Fashion name game holds promise for gamblers

MILAN, June 14: What's in a name? A buying opportunity, some might say, if the name belongs to a famous designer nearing bankruptcy.

Multibrand houses such as the Gucci Group and bags-to-champagne giant LVMH have bought label after label on the basis that a strong name plus clever management and a good design team equals rocketing sales.

These houses stand apart from brands such as Armani and Versace, luxury houses built around one designer's vision and lifestyle. With some research predicting a surge in spending on luxury goods over the next four years, the debate about which strategy pulls more profit is heating up.

''Is the brand more important than the designer? Yes. It's about the brand,'' said Gucci's Chief Executive Robert Polet in a recent Reuters interview in London.

''If you look at Gucci, it is 85 years old this year, but it is still young, relevant and contemporary to today's consumers ... Is it only one designer that has done this over 85 years? No, there are many people that contribute over the life of a brand to making sure that it stays contemporary,'' he added.

Once their core market is saturated, fashion brands looking for growth essentially have two choices: either they launch secondary lines, using their name and skills to sell cheaper clothes to more customers, or they buy other labels.

The multibrand strategy took off in the 1990s, when fashion houses were giddy with booming profits, but was challenged when the luxury sector went through a crisis after the September 11 attacks and the SARS epidemic.

Groups like French retailer PPR, which owns Gucci and its stable of brands including Balenciaga, Yves Saint Laurent, Stella McCartney, Alexander McQueen and others, still defend it.

''To grow in luxury, the multibrand strategy is the only one that works in our view, because of the differing degrees of maturity between one brand and another. You need to have relays for growth,'' PPR Chairman and CEO Francois-Henri Pinault told a French magazine in March.

On the other hand, designers with a strong personality, photogenic features and extravagant lifestyles can attract a particularly loyal following by living the dream they sell.

SELL WITH A SMILE

Take Giorgio Armani, for example.

At a charity dinner in Milan, deep decolletes, sparkling jewels and sweeping ballgowns vied for attention as the city's elite showed off their style.

But nothing could compete with the short, white-haired man who, within minutes of entering the room, was surrounded by dozens of diners hoping to get at least a smile.

Armani did not disappoint: he smiled, he kissed, he posed for photos, and by the end of the evening, the diners -- potential customers for his luxury label -- could imagine they had shared the style and exclusivity his brand stands for.

''You tend to find there's one star brand that drives the (multibrand) business,'' said Robert Triefus, head of communications at Armani. ''Armani took a different approach, taking the business and diversifying it under the master brand.'' Armani has expanded downwards into cheaper labels such as Armani Jeans and Armani Exchange, upwards into super-luxury haute couture business Armani Prive and sideways into hotels, yacht interiors and furniture.

Fashionistas bemoan a lack of new ideas and say there isn't much difference between vintage Armani and new collections.

But with a 10 per cent rise in core profit to 263 million euros (0.9 million) in 2005, Armani may be happy to have gained in mass appeal what he lost in cutting-edge credibility.

FASHION AND FUNDS

Sales of luxury goods rose two per cent annually from 2001 to 2005, but that growth rate is expected to jump to 6 per cent yearly through the end of this decade, consulting firm Bain&Co. said in a report this month.

Firms that focus on a single brand were more likely to benefit than companies that oversee a stable of brands, it said.

The report said single-brand companies benefit from focused customer research and centralised headquarters, while larger companies can suffer from ''brand bloat'' with too many name brands diluting attention and marketing dollars.

Prada recently sold both Helmut Lang and Jil Sander, two brands that pulled the entire group into the red amid spectacular rows between their eponymous designers and management. Both designers quit as a result.

British private equity fund Change Capital bought Jil Sander in February and expects it to return to a core profit this year.

Change Capital is also considering adding more luxury brands to its portfolio -- Jil Sander is its first high-end label.

The acquisition may signal a new trend: funds rather than big luxury houses buying designer names, without the designer.

One German fund manager believes private equity funds that are experienced in the art of the turnaround can strike gold in the fashion sector, crammed with unprofitable brands.

''It's tricky but it's much cheaper to buy an existing brand than to build up a new one. It's fashion out of a test-tube,'' said the fund manager, who preferred not to be named.

''And then you have to get the designer to share your financial risk, so the two of you sit in the same boat, for example by paying him a share of profits. All brands that are currently unsuccessful are suitable for that kind of treatment.''

Reuters