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Health, Beauty & Fashion

The lure of $mall brands

Christophe Lemaire : Small brands with prospects of becoming global names are ideal investments for big luxury groups, even if it will take a few years before they become profitable.
The Straits Times - March 25, 2013
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The lure of $mall brands

Christophe Lemaire has spent the past three years designing dresses for Hermes. Now he wants to develop his own brand and ride a wave of investor interest in new labels which have the potential to become global brands.

He is not alone.

Whether it is private financing or takeovers by major luxury groups such as LVMH, the latest trend in fashion is to find a promising niche label that has no history but plenty of imagination.

Fuelling the bull market for young designers is executives' conviction that demand for luxury goods is strengthening further in markets such as China and the United States, especially for the kind of fresh looks that only new blood can create.

"People are taking comfort in the luxury goods sector's track record and growth prospects, which are encouraging them even more to invest in young niche fashion brands," a Paris-based banker said, declining to be named.

Take Damir Doma, a 31-year-old Croatian-born designer who worked with Belgian designer Raf Simons, now at LVMH's Christian Dior. His brand's parent recently sold a 5 per cent stake to Mr Bernd Beetz, former chief executive of Coty, who is still on the board of the perfume and cosmetics maker.

The designer has also attracted the attention of another big name - Ms Concetta Lanciaux, former adviser to LVMH CEO Bernard Arnault, who built her reputation on her ability to spot talent and who sits on Damir Doma's board.

"I think designers are opening up their capital earlier now because they understand that it allows them to grow faster," Ms Lanciaux said, adding that Doma was for her a "modern Armani".

Lemaire, the women's ready-to-wear designer at Hermes who previously worked at Lacoste for a decade, is also hoping to find experienced partners for his own fashion brand, which targets sales of 2million euros (S$3.25 million) this year.

"We feel that there is money to invest in fashion and there has been a rise in interest in small brands," said Lemaire.


Retailers say appetite for niche labels has grown to the detriment of megabrands such as PPR's Gucci and LVMH's Louis Vuitton, which have seen their sales growth slow in recent quarters, even in vibrant markets such as China.

Competition for good designers is such that investments in fashion labels tend to be made at the early stage of a brand's development, aiming to lock in the talent and give the brand a strong start.

There are other factors at work.

Arnault's long and painful search for a replacement for disgraced designer John Galliano at his group's flagship Dior brand goaded many groups into widening their talent pool, experts say, as it showed how difficult it could be to find the right person for a brand.

Both LVMH and PPR have recently invested in young designers, with the former buying about 30per cent of the brand of 28-year-old Maxime Simoens last month. At the start of this year, PPR took a 51 per cent stake in seven-year-old British brand Christopher Kane, known for its original mixes of fabric.

PPR is also in talks to buy a stake in Italian jeweller Pomellato, famed for its coloured stacking rings.

Other promising brands in play include China-born French designer Yiqing Yin and British brand Erdem, known for its imaginative prints, who have both recently drawn interest from investors.

"At an early stage, what the investor is buying is the brand's growth potential and its notoriety, as it will take several years before it makes a profit as start-up costs are huge," a London-based investment banker said, adding that these costs usually ranged from 10 to 20 million euros.

Yet these are small sums compared with the billions of euros in profits made by big luxury groups such as PPR and LVMH.

Big groups have also started building closer contacts with fashion schools. Last year, LVMH created a scholarship at the Central Saint Martins College of Arts and Design in London, while PPR launched a contest with Parsons The New School for Design in New York with winners getting internships at Alexander McQueen or Gucci.

So far, there seems little reason to think the latest investment upsurge has run its course.

The global luxury goods sector has shown tenacious growth in defiance of economic shocks. After growing 10 per cent last year, global sales are set to expand by between 7 and 8 per cent this year, according to analysts' forecasts.

"There is a desire to invest in risk," said Mr Didier Grumbach, president of the French Fashion Federation. "That did not exist five years ago."


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