As explained by the authors of the Specificities of the Luxury Industry chapter, luxury business companies tend to fall into three major categories – size, financial characteristics, and timing. All of these characteristics require different approaches to business in planning, marketing, and management. While luxury companies are usually smaller and number of employees involved in management and operations is significantly lower than those in sales, the time and energy spent on rising the company awareness is much bigger than in case of some large-scale corporations. I completely agree with Susan Perez describing the marketing strategy of the luxury business as “word of mouth” in her comment, as for luxury business, like no other, the opinion of industry professionals expressed through articles, photoshoots, video campaigns, etc. defines a level of the sales for the season. Small sizes of a luxury company allow earning huge profits after breaking even, as the production product is mainly done through subcontracting and licensing.
From the financial point of view, subcontracting and licensing, brand’s worldwide distribution and different policies on returns and discounts make it difficult to compare profits and sales figures of different companies. Luxury company’s reputation and brand awareness make it even harder to predict the viability of a company, as being a bankrupt company can still operate from season to season to resurrect its financial position over time, a good example of this is Lacroix brand illustrated by the authors of Specificities reading.
Perfect timing is another important factor for scoring good profits in the luxury business. There are strict timing policy based in seasons, especially in the fashion sector, named in the reading as “Fashion cycle”. Designers are representing their collections a year up-front, while the launch of the perfume can be planned in two years. Entering the game and accepting the timing rules can remind a rat race, where some designers try to create collections in-between seasons, to gain more profit. Nevertheless, in the industry, there are examples of successful business disobeying the timing policy like Azzedine Alaia, making it peculiarity and advantage in not playing the game of scheduled season launches as all of the rest. I would disagree with comment of Anna Khitrina on that launch of the new brand will take a lot of time, as from what we see today, new fashion brands appear and gain popularity very quickly using trendiness and media influencers, what really takes time is staying on the float and using your first quick success to score big. What also makes luxury business different from any other is a small entry pool of potential competitors, as breaking even in the industry is hard without big investments and possibility for a small company to act like a big one.
Discussion 1.5 Financial risks
In terms of analysis, I would say luxury fashion business involves more financial risks than a luxury business due to timing and list of things expected from a fashion brand, apart from pressure of the concepts that stand behind the word “luxury”. Of course, luxury products require top quality and top quality of service, international presence, flagship stores, time to build brand’s image for consumer and persuading a client in products exclusiveness, but fashion industry on top of all that requires brand’s presence in one of the fashion capitals. If you are not participating in the events of Paris, Milan, London or New York Fashion Weeks you are out of business, and getting into official program of fashion week with an expensive catwalk show each season can be quite of a challenge for a new company.
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Haute couture is another financial investment that is made only to support brand’s awareness and that does not bring profits any more. While the real revenue is gained on accessories, shoes and ready-to-wear lines, haute couture is a costly investment into the image of the brand. I agree with Susan Perez in her comment that Marc Jacobs and Prada have gone through some difficult times while launching new product lines and changing their image, whereas Hermes was involved in less financial risks, staying on the same trajectory and not undergoing change in products or product lines. That is why established fashion houses tend to be a family business experience with less financial risks, and they possess the time to implement changes as it was pointed out by Martha Rodriguez in her comment.
Discussion 1.Bernard Arnault: Managing Creativity
Bernard Arnault managed to create a conglomerate that is a secret dream of each and every new designer entering the market. Fashion Luxury business is so competitive that it is very hard to last for a few seasons on your own and break even. But those brands that manage to go through this challenge receive a chance to be noticed and bought by LVMH group. The reason of LVMH group being a dream for each new designer is in that operation and management things become a lot easier from the moment of becoming a part of conglomerate. All the production and quality control is conducted through LVMH subcontractors, and designer has a secured place in the official schedule of the Fashion Week and support of stronger member companies in case of failure. Moreover, designers receive full freedom of creative actions in planning their collections. I agree with Christopher Batista in his comment naming Arnault a unique business manager that certainly has an artistic eye in choosing designers for conglomerate (as Lacroix was not a purely business choice), understanding the necessity of freedom for designers and creating a unique fashion business phenomena – LVMH group. Arnault has both artistic sensibility and business conviction, though business conviction is much stronger in him, as LVMH group is a successful, profitable conglomerate. I believe that he does not consider it to be the loss money, just in those invested into prospective. For example his latest competition – LVMH prize for emerging designers all over the world and award of 250 000 thousand euros and business consulting support proves him to be a visionary willing to invest into future. In this part, I disagree with the comment of Stanislav Sokolov, saying Arnault is not ready to invest into new names and restricting all the processes of designer’s creativity only to 15%, while everything else stays classical and timeless.
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Discussion 2. Chaos and Organization
The contradictions that involve successful fashion luxury business are based on the level of creativity involvement in fashion business, as mentioned by the authors of Specificities. Fashion industry can often be perceived as a form of art, but at the same time to be successful, it has to be a form of business. The necessity of combining these two concepts often causes a lot of trouble when designers create items that are rather pieces of art, than a desirable outfit. Therefore, combination of creative and free designer spirit and vision of experienced businessperson results in successful company, such as LVMH. I agree with Christopher Batista in his comment that Arnault’s main strategy is not to block a creative mind, in that way he manages to do business out of a chaos. Concerning the IDEO Lab, Brian Moore has a good point in his comment that its work in design is a result of a group work and the process of design is more organized, though creativity is there. IDEO Lab is more consumer-oriented, trying to answer the question of “what is essential/necessary for the product”, while LVMH is a trendsetter that transforms perception of consumer.
I believe that the “tyranny of the basket” refers to being involved in the process so much that you forget about the result or the overall main purpose. Timing, paperwork, different pressure can distract you from the main goal of design – consumer.