Why the Licensing of Luxury Brands Can Pose a Risk

Why the Licensing of Luxury Brands Can Pose a Risk

I’ve posted blogs about retail and fashion brands moving into branded restaurants and food, seemingly unrelated to their apparel and accessory businesses.  Brand stretching — going well beyond core products entails risk if not carefully executed. High end fashion and luxury brands may be more vulnerable to dilution since their core customer takes pride in knowing that his or her purchases will not be over-distributed in the marketplace. Pierre Cardin, a former assistant to Christian Dior in the 1950’s, saw Dior’s success with licensing. (Dior was the first designer to incorporate licensing as an expansion strategy.) Cardin started his own couture fashion business in 1959 and licensed his name to create a mass produced apparel line.  His strategy led to a proliferation of licensed products from men’s shirts to cigarettes  generating millions of dollars in royalty income. The designer’s private net worth was estimated at $1.5 billion in 2011. But Cardin’s freewheeling expansion backfired and today Cardin’s products can be found at Sears, itself a dying retailer.

Venerable luxury houses Louis Vuitton and Hermes do not license their brands. Chanel partners with Luxottica for licensed eye wear and it is the brand’s only outside program. Luxury expert Jean Noel Kapferer, author and academic, argues that to remain rare, luxury brands must not license and cede control to outside partners.

However, Bulgari, an Italian jeweler and division of LMVH, the French luxury conglomerate, has added watches, fragrance, and handbags. In 2004, Bulgari opened a hotel in Milan, followed by sites in London and Bali. Three more locations are planned in China and Dubai. As CEO of Bulgari, Jean-Christophe Babin told the BBC, a stay at a Bulgari hotel is the “ultimate luxury experience.” In a similar vein, Giorgio Armani has developed high end residential apartments under the Armani Casa brand with complexes in Beijing, Mumbai, and the Philippines.

Select brands attempting to emulate Bulgari or Louis Vuitton have fumbled. Take Ferrari, recently spun off from Fiat/Chrysler as a publicly traded company last October. The company’s effort to expand into high end attire and accessories has not met with success. The stock is trading at 20% less than the public offer and financial analysts are not impressed. Thomas Besson, an analyst at Kepler Cheuvreux was quoted in The Detroit News based on an April 8th note. “Ferrari’s current retail product line is very far away from the business of LVMH, Hermes and Richemont.” 

There are other challenges for luxury brands. With global currency and stock market fluctuations, plus recent terrorist attacks in France and Brussels, the steady stream of Chinese tourists traveling to Europe has slowed. According to Bain and Company’s 2015 Worldwide Luxury Market Study, Chinese make up one third of luxury customers. They are critical to the health of luxury brands–along with the discipline of a luxury brand’s management team to say “no” to opportunistic and ill-fitting product extensions.

BBC news link: http://bbc.in/1LDNrFX.