How Finance is controls
It’s the year 2016. The luxury industry has now existed in its current form for nearly 100 years. Now finance controls it most of it. Fast Fashion and premium brands have risen to challenge the major houses in a war for their customers. But who controls and guides all the important decisions behind the scenes? Is it usually the designer who founded the brand? Is it the assigned creative director? Or maybe somebody else entirely?
Investors -The True Masters (of Coin)
Brands usually start out with a creative visionary who then surrounds himself with a team, raises some start-up capital and produces and sells his first collection. But what happens at the stage when the brand has exhausted the initial funds, made some sales and now wants to grow further? Well, some brands go the route of natural growth, only expanding as much as they can collect in extra profits. But some brands want a quicker more explosive expansion once their business creates enough initial success and buzz for investors to become interested. This is where international venture capital groups come into play.
They can be just a collective of private investors, pooling capital into funds to diversify their risk and hopefully collect high returns by investing in the right businesses. Another common case is a publicly traded fund that specializes in certain industries (fashion & luxury). These public investment funds can be partially owned by certain individuals (often rich and powerful families) or be completely public.
These groups will often invest in upcoming brands, sometimes even acquiring a majority stake and taking full control of the creative and administrative sides of the business (which often can turn out to be a Faustian bargain). But who are the major players when it comes to luxury and fashion investment in the world right now?
The “Who is Who” and “Who owns What” in the world of fashion & luxury investment
The truth is that a small group of investment groups owns a major share of all the fashion and luxury brands in the world (and who would have guessed, theses investment groups are mostly French and Italian. The following mind map shows you the complex network of ownership and shares in these industries (click on it to view it in full size). You can google each of these investor names, and if they are publicly traded, look up all the detailed information about their operations in what is called an “annual report”. For Luxury it is important to remember 4 names amongst all others:
What does this mean for professionals and consumers?
As a professional who wants to work in or with these industries, this means that very few people in high positions decide about the corporate culture and the values of a very large amount of brands. Salaries, career paths, promotions, creative direction…all in the hand of a select few. As a consumer, it can mean that a lot of the individuality, the sourcing or creative direction is in reality not in the hand of your favourite designer, but at the mercy of a powerful board of investors. Economics can tell us what oligopoly sturctures usually do to working conditions and consumer value in a market…
Where will this trend lead in the future?
There are only a few brands and groups left which are still owned by private individuals or families (big examples would be ARMANI and HERMES). Recent changes in the creative direction of several brands have shown that if the sales or contract conditions are not in the favour of these groups, they are quick to replace well loved creative talent and shuffle the top management of a brand like a deck of cards, if necessary. At the end of the day, things like tradition, heritage, creativity can take a backseat when the main responsibility becomes shareholder value and ROIs at the end of the day. Don’t get me wrong, investment can be a great way for a fledgling brand or new designer to make a name for himself, but it can also easily and quickly destroy the DNA of a brand and turn it into something else. Each entrepreneur should be very careful when negotiating and dealing with rooms full of serious men in navy blue and dark suits if he wants to stay in control of his creation in the long run.