By guest author Vikram Alexei Kansara from Business of Fashion
LVMH’s decision to pull the plug on the Fenty fashion label it launched with Rihanna only two years ago underscored just how elusive start-up success has been for Europe’s big luxury groups.
This week, LVMH announced the closure of the Fenty fashion label it developed with pop star Rihanna less than two years after its launch, opting to “fail fast” as sales momentum fell short of expectation. Going forward, their partnership will focus on the elements of the “Fenty ecosystem” that are working: Fenty Beauty and Rihanna’s Savage X Fenty lingerie line, in which LVMH-backed private equity firm L Catterton recently led a USD 115 million investment round.
At the core of the failure was a misalignment between Rihanna’s fan base and Fenty’s high prices. Poorly executed product only deepened the problem. But while Fenty’s woes were rooted in specific missteps, some insiders cited the ghost of Christian Lacroix — the only other brand LVMH has started from scratch, which was loss-making for nearly two decades before it was ultimately sold off and stripped down — as evidence that the group has never been good at building new labels.
The issue is by no means unique to LVMH, however. Archrival Kering failed to grow the Christopher Kane brand, which it sold back to the designer in 2018 after a five-year partnership. Meanwhile, the group’s investment in Altuzarra, sealed the same year as the Kane deal, has yet to deliver results.
To be sure, LVMH and Kering are skillful managers of luxury fashion powerhouses from Louis Vuitton and Dior to Gucci and Saint Laurent. But can they build new fashion brands?
Smaller labels often suffer within big conglomerates like LVMH and Kering for a few reasons. For a start, they are slapped with financial reporting requirements that can stifle initiative, not to mention heavy corporate charges, without really benefiting from many of the synergies that can come from being part of a bigger group as their founders struggle to navigate internal politics and bureaucracy.
But most of all, smaller labels are starved for attention from senior management, who see them as a distraction from the bigger brands that dominate their portfolios.
And yet the success of Fenty Beauty provides a powerful counterpoint to the idea that the big luxury groups struggle to grow start-ups. Launched in 2017, the venture was an instant commercial hit that now generates over half a billion dollars in sales per year. Clearly USD 30 cosmetics are a better fit for Rihanna’s broad following than USD 1000 jackets. But there was another critical factor.
Unlike the Fenty fashion label, Fenty Beauty benefited from LVMH’s Kendo division, a beauty incubator that provides a unique structure for sheltering and mentoring young labels.
“Kendo provides an intermediary layer of management populated by leaders that are both close to their start-ups and close to senior executives; both agile and able to navigate the wider group and put synergies to work,” explained Pierre Mallevays, co-head of Stanhope Capital’s merchant banking unit and previously director of acquisitions at LVMH.
Whether a similar approach would work for fashion is a big question.
Start-up beauty labels are inherently easier to manage than young fashion brands. They typically have lower fixed costs than full-fledged maisons and they don’t need to prove themselves again each season. But beauty brands are also better suited to an incubator model because they can more easily plug into shared services and typically come with less ego at their creative helms.
They are also easier to distribute, which brings us to Sephora, LVMH’s powerhouse multi-brand beauty retailer which, acting as a counterpart to Kendo, provides the group’s start-up beauty labels with a potent built-in sales channel.
“Sephora has successfully worked as a mothership for smaller beauty brands to launch and develop,” said Bernstein analyst Luca Solca.
But looming over the debate on whether the big luxury groups can successfully build new brands is a bigger question. Is the very notion of a luxury start-up a contradiction in terms?
More than beauty brands, luxury fashion labels trade on exclusivity. By definition this demands tightly controlled distribution, which inherently limits growth potential in the short term. (Sure, you can ramp up distribution like Michael Kors, but the resulting sales boom will inevitably erode desirability). Real luxury brands cannot be built overnight. They require patience. Indeed, it can take a decade of investment and painstaking brand management just to hit $100 million in sales.
Given this timeline, the question for the big conglomerates becomes not just whether they can successfully build luxury fashion start-ups, but why they would even bother in the first place when, these days, only billion-dollar-plus brands — or at least those with a reasonable shot at getting there in the next few years — will show up meaningfully on their balance sheets.
That doesn’t mean that LVMH’s Bernard Arnault won’t see value in backing a fledgling label to keep a key talent like Jonathan Anderson within his group or Richemont’s Johann Rupert won’t be tempted to indulge a superstar designer like Alber Elbaz with carte blanche for a start-up like AZ Factory. But turning these ventures into meaningful contributions to the bottom line will be tough.
Then again, there are always exceptions. With plenty of patience, attention from the top and no small amount of creative genius, Kering has managed to grow Alexander McQueen, over the last twenty years, from start-up fashion label to luxury brand success story with estimated annual revenues of over EUR 500 million and its sights set on crossing the billion-euro mark.