The Bribble

[ September 22, 1999 ]

Handbags at Dawn

By Sarah Govan (cercefool)

It's a tough business, the fashion world. I must admit that until recently, I thought that the fashion "industry" consisted mostly of coke-sozzled teenagers draped in tin-foil and Lycra trying to see who could get their fingers furthest down their throats. As in so many other things, I was wrong. Fashion, sweetie, is a proper business, in the Microsoft, Barings Bank sense of the word. It may just be a few bits of chamois leather strung together with picture wire and an unpronounceable (at least if you don't speak Italian) label stitched in the side, but fashion is big money, essentially based on brand image and brand loyalty.

This is not at all unusual, remember how much Warren Buffett loves Coca-Cola, or at least its stock. Well cola is at the end of the day just a dollop of vegetable-derived goo mixed with fizzy water and sugar, and it has made Buffett and thousands of other investors very rich indeed. The fashion industry is likewise based on names, names that inspire confidence, names that equate to high-quality, or names that suggest exclusivity or eccentricity. Although "sell your a**e but not your name" has generally been the rule of thumb in the fashion world, recent years have seen some consolidation as a selection of the better-known fashion houses have amalgamated into large, multinational luxury goods conglomerates.

Apart from economies of scale in marketing, distribution and other back-office functions, amalgamation would perhaps give a fashion group even more clout when dealing with other big players in the fashion world. The fashion media, show organisers and even models spring to mind. Fashion magazines are heavily dependent on advertising from the big names, and you only have to look at the number of Christian Dior adverts in Elle to guess that the editors are unlikely suggest that the new matt nail polish by Dior is anything but marvellous. (Handy fashion tip -- paint your nails with Liquid Paper for a similar look at a fraction of the cost!!!)

The past year or so has seen a frenzied shopping spree of designer labels that would make even a Harvey Nichols platinum card holder tumble off her Jimmy Choo heels with exhaustion. The latest round of diamante handbag-swinging started with an unwelcome takeover bid of Gucci launched by LVMH, an international luxury goods conglomerate which includes brands like Christian Dior, Givenchy and Louis Vuitton, and Hennessy Cognac. Gucci successfully repelled the take-over for the time being, and LVMH shares on the Paris Bourse slumped. Gucci is now eyeing up Fendi, a family-owned Roman firm famous for draping supermodels in dead fox skin. Texas Pacific Group, who recently bought Bally shoes, are also interested in Fendi. LMVH, meanwhile, have just agreed to purchase Tag Heuer at a premium of 8.6% per share, although still only 88% of the flotation value two years ago.

Prada, which apart from being a well-known label in its own right has also recently added Jil Sander and Helmut Lang to its stable, has recently agreed a bid for Church & Co. This is a Northampton-based company who apparently make really posh men's shoes (or is that shoes for really posh men?). Prada is Italian, Jil Sander is German and Helmut Lang is Austrian. Prada intends to build upon and strengthen the "Britishness" of Church, creating a truly international high-profile fashion group. The Prada deal is not in the crocodile-skin rucksack yet however, as rival groups such as Diego Della Valle may also decide to throw their Trilbys into the ring. Church shares have been on something of a surge lately, possibly due to takeover rumours. The performance of Church as a company seems pretty unremarkable for the sector, pre-tax profits have been static for the past couple of years and are likely to fall this year as conditions in the UK luxury goods and retail sector have tightened. The company exports around 60 per cent of its output, however, and linking up with a worldwide group like Prada would give the company even better access to lucrative luxury goods markets in North America and Asia. Other UK footwear manufacturers may also be the target of takeovers, although Church is a uniquely high-value brand.

The current doldrums in Asia won't have done the markets in luxury fashion items any good. Companies have generally seen a fall in profits, which may partly explain the current round of consolidation. LVMH sales fell by 5% from 1997 to 1998, with pre-tax profit falling by nearly 15%. If, as some predict, the Japanese economy recovers in the next couple of years, it is unlikely that Japanese women will have lost their love of Louis Vuitton handbags. Shopping tours to Paris and London were popular a few years ago and a sudden surge in luxury consumer goods spending by foreign tourists within the EU early next millennium cannot be ruled out.

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