Deluxe: How Luxury Lost Its Luster (8 page)

A
S
M
IUCCIA
P
RADA
reluctantly designed clothes, shoes, and handbags, Patrizio Bertelli focused on the business side of Prada. His method was absolute control through fear. He is a short, stout man with a bulldog face and well-trimmed wavy white hair. He wears mod retro glasses—like Peter Sellers but more narrow—which make him look like a hip intellectual. He is not known to have a sense of humor, and his temper is legendary. He explodes at the slightest mistake, “and not for one minute but for half an hour,” remembers one former staff member. No one ever speaks back. Except Miuccia. They can fight like cats and dogs all day at the office, then go home together for dinner.

Bertelli is involved in every company detail: he has chosen the company’s stationery, dictated the menu in the employee cafeteria, and personally hired much of the staff. When he opened the American subsidiary in New York, he had the office furniture sent over from Milan as well as a huge supply of pasta and his favorite olive oil for the employee kitchen. The porcelain and the cutlery in the New York office were the same as in Milan and Tokyo, and the receptionists all wore the same uniforms. At midday, cleaning people would come through the office to empty ashtrays and trash cans. Everything was always shipshape, one employee told me.

Bertelli’s business methods are at times unconventional. In the early
1990
s, for example, he killed the company’s best-selling handbag line because he didn’t want Prada to be associated with just one product. “He’ll cut off business even if it’s profitable at the time when he knows it’s holding back growth,” Leslie Johnsen, Prada’s former director of public relations in New York, said. He can become so involved in design that he has been known to redo an entire handbag collection himself. Publicly, Miuccia welcomes his meddling. “It can be annoying,” she once said, “but when he puts his hands on a product, I have to admit, it becomes better.”

Once Bertelli had steered Prada into a thriving business—from $
25
million in
1991
to $
750
million in
1997
—he started spending money like those nouveau riche clients whom Miuccia so loathes. In the late
1990
s, he sank more than $
50
million into the construction of
Luna Rossa
, a sleek gray and red yacht, for the America’s Cup. Bertelli, an avid sailor, reasoned that the high-profile competition would bring a new sort of customer to Prada, as well as promote Prada Sport—now known as Linea Rossa—a line of overdesigned, overpriced athletic clothing launched in
1997
. In the late
1990
s, the Prada store architect Roberto Baciocchi was hired to turn the Via Bergamo building, which was a former gramophone factory, into the company’s new headquarters and the Fondazione Prada, the couple’s contemporary art foundation. The hall, with its exposed steel beams and bare cement walls, is the setting for Prada’s women’s and men’s ready-to-wear wear shows as well as two art exhibits each year. Artists have included Mariko Mori, Barry McGee, and Carsten Höller. When I was there, New York artist Tom Sachs was setting up a show.

Then, in
2000
, things began to go bad for Bertelli.
Luna Rossa
made the America’s Cup finals only to be soundly beaten by New Zealand. Jil Sander up and quit as CEO and designer of the company she had founded thirty years earlier. “Quite simply, Bertelli and I had different visions about how to run the company,” Sander told me later. Without Sander at the design helm, the company foundered and the brand quickly became worthless. And Prada’s nonstop expansion—including the construction of a $
40
million Rem Koolhaas–designed epicenter store in downtown Manhattan due to open in late
2001
—was sinking the company further into debt. To raise capital, Bertelli decided to take the company public in late September
2001
. When the September
11
terrorist attacks on New York and Washington happened, the Prada initial public offering was called off, and the luxury market deflated, literally overnight. By the end of
2001
, Prada Group reportedly had debts of about $
1.9
billion, approximately what it did in sales.

It was discussing the IPO that Miuccia Prada took me truly by surprise. I told her I had read in the morning papers that, now that the company had shed the Jil Sander and Helmut Lang brands, it was rumored in the business world that Prada might attempt an IPO again. No, she said, it wasn’t true. I asked, “How many times have you attempted it? Three, right?” No, she said, once. On September
18
,
2001
. The other times, she continued, were invented by the press.

I stopped writing in my notebook and looked straight at her. I had heard that the accounting firm PricewaterhouseCoopers had prepared dossiers for two separate attempts since the first one in
2001
and, in
2002
, Bertelli had held a press conference to announce one of them.

In her reluctance to be forthcoming, Prada had unwittingly exposed the Achilles heel of luxury today: in becoming leaders of global corporations, luxury executives must now conceal from the public not only how their products are made but how the individual brands are doing. The truth, if widely known, could shatter consumer confidence in the brands: they’d stop buying, profits would plummet, and the companies—and their parent groups—could face bankruptcy. Publicly traded companies are required to be transparent—that is, they must publish their financial data in their annual reports. But when luxury brands are consolidated into groups, they can lump all their figures together to disguise what’s really happening. Overall, LVMH is raking in profits and its brands, thanks to the hype, seem highly successful. What you don’t know is that, as Vuitton is doing record sales each year, the Givenchy and Kenzo fashion houses are muddling along.

In the last decade, more groups have formed, including the Bulgari Group, the Ferragamo Group, and the Valentino Fashion Group, and those that existed previously have added substantially to their portfolios. Today, there are very few European luxury brands that remain independent and privately held. Among them are Sonia Rykiel in France and Giorgio Armani, Versace, and Dolce & Gabbana in Italy, though Versace has talked about going public since before its founder, Gianni Versace, was murdered in
1997
. Giorgio Armani, now in his seventies and with no apparent heirs, has over the years contemplated various options, including selling to LVMH and going public. Yet he resists.

I once asked him why. “I can allow myself to go back to the office at night, to change whatever I want without having to justify it to anyone, and without any anxiety about achieving certain financial results because investors—who understand nothing—decide that today its ten of something, then twenty then thirty. That’s the problem,” he said. “Sometimes results take a while, and most of the time, the market requires that the results be felt immediately. Psychologically, this isn’t good for our work, because it puts a damper on our enthusiasm.”

K
YOICHI
T
SUZUKI
,
a Japanese photojournalist and publisher, has spent nearly a decade taking pictures of luxury-brand-obsessed Japanese in their tiny apartments surrounded by their collections of clothes, ties, scarves, jewelry, handbags, and shoes for the
Fashion News,
one of Japan’s oldest fashion magazines. Tsuzuki calls his subjects “happy victims” because, while they are victims of brand marketing, the items seem to bring them a sort of happiness. On a cool November morning in
2005
, I visited Tsuzuki in his apartment in Tokyo and, over cups of jasmine tea, he told me about these happy victims. There is the Hermès collector, a patent executive who lives in a tiny fourth-floor walk-up flat. He keeps all of his Hermès shirts, ties, and leather goods in their original boxes and bags, which are stacked up on his tatami floor. He spent half a million yen (about $
4
,
000
) on an Hermès briefcase that he carries with an Hermès towel wrapped around the handle to avoid damaging the leather with his hand perspiration.

There is a Buddhist monk who collects Comme des Garçons religiously. Once a month, Tsuzuki told me, the monk sheds his robes, dons Comme des Garçons’ avant-garde constructionist clothes, and heads from his temple to Tokyo to pick up a few more pieces. He is so convinced of their miraculous powers that he says his delinquent sister cleaned up her act when she started wearing Comme des Garçons. There’s an English teacher at a prep school who started wearing Gianni Versace’s flamboyant designs to keep the attention of his students. After ten years, he had one hundred pieces of Versace as well as an impressive Bulgari jewelry collection. He lives in a shoebox apartment with his unemployed girlfriend, who spends her days organizing the collection. There’s a Tom Ford collector (she has both Gucci and Yves Saint Laurent), an Armani man, a McQueen girl, and a Martin Margiela manic who is so fastidious about his collection that he never cooks at home because he doesn’t want the clothes to retain the odors. The only thing in his refrigerator is eyedrops. “When he gets thirsty,” Tsuzuki said, “he goes to a convenience shop and drinks there then goes back home. He does not want to put any kind of trash in the room.”

Tsuzuki’s subjects seem extreme. But in fact they are representative of the Japanese preoccupation with luxury goods. Analysts estimate that
20
percent of all luxury goods are sold in Japan and another
30
percent to Japanese traveling abroad—meaning Japanese buy half of all luxury goods. Today, approximately
40
percent of all Japanese own a Vuitton product. They claim in market studies that they buy luxury goods for a logical reason: durability. Experts believe, however, there is a far deeper sociological meaning. According to polls, the Japanese consider themselves to be a classless society—in one study,
85
percent stated they were middle class. At the same time, in Japan, conformity is prized. By wearing and carrying luxury goods covered with logos, the Japanese are able to identify themselves in socioeconomic terms as well as conform to social mores. It’s as if they are branding themselves.

Their impact on the business is immeasurable. Their tastes influence product and store design. Their travel habits dictate where brands expand, and their exigencies affect how stores are run. “We never make any decision on our worldwide strategy without asking our Japanese colleagues what Japan would think of it,” said Louis Vuitton CEO Yves Carcelle. The Japanese, in other words, homogenized luxury. And by doing so, they prepared it for globalization, which effectively is the homogenization of the world.

T
HE
J
APANESE LOVE
of Western luxury goods is a relatively recent phenomenon. In the
1960
s and
70
s, the Japanese economy flourished, giving birth to a newly flush middle class that wanted to live a more ostentatious life. Grand homes or vast real estate holdings—generally the most blatant way to enjoy as well as exhibit one’s riches—was a near impossibility in the densely populated island-nation of Japan. Instead, the Japanese chose to show their wealth by dressing richly, and for the postwar generation, Western luxury items such as leather goods, silk scarves, furs, and jewels were the ultimate status symbols.

Unfortunately, there was little to be had in Japan; distribution was extremely limited. To satisfy the surge in demand, entrepreneurial Japanese merchants traveled to Europe, bought items at full retail price, shipped them back to Japan, and sold them for three to four times more in shops around Tokyo, creating what is known as a parallel market. The parallel market confounded luxury executives back in Europe: their flagship stores were getting cleaned out of stock, and they had no control over how the product was being sold overseas.

In February
1976
, Louis Vuitton’s great-grandson Henry-Louis invited Kyojiro Hata, consultant for the international accounting and consulting firm Peat Marwick, to his office at the avenue Marceau store to discuss the problem. Hata, in Paris on unrelated business, knew nothing of the luxury industry and had never heard of Louis Vuitton. But he was impressed by Henry-Louis Vuitton’s manner—“He was a very shy, sincere person and extremely discreet,” Hata told me—and by the genuine refinement of the store and its products. “The serenity and the high ceilings of Henry Vuitton’s office were worlds away from my experience,” Hata later wrote in his memoir,
Louis Vuitton Japan: The Building of Luxury
. “The long room had a small window from which to view the sales floor, and the walls were embedded with antique trunks. I felt the long history of Louis Vuitton and the depth of French tradition through my body for the first time. It was an awakening for me.”

Vuitton explained to Hata his exasperation: the Japanese were buying so much that Vuitton had placed a limit on the number of products that could be sold to Japanese customers. Through the small window in Vuitton’s office, Hata watched the frenzied Japanese customers in the avenue Marceau store, buying like they were at a fire sale. Intrigued by the phenomenon, Hata turned to Vuitton and proposed to do a research project assessing the Japanese luxury goods market. Vuitton agreed.

When Hata returned to Tokyo, he found Vuitton monogram bags in shop windows all over town for sale at astounding prices. At the time, there was only one Vuitton wholesale importer in Japan, and one official retailer: the Ann International store in the Akasaka Tokyu Hotel shopping arcade. When Hata visited the store, he recalled, “there was no stock at all and nobody knew when the next shipment would arrive.” Hata wrote up his report for Henry-Louis Vuitton, concluding it was time for the company to embrace the Japanese market and expand properly there. Vuitton concurred and hired Hata to oversee it. Until then, luxury companies had opened stores in a few international capitals, often as franchises, and sold a limited amount of product in department stores; it was a niche retail business. Hata had much bigger ambitions: to conquer a foreign territory by selling not only to Japan’s upper crust but also—and primarily—to its large and increasingly wealthy middle class. Vuitton’s expansion in Japan was luxury’s first bold step toward globalization, and it took an outsider—a businessman—to make it happen.

Hata came up with and implemented a two-pronged business model. First, Louis Vuitton Paris would distribute directly to Japanese retailers rather than through wholesalers—a business move unheard of in the luxury industry at the time. Second, Louis Vuitton would establish a management service contract stipulating that its Japan office would conduct all operations to maintain the brand’s image, protect the trademark, and handle quality control, advertising, and publicity. In return, Vuitton would charge franchise and management service fees to the department stores. Louis Vuitton headquarters in France would dictate everything to the Japan operation, from uniforms to wrapping paper, to create a synergy with the home base. Vuitton’s products would be excluded from department store members-only discounts and gift catalogs, all in an effort to buff up the company’s brand image. “We wanted to accurately communicate not only the name of Louis Vuitton,” Hata explained, “but the brand’s values, which are its history and tradition.”

In March
1978
, Vuitton made its official Tokyo debut in five different department stores, followed in September by one in Osaka. Each shop was only seven hundred to one thousand square feet but stocked every size of steamer trunks—“the symbol of Louis Vuitton’s craftsmanship,” Hata told me.

Next, Hata tackled the pricing problem. When Vuitton opened its first Japanese store in
1978
, prices were about two and a half times higher than in Paris, due to a difference in currency rates and to government restrictions. To even the playing field a bit and stop parallel trade, Hata implemented a floating-rate system so that prices in Japan would be no more than
1.4
times those in Paris, and would fluctuate with the exchange rate. Prices in Japan immediately dropped by half or more, and Japanese shoppers suddenly saw Louis Vuitton as a good value, especially compared to its competitors. That first year, the six stores sold $
5.8
million worth of Vuitton products. “This surprised the whole industry,” Hata remembered. Within two years, sales had doubled to $
11
million. Vuitton appointed Hata the Japanese branch manager, and converted the branch into a corporation, called Louis Vuitton Japan. In
1981
, Hata opened Vuitton’s first freestanding store, in the posh Ginza district.

Furthermore, the Japanese demonstrated an unparalleled predilection for quality. “Their attention to detail and demand for quality is unmatched and unyielding,” says Chanel Japan’s president Richard Collasse. “The Japanese have zero tolerance for flaws.”

He tells a story to illustrate point. Back in the
1980
s, when Collasse worked for another luxury brand, a Japanese woman brought a dress in and said it had a defect. Collasse looked and looked and finally saw a two-inch thread dangling from the hem. It was absolutely unacceptable to her. Collasse exchanged the dress, bowed repeatedly, and sent her a big bouquet of flowers. Then he decided to do a test. He took the dress to a French woman. She tried it on, liked it, saw the thread, and said, “I can cut it.” He took the dress to an American woman. She tried it on, liked it, and never saw the thread.

Vuitton’s Hata ran into the same thing. “During the first ten years, we have often found ourselves having to return products to Paris saying, ‘This level of quality is unacceptable in Japan,’” he recalls. “At first we had a very hard time being understood. If we returned a product because the fastener was attached the wrong way, they argued that we should sell it to a left-handed customer. If we complained that the stitches were not straight, they said it was because of the nature of hand stitching and that they could sell the products in Paris without a problem. On one occasion we returned all the products, saying, ‘Please sell these in Paris.’” Finally, in
1991
, Hata opened a Vuitton repair center in Japan; today, there are two.

L
OUIS
V
UITTON’S
expansion in Japan led the way; soon its competitors began to expand their presence there, too, selling in major department stores and opening boutiques in Tokyo’s Ginza shopping district and in Osaka. The timing couldn’t have been better. In the early and mid-
1980
s, the Japanese economy was soaring: it grew by
3.7
percent annually, and Japan’s postwar generation experienced a dramatic increase of disposable income. Some of the investments were dizzying: Mitsubishi forked out $
1.4
billion for
80
percent of Rockefeller Center in New York in
1989
and
1990
; Sony bought Columbia Pictures in
1989
for $
3
.
4
billion; Matsushita electronics took over MCA, which included Universal Studios, in
1990
for $
6.1
billion; Japanese businessman Ryoei Saito spent $
82.5
million for Van Gogh’s
Portrait of Dr. Gachet
in
1990
.

But the economic boom also created a new sociological phenomenon in Japan known in banking circles as Parasite Singles: unmarried university-educated women, ages twenty-five to thirty-four, who worked in good-paying jobs—as secretaries, teachers, executives—and lived with their parents. Their economic power was and still is impressive: analysts estimate that Parasite Singles account for nearly one-tenth of Japan’s population of
130
million. With few living expenses, Parasite Singles use their ample disposable income to shop. Their favorite items: luxury brand leather goods, preferably covered with logos. Indeed,
23
percent of all luxury brand sales in Japan today are leather goods such as wallets and handbags.

When they first emerged, Parasite Singles shopped like mad in Japan, driving luxury brands to expand their presence and stock there. Even after the bubble burst in the early
1990
s, and the Japanese economy plunged into a decade-long recession, Parasite Singles’ appetite for luxury brands did not wane. They were the only demographic group to increase spending during the
1990
s, and they became responsible for up to
80
percent of Japan’s consumer spending.

When they found they could buy more overseas with their strong yen, Parasite Singles embarked on international shopping trips, usually organized by charter companies, inciting brands to open stores in new markets and to add Japanese-speaking sales staff. One of Parasite Singles’ favorite destinations was Hawaii: it was close, it was beautiful, and the yen went far.

In the early
1980
s, Rolf Vogel, then president of Chanel in Japan, went to Hawaii on vacation and was stupefied to see the number of Japanese there, shopping. “Let’s stop playing golf and look for a location,” he told his colleagues.