September has been the month for Independence, this core freedom value making the front headline of the news.
Matched with a notion of “heritage” , Independence becomes emotionally charged; whilst small is charming, large becomes federal, impersonal and unappealing. Independence means autonomy, free from any unwanted paternalism, free to access eudaimonia (see Aristotle…).
From an ethical perspective, freedom of expression, freedom to decide one’s future financial strategy, freedom to determine one’s own image should be essential to any state, brand or industry, old or new.
Though it may seem irreverent to compare brands to states, financially, many corporations now outweigh countries. According to Time magazine of Sept 8th, Apple’s coffers stand at 158.8 billion dollars against the USA’s cash reserves of 47.6 billion. Microsoft’s 83.9 billion dwarves UK reserves of 42.5 billion and Ford, which is perceived as a failing industry, sits on a healthy 25.1 billion, twice the revenue of healthy Holland, (11.7). Let’s not mention Greece and many other countries around the Globe struggling to find solutions to debt, whilst China sits on an embarrassing cash pile of $3.44 trillion.
In this time of crisis, ethics feature more as many states and brands fight to find newly enlightened paths towards sustainable futures. Political crises rift the globe in streams of poverty, religious division and clamoring, whilst the poorest of earth’s population remain trapped in stagnant clusters, the rich are globally aware, hypermobile and well advised.
Whilst many councils found food banks to fight the growth in Britain’s increased numbers of poor, as many struggle to feed their families and clothe their children, here, on our doorstep, the schism between the two economic poles widens. The very rich converge in London and this year the number of billionaires here increased to 104, representing a combined wealth of more than £301 bn ($488 bn), i.e 104 people owning 10 times more than the cash worth of the United States… The Uk, thanks to its tax and financial system, now has more billionaires per head than any other country in the world. According to the forbes list, 85 individuals own the same wealth as half of the world’s population (wealth of 3.6 billion other people…), no wonder there is rising unrest.
As the world around becomes less secure, we continue to value individual, intimate, personal and beautiful things more. We cherish the world inside as opposed to the one outside our door, the little world we know, the one we make our own. We enjoy personality, heritage, independence, culture, family ties as opposed to federal partnership.
Independence thus, is perceived as beautiful, small and free. Federal seems full of compromise, humdrum and negotiations are tiresome.
This is where brands have a childish edge over countries. Where a brand can be admired for being brazen, courageous, outspoken and ahead of it’s time, countries need to be realistic, judicious and democratic in order to be strong. Is strength parallel to wealth? Maybe not: states must show togetherness, compassion, diversity, democracy and tenacity. Brands however, must show unity, individuality, personality and desirability to build acompetitive strategy.
Scotland, in coalition with England, is stronger and more composed as a state, forming a more educated, more judicious United Kingdom, offering its populace diverse opportunities, more choice, proven currency and precautious future.
Brands however seem more desirable as they grip on to their autonomy, personality and individuality.
At this moment, products that are unique, exclusive, rare, customised, well made and tasteful, emerge as more desirable than those mass marketed, produced in less considered ways.
The luxury industry has thus surged ahead of the stock market, outperforming all predictions and lifting the S&P Global index by 24% this year. Luxury, amusingly tongue in cheek, emerges as a solidly floating trend, revealing the continuous human weakness for desire, opulence and beauty.
So let’s look at where luxury sets its values, is it all decadence and hedonism, does this market have a conscience? Last week showed Independence was luxury’s core value, with a major triumph to the Dumas family in France. A 4 year battle for power was finally settled on 6th September, democratically by Paris’ tribunal de commerce. After a summer of tension between major rivals, LVMH and Hermes, a peace agreement was settled giving each side dignity, forcing them to see the sterile aspect of conflict.
43 yr old Axel Dumas named his clash with billionaire Bernard Arnault the “battle of our generation”, disputing financial control of the 177 year old company. In October 2010, LVMH used derivatives to swoop on 17% of Hermes’ shares, increasing Mr Arnault’s investment in the company to an important 23.2% stake. They were then fined in 2012 for being in breach of regulation with the AMF, for not declaring the 5, 10 and 15% thresholds, accused by Hermes of “insider trading, collusion and manipulating stock prices”. LVMH countersued for “defamation, slander and unfair competition”.
Known for it’s traditional leather goods, Hermes is the closest rival to Louis Vuitton, the flagship brand of Arnault’s luxury conglomerate. 15 years, ago Vuitton and Hermes were very similar brands, the discretion of their branding being the grain of their well chosen leather. Before Vuitton was for luggage, Hermes synonymous with saddlery. Post Marc Jacobs, Vuitton is now a logo-heavy, over accessorised, celebrity glitzed brand, mass commercialised through its now wide range of more accessible accessories.
Hermes, instead, has remained discreet and highly exclusive, retaining control of craftsmanship, limiting production to that of their exclusive, French factories. Hermes products are still stitched by hand, by highly skilled artisan makers.
Jean Louis Dumas, chairman of Hermes for 30 years, built the family company into a global brand, cultivating desirability of it’s exclusive, European products. Through cult window dressing of its flagship, rue st Honore store, the family expanded their strategy, cultivating cult status for products such as the “carre” and the desirable Kelly and Birkin bags, taking leather goods beyond saddlery. The desirability of the brand has remained in its tenacity, its loyalty to craftsmanship and quality in a time of great competition and the independence and unity shown by the business was founded in 1837, family owned for 6 generations. The company was floated on the market in 1990 and one could say that their outrage in the Arnault acquisition was rather old fashioned. However, the undercover equity swap was recognised as a stealthy move and LVMH fined Euro 8 million as a result.
As a consequence, Patrick Thomas, the only non-family CEO in Hermes history, handed the firm back under family control. Axel Dumas joined Hermes in 2003 after studying at Institut d’ Etudes Politiques de Paris and working for BNP Paribas. Family members jointly own 70% of Hermes and after Arnault’s financial assault, formed a protective holding company, H51, owning 50.2% of the capital to guard against future takeover.
The justice of the gracious ruling, gave triumph to the united Dumas family whilst allowing Mr Arnault to retain an 8.5% stake. LVMH was forced to liquidate, in a way that protected Hermes share value, distributing the stock amongst LVMH shareholders: each investor receiving 1 Hermes share for every 21 LVMH shares held andLVMH is not allowed to buy any of its smaller rival’s shares for the next 5 years. This irony has given Christian Dior the largest stake, Groupe Arnault 5%, acquiring shares at a stratospheric price of 238 Euros, realising an investment profit of 2.8 billion Euro, without destabilising Hermes the way a sudden volume sale would have done. So who can complain? LVMH bought the shares at a value of 106 Euro, after an initial drop of 9.3%, Hermes shares rose again to 253 Euro and LVMH shares have steadily grown to a happy 137 Euro. So did they all celebrate the deal with a glass of Dom Perignon, Arnault’s most profitable brand?
And why are Hermes’ small and beautiful shares worth so much more than their well informed, well funded rival, Vuitton? Their value lies within an unprecedented loyalty to the family house and a united belief in “small is beautiful”, and also manageable…
Hermes first quarter sales reached 943.5 million Euro, up 15% in a year, making Hermes’ value 3.8 billion Euro. The waiting list for their leather goods extended through a Birkin and Kelly bags sales leap of 21.7% driven by Japan and Asia, outpacing Hermes’ production capacity. Leather sales alone represent 409.9 million Euro from this one, small family firm.
LVMH, with its 60 luxury brands, represents 29.1 billion Euro..
The Dumas family unity has proved more powerful than Arnault’s gluttony. Arnault likes to ruthlessly intervene, aiming to maximise profit for the group and “ transform creativity into profitability”.
Family strategy is simple, less dispersed, they “Know” their products inside out and have a clearer vision of who they are. They know their suppliers personally, they know the feel of the grain, the handle of the silk carre. The impact of this deal has brought unprecedented interest to other family, luxury brands. Chanel, on the other side of place Madeleine, is experiencing a phenomenal boom in sales.
Production is supported by caring expansion of promoting the metiers d’art in Paris, buying up the dying houses of craftsmen who support the couture industry, the milliners, the feathermakers, embroiderers, colourists… In 2013, they celebrated 10 years of supporting the sophisticated metiers d’art in the most contrasting environment of Texas, Dallas.
Alain and Gerard Wertheimer, Chanel’s owners, whose family invested in Coco Chanel in 1923, have a background in perfumery and are now worth a combined $19.2 billion. Filing Chanel’s annual report with dutch Kamer and Koophandel to ensure the most discreet reporting, in 2011 the brand’s consolidated net revenue was $5.9 billion. Each brother owns 50% of the famous luxury brand, whose production is now backed by the growing Paraffection crafts conglomerate, made up of Desrues, Lemarie, Maison Michel, Lesage, Massaro, Montex, Barrie Knitwear, Causse, Goosens, Lanel, Guillet and the recently acquired leather maker, Bodin Joyeux. The metiers d’arts support is now grouped together in 30 000m2 in Pantin, just outside of Paris. With guaranteed leather production, Chanel SA grew in value by 25% and if they were to float on the market, their stock value assessed at $US 536 in 2011 is estimated $1836 US today. Last year Chanel’s sales gained $1.3 billion.
So whilst LVMH pushes on brashly, what are these two family brands doing so well more discreetly? Possibly, developing values, their own, convinced values.
As Aristotle discussed, happiness is in achieving eudaimonia, a flourishing of good genius.
Vanessa Friedmann of FT declared the trend of 2014 to be Values, if you are a luxury brand selling to hedonists, how can you even have any ethics some would say?
Well you can try to run your company well, ethically, respecting staff, clients, agents and suppliers in a flourishing way.
Firstly, your shareholders or owners benefit from the highest ethical value of all: Independence.
Autonomy and freedom to decide the strategy, the image, the budget of the company. Feeling they Know what the right thing is now and when and where, looking towards the future, intending to do the right thing. Planning and thinking, slowly or sometimes impulsively. Changing one’s corporate behaviour can be difficult if you are large, smaller firms change behaviour patterns more easily. Smaller firms are often more inspired, more edgy.
But Ethics are not on the edge, not trendy, they are deep rooted in the space between our two sides of the brain, based on each one’s in-built conscience, each one’s intrinsic worth and judgement, the balance between logic and creativity.
As a traditional brand, ethical expansion roots far deeper than organic sourcing and ILO employment standards. You have your own atelier and staff to care for, apprentices to train, modernity and traditional identity to uptain new ideasto harvest, stores to fill and the ongoing, unrelentless pressure of the catwalk.
Maintaining the balance between the two brains is where the value lies, creativity and judgement to give one judicious, inspired autonomy. Thus we inspire others and as we make desire, we make products and we make profit; but the real key to a sustainable future is to make a moral profit, a clean, truthful, conscientious profit, where maybe , in a distant future, we can learn to share more with others, not just the wealthy 85.
Jackie Andrews-Udall
Sept 2014