Affairs

Ignored by LVMH, Richemont, and Kering, modern luxury upstarts gain traction with Silicon Valley.

After heading up a panel on luxury and fashion at Stanford towards the end of 2012, fashion columnist, Cathy Horyn, on staff at the New York Times at the time, wrote about a curious development she’d picked up on in conversations with MBA students there. These same business students, who in years past would’ve been fully focused on either Wall Street or Silicon Valley, were in fact much more tempted by what was going on in the modern luxury world. “One thing I’ve learned after two lengthy visits to Stanford in the last three years,” she wrote, “is that students are focused on the business of fashion.” She recalled that “several seniors said their dream job was to work for Mickey Drexler of J. Crew or Natalie Massenet, the founder of Net-a-Porter,” and that the audience seemed to perk up a little more when her co-panelist, former J.C. Penney CEO, Ron Johnson, brought up Bonobos and Warby Parker.

You can be sure that if MBA students at Stanford and other elite institutions are paying attention to what’s happening in modern luxury, investors certainly are as well. According to Crunchbase, venture capital and angel investments in “fashion” ventures (a classification that unfortunately tends to lump fashion and luxury startups together) reached $344 million in the first quarter of 2014–at the time, its highest figure in nearly three years.

Without question, large numbers like these are propped up by the most visible names (and largest fundraisers)–the Moda Operandis, Farfetches, Warby Parkers, and Lysts of the world. And while it’s unclear whether modern luxury minnows are accounted for in that total, a great deal of less visible–but no less important–companies have also secured some notable VC backing, and in one case a nice exit after being bought out by eBay.

Here’s a quick run down of a couple of smaller deals:

Bureau of Trade
In October 2014, after less than two years in operation, vintage goods marketplace, Bureau of Trade, was acquired by eBay for an undisclosed sum rumored to be in the mid-single-digit millions.

Jack Erwin
In February 2014, Jack Erwin secured a $2 million Series A just three months after launch, then locked up a $9 million Series B that September.

The Black Tux
In September 2015, The Black Tux, an online tux rental upstart, raised a $25 million Series B, led by Stripes Group. As of this article, it’s raised a total of $40 million.

Cuyana
In June 2013, Cuyana secured $1.7 million in seed funding from Canaan Partners.

Troubadour
Troubadour, a London based leather bag company, locked in a £600,000 seed round (just over $1 million) from Pembroke Venture Capital Trust in November 2013.

Byredo
In 2013, London’s Manzanita Capital (which also owns Diptyque, and is headed by Lean Luxe subscriber Bill Fisher) acquired a majority stake in Stockholm-based fragrance powerhouse, Byredo.

In short, the money is beginning to flow. But the question still remains: where has LVMH, Kering, and Richemont been during all this? In a luxury marketplace that’s becoming increasingly fragmented by the quarter, and at a time when consumers are growing disillusioned by impersonal mass market luxury, the Big Three have been suspiciously quiet.

Luxury prices among megabrands have increased 60% within the last decade–and tellingly price hikes haven’t necessarily corresponded with an increase in product quality or value for shoppers. This, of course, has led consumers to look elsewhere, and many are flocking to smart luxury specialists, often businesses like the ones listed above that are constantly working to improve upon their products, and win strong loyalty from shoppers through affordable pricing, quiet branding, and a convenient online experience.

“As a collective hive, some 400-500 strong, modern luxury ventures have a tremendous opportunity to shift the balance of the market, and siphon market share as a group.”

This helps to explain why growth rates among a number of flagship brands at Kering, LVMH, and Richemont are slowing. Consumers have made it crystal clear that modest and individualistic modern luxury ventures are the types of brands they now favor. Logos, bloated prices, and empty celebrity endorsements are on the way out.

Meanwhile, we’ve seen several instances of consumer-facing startups being acquired or backed by established players looking to add some spice and youth to the mix. Unilever’s $1B purchase of Dollar Shave Club, and Walmart’s $3B Jet acquisition are perfect examples of this. We’ve also watched Estée Lauder move swiftly, quietly, and with remarkable precision in snatching up two outstanding fragrance firms, Le Labo and Rodin Ilio Lusso, in late 2014. Many VC-backed operations will be seeking exits soon, and luxury’s conglomerates would in theory be significant agents in that regard. So why haven’t we seen more activity and interest from the Big Three among emerging luxury brands of this caliber? And if they’re not pursuing these opportunities, what’s their move?

The Away concept store in NYC. Away, started by two Warby Parker alums, Stephanie Korey and Jen Rubio, has raised $2.5M from Accel Partners and Forerunner Ventures | Photo credit: Away

At this stage, LVMH, Kering, and a few of their smaller contemporaries, have prioritized acquisitions of blue blood heritage properties and Chinese-facing labels –Kering acquiring Brioni in 2012, LVMH purchasing Loro Piana in 2013, Hermes purchasing Shang Xia in 2009–as well as investments and mentorships with emerging high fashion designers. In the case of LVMH CEO, Bernard Arnault, who separately revived Moynat in 2011 under his personal holding company, Groupe Arnault (which is unaffiliated with LVMH), we find evidence of established luxury’s growing fetish for reviving dormant heritage luxury brands from the grave on display.

So far, though, their primary play seems to be financing and outright acquiring promising designer fashion labels, as Kering’s majority stake in Christopher Kane in 2014, and LVMH’s 2013 minority and majority stakes in J.W. Anderson and Nicholas Kirkwood, respectively, all demonstrate. (There are also suggestions that LVMH’s Young Designer Prize might merely be a vehicle for them to identify and later acquire the fashion’s top designers, more than anything else.)

By and large, the conglomerates have not–with the exception of Richemont’s acquisition of Net-a-Porter in 2010–shown any discernible interest in investing in or buying out emerging luxury competition at this stage. This may prove to be an oversight. It would be highly optimistic to suggest that an individual modern luxury operation on its own has a realistic chance of overtaking a massive global entity like Louis Vuitton. But as a collective hive, some 400-500 companies strong, modern luxury ventures have a tremendous opportunity to shift the balance of the market, and steal away market share as a group.

Eventually, as the modern luxury space matures, Kering, Richemont, and LVMH will have to start paying attention. So far, they’ve largely chosen to ignore this threat and more or less continue on the same path.

As time wears on, however, and as the pressure from emerging luxury labels continues to mount, will we see these giants begin to replicate and fully internalize the emerging luxury model, or will we start to see them absorbing competition through acquisitions?

It will be fascinating to watch how this all plays out.

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  • Dave

    Paul,

    This is an interesting subject I hope you continue to dig into. As someone who came from Oliver Peoples, Paul Smith Spectacles, and consulted for several years in eyewear before starting David Kind, I find the word ‘luxury’ to be as loaded a word as ‘quality’, ‘premium’, ‘better’, etc. What defines a brand as luxury? What defines the word luxury?

    Some of the brands you mention in the piece may be luxury as I perceive it. However, many of those mentioned are as ‘luxury’ as H&M or Lenscrafters. This may partly explain why Kering, Richemont, and LVMH aren’t seemingly so concerned.

    My two cents.

    • LeanLuxe

      Dave, good points here. Luxury is definitely a broad term, open very much to interpretation.

      I’ve got a set of modern luxury guidelines that I’m using to help define the brands and services that make the cut, and I’ll be making that public in the future. I know people will have questions about what qualifies as a modern luxury company and what doesn’t, so this list should go a long way in helping to clear that up.