Financial Times - Bulletproof Marketing
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FINANCIAL TIMES MONDAY JUNE 5 2006 ★ 5 SPECIAL REPORT BUSINESS OF LUXURY BAIN RESEARCH How more can be better Darrell Rigby, Cyrus Jilla, Claudia D’Arpizio and Marc-André Kamel explain their analysis and what it means for the market In theory, multibrand luxury goods groups should be outper- forming solo brands. That is the way it works for consumer goods powerhouses such as Procter & Gamble or L’Oréal. But the usual benefits of being big – leverage with suppliers, shared marketing and adminis- trative expenses, and high vol- ume, strategic customers – just don’t seem to apply for most multibrand luxury players. Remove the effects of acquisi- tions, and the top seven mono- brand houses grew faster from 1994 to 2004 than the top seven multibrand luxury companies. Nor are multibrand groups gen- erating higher profitability as one would expect with companies of their size. When we compared available data on luxury compa- nies, the profitability of mono- brands and multibrands was vir- tually equal, though multibrands had pulled slightly ahead in 2004. It seems that nearly two dec- ades of acquisitions by groups such as LVMH and Richemont have not been enough to turn scale potential into performance reality. Yet making multibrands work is fundamental to the long- term strategy of industry leaders. As François-Henri Pinault, chief executive of France’s retailing giant PPR (which owns the Gucci Group), told Time magazine last year: “The best guarantee to ensure the brand Gucci never goes mass is to have this multi- brand strategy. It’s the only way to develop a luxury goods group over 10, 15 or 20 years.” Can big be better? It can, but clearly success for multibrand groups requires a new approach, the elements of which are start- ing to emerge at some of the lux- ury leaders. Bain & Company’s research and interviews with senior luxury executives have identified three specific opportu- nities, and they are not the usual fare in going to scale. They relate to how a luxury group can invest differentially in its brands, mentor and share cre- ative and managerial talent, and pool consumer insights across brands to make the most of pur- chasing tastes and occasions for increasingly diverse segments of shoppers. ■Investments: Some experts cite the diversification advantages of multibrands, but with publicly held multibrands, shareholders could achieve the same results by owning a handful of their own luxury stocks. Other experts talk about portfolio restructurings, which clearly hold opportunity but also present risks. According to Bain’s analysis of the top multibrand groups over the 10-year period from 1994 to 2004, brand bloat has been a lead- ing cause of underperformance. Some multibrand companies have begun to address this. LVMH divested Christian Lac- roix. Prada sold Jil Sander to a private equity firm. More and more executives now ask them- selves Peter Drucker’s famous question: “If you weren’t already in this business, would you enter it?” Ultimately, however, invest- ment strategies must go beyond acquiring and selling brands. They should involve determining the part each brand plays in strengthening the entire group. These roles include acting as a growth generator, profit pro- ducer, creative playground for rising stars or training ground for merchandisers. More impor- tant, multiple brands can help pinpoint and serve different con- sumer segments, as well as dis- cover and meet the needs of lux- ury consumers for varying occa- sions, styles and desires. Like the consumer products giants, lux- ury groups can carefully segment their brands so that they comple- ment one another and even become a barrier to competition. ■Talent: While traditional sup- ply chain, sales and administra- tive synergies appear to elude many luxury groups, the truth is that synergies in luxury are not so much about costs. Rather, they are about talent – creating the next generation of manage- rial leadership and creativity. Creative people – designers, prod- uct developers and marketers, found in abundance in multi- brand luxury companies, can inspire greater creativity – even competition – among each other. Indeed, multibrands can develop a kind of training and proving ground for such talent within lesser brands, where newer designers and artisans can be mentored by creative masters. After all, Ralph Lauren devel- oped his discriminating eye while first working at Brooks Brothers. After earning their stripes, high-potential candidates can gradually move up to ever larger brands. This kind of leadership development works equally well for nascent talent that actually runs the business – talent in mer- chandising, retail operations, real estate, supply chain and, indeed, general management. These are the functions in which large lux- ury groups can innovate and test new business solutions and roll the ones that work out across multiple brands. ■Consumer insights: Finally, multibrand groups are in a unique position to collect pene- trating consumer data in multi- ple local markets and channels, analyse it centrally, and apply insights across more than one brand, location or channel – not just across product lines or dif- ferent regions. This knowledge becomes an advantage in product development, distribution and marketing. As one luxury execu- tive said: “We need to evolve from a time when a few hundred consumers, all individually known by the store manager, accounted for 80 per cent of a given store’s sales, to a time when we have hundreds of thou- sands of consumers worldwide, with 50 per cent of them buying only occasionally from us.” The key is using consumer insights to “localise” offerings, customising the types of stores, products, pricing, marketing and even customer service for local markets. We analysed the per- formance and operations of 30 localisation leaders, and found three factors they typically use to obtain the right balance. These leaders tend to understand which elements of a business should be considered for localisation, how costly they are to customise, and how much impact they’ll have from store to store. Combining sophisticated data analysis with innovative organisational struc- tures, the leaders are preserving the efficiencies of centralisation while increasing responsiveness to local needs. Most localisation decisions still need to be co-ordinated centrally by managers with a broad view. But that doesn’t mean local man- agers become robots. They play a critical role in picking up signals computer systems can’t see, test- ing innovative solutions to local challenges and forging strong bonds with their communities – an area where luxury goods mak- ers have long been strong. Every successful brand will eventually face maturity and a difficult decision about growth. Should a luxury leader risk overextending and diluting its brand, or should it leverage the power of its capabilities to con- tinuously add new brands? Multi- brand strategies hold enormous potential, but that potential will not be realised until luxury con- glomerates learn to make the most of their advantages in investment, talent, and consumer insights, and apply them all appropriately across brands and formats. Darrell Rigby is a partner with Bain & Company in Boston, and directs the firm’s Global Retail Practice. Cyrus Jilla, a partner in London, directs Bain’s European Consumer Products Practice. Claudia D’Arpizio, a partner in Rome, is a luxury expert in con- sumer products and retail, and Marc-André Kamel, a partner in Paris, directs the firm’s European Retail Practice. THE DETAILS ■Compound Annual Growth of Top 7 Monobrands vs. Multibrands, 1994-2004 Monobrand groups: +9.0% Multibrand groups: +5.6% (based on pro-forma retail sales value excluding acquisitions. Monobrand data include Ralph Lauren, Calvin Klein, Rolex, Chanel, Lancôme, Armani, and Burberry; multibrand data include LVMH, Richemont, Estée Lauder, Gucci Group, The Valentino Fashion Group, The Swatch Group, and Hermès) ■Profitability (%) 2000 2001 2002 2003 2004 Mono 20.9 20.6 21.3 21.2 18.7 Multi 21.6 20.2 20.0 19.6 21.5 (based on EBITDA/sales ratio. Monobrand data include Ralph Lauren, Tiffany, Armani, Burberry and Bulgari. Multibrand data include LVMH, Estée Lauder, Richemont, Gucci Group, Swatch Group, Hermès, and The Tod’s Group) Source: Bain & Company BULLET-PROOF MARKETING Selling chic with safety Andy Webb-Vidal looks at the unusual market for fine tailoring, Colombian-style Are you worried, as a high- profile VIP, that you may be assassinated but you can’t bear the thought of going around like a Michelin man wearing layers of armour plating over your finely-tai- lored suit? Colombian entrepreneur Miguel Caballero may be able to bridge the gap between your security con- cerns and your wardrobe requirements. From a small factory in the centre of Bogotá, Colombia’s capital, Mr Caballero produces a range of finely-tailored blaz- ers, raincoats, stylish shirts, casual denim jackets – and even protective underwear – resistant to a spray of bullets from an Uzi sub-machine gun or a forceful lunge by a knife-wielding attacker. So successful has his prod- uct become that he is dubbed the “Armani of bullet-proof clothing” by a lengthening list of powerful, rich and famous clients. Among regular wearers today of Mr Caballero’s items of bullet-proof apparel are Brazil’s president Luiz Inácio Lula da Silva, Vene- zuela’s president Hugo Chávez, Colombian president Alvaro Uribe, the presidents of El Salvador and the Dominican Republic, all the candidates ahead of Mexico’s upcoming presidential elec- tions, and Spain’s Crown Prince Felipe, heir to the Spanish throne. Until recently, Colombia held the unenviable title of being the world’s kidnap and murder capital – an environ- ment that proved both to be ripe for an entrepreneur such as Mr Caballero and a feature that has helped him as a marketing tool. “We’ve benefited from the perception that if it works in Colombia, it must work any- where else in the world,” says Mr Caballero. “We’ve taken advantage in the sense that we’re demonstrating that it’s a quality product. If we’re protecting one of the most threatened presidents in the world, that’s a sign of quality.” Colombia’s president Alvaro Uribe, who was re- elected last week and has escaped more than a dozen assassination attempts dur- ing his career, counts a styl- ish white bullet-proof guaya- bera shirt made by Mr Caballero as one of his pro- tective items of clothing. Mr Caballero started his company with $10 borrowed from his mother in 1992, while at university, after he identified a niche in a mar- ket because security person- nel were avoiding wearing traditional but uncomforta- ble flack-jackets. “The idea was born when I saw a fellow student at uni- versity who had bodyguards but they kept their bullet- proof vests in the car because they were too heavy,” he says. “So it was then that I decided to start making the jackets.” Mr Caballero’s factory is today staffed by a team of experienced top designers and cutters, and the com- pany manufacturers its tai- lor-made items from the type of fine cloth you would expect to find on London’s Saville Row alongside a super-strong, hybrid mate- rial capable of absorbing the energy of speeding bullet. Four separate lines of clothing are produced. At one end, the Classic line includes traditional items for military tactical units, such as members of the Colom- bian military and police, and private sector security teams. But it is the top-end Plati- num range, tailored for heads of state, monarchs, ministers and top execu- tives, that has given Mr Caballero his reputation. The company says it now produces an average of six samples per week. Often of a VIP’s favourite item of cloth- ing is reproduced with bul- let-proof qualities. The price tag on the prod- ucts ranges from $300 to $3,000 each, depending on the size and the intricacy of the tailoring. With a firearm, Mr Caballero himself tests every single item of protec- tive clothing that is manu- factured. The Bogotá factory has a small shooting gallery where he can shoot at an item – with someone inside – at point blank range. Even as security improves in Colombia – the number of kidnappings, according to the defence ministry, fell from 2,477 in 1999 to 376 last year, a decline of more than 80 per cent – it is the coun- try’s lingering reputation that has allowed Mr Cabal- lero to expand abroad. Mr Caballero is cagey about disclosing figures but he says that exports grew by almost 700 per cent between 2003 and 2004, and they now account for 80 per cent of total sales. And they con- tinue expanding. This month] the company expects to open in Mexico City its first boutique selling fash- ionable bullet-proof clothing, and it already plans to open a second boutique later this year, in Caracas. While secu- rity has improved in Colom- bia, the kidnapping and homicide rates have risen sharply in Mexico and Vene- zuela. Beyond Latin America, the company now also has repre- sentatives selling high-secu- rity fashion in the US, in Europe and in Asia. Such is the attractiveness of the product, that it is no longer the exclusive domain of burly male bodyguards and powerful men, but also the high-powered female execu- tive at risk and in search of high-security fashion. “The line of products for women is taking on ever greater importance,” Mr Caballero says. “Beforehand it would account for barely 1 per cent of exports. Femi- nine high-security apparel now makes up 30 per cent of total exports.” ‘The line of products for women is taking on ever greater importance’ Prada Broadway, in New York: Prada sold Jil Sander to a private equity firm ‘If you weren’t already in this business, would you enter it?’ Making an impact: Miguel Caballero puts a new meaning on the phrase ‘firing an employee’ AFP
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Selling chic with safety. The line of products for women is taking on ever greater importance.
Transcript of Financial Times - Bulletproof Marketing
FINANCIAL TIMES MONDAY JUNE 5 2006 ★ 5
S P E C I A L R E P O RT BU S I N E S S O F L U X U RY
BAIN RESEARCH
How more can be betterDarrell Rigby, Cyrus Jilla, Claudia D’Arpizio andMarc-André Kamel explain their analysis and whatit means for the market
In theory, multibrand luxurygoods groups should be outper-forming solo brands. That is theway it works for consumer goodspowerhouses such as Procter &Gamble or L’Oréal.
But the usual benefits of beingbig – leverage with suppliers,shared marketing and adminis-trative expenses, and high vol-ume, strategic customers – justdon’t seem to apply for mostmultibrand luxury players.
Remove the effects of acquisi-tions, and the top seven mono-brand houses grew faster from1994 to 2004 than the top sevenmultibrand luxury companies.Nor are multibrand groups gen-erating higher profitability asone would expect with companiesof their size. When we comparedavailable data on luxury compa-nies, the profitability of mono-brands and multibrands was vir-tually equal, though multibrandshad pulled slightly ahead in 2004.
It seems that nearly two dec-ades of acquisitions by groupssuch as LVMH and Richemonthave not been enough to turnscale potential into performancereality. Yet making multibrandswork is fundamental to the long-term strategy of industry leaders.As François-Henri Pinault, chiefexecutive of France’s retailinggiant PPR (which owns the GucciGroup), told Time magazine lastyear: “The best guarantee toensure the brand Gucci nevergoes mass is to have this multi-brand strategy. It’s the only wayto develop a luxury goods groupover 10, 15 or 20 years.”
Can big be better? It can, butclearly success for multibrandgroups requires a new approach,the elements of which are start-ing to emerge at some of the lux-ury leaders. Bain & Company’sresearch and interviews withsenior luxury executives haveidentified three specific opportu-nities, and they are not the usualfare in going to scale.
They relate to how a luxurygroup can invest differentially inits brands, mentor and share cre-ative and managerial talent, andpool consumer insights acrossbrands to make the most of pur-chasing tastes and occasions for
increasingly diverse segments ofshoppers.■Investments: Some experts citethe diversification advantages ofmultibrands, but with publiclyheld multibrands, shareholderscould achieve the same resultsby owning a handful of their ownluxury stocks. Other experts talkabout portfolio restructurings,which clearly hold opportunitybut also present risks.
According to Bain’s analysis ofthe top multibrand groups overthe 10-year period from 1994 to2004, brand bloat has been a lead-ing cause of underperformance.Some multibrand companieshave begun to address this.LVMH divested Christian Lac-roix. Prada sold Jil Sander to aprivate equity firm. More andmore executives now ask them-selves Peter Drucker’s famousquestion: “If you weren’t alreadyin this business, would you enterit?”
Ultimately, however, invest-ment strategies must go beyondacquiring and selling brands.They should involve determiningthe part each brand plays instrengthening the entire group.These roles include acting as agrowth generator, profit pro-ducer, creative playground forrising stars or training groundfor merchandisers. More impor-tant, multiple brands can help
pinpoint and serve different con-sumer segments, as well as dis-cover and meet the needs of lux-ury consumers for varying occa-sions, styles and desires. Like theconsumer products giants, lux-ury groups can carefully segmenttheir brands so that they comple-ment one another and evenbecome a barrier to competition.■Talent: While traditional sup-ply chain, sales and administra-tive synergies appear to eludemany luxury groups, the truth is
that synergies in luxury are notso much about costs. Rather,they are about talent – creatingthe next generation of manage-rial leadership and creativity.Creative people – designers, prod-uct developers and marketers,found in abundance in multi-brand luxury companies, caninspire greater creativity – evencompetition – among each other.Indeed, multibrands can developa kind of training and provingground for such talent within
lesser brands, where newerdesigners and artisans can bementored by creative masters.After all, Ralph Lauren devel-oped his discriminating eye whilefirst working at Brooks Brothers.
After earning their stripes,high-potential candidates cangradually move up to ever largerbrands. This kind of leadershipdevelopment works equally wellfor nascent talent that actuallyruns the business – talent in mer-chandising, retail operations, real
estate, supply chain and, indeed,general management. These arethe functions in which large lux-ury groups can innovate and testnew business solutions and rollthe ones that work out acrossmultiple brands.■Consumer insights: Finally,multibrand groups are in aunique position to collect pene-trating consumer data in multi-ple local markets and channels,analyse it centrally, and applyinsights across more than one
brand, location or channel – notjust across product lines or dif-ferent regions. This knowledgebecomes an advantage in productdevelopment, distribution andmarketing. As one luxury execu-tive said: “We need to evolvefrom a time when a few hundredconsumers, all individuallyknown by the store manager,accounted for 80 per cent of agiven store’s sales, to a timewhen we have hundreds of thou-sands of consumers worldwide,with 50 per cent of them buyingonly occasionally from us.”
The key is using consumerinsights to “localise” offerings,customising the types of stores,products, pricing, marketing andeven customer service for localmarkets. We analysed the per-formance and operations of 30localisation leaders, and foundthree factors they typically use toobtain the right balance. Theseleaders tend to understand whichelements of a business should beconsidered for localisation, howcostly they are to customise, andhow much impact they’ll havefrom store to store. Combiningsophisticated data analysis withinnovative organisational struc-tures, the leaders are preservingthe efficiencies of centralisationwhile increasing responsivenessto local needs.
Most localisation decisions stillneed to be co-ordinated centrally
by managers with a broad view.But that doesn’t mean local man-agers become robots. They play acritical role in picking up signalscomputer systems can’t see, test-ing innovative solutions to localchallenges and forging strongbonds with their communities –an area where luxury goods mak-ers have long been strong.
Every successful brand willeventually face maturity and adifficult decision about growth.
Should a luxury leader riskoverextending and diluting itsbrand, or should it leverage thepower of its capabilities to con-tinuously add new brands? Multi-brand strategies hold enormouspotential, but that potential willnot be realised until luxury con-glomerates learn to make themost of their advantages ininvestment, talent, and consumerinsights, and apply them allappropriately across brands andformats.
Darrell Rigby is a partner withBain & Company in Boston, anddirects the firm’s Global RetailPractice. Cyrus Jilla, a partner inLondon, directs Bain’s EuropeanConsumer Products Practice.Claudia D’Arpizio, a partner inRome, is a luxury expert in con-sumer products and retail, andMarc-André Kamel, a partner inParis, directs the firm’s EuropeanRetail Practice.
THE DETAILS■Compound Annual Growth of Top 7 Monobrands vs. Multibrands,
1994-2004Monobrand groups: +9.0%Multibrand groups: +5.6%
(based on pro-forma retail sales value excluding acquisitions. Monobranddata include Ralph Lauren, Calvin Klein, Rolex, Chanel, Lancôme, Armani,and Burberry; multibrand data include LVMH, Richemont, Estée Lauder,Gucci Group, The Valentino Fashion Group, The Swatch Group, andHermès)
■Profitability (%)
2000 2001 2002 2003 2004
Mono 20.9 20.6 21.3 21.2 18.7
Multi 21.6 20.2 20.0 19.6 21.5
(based on EBITDA/sales ratio. Monobrand data include Ralph Lauren,Tiffany, Armani, Burberry and Bulgari. Multibrand data include LVMH, EstéeLauder, Richemont, Gucci Group, Swatch Group, Hermès, and The Tod’sGroup)Source: Bain & Company
BULLET-PROOF MARKETING
Selling chic with safetyAndy Webb-Vidal looks at the unusual market for fine tailoring, Colombian-style
Are you worried, as a high-profile VIP, that you may beassassinated but you can’tbear the thought of goingaround like a Michelin manwearing layers of armourplating over your finely-tai-lored suit?
Colombian entrepreneurMiguel Caballero may beable to bridge the gapbetween your security con-cerns and your wardroberequirements. From a smallfactory in the centre ofBogotá, Colombia’s capital,Mr Caballero produces arange of finely-tailored blaz-ers, raincoats, stylish shirts,casual denim jackets – andeven protective underwear –resistant to a spray of bulletsfrom an Uzi sub-machinegun or a forceful lunge by aknife-wielding attacker.
So successful has his prod-uct become that he is dubbedthe “Armani of bullet-proofclothing” by a lengtheninglist of powerful, rich andfamous clients.
Among regular wearerstoday of Mr Caballero’sitems of bullet-proof apparelare Brazil’s president LuizInácio Lula da Silva, Vene-zuela’s president HugoChávez, Colombian presidentAlvaro Uribe, the presidentsof El Salvador and theDominican Republic, all thecandidates ahead of Mexico’supcoming presidential elec-tions, and Spain’s CrownPrince Felipe, heir to theSpanish throne.
Until recently, Colombiaheld the unenviable title ofbeing the world’s kidnap andmurder capital – an environ-ment that proved both to beripe for an entrepreneursuch as Mr Caballero and afeature that has helped himas a marketing tool.
“We’ve benefited from theperception that if it works inColombia, it must work any-where else in the world,”says Mr Caballero. “We’vetaken advantage in the sensethat we’re demonstratingthat it’s a quality product. Ifwe’re protecting one of themost threatened presidentsin the world, that’s a sign ofquality.”
Colombia’s presidentAlvaro Uribe, who was re-elected last week and hasescaped more than a dozenassassination attempts dur-ing his career, counts a styl-ish white bullet-proof guaya-
bera shirt made by MrCaballero as one of his pro-tective items of clothing.
Mr Caballero started hiscompany with $10 borrowedfrom his mother in 1992,while at university, after heidentified a niche in a mar-ket because security person-nel were avoiding wearingtraditional but uncomforta-ble flack-jackets.
“The idea was born when Isaw a fellow student at uni-versity who had bodyguardsbut they kept their bullet-
proof vests in the carbecause they were tooheavy,” he says.
“So it was then that Idecided to start making thejackets.”
Mr Caballero’s factory istoday staffed by a team ofexperienced top designersand cutters, and the com-pany manufacturers its tai-lor-made items from thetype of fine cloth you wouldexpect to find on London’sSaville Row alongside asuper-strong, hybrid mate-
rial capable of absorbing theenergy of speeding bullet.
Four separate lines ofclothing are produced. Atone end, the Classic lineincludes traditional items formilitary tactical units, suchas members of the Colom-bian military and police, andprivate sector securityteams.
But it is the top-end Plati-num range, tailored forheads of state, monarchs,ministers and top execu-tives, that has given MrCaballero his reputation.The company says it nowproduces an average of sixsamples per week. Often of aVIP’s favourite item of cloth-ing is reproduced with bul-let-proof qualities.
The price tag on the prod-ucts ranges from $300 to$3,000 each, depending onthe size and the intricacy ofthe tailoring. With a firearm,Mr Caballero himself testsevery single item of protec-tive clothing that is manu-factured. The Bogotá factoryhas a small shooting gallerywhere he can shoot at anitem – with someone inside –at point blank range.
Even as security improvesin Colombia – the number ofkidnappings, according tothe defence ministry, fellfrom 2,477 in 1999 to 376 lastyear, a decline of more than80 per cent – it is the coun-try’s lingering reputation
that has allowed Mr Cabal-lero to expand abroad.
Mr Caballero is cageyabout disclosing figures buthe says that exports grew byalmost 700 per cent between2003 and 2004, and they nowaccount for 80 per cent oftotal sales. And they con-tinue expanding. Thismonth] the company expectsto open in Mexico City itsfirst boutique selling fash-ionable bullet-proof clothing,and it already plans to opena second boutique later thisyear, in Caracas. While secu-rity has improved in Colom-bia, the kidnapping andhomicide rates have risensharply in Mexico and Vene-zuela.
Beyond Latin America, thecompany now also has repre-sentatives selling high-secu-rity fashion in the US, inEurope and in Asia. Such isthe attractiveness of theproduct, that it is no longerthe exclusive domain ofburly male bodyguards andpowerful men, but also thehigh-powered female execu-tive at risk and in search ofhigh-security fashion.
“The line of products forwomen is taking on evergreater importance,” MrCaballero says. “Beforehandit would account for barely 1per cent of exports. Femi-nine high-security apparelnow makes up 30 per cent oftotal exports.”
‘The line of productsfor women is takingon ever greaterimportance’
Prada Broadway, in New York: Prada sold Jil Sander to a private equity firm
‘If you weren’t already inthis business, would youenter it?’
Making an impact: Miguel Caballero puts a new meaning on the phrase ‘firing an employee’ AFP
JUNE 5 2006 Section:Reports Time: 1/6/2006 - 15:57 User: bricem Page Name: LUX5, Part,Page,Edition: LUX-01, 5, 1
