Fashion Notebook

Financial Desk: Strong Gains in Q1 Portend Bright 2008 For LVMH

In the words of one Flavor-Flav, LVMH Chairman and CEO
Bernard Arnault "knows what time it is."

Remember when the luxury house's head honcho (pictured, right), whom we've always thought was like a lost member of the Rat Pack, said this, a while back?

"I believe that [the recession's] consequences on LVMH will be limited, weak, or even non-existent. In fact, the clientele that we are dealing with is far less affected than the rest of the economy by these short-term economic swings.  They have high purchasing power, located in a number of countries where the economic climate will be bouyant, even if there's a minor recession in the U.S."

Well, he wasn't just puffing his sails. First quarter revenue reports show that, with the sole exception of the wine and spirits group, all divisions of LVMH are up.

Fashion and leather goods grew 7%, led by the strength of Louis Vuitton, which received its own TV commercial this quarter, in addition to recently inking a deal to have Rolling Stones' guitarist (and, we think, animatronic wax doll) Keith Richards star in its current print campaign. On the product front, the company said that the collaboration between Marc Jacobs and Richard Prince (the artist of "Let's not and say we did, XOXO, Jennifer Aniston" fame) was particularly successful. Meanwhile, perfumes and cosmetics grew 8%, attributed to the continued momentum of the Christian Dior brand offerings, as well as the new Midnight Poison fragrance and Addict High Shine lipstick.

But the real winner of the quarter was the watches and jewelry group , which posted 12% revenue gains over the year-earlier period. Strength came from brands including TAG Heuer, Zenith and the Christal collection from Dior. The company added that Chaumet and De Beers also continued their retail expansion plans and increased revenues. New watches previewed at Art Basel in Switzerland have reportedly attracted "large increases in orders" from retailers.

And the bottom kicker of the sales release seems to only confirm what Arnault had promised earlier:

"LVMH will continue its growth in 2008 despite the challenging monetary environment and an uncertain economic climate at the beginning of this year. Increasing market share and the profitability of its leading brands as well as improving the results of its developing companies remain LVMH top priorities."

If they can keep these numbers up, or better yet, best them, then we think it's fair to say that the strategy we outlined a while back, that of weathering the recession by only appealing to the top end clientele, has indeed proved not only stable, but a money maker for LVMH.

Week in Review Pt. 1: Louis Vuitton Rocks Out, Kohl's Gets Punked, and More Rumbles for the Luxury Market

OK, so we've kinda been bad lovers the past two weeks. Yeah, we admit it;
we haven't been updating as often as we, or you, would like. But our offline
job got a bit crazed last week and that prevented us from posting. So, in effect, it's not you, it's us.

Also, we were, like, on pins and needles waiting for the finale of Project Runway. And, hopefully you'll agree, we're so, so, so, fiercely happy that Christian Siriano won we can barely contain ourselves. Kid has some serious talent, and we're sure that we'll be hearing from him sometime soon. Is he adoptable  by the way? We might just forego that Boston Terrier we'd been planning on bringing home and swap it for that adorable pocket-gay (though he'll have to sleep in a closet, as we're still living in a New York state of reality folks!).

But let's leave all this relationship drama to the Spitzers! It's time to take a look at what's happened, what it means, and where we see things going... So without further ado...

Louis Vuitton's New Bag
Unless you've been hiding out under a mountain of paperwork (like us), you've probably already heard that Rolling Stones guitarist Keith Richards is the new, wrinkly face of Louis Vuitton (SEE PHOTO, BELOW, LEFT). (Insert "Vuitton's new, iconic wrinkled bag" joke here, hell, everyone else has. For SHAME Saturday Night Live! You, like fashion, were more inventive in the 1980s.) If you haven't seen the spot already, check the photo at right.

We have to say to say that this is an interesting choice, and it's already done its job many times over in terms of exposure (more than we'd imagine placing, say, Katherine Heigl, or some other, safer choice, in front of the camera). But hasn't Vuitton really missed the rebel-rock-me boat by like, say, 40 years? We would prefer to see the ads featuring this Keith.

Also, how does John Varvatos feel about all of this. Certainly, the Stones trump Cheap Trick, not to mention the fact that the campaign pretty much cribs from Varvatos' own advertising mantra: Bring back old rockers and consumers will come. Of  course, Varvatos seems to have more credibility here and we're still not sure what a great cover boy Richards is for the brand. After all, while he's definitely rich beyond words—and amazingly still alive—we're just not sold on him as a real luxury guy. Then again, maybe that's what rehab and old age will do to you. I'm sure that he has a wonderful assortment of organic teas backstage, but is he really throwing those outfits in a Vuitton steamer?

Love to hear your thoughts on this. Drop us a line, here.

Kohls Pumps Up Its Juniors Jam with Avril Lavigne
Yeah, the girl ain't punk kids. Then again, Richards sold his ass to Louis Vuitton, so what does define the legitimate rocker persona? Anyways, Avril Lavigne maybe didn't steal your boyfriend, but she did ink a deal with Kohl's to produce "Abbey Dawn," a collection of apparel (priced $24 to $48) and accessories (read: jewelry, for now) that will hit the mass merchant's doors nationwide in July.

The move obviously means that Lavigne will get some dollars in her coffers—seriously, is she even that hot anymore?—but it also seems to really define her audience in a way that could be limiting for the popstar. Launching just in time for back-to-school shopping, the line is allegedly for the "broad group of shoppers" that Lavigne attracts, according to SVP Don Brennan, but we're calling bullshit. If it's B-T-S, the tricks are for kids, and that's fine, after all, those are the types that will pay retail for her album "The Best Damn Thing," which came out last year and for which the star began touring to support last week.

According to spokeswoman Vicki Shamian, the line shouldn't cannibalize any of the retailer's other exclusive brands, like Candies given Avril (and by proxy, her collection's) "feminine yet rock n' roll attitude." [Side note: Meanwhile, no notes on how the Simply Vera collection is doing. If you've got deets, or reactions, or if you've tried on the products, send a note here]. Advertising, on which details aren't yet available, will be handled by the Kohl's in-house team, in conjunction with lead agency McCann Erickson, New York. Stayed tuned.

 

Financial Desk: Luxury Retail's Mixed Bag
Ok, so we've probably hammered this to death, but there might be trouble with the luxury market.

Saks Fifth Avenue announced last week that it had approached roughly $1 billion in sales for the quarter ended Feb. 2, up almost 5% from the year-earlier period, but with comp store sales increasing by 9%. Meanwhile, net income rose dramatically, some 83% drama, to $39.5 million, or 26 cents a diluted share. However, gross margin slipped about 50 basis points to 37.4% of sales.

But there's trouble ahead. According to a statement by chairman and CEO Steven Sadove, January and February comp store sales grew by only 4.1% and 3.4%, respectively, and "previously high-growth rate businesses such as handbags, footwear and men's have slowed."

"As expected, the more challenging promotional and overall macroeconomic environment that we began to experience in the third quarter continued throughout the fourth quarter and put pressure on our merchandise margins," Sadove continued. "Our outsized comparable store sales growth indicates that we significantly improved our competitive positioning by market, driven by our merchandise, service marketing and capital investments."

And then  came the wahn-wahn moment.

"Nothwithstanding our improved performance and the longer-term outlook for the luxury channel, we expect to continue to face an increasingly challenging macroeconomic and promotional environment in 2008, and are taking a more conservative approach to planning the business this year," Sadove said, adding that the company expects to see comp store sales growth in the mid-single digits for 2008, with low-to-mid single digit growth in the first half of the year.

Meanwhile, at Neiman Marcus, positive earnings were also overcast by ominous notes. Revenues at the luxury department store grew almost 6% to $1.37 billion in the second quarter ended Jan. 26, while net earnings grew 8% to $44.3 million. However, February comp stores sales posted a 7.3% decrease.

In a conference call, Neiman Marcus chairman and CEO Burt Tansky seemed to feel, well, pretty much like every other luxury retailer these days. He's playing a cautious game as the news of a buckling economy and decreased consumer spending prophecies an even rougher year.

"As we all know, the entire U.S. retail sector has seen sales growth diminish somewhat, and this slowdown has affected some parts of the luxury market," he said in the call. "Our sense is that the aspirational customer has pulled back somewhat in response to concerns about the U.S. economy in stock and housing markets. However, this aspirational customer appreciates quality and can be expected to buy more as the economy improves. Nevertheless, we feel confident that the pure luxury customer, the affluent to the very affluent, will continue to demand only the finest."

Seems plausible, of course, except that we're not getting at raw numbers here. What's the proportion of aspirational consumers to pure luxury consumers? Wethinks it be disproportionate and that Neiman's might have a few, hopefully not too many, pricey dresses that are staying on the racks as Sex and the City fangirls start closing up their upper-middle class purses.

Lessons in Branding: Making Sense of Louis Vuitton's First TV Spot, "Where Are You Going?"

If you haven't seen, first check out the 90-second spot from Louis Vuitton, "Where are you going?", the brand's first-ever TV ad, teased in the most recent earnings report. Creative per Ogilvy, Paris.

OK, what to make of this? First, our impression:

This feels a lot longer than it is. The existential question—"What is a journey?"—is explored through some pretty engaging imagery, and we have to admit, we watched all the way through to the end, and probably would have done the same had we seen it on TV (we don't have cable folks, we read). It recalls the print campaign, featuring Catherine Deneuve at a train station, lots of fog and smoke, revealing and concealing the lensman's subjects. And the soundtrack gets us in the mood for an Alejandro Iñárritu film. We're pleased to see that we're not bogged down with a bunch of branded product, and indeed feel that the spot makes an emotional connection. It's really a beautiful spot in a world full of uglies, and doesn't come off as pandering or offensive.

But the problem we've got, ultimately, is the branding part. We have to feel that people for whom "The journey is life itself," probably aren't the same ones who want to shell out thousands for a suitcase. In fact, they'd probably spend the money that a Vuitton steamer trunk would cost on a fairly comfortable trip to Africa or Asia. Unless, of course, they're among those who prefer custom Vuitton luggage, and travel to India on a half-spiritual journey to connect a dysfunctional family (er, in case you hadn't already caught on, we're talking about The Darjeeling Limited here). So the message seems to be a disconnect with the product,  n'est pas?

And, now, point-counterpoint from two recent critiques:

From BryanBoy.com (AKA the twink blogger who actually got Marc Jacobs to create a handbag named after him): "I *LOVE* the commercial! It's quite moving and touching. In fact, the message is crystal clear to me. IMO, the folks at luxury powerhouse Louis Vuitton went back and paid homage to their roots: the art of travel. Afterall, travel is an integral part of the brand's DNA. Nowhere in this commercial you'll find the usual flash flash "bling" stereotype the average Joe associates with Vuitton. I think it's a nice little  flashback to the bygone era where only the traveling set knows about the historical and cherished by millions monogram."

From Pam Danziger (of luxury analysis firm, Unity Marketing, Stevens, Pa.): "It's atmospheric and evocative, yes, but LV has fallen into a trap that can catch many heritage-rich luxury brands, and that is thinking that brand image is the ultimate reason why people buy. In my research into the mindset of the luxury consumers, brand image plays a supporting, not a leading role in why people buy.  When affluent consumers buy a luxury brand, first and foremost they want outstanding quality.  Image may be a primary motivator for the 'aspirational' consumers who want to put on the trappings of a luxury life they have not yet attained, but not for the affluent shopper who has already made it. It is even questionable that the company's target consumers will get the brand identity message that is this commercial's primary objective.  When I viewed this ad, all I had were questions, but no answers.  'What is a journey?' is the question poised in this commercial, but the answer about why I need the Louis Vuitton brand to accompany me on my journey was left unanswered."

Anyhow, at least the ad has people talking, which is always good in this biz. Of course, Vuitton doing its first TV ad would naturally have every one talking. What remains to be seen is, as Danziger notes in her review of the spot, whether or not consumers (and critics) will go from talking to buying.

Updated: Financial Desk: LVMH Closes Out 2007 with Multi-Category Growth and Teaser For New Vuitton Campaign

Another positive luxury earnings report, now with some
straight talk about how 2008 will shape up, comes across
our desk this morning from Paris-based juggernaut LVMH.

The company, which markets a wide range of luxury products, posted sales gains across every category in its portfolio. In sum, company-wide revenues increased 8% to $24.1 billion, with profits climbing 12% to $5.2 billion for 2007.

While those gains are certainly commendable, Chairman and CEO Bernard Arnault didn't shy away from addressing some of the problems facing the U.S. market, though he was bullish on the company's prospects, given its higher-end clientele.

"It is true that the year is starting in a rather worrisome situation in terms of the economy and the financial markets in particular...[and] our analysis of the situation is that in 2008 we're likely to experience a degree of recession more or less important in the U.S. economy," Arnault said, in a conference call, though he added that January sales were in line with year-end performance for the company and noted that he believes the recession should only last one or two quarters into 2008, with market recovery by 2009.

"I believe that [the recession's] consequences on LVMH will be limited, weak, or even non-existent," Renault said. "In fact, the clientele that we are dealing with is far less affected than the rest of the economy by these short-term economic swings.  They have high purchasing power, located in a number of countries where the economic climate will be bouyant, even if there's a minor recession in the U.S."

Returning back to the quarterly results, of particular interest to us were the following revenue boosts: sales of fashion and leather goods  grew 8% to $8.24 billion, at current exchange rates, in 2007; the perfumes and cosmetics business also grew 8%, with sales of roughly $4 billion; while the watches and jewelry group posted a 13% sales gain, at $1.2 billion.

The company, in a statement, attributed increased revenues in the fashion category to strong performance from its landmark Louis Vuitton brand, as well as "growing success" at Fendi, in addition to solid performances from Marc Jacobs, Givenchy and Loewe. The boost in perfumes and cosmetics came on the back of its popular Christian Dior fragrance line, particularly the J'Adore, Midnight Poison and Fahrenheit 32 scents. Strength in the watches and jewelry category was led by TAG Heuer, which the  company said showed strong progress across all of its markets (for more on TAG's marketing efforts, see previous article, here).

According to statements by Antonio Belloni, deputy managing director, in a conference call, the fragrance departments at Givenchy and Kenzo will be rolling out "aggressive programs," including a renewed advertising campaign for the female market, and a forthcoming men's launch for both brands. No further details were provided.

And Yves Carcelle, president of the fashion and leather goods division, alluded to an evolution of the brand's current campaign with Mikhail Gorbachev . In the call, Carcelle mentioned a "Life After Gorbachev" initiative that would be unveiled "in a few weeks' time."

"For the first time, indeed, in the history of the luxury industry, there will be an audio-visual film which will be used both on TV, in theaters and on the Internet," Carcelle said during the call, describing the spot as "90-seconds of pure emotion." Hmmm... We'll definitely be staying tuned on that one.

Anecdotally, it would appear that Gorbachev campaign (as well as the spots featuring French Actress Catherine Deneuve, both pictured, above) has been successful. I've heard a vast majority of positive reaction to those spots, and, given the pending recession, that campaign isn't a bad strategy for the U.S. market. After all, only the super-moneyed, who are likely the age contemporaries of Gorbachev and Deneuve, will be able to afford those never-marked-down handbags if the economy really gets bad.

Marketing Ethics in The Valley of the Stardolls

  Stardoll.com, a social-play Web site for 9 to 17 year-old girls, announced this week that it has inked a deal with supermodel/auf'er Heidi Klum to promote her latest jewelry collection.

Essentially, the deal shakes out in a Second Life kind of way. Heidi gets her own store, located in Stardoll's "Star Plaza" shopping center, where the girls can look through her collection, buy "virtual versions" of the product that they can use to bedeck their avatars, and talk shop about fashion. They can even look through Heidi's "closet" of favorite handbags, shoes, clothes and awards show outfits. Oh and she gets this avatar (see right) that doesn't really do graphic justice to Klum's on-screen beauty.

“I don’t just think about it as selling jewelry, [but] I try to make it about who I am,” Klum told me over the phone. “I think it’s great to be in connection with young girls who are interested in fashion . . . It allows [the girls] to interact with those celebrities they are fans of and get an insight into what that person’s favorite clothes are.”

Klum isn't the first to go this way with Stardoll. A partnership with LVMH in December landed DKNY (see store format below) and Sephora in the space, and before that young starlets like Hillary Duff, the Olsens, and Avril Lavigne had also set up shop on the site. And there are more to come! The site, which claims to have 12 million visitors, is seeking other high-end partnerships with brands including Stella McCartney, Vivienne Tam, Liz Claiborne and Henri Bendel.

No doubt, digi-deals like these are already popping up everywhere, but the fact that they're luxury players that are effectively marketing to kids—essentially recruiting future shoppers while their brand loyalties aren't yet set in stone, not to mention further glamorizing a materialist marketplace—seemed just a little bizarre to me.

So I rang up Susan Linn over at the Campaign for a Commercial-Free Childhood to  get her thoughts. Picking a fight, I know, but I thought she might be able to shed some light on this trend.

“The real purpose of social networking sites for young kids like Stardoll, BarbieGirl and even Webkinz and Club Penguin, is to train kids to shop,” she told me. “It’s a good thing for the corporations to make a lot of bucks, but it’s not a good thing for kids. What these companies want to do it get children in the habit of consumption . . . and instill the idea that they deserve luxury products."

But is that Stardoll's fault, really? If we're supposed to stop instilling kids with the idea that they deserve expensive things, why don't we just cancel any number of reality and "scripted reality" shows, not to mention MTV shows like "Cribs" or VH1's "The Fabulous Life Of" series? Certainly those shows glamorize opulent wealth and rampant consumerism.

To whit, Paul Kurnit, president of Kid Shop and a marketing professor at Pace University, told me that the children using sites like Stardoll are already exposed to hyper-consumer culture via television shows like those mentioned above.

“Luxury is aspiration and a lot of those brands and those celebrities are fashion and lifestyle brand badges that today's teen and tween girls want a piece of,” he said, adding that he feels Stardoll does a good job of delivering for both its users and brands.

So, dear reader, what's the verdict? Is Stardoll out of line, or is it merely keeping with the times?