Paul Smith + Kashimax

Paul Smith teamed up with Japanese bicycle saddle specialist, Kashimax, on a limited edition leahtersaddle covered in Smith’s signature stripes. Only 20 will be available at Paul Smith’s “Space” store in Japan as well his Floral St. store in London.

Dan Ariely And The Psychology Of Fakes

Dan Ariely, author of the book Predictably Irrational and an lecturer in behavioral economics at MIT, is currently working on a project around luxury brands – particularly around the emotional aspect of counterfeit products. His current hypothesis on luxury brands and counterfeiting is that luxury brands could find more efficient ways to decrease consumer enthusiasm for fakes.

When people purchase counterfeits, says Ariely, they think only about how much money they have saved.

What they fail to predict is how it will make them feel later on – for example – when they go to a party and receive compliments on the product. The internal knowledge that it’s fake will have an effect on their internal psychology; producing a kind of internal shame. While other people think you are projecting a positive image, but internally you are aware that you are not.

Says Ariely, “And that turns out to matter. We wear brands not just for the outside world but also for the inside world and it changes the way we behave. When we give people real and fake sunglasses and let them walk around campus then see how much they cheat people who wear fake are more likely to cheat. The notion there is once you have tainted yourself, once you think of yourself as a cheater, it’s easier to make the next step. Based on this, it’s not just important what brands are telling consumer, but it’s also important what consumers are telling themselves; how consumers are using brands to inform themselves.”

Ariely believes that the work that luxury brands have done to try to connect counterfeiting to terrorism and child labor is less effective than stimulating this internal idea of internal shame at point of purchase.

The implications of this are enormous for those luxury brands which are losing significant business to counterfeit products. It suggests that the strategic issue for luxury brands is to reconsider the dramatic ways in which they have demonized counterfeiting in the past – fakes boost terrorism, fakes involve child labor, buy a fake and be stopped at customs etc. Instead the opportunity is to ‘internalize’ the appeal, to communicate more on the personal psychology of the feelings associated with owning a fake.

Ariely believes that encouraging consumers to think about the idea of ‘identity’ is potentially a more powerful way to tackle the issue.

His work on the psychology of counterfeiting is still underway, results will be published at the end of his research. Dan Ariely can be contacted via his website – Predictably Irrational
Image (C) Zevs

Gucci Pops-up in SoHo

Gucci pops-up its Gucci-Icon Temporary Shop on 43 Crosby St. in New York’s SoHo tomorrow morning at 10 am. Featuring its signature colors, Gucci's white-washed walls are covered in the signature evergreen and red stripes, Gucci will pack up as soon as its wares — which include the Gucci Ronson sneaker, a collaboration with celebrity DJ Mark Ronson — are sold out. "The company is hoping to close the space even before its two-week run is over,” reported WWD.

Let's see if this store will make it past this weekend.

Betsey Johnson awarded Lifetime Achievement in Fashion Medal of Honor

This past Tuesday evening, legendary fashion designer Betsey Johnson was awarded National Art Club’s Medal of Honor for Lifetime Achievement in Fashion. The venue of the event was New York’s National Art Club located in the historic Tilden building that has stood near Gramercy Park since the 1840s. In the reception area, the Victorian architecture and décor was thrown into sharp contrast against a display of Betsey Johnson through the ages. Five brightly colored mannequins commemorated five decades of Betsey Johnson’s reign in the fashion world with an iconic style from each decade. The guests were dressed in everything from brightly colored vintage Betsey Johnson dresses to traditional long ball gowns proving that the iconic designer has become a timeless classic. This Club, located in the historic Tilden building, has stood near Gramercy Park since the 1840s. In the reception area, the Victorian architecture and décor was thrown into sharp contrast against a display of Betsey Johnson through the ages. Five brightly colored mannequins commemorated five decades of Betsey Johnson’s reign in the fashion world with an iconic style from each decade. The guests were dressed in everything from brightly colored vintage Betsey Johnson dresses to traditional long ball gowns proving that the iconic designer has become a timeless classic.

Betsey Johnson began her career in the 1960s and has since developed a trademark of sexy, hippie inspired patterns and whimsical detailing. She drew inspiration from her love for dance and costuming and became an icon of the youthquake movement and Andy Warhol’s underground scene.

Today, Betsey Johnson has over forty-five stores around the world and has been inducted into the Fashion Hall of Fame. She has now joined the esteemed ranks of previous lifetime achievement honorees including Geoffrey Beene (2003), Oleg Cassini (2004), Carolina Herrera (2005), and Arnold Scaasi (2006).

Farewell Captain Lou

Legendary wrestling figure Captain Lou Albano, perhaps best known for his association with pop singer Cyndi Lauper, died Wednesday, according to World Wrestling Entertainment.


Captain Lou Albano reached a new level of fame in the '80s with his association with Cyndi Lauper.

Albano, 76, was "one of the company's most popular and charismatic legends," the company said in a statement.

The cause of death was not immediately disclosed.

"Albano began his storied career with Vincent J. McMahon in the 1960s as one half of 'The Sicilians' tag team with his partner Tony Altimore," the WWE said. "He will be greatly missed by the WWE and his fans."

Albano, who was with the WWE from 1983 to 1996, was inducted into the WWE Hall of Fame in 1996.

He started as a tag team wrestler in the 1950s but became a successful manager of champion wrestlers in the 1970s, according to a biography on the WWE Web site.

Albano was recognizable by his penchant for unbuttoned Hawaiian shirts and a trademark beard, which was usually bound by a rubber band.

His persona earned him the distinction of "one of the most hated men" in wrestling for 15 years, the WWE biography said.

Albano's image evolved in the 1980s, when he teamed with Lauper on several music videos, such as "Girls Just Want to Have Fun," and wrestling appearances.

As his celebrity status grew, Albano landed acting jobs, including a role on several episodes of the "Miami Vice" TV series, the biography said.

Albano became a cartoon in 1989, when he was the voice of Mario "Jumpman" Mario for 17 episodes of "The Super Mario Bros. Super Show!" according to the Internet Movie Database.

The Upper House HK

The Upper House, designed by architect Andre Fu, is Hong Kong's newest and most innovative boutique hotel. Tucked away on the 38th floor, guests of the Upper House are guaranteed to relish in the magnificent views below. Images courtesy of Michael Weber Photograpy.

New York Millionaire wants to buy Malo

By Teri Buhl

A New York financier wants to scoop up one of Milan’s treasured high-end fashion labels out of an Italian bankruptcy. Franco DeRose, luxury Upper East Side private investor, flew to Milan today to make a bid for Malo. Malo, a 30-year-old Italian sportswear label who boast a Madison Ave address, is best known for it super luxury cashmere.

Malo’s parent company IT Holding SpA filed for bankruptcy protection in March when it couldn’t make its bank loan. The company had a 10 million Euros net loss as of last September. When the Italian government took over it appointed three administers to cobble together a 6th month restructuring plan. Well those six months are up and as of September 24th the Italian ministry announced they were interested in accepting bidders for the groups’ assets.

DeRose has partnered with an Italian industrialist who wished not to disclose his name until the deal is sealed. The amounts of the offers are being kept secret through a silent auction. DeRose is no cub to deal making and is known as a tough negotiator. As a former M&A star at Goldman Sachs he left in his early 30’s to successfully build wealth through his own deal making finesse. One stumbling block he will have to convince the Ministry of is his desire to keep design and production jobs within Italy. DeRose ,who spends his summers sailing off Sardinia, understands the importance of fashion as a staple to Italian economy.

While in Paris for Fashion week DeRose told The New York MiNute, “There seems to be opportunities for investors willing to buy brands which will need to adjust to the economic times. Margins and revenue have declined but there are opportunities available for the right price! Investors must realize that it is a capital intensive business and be willing to make an investment in the brands.”

Early this spring Malo lost its head designer Alessandro Dell’Acqua because he felt frustrated with Malo’s handicapped resources and problems with its suppliers cramped his creative process. IT Holding choose not to replace him. When asked if the lack of a big name designer was a concern DeRose said, “You can always find a designer-that is easy- buying it at the right price is harder.”

Reuters reported early this year that Malo sales revenue for the first nine months of 2008 was 35.7 million Euros. IT Holdings did not return a request for comment about current sales figures or net profit/loss for the label.

Editors Note: Teri Buhl is a financial journalist who has written for Trader Monthly, New York Post, Dealbreaker, Fashionista, HousingWire, and Bank-Implode.

Tomas Maier Bottega Veneta

Tomas Maier has created a limited edition Bottega Veneta Cabat inspired by the iconic Yellow Cabs of NYC, called the NYCabat. The black nappa leather has been hand woven and hand brushed to reveal the iconic taxi yellow undertone, which makes each piece totally unique. The sterling silver plate on the interior will be engraved with the edition number and NYC.

“I loved the graphic black and yellow of the taxi cabs when I first visited New York City in the 1970s,” says Creative Director Tomas Maier. “For me, as for many others, the taxi was shorthand for New York: bold, unyielding, exhilarating, a vehicle, quite literally, to so many possibilities. The new Cabat reflects my feeling that, as much as the city and the world have changed, New York remains incredibly vibrant.”

Limited edition of 50, available exclusively at Bottega Veneta Fifth Avenue.

Yohji Yamamoto files for bankruptcy today

Yohji Yamamoto, the Japanese fashion designer whose company filed for bankruptcy today, will continue to design the Y3 sportswear line for Adidas AG.

Adidas has a “long-term cooperation” with the Yokohama- born designer that is expected to continue, Kirsten Keck, a spokeswoman for the German sporting goods company, said in a telephone interview. Y-3 has delivered far beyond Adidas initial sales expectations, initially appealing to a sport conscious fashion forward consumer. However, with the continued expansion of Y-3 stand alone stores, it remains to be seen if the allure of Y-3 will continue for much longer.

Yohji Yamamoto Inc. filed for bankruptcy today in Japan amid slumping global sales, the company’s French creative director, Irene Silvagni, said today in Paris.

The Japanese company’s debts totaled six billion yen ($67 million), more than its assets, according to Associated Press. Integral Corp., an investment company based in Tokyo, will “sponsor the firm’s rehabilitation,” Nikkei reported earlier today.

Dennis Hopper: Photographs 1961-1967

During the 1960s, Dennis Hopper carried a camera everywhere—on film sets and locations, at parties, diners, bars and galleries, on freeways and political marches. Along the way he captured some of the most fascinating moments of his generation with a keen and intuitive eye.

From a selection of photographs compiled by Hopper and gallerist Tony Shafrazi—more than a third of them previously unpublished—this extensive volume distills the essence of Hopper's brilliantly prodigious photographic career.



A limited edition of 1,600 numbered copies in two editions, each signed by Dennis Hopper.

DENNIS HOPPER: PHOTOGRAPHS 1961-1967
Edited by Tony Shafrazi, texts by Dennis Hopper et al.
Hardcover in a clamshell box
XXL format: 33 x 44 cm (13 x 17.3 in.)

Economist on LVMH in the recession

“THERE are four main elements to our business model—product, distribution, communication and price,” explains an executive at LVMH, the world’s largest luxury-goods group. “Our job is to do such a fantastic job on the first three that people forget all about the fourth.” For decades LVMH’s formula has worked like a spell: seduced by beautiful status-symbols, perfect shops and clever advertising, millions of people have swooned forgetfully towards the firm’s cash registers. At Louis Vuitton, LVMH’s star company, the model’s pricing power has yielded consistent profit margins of around 40-45%, the highest of any luxury-goods brand.

These days customers are finding it far harder to forget about price. The seriously rich, of course, are still spending freely. But much of the industry’s rapid growth in the past decade came from middle-class people, often buying on credit or on the back of rising house prices. According to Luca Solca of Bernstein Research, 60% of the luxury market is now based on demand from “aspirational” customers rather than from the wealthy elite. The recession has quickly reversed the trend to trade up, and people are delaying expensive purchases. Bain & Company, a consulting firm, expects the industry’s sales to fall by a tenth in 2009, to €153 billion ($225 billion).


Some executives even expect a lasting shift in customers’ preferences, towards discretion and value. Bernard Arnault, chairman and chief executive of LVMH, believes that the whole industry needs to rebrand itself. “The word luxury suggests triviality and showing off, and the time for all that has gone,” he says. Brands which sold “blingy” easy-to-sell products, milking old names, he says, will fare particularly badly in the new environment. LVMH, by contrast, has never taken such an approach, he says, instead emphasising quality, innovation and creativity.

To underline these values, the group is going back to basics in its daily operations. “Before the crisis, we were putting a lot of energy into beautiful stores, but now we care a bit less about expanding our network and even more about design and price,” says an executive. A few years ago, for instance, at the height of the boom, one LVMH brand was putting diamonds all over its watches, so that it was almost difficult to tell the time. “Now we are getting back to what really matters, which is nice movements and design,” he says.

For some luxury firms, the recession’s effects have already been brutal. Private-equity firms and other outside investors which rushed into the industry at its peak have suffered most. “At the top of the market this industry was perceived as easy by outsiders,” says Mr Arnault. “You borrowed 80% of a target’s asking price and hired a good designer, but the strategy has not been successful in several cases.”

Lenders to Valentino, an Italian fashion house, are reportedly trying to renegotiate its debt. Permira, a private-equity group, bought the firm in 2007 in a deal valuing it at €5.3 billion. Permira has since written down its equity investment of about €900m by more than half. Prada Holding, through which Miuccia Prada and her husband control Prada Group, another Italian house, recently restructured its loans in order to defer payment to banks. Prada Group has denied that there are talks to bring in a minority shareholder. Two particularly weak firms, Christian Lacroix, a Paris-based ready-to-wear and haute couture label which used to be part of LVMH, and Escada, a German maker of luxury womenswear, filed for bankruptcy earlier this year.


Amid this turmoil, LVMH is performing relatively well (see chart 1). It has benefited from an established pattern in the luxury industry: when people have less, they spend what they do have on the best quality. Shoppers are going for fewer, classic items—one Burberry raincoat, rather than three designer dresses, or a single Kelly bag by Hermès, a French luxury-goods group, instead of four bags from various lesser designers. For this reason, says Yves Carcelle, chief executive of Louis Vuitton and president of fashion and leather goods for LVMH, “Vuitton always gains market share in crises.”




As reliable and sturdy as one of its own handbags, therefore, Vuitton is carrying LVMH fairly comfortably through the recession. In the first half of 2009 the group’s revenues were about the same as a year before, though profits were 12% lower. Two divisions—wine and spirits, and watches and jewellery—were the worst affected: their revenues each fell by 17% and their profits by 41% and 73% respectively (see chart 2). Rapid de-stocking by retailers exacerbated the effect of falling demand. But the falls were offset by Vuitton, where revenue rose by a double-digit percentage, registering gains in every market. “It is incredible that in a downturn the consumer still buys so many Louis Vuitton bags, but she or he does,” says Melanie Flouquet, luxury-goods analyst at JPMorgan in Paris.



Vuitton’s performance, and the overall robustness of LVMH, a global conglomerate with more than 50 brands and revenues of €17.2 billion in 2008, should allow it to take advantage of its competitors’ weakness in the recession. “In the next few years we expect several failures in the industry and good opportunities to acquire assets at attractive prices,” says Mr Arnault. Shareholders in the firm are particularly preoccupied by what he might buy and sell in the next few years.

What explains Vuitton’s resilience? Beneath the gloss of advertising campaigns, catwalk shows and each season’s fleeting trends, Vuitton brings a machine-like discipline to the selling of fancy leather goods and fashion. It is the only leather-goods firm, for instance, which never puts its products on sale at a discount. It destroys stock instead, keeping a close eye on the proportion it ends up scrapping (which it calls the “destruction margin”). In 2005, when Maurizio Borletti, owner of several prominent department stores in Italy and France, was preparing for the opening of a refurbished La Rinascente department store in Milan, he recalls, the Vuitton people built a scale model of the building in their offices to understand customer flows and get the best positioning. “In this they’re the most professional in the industry,” he says.

Unlike most other luxury marques, Vuitton never gives licences to outside firms, to avoid brand degradation. Its factories use techniques from other industries, notably carmaking, to push costs down ruthlessly and to allow teams of workers to be switched from one product to another as demand dictates. It has adopted methods of quality control, too: one quality supervisor came from Valeo, a French auto-parts supplier. The result is long-lasting utility, beyond show, which is valuable in difficult times.

Owning shops gives Vuitton control over levels of stock, presentation and pricing. It was not therefore affected by the panicked price-slashing of up to 80% by American luxury department stores in the run-up to Christmas last year—a “catastrophe” for others in the industry, according to Mr Arnault. Although other LVMH divisions have been hit by outside retailers de-stocking during the crisis, Vuitton has managed its own inventory, with no competition for space from other brands. With a global network, says Mr Carcelle, the firm can move poorly selling stock to shops where it has performed better.

The luxury of diversity
Vuitton’s ability to offset the steep falls in other divisions shows the value of the diversified conglomerate model in luxury goods. Richemont, the industry’s second-largest company, has a less varied portfolio and greater exposure to watches and jewellery, demand for which has been especially weak. According to a recent trading statement, its sales fell by 16% in the five months to the end of August.

A group structure also yields savings when negotiating deals for advertising space, property and credit-card fees. It helps to have a specialist beauty retailer, Sephora, and a chain of airport shops, DFS, to sell perfumes and cosmetics. When Vuitton develops watches, say, it can call on the talents of TAG Heuer. But LVMH’s breadth also comes in for criticism. Although there is undoubtedly value in some diversification, some people ask whether 50-odd brands under one roof are too many. Vuitton, for instance, would doubtless like to see disposals of weaker brands as a result of the crisis, and a greater concentration of resources on the group’s key businesses.

The group’s executives devote the bulk of their attention to the most important of these: Louis Vuitton, Moët Hennessy in drinks, TAG Heuer in watches, Christian Dior in perfumes and cosmetics, Sephora and DFS. The group has many smaller businesses, and these get much less attention in such a big group. LVMH does not disclose financial figures for individual brands, but at its presentation of first-half results the group’s finance director replied to an analyst asking about fashion and leather-goods that a “handful” had lost money “somewhere”. There is speculation that Celine, a ready-to-wear clothing and accessories label, Kenzo, a fashion brand which analysts have long suggested LVMH dispose of, or Loewe, a Spanish leather-goods brand which has so far failed to win much of a following outside Spain and Japan, are among the less profitable.

Nevertheless, the group can use the might of Vuitton to support its smaller, upcoming brands. A department store, for instance, may be asked to take Loewe or Celine in order to get Vuitton. That often frustrates people at Vuitton, however, who would prefer to use the power of the brand for its own benefit, says a person who knows the company well. “They’ve never heard of another of LVMH’s brands saying, ‘Either give this to Vuitton or I won’t come’,” he says. Apart from the synergy in watch design, Vuitton does not find that it benefits much from the rest of the group.

The reason why LVMH has many small brands which aren’t quite making it, says another person familiar with the company, is that Mr Arnault is an optimist who believes that every property can at some point be turned around. That can pay off: some years ago Mr Arnault halted the imminent sale of a make-up line. Thanks to the distribution muscle of Sephora, it has since turned into a bestseller in America. Investors, however, are nevertheless wary of what they see as Mr Arnault’s tendency to collect brands.

The crisis has also underlined the fact that Vuitton dominates the group’s results. Were it not for Vuitton, estimates one analyst, LVMH’s sales would have fallen by 3% in the first half of 2009 and profits would have plunged by 40%. In normal times Vuitton contributes about half of the group’s profits, and most of the rest comes from Moët Hennessy. In the first half of this year, however, Vuitton contributed an estimated 70% of profit. That leads some people to question whether LVMH is overly dependent on the leather-goods firm.

“You can argue that there’s nothing as good as Vuitton in LVMH’s portfolio,” says Pierre Mallevays of Savigny Partners, who was formerly director of acquisitions at LVMH, “but that simply states the fact that LV’s business model is the gold standard of luxury brands; no other brand in the world compares to it.” The biggest risk to LVMH is Vuitton, argues Ms Flouquet, since it accounts for such a big proportion of profits; the company depends on it, she says. The risk to Vuitton, in turn, is that it could fall out of fashion or lose its exclusivity in the eyes of consumers.

So far there is no sign of fatigue with the brand. LVMH’s senior managers have devised ways to refresh it. In the late 1990s, for example, Mr Arnault saw that there was a risk that as a maker of leather goods alone, Vuitton could be perceived as boring. In 1997 he hired Marc Jacobs, then a relatively unknown designer, to design a fashion line. The aim was to generate seasonal buzz and press coverage. Vuitton’s senior executives at the time were against the idea, fearing that adding fashion could undermine a timeless image, but Mr Arnault’s move proved successful.

To avoid overexposure of its signature “Monogram” print, Vuitton has taken care to develop a wide range of products and other patterns. “We increase the number of product lines and we are careful to have several different colours and shapes,” says Mr Arnault. Thus Vuitton sells reasonably priced handbags—the smallest Speedy Bag costs €430 in Paris—but also wildly expensive custom-made luggage, reinforcing its exclusive image. Another effective tactic is to make limited-edition handbags which are hard to get hold of.

Five or so years ago Vuitton depended to a large degree on one market, Japan. Most Japanese women owned at least one Vuitton product—and hence provided a large proportion of Vuitton’s profits, which worried analysts at the time. Yet the Japanese market for luxury goods was souring. Spending on such items in Japan has fallen sharply since the end of 2005, according to a recent report by McKinsey, a consulting firm. Young women are more individualistic than their mothers, and are seeking out lesser-known brands. “You used to see thousands of Vuitton bags coming at you in the Ginza shopping district but far fewer now,” says Radha Chadha, author of a book, “The Cult of the Luxury Brand: Inside Asia’s Love Affair with Luxury”.



That reliance on one country is no longer so marked (see chart 3). Fortunately, Vuitton has since rapidly established a strong position in what it hopes will become another Japan: China. “The Chinese consumer is in a love affair with the Vuitton brand,” says Ms Flouquet. According to LVMH, in the first half of 2009 sales to Chinese people (at home and travelling) made up 18% of Vuitton’s revenue. Despite widespread concerns about counterfeiting in the country, the Chinese are now Vuitton’s biggest customer base after the Japanese. The key to the firm’s success, says Mr Arnault, has been approaching the market exactly as if it were a developed market. “We treat the Chinese customer as being very sophisticated.” Many competitors, by contrast, have at times lowered their standards for shops in China, he says, using inferior furniture or positioning their stores poorly.

Going into new markets and developing new product lines will enable Vuitton to continue producing double-digit growth for years to come, says Mr Carcelle. On every trip to mainland China—he makes five or six a year—he tries to discover a new city and meet its mayor. Mr Carcelle is also tackling other new frontiers: in October he will open a shop in Sukhbaatar Square in Ulan Bator. “Already if you go to an upmarket disco in Ulan Bator you will see a significant number of our bags,” he says.

Vuitton’s expansion into China, Mongolia and new product lines such as watches and shoes, suggest that the leather-goods firm will continue to be LVMH’s main source of growth. However, it also means that the group may become more rather than less reliant on Vuitton. In theory, the answer could lie in strengthening some of LVMH’s smaller names, such as Fendi, a fashion and leather-goods brand. But buying a big, established, global brand with potential for growth could be both a quicker and a surer route.

ImagineChina

Or maybe that one
A new collection?
Analysts and bankers are convinced that Mr Arnault wants to buy the Hermès Group, a producer of leather goods and fashion which matches Vuitton for quality and design. Because Hermès is run so conservatively, says an investment banker who knows LVMH well, it is only a quarter of the size that it could be. “Mr Arnault would grow it while preserving its values,” he says. Earlier this year, there were rumours that LVMH would sell Moët Hennessy to Diageo, the world’s biggest spirits group, which already owns 34% of the business. Such a sale could raise money to buy Hermès. Mr Arnault, however, refuses to be drawn into commenting.

For the moment, such an acquisition is impossible, since the family which controls Hermès does not want to sell, and the firm is strongly defended against takeover. Nevertheless, says the banker, the family which controls it has several branches, all with different views. “It’s a pressure cooker and some day it will blow up,” he says. Chanel, another closely held global luxury brand, could also make a desirable target for LVMH. Some people recommend a merger with Richemont, which, Mr Solca argues, would address LVMH’s relative weakness in watches and jewellery.

Any such deals, or selling Moët Hennessy, would radically change the balance of the group. “I would be surprised if LVMH sold Moët Hennessy. The business has high margins, high cashflow and it is well managed,” says Ms Flouquet. “They would probably only sell it if they had a large deal ahead.” Shareholders are nervous that LVMH will pay too high a price for a large acquisition. For this reason the group’s valuation may not fully reflect its performance during the crisis. Such concerns are not likely to deter Mr Arnault, who has demonstrated his confidence in LVMH’s prospects in luxury by raising his stake in the group over time: he owns 47%. If LVMH does go shopping, it will probably behave like one of its best customers: with price in mind, but willing to spend on enduring prestige.