyle powerhouse in the States, Ralph Lauren wanted to continue his market expansion overseas. Like many consumer goods companies, the method of expansion used by PRL was essentially: find quality manufacturers and distributors in key markets, and form licensing agreements with them. This practice would give the company a foot in the door of foreign markets, using local experts. When opportunity struck, PRL would buy back the licenses or acquire the licensee companies to bring control in-house.

As part of our growth strategy, we seek to extend our brands, expand our geographic coverage and increase direct management of our brands by opening more of our own stores, strategically acquiring or integrating select licenses previously held by our licensees and enhancing our operations. -2009 PRL Annual Report

Beginning in 1998, PRL began buying back many of its European licensing rights while continuing to open flagship stores (London, Paris and Milan) in addition to outlets in France, the UK and Austria. In 2005, PRL’s business in Europe counted for 15.7% of worldwide wholesale net sales (up 150% from 2000). At that time, the company announced its goal to move the European market from a $700 million business to a business worth $1 billion by 2010. This goal was achieved in March 2009 when the net revenue for Europe totaled more than 20% of worldwide sales at just over $1 billion.

PRL worked hard to achieve this goal of growth in Europe, not only by building flagship stores in key cities, but also by increasing their focus in wholesale (selling through external retailers including key boutiques and department stores). Today, about 2,100 stores carry PRL lines through wholesale in the US, compared with about 3,900 stores in Europe. -Much of this difference is due to the fact that, in Europe, there are many different department store chains and other retail avenues that are unique among individual countries.

While PRL owns many branded stores in the US, in Europe the business is still supported greatly by third parties who are trusted within the local markets. This has the effect of giving the PRL lines a foot in the door, but it also adds a new level of complication as the company must deal with many different distributors while maintaining the same global image.

According to the company’s annual report, PRL’s latest goal is to repeat this growth strategy in Southeast Asia, which is comprised of China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, Taiwan and Thailand (bringing the Asia-Pacific market to 1/3 total company revenues). Sales in Japan alone have increased by more than 500% since 2007 (to $393 million), and PRL anticipates even greater results in China. The company plans to transition their retail and wholesale operations in Southeast Asia from licensees to internal ownership by 2010, and will continue to integrate the businesses they have already acquired in Japan into the PRL  infrastructure.

Philanthropy, Ethics & Sustainability at Polo Ralph Lauren

Polo Ralph Lauren has made strategic investments in support of particular “WASP” sporting events, naturally including polo. In addition, the company has served as the official outfitter not only for the Wimbledon but also for the US Olympic and Paralympic teams. Beyond athletics, the Lauren family has made philanthropy a part of the company’s mission for 20 years.

Ralph Lauren has been an active philanthropist since the mid-80s, when he had a benign brain tumor removed. Afterwards, he became an important leader for the fight against cancer (from fundraising to founding or funding research and treatment initiatives and a clinic), but he has also participated in AIDS charities such as God’s Love We Deliver.

Philanthropic efforts also surround a theme that is close to the culture of the brand: historic restoration of American icons. Whether in the rich environment of his adopted homestead in Bedford, NY or in the winter getaway island of Jamaica, Ralph Lauren has created and funded numerous restoration projects that serve to maintain historical landmarks near to the hearts of Americans.

Beyond architectural restoration, a team funded by Lauren has recently completed restoration efforts of the original American flag, which inspired the writing of the US national anthem. The flag is now housed within the Smithsonian Museum in DC.

In addition to charities based on Ralph Lauren’s personal interests, or the interests close to the image of the brand, PRL has recently (and quietly) explored a new chapter of activity, focusing on ethical production in response to accusations of abuse.

A Note on Ethics

In early 1999, a highly-publicized lawsuit was filed in the California courts on behalf of sweatshop workers in the Northern Marianas Islands against 18 US retailers and manufacturers, accusing them of violating RICO racketeering statutes that specifically prohibit peonage and involuntary servitude, and allow suits against anyone benefiting from such an enterprise. Among those accused were retailers Nordstrom’s and J.C. Penney, as well as PRL competitors J Crew and Tommy Hilfiger.

As a protective measure, PRL agreed to require and help finance independent monitoring of its own and other factories in the Islands. The company also agreed to settle a class-action lawsuit over substandard working conditions in factories on the Pacific island of Saipan, where another series of lawsuits had originated regarding substandard working conditions.

In the case of the Saipan lawsuit, defendants included PRL competitors Calvin Klein Inc. and Tommy Hilfiger USA Inc.; retailers The May Department Stores Company and Sears, Roebuck & Company; and major PRL licensee Warnaco, Inc.

Since settling the Saipan lawsuit, PRL has received low but improving marks from labor watchdogs around the world. While they have been supportive of factoring monitoring and send staff to monitor factory working conditions, they have found difficulty in obtaining a squeaky-clean reputation. Along with the other companies who must operate through licensees and third-party contractors, it is difficult to know exactly what is going on with producers at all times – this is why brands such as PRL often buy back their licensees to regain control over their brand little-by-little.

As PRL has continued to expand over the years, many production efforts have been licensed to companies who manufacture through factories in Southeast Asia and other parts of the world where labor prices are still low enough to meet current company practices set to achieve consumer-approved prices. Through language barriers and bureaucratic roadblocks, it is often difficult to understand just what factories are producing what products. (It is a common practice for less ethical producers to show brand staffers and inspectors only the factories where the highest standards are met, while other factories are kept off the record.)

As PRL moves into the Southeast Asian market, one would hope that they can regain more control over their manufacturing efforts in the region. While PRL has made many cutting-edge advances in marketing and communications, and seems to have an endless supply of ideas for lines that satisfy consumer demand, they will need to pay more attention to the idea of “ethical fashion,” which is becoming increasingly important to consumers worldwide.

Sustainability

In 2007, PRL retained the services of GreenOrder, a strategy and management consulting firm specialized in sustainable business. They worked with the company to identify PRL’s environmental impact throughout the product cycle, to identity and prioritize opportunities for improvement, and to outline steps for achieving new sustainable business goals.

As a result of the process, PRL has developed new shipping practices that cut greenhouse gas emissions. They have also started to focus on green development for new stores and offices, and have implemented internal practices to reduce papaer and energy consumption.

The Founders Dilemma (Solved)

Because most fashion companies are branded around the personality of the designer – from Tom Ford to Yves Saint Laurent – there is often a huge challenge presented when the founding designer retires or, as was the recent case with Gianfranco Ferre, dies. In the past, companies like Dior brought on outrageous celebrity-status designers to bring new energy and media exposure to their brands after the loss of the namesake designer.

More recently, this practice is changing because people care less about a wild designer than a continued aesthetic and symbolic value presented by a brand. However, finding a head designer that can perfectly transition the values of the namesake into a new generation is quite a difficult thing.

This is not the case with PRL. David Lauren, Ralph’s oldest son, has been an integral part of his father’s business. Today, David is in charge of Polo Ralph Lauren’s marketing, advertising and corporate communications and the driving force behind the company’s new look (that’s Senior Vice President, at only 37 years old). He has brought polo.com to the forefront of digital fashion initiatives, and is highly invested in the success of the company.

David Lauren has unique experience that would make him a great fit (from an outsider’s view, anyway) as successor to his father’s position. First of all, he has grown up within the Ralph Lauren lifestyle, and from an early age experienced the American rituals that his father only dreamed of as a child. He understands the business as well as anyone could because he grew up with it.

While in college at Duke, David founded a magazine called Swing, which had broad readership among its targeted 20-something market, but folded after 5 years. David then joined his father’s company, and was the force behind the Rugby line as well as polo.com. He has shown that he can connect with the younger markets, a mission that often alluded his father.

Since PRL is now a public company, issues of succession are not controlled by Ralph Lauren alone. However, David has proven himself a likely candidate when a time for transition emerges.

Sources

investor.ralphlauren.com, polo.com, wwd.com, fundinguniverse.com, askmen.com, infomat.com, architecturaldigest.com, time.com, nytimes.com, harbus.org

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Most designers from Marc Jacobs to Armani have stated that fashion is not art. In fact, Marc Jacobs was quoted:

Fashion to me is not art because it is only valid if it is lived in and worn.

That’s all good and well in making the attempt to drive mass sales, although Marc’s own collaborations with artists such as Takashi Murakami and Richard Prince – or Armani’s recent museum-touring retrospective – might show that they actually do consider fashion to be art. When creativity meets commerce, does it matter if fashion is not hung on a wall for the occasional observation?

What is art, if not a subject for provocation and inspiration? And, while today’s fashion world may be led by the sales figures of merchandisers more than the creative impulses of artists and designers, there is still an underlying art form in fashion, which seeks to provoke and inspire. If the garments themselves cannot be considered “art” by our anti-commercial definitions, then surely fashion photography can (and should) fill in the gaps.

Fashion has a long relationship with photography. To quote from Cathy Horyn in her article, “When Is a Fashion Ad Not a Fashion Ad?“:

If fashion shows are a way for a designer to think out loud, collaborations with a photographer can help spin those disparate ideas into a story. Both Ralph Lauren and Calvin Klein owe a debt to the visionary eye of Bruce Weber, who is really a storyteller. Gianni Versace frequently paid homage to Richard Avedon, whose pictures lent imaginative energy to Versace’s designs. And it seems doubtful that generations of women would have felt quite the same about Yves Saint Laurent’s pantsuits if Helmut Newton had not made them an object of sex and mystery.

Marc makes me think…

While Marc Jacobs’ ad campaign collaborations with Juergen Teller have inspired cult fans to look beyond the typical product-placements and see the Marc Jacobs world from the indie perspective he lives within, the Dolce & Gabbana ad campaigns create the very concept of provocation that the designers take inspiration from. Where it would be quite difficult to meet the sales figures necessary for a large luxury brand if each item alienated the mainstream through such provoking themes as date rape or warfare, the ad campaign can do just that.

…But so does DG

Of course, I understand the opposing argument that these ads are no more than superficial charades imposed by the brands to maintain some street cred in the art world (and surely, to an extent they are), but I also believe that it’s a very creative way for the designers to explore and explain their more provocative themes without hurting sales figures. The designer’s most die-hard fans typically “get it,” and those who don’t at least take on the aspirational values of someone who wants to get it. Even if the clothing isn’t particularly provocative or thought provoking, the ads can be, and that’s enough to ensure that a creative vision can be carried out while simultaneously creating the coveted word-of-mouth buzz around a brand.

Furthermore, isn’t this the perfect segue into using content to develop the online experience of a brand? I think so!

Required Reading: On Fashion, Photography & Art

Inside the Mania for Fashion as Art: How a Sedate Museum Ventured to Create a Home for a Sumptuous Costume Collection

TIME Magazine: Dialogue on art & fashion (“Art and fashion get along like the couples whom nobody expects to stay together.” Ha!)

It may be fashion, but is it art?

Striking Poses: Is fashion photography art?

‘Fashion is not art’ (Rei Kawakubo may say it, but she proves the opposite)

Dress Sense: Why fashion deserves its place in art museums (this is a good one!)

Is the future of art in their hands? (Designers take over our galleries and museums)

Fashion and Art Collide in Hong Kong

Fashion: A Presentation on Contemporary Concepts of Art and Expression (analysis of the 1967 Metropolitan Museum of Art Bulletin article: “Is Fashion an Art?”)

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The Dolce & Gabbana style is inspired by Sicily, represented in a modern context with a hint of the past.

“We had a vision at the beginning, and we remain faithful to it. We believed in the strength of our message, even in periods when everything seemed to go against our beliefs. Our inspiration has always come from Italian culture and from Hollywood glamor. We also like playing with roles, with opposites, with masculine and feminine, black and white, sacred and profane.” ~Domenico Dolce & Stefano Gabbana (SDA Bocconi)

Influences in Culture

In addition to their own personal backgrounds, the design team developed their brand within a niche opened up by the social climate of the late 80s and early 90s.

Below is my graphic depiction of how it all came together…

Codes of Style

Every brand has its own stylistic codes (or should)… they distinguish the collections from others, and make each item identifiable with the brand. The following are DG’s key codes:

hyper-femininity • glamor • youth • zebra & cheetah prints • flowers • black & white • gold • rosaries • corsets & bras • fetish •Mediterranean • Baroque • Neo-Realism • Hollywood • embroidery • black lace • coppole hats • opposites (high-low fabric mixes, gender-bending, love & violence, sex & religion, see & don’t see, old world & modern, etc)

Merchandising is fundamental to DG. Every single item under the brand’s name reflects the brand codes and the influence of the main collection.

From Maison to Vertically Integrated Company

The History

• Domenico Dolce was born in Palermo in 1958; Stefano Gabbana was born in Milan in 1962
• 1985: the Dolce & Gabbana brand debuts with their first show through Milano Collezioni in the New Talents section (now operated through Camera Nazionale della Moda Italiana)
• 1988: signs production agreement for ready-to-wear with the Dolce Saverio company, owned by Domenico Dolce’s family
• 1990s: expansion through licensing
• 1990: men’s collection is launched
• 1994: a second line, D&G, is launched
• 2000s: the company becomes vertically-integrated by acquiring their own production companies (including Dolce & Gabbana Industria in Legnano for clothes and Incisa Val D’Arno for shoes and leather accessories) and their own store network around the world through wholly-owned companies and subsidiaries
• 2007: the company decides not to renew the license to produce the D&G line with Itierre, and has brings production in-house with the first line, Dolce & Gabbana. Remaining major licenses are with Procter & Gamble (fragrances), Luxottica (eyewear) and Binda (watches).

Growth Strategy

1987 – 1999: strong use of licensing to support brand growth

1999 – 2008: progressive in-house management of line extensions

Communications

The brand typically incorporates imagery from old Sicilian towns and street markets or images of dramatically staged human interaction, all with a mix of modernity and sensuality, and often provocation. The in-store environment supports the brand image through a mix of materials made to look both antique and modern-chic, romantic and sexy, with a strong element of Hollywood glamor.

Dolce & Gabbana’s catwalk uses a stage set to reflect the theme of the clothes, and uses video feed, pictures, etc during the show to further convey the inspiration. This imagery is now being incorporated into the company’s media website in order to archive the collections and demonstrate the brand history and evolution. In fact, the company has put considerable effort into creating the brand environment online this year, both through the formulation of their online blogazine and e-commerce stores.

Celebrity endorsement is important for the brand’s Hollywood appeal, through both public appearances and dedicated ad campaigns. In addition to young starlets, they use the best and most known photographers and models in their ads.

The two designers are also very social, and are often photographed mixing it up in some of Italy’s most glamorous night scenes. Not only does this allow for photo-ops in the world press, but it also serves to validate the brand, as if to say “We live the lifestyle that we are designing for.”

Ownership

The company is still fully owned by Domenico Dolce and Stefano Gabbana, much like Armani and his company. While this freedom from the demands of shareholders seeking quarterly profits allows the designers creative discretion, it also provides them with the luxury of being able to strategically plan for the future. Also like Armani, the company which grew through licensing agreements still earns approximately 35-40% of total annual brand revenues through licensing revenues, although many of the licensees have been internally acquired.

However, the challenge of full ownership is that the company accepts full risk in the case that problems emerge. This is a big risk to take, but in the case of Dolce & Gabbana, it seems to be paying off… literally!

By the way, TIME has a great article on the designers and their company. It’s a couple of years old, but still a good read. Check it out!

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Failure for Social Media?

After articles like this one in Business Week, which claim that social media has no presence in consumer purchasing considerations, I thought I would take another look at Chanel and the company’s recent cinematic commercial initiatives, which have been creating a viral extravaganza for the last couple of years.

I’m with Ruth Mortimer in thinking that luxury brands can use the avenues of digital media to provide vehicles for brand ambassadors and fans to influence consumer spending through viral marketing.

The French powerhouse has created this buzz through their short films, which are actually cinematic commercial spots that were soon followed after by Dior, Prada and others (though with less buzz).

The goal of these cinematic campaigns is to provide the greatest creative and entertainment value, which resonates best with moviegoers- a young, affluent and educated demographic that is highly valued within the advertising community. With the modern in-theater market and new technologies of dispersion, the quality of cinema advertising has soured exponentially. The challenge was to create something worthy of consideration from existing or potential luxury markets.

Stopping short of creating a Facebook page for the brand, Chanel instead focused its efforts on creating brand-worthy commercials told from the perspective of the House of Chanel, which were also considered entertainment-worthy by the fans. Fans (and critiques) took over from there, building hype, passing the video campaigns across the internet and voting, tagging and commenting on what they saw.

The immense budgets of these films shows just where the brand’s money-maker lies: fragrance.

Updating an Old Favorite

Chanel’s first commercial blockbuster was released in 2005, staring Nicole Kidman and directed by her Moulin Rouge visionary, Baz Luhrmann. With a +50 million euro budget, Chanel focused efforts on repositioning their biggest money-maker, Chanel No. 5, for a then-booming US market. (Oh, how the times have changed!)

The brand sought to update the image of No. 5 for the American youth market, who typically viewed this fragrance as a relic from grandma’s dating years. Loaded with strong, opulent and innovative visuals, the “fashionable” director created the ad film as a movie trailer spanning more than 2 minutes. Most modern consumers associated the fragrance with the romantic lifestyle of mid-century France. In an effort to stay relevant and up-to-date, avoiding the classic undertones, the commercial is set in NYC instead of Paris, and all dialogue is in English.

Themes of romance, escapism, adventure, mystique, an example of exquisite haute couture, the use of men’s wear and even a little high/low-class rendezvous is inserted to balance the updated image with the brand history.

Various postings of the commercial short have collectively received more than 2 million views on YouTube alone, with over 1,000 comments.

The perfume continues to be one of the most widely purchased fragrances of all time.

Watch commercial

A New Classic

Following the success of the initial campaign, Chanel developed a second cinematic commercial spot, this time to introduce a modern fragrance to capture the essence of the brand for today’s market, without interfering with the positioning of the “Old Classic,” No. 5.

The short film for Chanel’s Coco Mademoiselle fragrance focused on historic references to the brand’s namesake, Coco Chanel, using a modern actress and a timeless Parisian set. Coinciding with the launch of her 2007 movie, Atonement, Keira Knightly starred in the spot as a variation of Coco herself through imagery associated with the codes of the brand: the men’s shirt, the classic hat, the famed mirrors of Chanel’s Paris apartment, the camellias woven into a bracelet; all with a touch of elegance, sophistication and romance.

There is even a focus on mix-and-match, where the actress removes her ankle bracelet and uses it as a necklace (it contains pearls, of course). Silly, yes, but it gets the point across: this fragrance represents the modern ideal of Chanel herself.

Demonstrating less viral activity, the commercial film received fewer than half a million hits on YouTube, but the associated print ads created quite a buzz in the blog world.

View commercial short

Revisiting the Classic

After the success of the 2006 campaign staring Nicole Kidman, Chanel again sought to produce a blockbuster ad that would address the entire international community while building hype for the upcoming release of the biopic “Coco Avant Chanel” (Coco Before Chanel).

The 2009 commercial film features Audrey Tautou, star of Amelie and The Da Vinci Code, and is directed by Amelie’s Jean-Pierre Jeunet. Unlike the Kidman film, the Tautou version includes no dialogue, with the exception of a night train conductor asking for the starlet’s passport in French. The rich sound and visuals tell a story of an independent, young first-class traveler who falls in love with a mysterious man in her neighboring train cabin on their way from the Limoges Bénédictins station in France to Istanbul. The fellow traveler is seduced by the young woman’s scent, No. 5.

This commercial has all the entertainment value of the original Kidman spot, but aside from featuring one solitary pearl, it lacks the traditional codes of the brand. What it achieves is bringing home the message of romance to No. 5 for the international community, featuring today’s most famous young French starlet together with the classic love song, Billie Holiday’s “I’m a Fool to Want You”.

Just released this month, the film already has a combined YouTube hit rate of less than 100,000 and enough pages of comments to show that people are engaged, for better or for worse.

View new Chanel No. 5 ad

UPDATE:

Apparently, I missed this legal notice on Chanel’s own website, but was shocked to learn from the Business of Fashion site that the following is stated:

“No part of this website may be copied, reproduced, republished, uploaded, posted, transmitted or distributed in any way for commercial purposes. This prohibition also includes framing any content from this site on another site, as well as unauthorized linking…use of material from this site without CHANEL’s prior written consent is strictly prohibited.”

That doesn’t indicate a very clear understanding of viral marketing, does it? Frankly, I was a little surprised that the site did not offer embedding capabilities, although I understand that the brand doesn’t want their “commercial” to appear just anywhere. However, to outwardly restrict the very act that makes these videos so successful is a bit shortsighted, if you ask me!

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The Man

The following is a general timeline of the designer’s life and business achievements through the end of the 20th Century:

1934: Armani is born in Piacenza, Italy, where he grows to study medicine

1957: Armani abandons his medical studies and begins work as a visual merchandiser and buyer for Italy’s leading department store, La Rinascente

1964: Armani begins working for Nino Cerutti, where he learns tailoring and materials in menswear

1970: Armani and Sergio Galeotti establish a freelance fashion design studio, doing contract design for various manufacturers including Gibo, Sicons, Boulevard and Montedoro. Armani learns what works and what doesn’t work for industrial production.

1974-5: The first Giorgio Armani menswear collection is produced under license from GFT, followed by his first womenswear collection. Jackets and evening dresses were an instant hit.

1975-82: Armani establishes vast line extensions, including Giorgio-Armani-Borgonuovo 21 (men’s and women’s); Giorgio Armani-Le Collezioni (men’s worldwide and women’s N. America); Mani (men’s N. America and women’s ROW); Armani Junior; Armani Underwear, Swimwear and Accessories; Emporio Armani; Armani Jeans; and, Armani Bridal Collection

1982: TIME Magazine dedicates a cover to Armani, who is the first designer to be featured on the cover since Christian Dior

1984: Armani ventures into brand extension through the launch of Armani Fragrance, the license of which is ongoing with L’Oreal

1987: Armani continues brand extension in Armani Eyewear through a licensing agreement with Luxottica, which was canceled 3 years ago and moved to competitor Safilo

1991: Armani offers further brand extension on the US market through the launch of Armani Exchange

1990-2000: Armani practices business consolidation and vertical integration by acquiring production facilities and direct retail ownership, and establishing additional Joint Ventures in production and distribution

2000: Armani launches his first online store, www.armaniexchange.com, on the US market, as well as his line extension into housewear with Armani Casa

2005: Among his numerous line extensions, Armani launches Armani Prive, his first haute couture collection. He provides live online streaming of the collection’s first runway show via MSN.com

2006: Armani gets ahead of the game in Corporate Social Responsibility by joining (RED), an organization committed to fighting AIDS in Africa

2007: Armani launches another online store – this time for the Emporio Armani line – on the US market, along with associated blogazine and soundtracks at www.styletraxx.com

2008: Armani launches one of the first online luxury stores for a singular brand on the European market with Emporio Armani

Armani’s Brand Signifiers

Roots

In the 1970s and 80s, as Armani’s sisters and female friends were heading into the business world, he noticed a common complaint that there was no practical business wardrobe available for women. Since Armani was coming from menswear and tailoring, he took the men’s jacket and deconstructed it from a rigid and straight form into a soft form, fitted for women. This seemingly gender-ambivalent form was exactly what professional women were looking for. Now with businesses in men’s and womenswear, Armani continued to develop his brand through product and line extension, always focusing on his brand codes and the roots of the brand for consistency.

Female Prototypes

Armani, like many designers (and marketers), had an image of the ideal customer whom would wear his clothing, and later buy his additional products. Actresses Marlene Dietrich, Lauren Bacall and Greta Garbo were referenced for their supreme confidence and understated beauty bursting with sexuality, in addition to more modern actresses such as Lauren Hutton, whom he dressed in American Gigalo, along with Richard Gere.

Of course, his ideal woman is also very tall and slim. Nothing typical there, right?

Home Town Colors

Like Dolce & Gabbana to Sicily, Armani drew inspiration from the business center of Italy, the City of Milan. In addition to the classy dress code of the Milanese, Armani used a color pallet derived from the industrial, polluted, Gothic city.

He incorporated the drab colors of black, white, blue, grey and beige (and his favorite blend, dubbed “greige”) to create a distinct selection that would unify his various product categories and lines.

In later years, Armani would take more than influence from another adopted home: he used a chemical composition from the Obsidian native to the Italian island of Pantelleria, where he has long kept a vacation home, for his cosmetics line.

An Evolving “Core Business”

Brand Extension (Moving into other product categories- remember this began in France)

Over the decades, Armani has amassed capabilities for the design, production and retail arms of his company, allowing the core of his business to expand while maintaining control over the total brand image. Throughout the years, brand extension has grown the company as follows:

1975: Ready-to-wear (RTW)

1980s: RTW + Accessories

1990s: RTW + Accessories + Men’s Accessories + Home

2000s: RTW + Accessories + Men’s Accessories + Home + Home Expansion + Watches & Jewelry + Hospitality (Hotels & Resorts) +Restaurants + Nightclubs + Chocolates (!)….

Line Extension (Moving into other retail channels, target markets or price ranges; this began largely with Armani)

Armani has developed more than ten different lines under his brand. Some have been very successful (like Emporio Armani, which has the same target market as Dolce & Gabbana or Gucci), while others were less successful (Mani, which was a lower-priced line, now essentially replaced by Armani Exchange). Below you will find a graphic I made to illustrate the quality/style differences in the main Armani lines, based on a discussion I had with the marketing manager of Emporio Armani.

Contesting the King

As Armani developed his brand structure, he continued to add only lower-level lines to his portfolio, with his original Giorgio Armani line (ready-to-wear) at the top. In order to avoid diluting the line too much with the constant reduction of quality, he finally added his haute couture line in 2005 as a balance.

While Armani is the uncontested master of Italian brand and line extension, and there is no question of brand uniformity, he has had a challenging time conveying the unique characteristics between his lines, particularly when dealing with certain product categories.

For example, would you know the difference between the two lines, based on these ads? For some, the distinctions are vague. (For others, not so much!)

In addition, Armani has had problems developing bags and shoes. He never quite nailed the category’s design, and didn’t find a good licensing partner to assist him. As he has acquired many other production capabilities and know-how from former licensees, this gap in ability presents a major set-back. In the future, with many high-end designers depending on accessories sales, Armani may suffer greatly.

Founder’s Dilemma

Additional problems Italy’s reigning King of Fashion is facing is known as the “Founder’s Dilemma” – how to hand down the brand after retirement, without losing the relevance of the brand. This is a typical challenge seen in businesses where the founder is the life and personality of the brand. As we have seen, many of the French brands have achieved a successful brand transition through rock-star designers with their own distinct personalities (such as Lagerfeld at Chanel, or Galliano at Dior), while other brands have a quieter approach (Maison Martin Margiela silently designs for Hermes).

UPDATE: Check our Reuter’s Dec. 14, 2009 article (here) on the most notorious 70+ year old designers, including Armani, who are currently facing the Founder’s Dilemma.

Financial Independence

As the financial burdens inherent to the fashion industry continue to rise, requiring constant innovation both on product design, business and communication strategy, Armani remains the only major fashion player to be the only shareholder of his company. He has never even taken out a bank loan! This has afforded him total control over his business and design decisions, however, one must question what will happen when he retires or the economic downturn and extensive company expansion catches up with him.

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Yves Saint Laurent: A History

In a similar route of Dior, Saint Laurent made his debut on the fashion scene with French textile tycoon, Boussac. The termination of their business relationship serves as the origination point for the YSL brand story, which I’ll outline for the sake of “brevity”. It’s amazing how fun business can be!

1936 YSL is born in French Algerian port of Oran

1955 YSL joins the creative staff at Dior

1958 After Dior’s death, YSL makes his debut collection (trapeze line) as new Creative Director of the Dior Maison, age 21

1960 YSL launches the beat style at Dior, and Boussac quickly replaces him with Marc Bohan (Sounds a little like the Marc Jacobs grunge line at Perry Ellis, no?)

1962 YSL launches his own line with life and business partner, Pierre Bergé, backed by American financier, J. Mack Robinson

1963 Robinson sells his shares, and American fragrance brand Charles of the Ritz obtains 80% share of the couture house against 20% held by YSL and Bergé

1965 Infamous Mondrian collection debuts

1966 Relatively affordable pret-á-porter line, Saint Laurent Rive Gauche, is launched

1967-8 Makes headlines with launch of ethnic, safari and nude looks

1972 Pharmaceuticals giant E.R. Squibb takes over Charles of the Ritz, along with control of YSL perfume and cosmetics, allowing YSL and Bergé purchase full control of group’s couture activities

Full ownership of couture activities gave YSL and Bergé the right to expand the business beyond couture, using the brand’s name through licensing agreements.

Haute couture will stay for perhaps another five or ten years. I’m only keeping the salon going because I cannot ethically justify putting 150 people out of work.” ~Yves Saint Laurent, 1971

1977-8 Launch of Opium perfume and creation of YSL Beauté

1986 YSL and Bergé buy Charles of the Ritz back from E.R. Squibb, acquiring full rights to the YSL fragrances and cosmetics, expanding their business 10 times over; many financial partners were required for this purchase, among them Carlo de Benedetti, who came to own the largest share of the company after YSL and Bergé themselves.

1989 To meet burgeoning debts, YSL is forced onto the secondary stock market in Paris

1991 De Benedetti demands to be released from his investment amidst the global recession of the early 90s; Bergé and YSL, unable to find new investors, drive themselves further into debt buying him out of his share

1992 Another major investor, Wasserstein-Perella Bank, indicates that it must sell it’s 15% investment in the YSL Groupe; Bergé demands that their replacement investor be European (to avoid having a multinational company)

L’Oreal makes an offer for 100%, but Bergé does not want the company to be run by consumer goods giant, Nestle (L’Oreal will acquire YSL Beauté). LVMH also expresses interest, but backs out after Bergé requests that he and YSL maintain creative control over the YSL brand and its primary competitor, Dior (remember, LVMH structures its brands to avoid collaboration, brand dilution, and in this case, sabotage).

YSL and Bergé, unable to come to an agreement for an investor, begin selling off their personal shares, and are subsequently investigated for insider trading. (Check out the 1992 film documentary by Hamish Bowles on YSL here.)

1993 The groupe is sold at 100% to French national company, Sanofi, for a reported $650 million. YSL maintains position as creative director of his couture line

1997 After years of losses on the YSL brand, Sanofi shops around for a new buyer for YSL

1999 After serving as white knight in rescuing Gucci from a hostile takeover from LVMH, Francois Pinault (head of PPR and majority stakeholder of the Gucci Group at 53.2%) acquires the YSL brand

The Couture Division (including pret-á-porter and fragrances) is sold to Gucci Group, where Tom Ford is named Creative Director of YSL Rive Gauche in addition to his role as Creative Director for Gucci.

The Haute Couture Division stays under direct control of Pinault through his holding Artemis, and remains under the creative direction of YSL.

The DNA of Yves Saint Laurent is completely different from the DNA of the Gucci brands. These dreams are kept alive by our creative directors and our designers.” ~Robert Polet, Gucci Group CEO

2000 Gucci Group immediately applies its direct-control mantra for production and distribution on the YSL brand, terminating more than 150 licensing agreements and creating a network of +62 directly-operated stores in order to create brand image and service consistency, but this attempt drives YSL further into the red

2002 YSL’s final show as creative director of YSL Haute Couture

I have today decided to bid farewell to the world of fashion I have so loved.” ~Yves Saint Laurent, 2002

2004 Tom Ford leaves Gucci Group, and is replaced by Stefano Pilati as Creative Director of YSL couture

2005 YSL brand profits fall from €169m in ’04 to €162m, with losses ballooning to €76.4m

2006 Valerie Hermann, a veteran of LVMH, assumes position as CEO of YSL

After her first full year, YSL revenues rise 19% and operating losses fall 24.9%

With the fixed costs I have, I need more volume.” ~Valerie Hermann, YSL CEO

Lessons in Luxury from the French

• The French model for luxury presents a growth pattern that typically occurs through brand extension and/or brand-buying, in the case of conglomerates.
• Individual brands pursue growth primarily through brand extension, with very limited second line development (YSL Rive Gauche is an exception, not the rule).
• Most French brands have moved from singular couture brands into luxury conglomerates, where specific skills and resources may be shared through brand synergy, but unique brand image must be carefully managed.
• It’s a good idea to keep your brands separated, from the creative director down to the production staff, in order to maintain unique brand identities.
• Too many licensing agreements can dilute the brand image when not properly controlled, but a group-wide policy of one-size/strategy-fits-all can have the same effect.
• Today, the labels of former couturiers make their money in accessories, fragrances and cosmetics. Couture is needed to hold uphold the luxury brand image (for now), but the market for couture has nearly disappeared.
• Without the high profit margins of couture sales, luxury fashion companies must rely on volume sales in lower price categories. This impacts the image of what some feel a luxury company should be (for example, a guy I look up to, Seth Godin), but without a couture market, the industry must look for a new strategy.

I’ve always said that the couture would die with Yves Saint Laurent. Now it’s a domino effect. The couture has lost its raison d’etre. Couture isn’t art. It’s not meant to be hung in a closet like a painting. The women who wore couture no longer exist; the art de vivre that spawned couture has died. If houses such as Chanel and Dior one day get proof that they can sell as many bags and fragrances without a couture show, they’ll stop couture, too.” ~Pierre Bergé, 2004, upon hearing that Emanuel Ungaro would leave couture (Vogue)

Sources: International Directory of Company Histories, Vol. 23. St. James Press, 1998; Vogue Magazine; www.fundinguniverse.com; personal notes

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There are many available histories of Dior himself online, so let’s dive into the business side of things.

The Brand’s Origins

As many are well aware, Dior became famous with the New Look after WW2, and was integral to bringing French fashion back to the forefront after the occupation years.

Dior was the first to exploit his name with licensing agreements, which at the time tailored products to local markets and offered unique price per value products at varying price ranges. (It is very difficult to do this today- a company must maintain consistency across all markets because information is so easily exchanged over the internet and worldwide travel. People don’t like to see plastic pens being offered by their favorite luxury brands in certain markets when they are paying the big bucks for couture by the same brand at home. If products are to be specialized for separate markets, they must remain within the same quality and price range as all products offered elsewhere.)

Dior was the first to give a name to each collection, alluding to future generations of designers, both high and low end, who name their collections based on an inspirational theme. He used garment models and made spectacular fashion shows, which are of course used by everyone today (we’ll see how that keeps up as carbon footprints and insane exchange rates mixed with a faltering economy effect travel plans).

Many copies of the New Look and subsequent collections were made around the world, proving that one man could influence the style of the world while isolated in his studio. This is no longer possible today.

From Single Brand to Luxury Conglomerate

By 1984, as a result of diminished stylistic value after the death of the brand’s namesake and a brand image spread thin through various uncontrolled licensing agreements, Dior was on the verge of bankruptcy. Bernard Arnault took a major stake in the textile group Boussac Saint Fréres, to whom Dior belonged, and converted it into the Christian Dior S.A. Holding.  Just 5 years later, in 1989, the holding became a major shareholder of LVMH at 42%. Arnault had become the president and chairman of the largest luxury group in the world in a number of years. Christian Dior was divided into the CD Couture Management Group and the LVMH management group for a brand turnaround.

Reviving Dior

Because the French luxury brands are typically older than those borne of Italy, the UK and the US, they have already faced the brand transition that must occur if a brand is to continue after the death or retirement of the founder (“founder’s dilemma”). We have yet to see examples of this in the US market, with a few notable exceptions, but in Italy, two prominent houses are currently undergoing the transition this year: Valentino and Gianfranco Ferré.

It was, in fact, Gianfranco Ferré who was placed as the Art Director of Dior in 1986, however, he did very little to move the brand forward. After understanding that fashion needs a wow-factor, the company wisely placed wild boy John Galliano at the helm of Dior in 1996. Galliano had a way of making headlines, and advanced through the company as quickly as he helped bring Dior back to the forefront of the fashion scene. He began as the Head Designer of women’s haute couture and ready-to-wear collections, and became the Art Director for all Dior women’s brands by 1999.

Galliano created a buzz through his design of outrageous characters on the runway, making his fashion shows a mix of art exhibit and theater. However, in addition to revamping the look of the brand through his couture creations, he also focused on beautiful ready-to-wear and accessories and cosmetics (the real money makers today). This is where the real success of the brand’s renewal came from.

As you can see by looking at the CD and LVMH websites, a great deal of the marketing budgets are set aside for fragrances (64%) and only a small portion for fashion (6%). Today’s Christian Dior is therefore not so much a house of haute couture as it is a part of the luxury cosmetics industry. However, without the built-in marketing genius of Galliano and his couture shows, all other lines and products under the brand would be devalued. He is needed to sell the dream.

Conglomerates: The Modern French Model for Luxury

Today the French model gives complete freedom to designers in high fashion only. In the end, even the wildest designer must be able to design the bag of the season and design ready-to-wear that is in fact wearable. This is often done in collaboration with marketing and merchandising teams.

Luxury conglomerates such as LVMH allow line and brand extension, as well as brand-buying to serve various levels of clients and all the needs of the high-end clients. LVMH carefully manages brands to have the correct balance of cash cows and strugglers. They also work to ensure that there is limited collaboration between brands within the holding to limit the dilution of brand identities (this includes dedicated production staff per brand, often within the same facility). When buying a tired old brand, the holding company must also decide if it’s worth the time and effort needed to revamp the brand.

A Sustainable Element

The most recent brand acquisition of LVMH is the ethical fashion label Edun, brainchild of U2′s Bono and his wife, Ali Hewson (LVMH took a minority stake, estimated at 45%).  This brand has been at the forefront of sustainable fashion and advocacy, and has implemented guerrilla marketing tactics and pop-up stores recently. It also provides a great compliment to the LVMH portfolio, at a time when consumers want their purchases to mean something beyond frivolity. Caring is the new black, and philanthropy is beginning to represent status at an increasing rate. One would hope that the brand’s acquisition will not hamper their youthful marketing or ethical initiatives. There is every reason to believe that the brand will be nurtured to continue in this way, in spite of the lackluster economy.

At this month’s annual shareholders’ meeting, Chairman Arnault announced that first-quarter revenues gained 0.4 percent to 4.02 billion euros, or $5.26 billion, and added “April continues this trend, with a very slight improvement” [WWD] Louis Vuitton continues to be the group’s biggest cash cow, continuing to grow with their no-sale-ever policy. The profits from the booming brands are used to further nurture the newcomers, and those brands whom might be struggling.

For me personally, coming from a background in sustainability, it is inspiring to see this recent development within LVMH. The idea that the primary example of French luxury, the powerhouse of LVMH, has made a commitment to advance Edun also suggests that the holding will create synergies between the ethical brand and it’s other holdings. Perhaps the future of luxury may be a sustainable one, after all.

By the way, the LVMH site has included some information on the main page about CSR activities the holding participates in.

A Digital Element

In January 2009, LVMH announced that they would be phasing out their e-commerce portal e-luxury. This site pioneered luxury e-commerce for the brands within the conglomerate (in addition to others, including Dolce & Gabbana) nearly 10 years ago, while other fashion and luxury brands continue to struggle with the concept today.

In place of an online luxury “mall,” e-luxury will be transformed into an online magazine delivering news and cultural bits related to the luxury lifestyle.

It is unlikely that this strategic move had anything to do with the conglomerates lack of faith in e-commerce for luxury, but is rather a giant leap in online luxury strategy.

Luxury brands increasingly need to represent themselves as a singular entity online, and many are moving towards developing their own online stores instead of participating in the sort of grouping that e-luxury provided. Furthermore, it is highly likely that the players at LVMH understand that not only is it important for luxury brands to control the supply of their products and distribution (in fact, Louis Vuitton is one of the most protective over their highly counterfeited designs), but furthermore it is important to control the message.

Today, amongst the bloggers, tweeters and other mass-communication savants, it is critical to have a powerful brand voice to deliver a message of identity, and to establish a unique brand voice online. However, as many brands move into conversational online media, such as Facebook and Twitter, they enter into a medium of a dialogue where third parties can completely alter or dilute the power of a message. To control the message, you need to control the media. With the creation of the online magazine NOWNESS, it is clear that LVMH understands this strategic magic bullet.

For now, NOWNESS is a platform providing daily news bursts on items that may be of interest to the luxury market. The “real” site will not be officially launched until early 2010, but it appears that the developers are going to wow us with an algorithm that provides content based on our preferences.

Here’s a word from the website:

So far, I’m impressed. Now let’s see how they execute it…

Another word on digital marketing (because I must): the LVMH site also hosts an “online magazine,” but it proves *visually non-engaging* at best. It is likely (hopefully) that this will serve more as a portal for company news than an online magazine for fans and the brand community.

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I’m especially interested to see how CHANEL will perform in the digital environment, since they have taken the initiative to dip their toes in the 2.0 waters. If anyone has any thoughts on this, I’d love to hear them!

Here is my presentation:

Some other links:

Lagerfeld’s Twitter Feed

CHANEL’s Facebook Fan Page

CHANEL’s Official Webpage

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The Social Effects of WW1 on the Fashion Industry

As far as fashion in concerned, WW1 produced a strong discontinuity in the way women dressed (of course, the men were wearing uniforms). The increasing employment of women in industrial activities had relaxed strict dress codes, and allowed women to wear cotton trousers for the first time. As women’s roles in Western society changed, modern fashion changed along with it.

Easy-to-wear clothing had diffused into mainstream society, and the use of “poor” materials proliferated. (Wool was necessary for uniforms and interwar unemployment created a further need for substitution and recycled materials.)

Paul Poiret‘s extravagantly-modeled business failed after WW1 erupted, as a result of his failure to understand the evolutionary landmark of the War and its impact on society and fashion. He failed to adapt to meet the modern needs of his clients, thus opening up a market for Coco Chanel.

The Revolutionary Chanel

Gabrielle Chanel best exemplified the discontinuities in fashion, brought on by WW1. Chanel began work in the major garrison town of Deauville, where she met an officer who provided the capital for her to start her own millinery.

Chanel believed that a woman could be active and still remain elegant. She put this philosophy into her designs, shortening skirts and using jersey in womenswear. Of course, jersey had previously only been used for men’s underwear and sportswear, so this was considered revolutionary at the time. Her dresses stressed the new social role played by women, incorporating simplicity and masculinity.

Chanel was among the first to validate the fashionable qualities of black, exemplified in her little black dress (beginning in the late 1930s). She felt that for daywear and eveningwear alike, that is was unnecessary to dress in a very opulent way.

In terms of a business model, Chanel ran the house and created the designs, but had her vendeuse in the shops for customer assistance. Assemblers were separated into workrooms by the piece of apparel or accessories being constructed, and further by function (weaving, embroidering, etc.). The work was seasonal and the company was completely hierarchical.

Chanel & Product Extension

Chanel began diversification of her brand through the production of perfumes and jewels. In the 1930s, the constructed pins made from stained glass. Chanel was the first designer to place great importance on bijoux. She maintained one symbol from her past among “doubtful” women- the camellia, trademark flower of high class prostitutes. She turned this symbol into a luxury accessory. Jewelry was an important decorative element upon the simple, clean Chanel dress.

She launched Chanel No. 5 for her 40th birthday in 1921, named so because it was the fifth perfume trial. However, this was developed in the days before licensing. Chanel accepted only 10% of the Parfum Chanel stock without royalty, and was only granted 2% sales royalty in 1947 by Pierre Wertheimer, owner of the manufacturing company. The unique bottle design of Chanel No. 5 was very simple, geometrical and linear, demonstrating the “essential” nature of the fragrance. Furthermore, it carried a simple, easy-to-remember name. Its scent was the first not to use a natural fragrance, but to incorporate an artificial one derived in a chemist’s laboratory.

Chanel’s Brand Power

Chanel used her own name in all matters, on all products and campaigns. With No. 5, she was selling her look and lifestyle, and therefore her branded self. This branded marketing was so effective that Chanel No. 5 remains one of the top-selling perfumes today. (The company estimates that one bottle is sold every 55 seconds.) However, the next time you are at the perfume counter with a friend, try a blind sniff test putting No. 5 up against a more modern fragrance, like Chanel’s Mademoiselle. These days, 99% of the time, No. 5 will not be appreciated unless the person smelling it knows that it is Chanel’s classic fragrance. It’s nothing against the fragrance- it’s just a bit outdated for our modern noses, and a little heavier than what most consumers today are after. Yet it flies off the shelves. That is some serious brand power!

By the second half of the century, Chanel was making more money in accessories and perfume than in apparel itself. Chanel stopped her business during WW2 and immediately after, due to market shortage, supply shortage and her public affair with a Nazi officer. She finally came back in the 1960s with her infamous suit, which was confident and comfortable, and represented a counterplay to the New Look by Christian Dior.

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Design collaborations first began in Japan in 1989, as the company began to search for creativity, design critiques, cultural personalities, and so on with the intention of bringing emotion to clients through their environment, and to anticipate and precede trends.  The Japanese contact was made by chance through a need to resolve highly technical production issues.  Next retail partnerships were formed for distribution, and then the Japanese architect Toyo Ito was introduced to the company designers.  Through this collaboration, Ito embarked on a new scale of design, and Driade’s new design aesthetic evolved.  The strong Japanese aesthetic within Driade set the rythm for ecclectic and multicultural design inspiration, and the company next collaborated with designers from China, using traditional materials in new ways.  This year, the company began it’s collaboration work with designers from India.

Distribution currently exists in 84 countries predominantly in Europe.  The company is pushing for new growth in emerging countries, especially through these strategic design collaborations.  By always working between high design and industrialized materials (such as plastic), the company balances a high-low dimension, and introduces many smaller household elements handcrafted around the world in various native materials as complementors.

The company is interior design-based, with experts in many materials, thus taking the company from a product-focused strategy to a total corporate identity.  The business model is therefore design-based, with production outsourced to various specialized manufacturers, and the majority of resources and attention centered on the design process and results.  The outsourced manufacturers are now increasingly located in Eastern Europe or the Far East, and as the design teams are increasingly international, what is left of the “Made in Italy” business model is the design culture of the brand and the company.

According to Astori, the world is rapidly changing, and there is no emerging generation of Italian craftsmen, as many young Italians are encouraged to pursue a professional degree and often wish to leave the country upon graduation.  Driade’s current prototypist is now 70 years old, and while several students have taken a very short internship with him from design school, there is no apprentice program in place, no placement system, and apparently no interested applicants (if there were interested applicants, they would have a hard time making their interest known, however).  Therefore, there is no one to invest in for local training in the traditional craft of Italian furniture production, and if Driade were to depend on the craftsmen of Italy for design and production it would be bankrupt in 5 years when the craftsmen stop producing.

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