FINANCIAL TIMES: High quality can beat the credit crisis

FINANCIAL TIMES | RICHARD MILNE

Luxury goods group are traditionally hit hard by economic downturns. Lehman Brothers’ analysts point to a 25 per cent cut in earnings in the previous slowdown after the September 11, 2001, terrorist attacks on the US and say that the sector underperformed the market during the period despite its appeal to high-end customers.

LVMH, the world’s largest luxury goods group, saw its profits drop by 20 per cent in 2001. But heading into the current slowdown courtesy of the financial crisis, luxury goods companies appear upbeat.

In some ways they are right to be – they have expanded out of their long-time base in the west into faster-growing countries in emerging markets and analysts’ consensus earnings estimates for this year still point to ten per cent growth in the sector. But can they really escape a global slowdown thanks to rich customers from Dubai, Moscow and Shanghai? Or will they become yet another victim of the credit crunch in the traditional fashion?

Most industry executives insist it will be the former, but most analysts and experts believe the latter. Both sides have supporting evidence but the feeling persists that the luxury goods industry will not escape unscathed.

“At the very top end of the market is a part of the luxury goods sector that is not very cyclical and that is full of growth from the emerging markets.” says Gerry Adolph, a senior management consultant at Booz & Company. “But the aspirational brands in the middle will be the ones most sensitive to the economic slowdown.”

Argument number one for the positive view of the industry is the continued spending by the super-rich. Gerard Aquilina, head of international private banking for Barclays, says his ultra-wealthy clients have felt no effects of the credit crunch and, if anything, are more optimistic at the moment. “They look at this crisis as an opportunity. I haven’t seen a decrease in them buying luxury goods whatsoever,” he says.

That is good news for the most exclusive and traditional brands at the top end of the market such as Chanel and Hermès.

It was notable when Gucci reported mixed first-quarter sales recently that Bottega Veneta, its most upmarket brand, was the top performer, with a 32 per cent sales increase on a comparable basis.

Argument number two for the industry is exposure to emerging markets. Regions such as the Middle East and Asia have developed into main drivers of growth for many companies. Francesco Trapani, chief executive of Bulgari, says softness in the US and some parts of Europe is being offset by the strength of Asia. All of this shows how far the balance of power has shifted in the industry and how the worst-performing luxury goods companies currently are those with the highest exposure to countries such as the US and UK.

Examples abound of success in countries recently thought unable to support a big luxury goods sector – LVMH, with its stable of luxury goods from Louis Vuitton to Dom Pérignon, more than tripled its revenues in Vietnam last year while Richemont of Switzerland says it sees growth not just in China but in virtually every country in Asia.

But will the emerging markets be enough, and could the slowdown hit them eventually?

There seems little doubt that the rich of the Middle East and elsewhere, flush with oil and raw material cash, will continue to splurge. But it is less clear what will happen in other regions such as China if the ripple effects of the financial crisis reach them.

Allegra Perry, analyst at Lehman Brothers, points out that 50-60 per cent of the luxury goods industry’s consumers remain in classic, developed markets. “The most important thing right now is geographical exposure,” she says.

The naysayers have not just history to back them up but also early evidence that points to a slowdown from companies themselves – Bulgari felt slower sales growth in March, Richemont at the end of last year, while Gucci sold less in the first quarter than last year.

Top-end department stores in the US, such as Neiman Marcus and Saks, reported that it was not just aspirational luxury customers cutting back on spending but the very rich ones as well.

Robert Burke, a former luxury retail executive who is now head of Robert Burke Associates, a consultancy, says US consumers are definitely cutting back on spending but foreign tourists to the US are using the cheap dollar to go on shopping sprees.

“Is that enough to offset the losses? In some cases yes, in many others no,” he says. “When times get tough, though, the aspirational luxury buyer is pinched out of the market first.”

All experts are agreed that consumers are likely to become more discerning. And that in turn is likely to lead to a shake-out in the industry with the lower-end brands and the aspirational marques suffering the most.

“Companies selling the $10,000 to $20,000 handbag are likely to be OK but those that moved downmarket to find growth – like Burberry or even Gucci – are going to be more exposed,” says Mr Adolph.

Rogerio Fujimori, an analyst at Credit Suisse, agrees that more accessible companies such as Coach in the US are the most likely to struggle. But he says factors other than the economic slowdown will determine how luxury goods groups perform – particularly tourism flows and the related issue of currencies.

One consequence of the possible shake-out of the industry is that many expect to see a return of merger and acquisitions activity. Many in the industry still have a sour taste in their mouth from the last round of deals that peaked with the ill-timed purchase of Gucci by PPR on September 10, 2001.

But LVMH, the arch-rival of PPR, in April made its first acquisition in years when it paid several hundred million euros for Hublot, the high-end watchmaker. Experts such as Mr Burke and Mr Adolph expect to see companies from outside the sector and from areas such as Asia and the Middle East becoming involved. Mr Burke says he is advising SK Networks, a South Korean conglomerate, as well as investors from Dubai. Mr Adolph underlines that many companies still owned by the founder, such as Armani, need to decide on their development and, if they sell, whether to become part of a luxury goods conglomerate or sell to an alternative buyer.

As a sign of how investors see the sector going, rumours have already started up about Hermès, the French group that is one of the most expensive and best-protected in the sector.

Few in the industry doubt that – acquisitions or not – “some kind of slowdown is inevitable”, as Mr Fujimori says. But the jury remains out on how hard the impact will be. As in many industries the flight to quality is likely to be apparent.

Mr Burke says: “The true luxury shopper is going to be more discerning than in the past. They are going to buy fewer things and more selectively.”

FINANCIAL TIMES: Brands look to the east to ease pain of credit crunch

FINANCIAL TIMES | RICHARD MILNE

One in four bankers at Lehman Brothers, the investment bank, owns three to five luxury watches, according to Allegra Perry, the bank's luxury goods analyst.

It is statistics like that which make the luxury goods industry boast about its potential and at the same time worry about the impact of the financial crisis.

The credit crunch is likely to answer the question: are luxury goods companies subject to the same consumer pressures as other retailers or are they in a sector of their own catering to the super-rich?

Luxury goods companies have traditionally been hard hit in economic downturns. Already evidence is amassing that after a difficult Christmas for many, the new year has not started as positively as some expected. The Gucci brand provided the first real sign on Thursday when its like-for-like sales growth in the first quarter reached only 2.4 per cent (in reported terms it was even down 3 per cent).

That comes after Bulgari, the Italian jewellery company, warned of soft sales in March. But it contrasts with solid figures from Richemont, LVMH and Hermès.

"The luxury goods sector is impacted by the financial crisis but to a much lesser extent than normal retail. The traditional, high-end brands will do well. The more accessible ones will struggle more," says Rogerio Fujimori, analyst at Credit Suisse.

Gerard Aquilina, head of international private banking at Barclays Wealth, says there is no sign whatsoever of a slowdown of spending among the ultra-wealthy - perhaps it is even the opposite. Gucci's best-performing brand Bottega Veneta is its most expensive.

More of the super-rich are coming from emerging markets in the Middle East, Asia or eastern Europe.

That in turn means those luxury goods companies most exposed to these regions seem to have the best chance of avoiding the slowdown. LVMH, for instance, more than tripled its revenues in Vietnam last year while Richemont is seeing growth across Asia.

In contrast, those companies most exposed to developed markets such as the US and Europe will feel the most pain.

Francesco Trapani, chief executive of Bulgari, told the FT last month: "We are seeing a pretty soft business in the US and in some important European countries . . . [But] almost all of Asia is going extremely well and counterbalancing [that softness]."

Robert Burke, a former luxury retail executive who now heads the Robert Burke Associates consultancy, says brands which cannot offer the consumer anything special will suffer particularly. "Product is paramount. The true luxury shopper is going to be more discerning than in the past," he says. "They are going to buy fewer things and more selectively and that means second-tier and less sophisticated luxury companies will suffer."

Industry watchers are divided as to who will suffer most. Luxury stores in the US report sales declines across the spectrum - not just with aspirational buyers but also very affluent customers.

However, names such as Chanel and Prada seem the most secure. Mr Fujimori points to two other issues that play a role on luxury goods as well as the economy: tourism and currency. Anecdotal evidence suggests that wealthy tourists are not just heading to the US to buy, taking advantage of the weak dollar, but also to London because of the weak pound.

Ms Perry underlines that the strength of the euro leaves companies with the dilemma of either raising prices and thus lose sales or not pass on the full impact of the currency, which will affect margins.

FINANCIAL TIMES: Deal appetite mounts in luxury sector

FINANCIAL TIMES | RICHARD MILNE

Wealthy individuals used to be content buying a luxury watch or boat. Now they are looking at buying the company as well.

Luxury goods analysts say the sector could see another wave of deals as ultra-wealthy individuals and investors from Asia and the Middle East increasingly seek out companies to buy.

"You can buy a yacht but you can also now buy your yacht builder. That is something we are seeing more and more of as it is an interesting market for ultra high-net worth people and their friends," said Gerard Aquilina, head of international private banking at Barclays Wealth.

Robert Burke, the head of a US luxury goods consultancy, said: "We help bankers screen companies and we have never been busier than in the past few weeks.

"We are seeing a lot of interest from places like Korea and the Middle East, and also from rich individuals for smaller deals. That is very new."

LVMH, the world's largest luxury goods group, this week unveiled its first acquisition for some time as it bought Hublot, the upmarket watchmaker, leading some analysts to predict increasing merger and acquisition activity from companies too. Mr Burke said: "Before it was only seen that the likes of LVMH and Gucci were buying luxury goods groups but this time it will be broader just because that it where the money is."

Few companies have openly said they are for sale but analysts say attempts to buy some of the big name fashion houses are likely. "All the potential target companies say they are not for sale but I think we will still see some approaches," said Allegra Perry, analyst at Lehman Brothers.

She said she expected the big companies only to get involved if share prices continued to drop.

The increase in interest in luxury acquisitions comes amid the first signs of the financial crisis hitting the sector. Gucci unveiled weaker-than-expected sales this week and many analysts are predicting a shake-out could take place as the lower-end and more aspirational brands suffer more than traditional, exclusive names.

Analysts point to Mulberry and Burberry - and even to Gucci - as brands that could come under threat, while top-end brands such as Hermès and Chanel are more likely to escape.

"The higher the prices for the products, the more insulated the company will be. The more accessible brands will suffer more," said Rogerio Fujimori, analyst at Credit Suisse.

Mr Burke, a former senior executive at luxury retailer Bergdorf Goodman, said: "There is going to be a major shake-out of the companies. When times gets tough the aspirational luxury buyer gets pinched out first."

WWD: SK Networks Acquires Y & Kei and Hanii Y

WWD | ROSEMARY FEITELBERG

SK Networks Co. Ltd., a $17 billion Seoul-based global marketing company, has acquired Obzee Co. Ltd. and its affiliate brands Y & Kei and Hanii Y.

With a $60 million, five-year investment plan, SK Networks plans to bolster marketing and merchandising for both labels, which were started by the husband-and-wife design team of Hanii Yoon and Gene Kang. The brands generate $100 million in turnover and $10 million in profits annually. The designers, who retain their titles as creative directors, will relocate from Seoul to Manhattan, where SK Networks will open a design center to focus on broadening the pair's global marketing efforts.

After working with SK Networks on different brands, Robert Burke Associates will be pitching in with the development and merchandising of Y & Kei and Hanii Y, as well as widening retail distribution. The labels are sold at Barneys New York, Bergdorf Goodman and other retailers worldwide. The design duo is also considering opening stores in New York, Paris, London, Tokyo and Shanghai, according to a statement on Monday.

Robert Burke Associates is also helping SK Networks to expand distribution in Korea and China and to introduce an undisclosed U.S. retailer to Seoul.

"The desire for luxury goods in Seoul is very interesting,'' Burke said. "What we're finding with the weak dollar is that we're dealing with more international companies looking at U.S. acquisitions."

SK Networks is the exclusive distributor of Donna Karan, DKNY and Tommy Hilfiger in Korea. The company also sells its private label brands through China. Last year the company took a minority stake in Richard Chai's business.

TIME: Geography Lessons

TIME | KATE BETTS

The sidewalk surrounding Manhattan's Bryant Park is lined with posters promoting a new image of Lord & Taylor, the U.S.'s oldest department-store chain. In the pictures, members of some mythical extended suburban family smile as they frolic in their vintage Mercedes convertible or slide into a wooden canoe.

Despite their beauty, the photos and the inference that they epitomize American style seem jarringly anachronistic. At a time when fashion has become global thanks to the Internet and the access it provides to ideas, resources and products, American style is becoming increasingly difficult to define. At New York City's Fashion Week there were 259 designers of different nationalities--including Chinese, Thai, Brazilian, Japanese and Turkish--showing their spring 2008 collections.

"Fashion is no longer regional, and the notion of American sportswear is no longer valid, nor does it look current," says Robert Burke, a luxury consultant. "I've seen shows this week that could easily have taken place in Paris or Milan." More and more, it is the itinerant lifestyles of multinational designers--many of whom frequently travel around the world to visit factories, stores and suppliers--and the global reach of the Internet that inspire the clothes they send down the runway.

Take Tia Cibani, the Canadian-born designer of Ports 1961, a line that is produced in southern China and shown in New York. While Cibani commutes between New York City and Xiamen, inspiration can come from as far away as East Africa, as it did this season. Her collection, called Safiri, pays homage to African women's spontaneous sense of style and their imaginative fabric treatments such as tie-dyeing, rolling and wrapping.

Other popular destinations for spring included Rome, with Vera Wang excavating ideas from the city's ancient polycultural society and translating them into toga-like dresses, and Bali, where Diane von Furstenberg found bold floral prints. Japan--specifically its traditional folded-and-dyed fabric-printing technique, shibori--turned up on the runways of designers like Narciso Rodriguez, Proenza Schouler and Thakoon Panichgul.

"We grew up in a time of complete globalization," says Lazaro Hernandez, 28, who, along with Jack McCollough, designs the label Proenza Schouler, "so the boundaries are not as strict. We're young, and we don't have the money to travel that much, but we travel in our heads. We go online. With technology, you can go anywhere on the Internet." This season they found a trove of vintage kimonos in McCollough's parents' attic, and the trapezoidal sleeve shape became a major motif of their collection.

One of the reasons designers look so far afield for ideas is to stay one step ahead of the mass-market manufacturers that copy trendy fashions and sell them for much less. Designers like Hernandez and Panichgul say craftsmanship is what sets their clothing apart. "I don't think we could have survived in the late 1990s because minimalism, which was so popular then, is so easy to copy," says Hernandez. Indeed, consumers who want to buy a black sweater or a pair of black pants are inclined to go directly to H&M for the best price. As a result, Hernandez and McCollough feel the pressure to make their clothing even more ornate. This season, for example, they employed the French haute couture supplier Lemarie to embellish their clothing with rows and rows of tiny feathers.

"You have to develop a cult customer," says Panichgul, "someone who is looking for this kind of elaborate work every season." And someone who can afford it.

NEW YORK TIMES: Preppy Gets a 21st-Century Makeover

NEW YORK TIMES | KATE WEISMAN

NEW YORK — The young male models at Thom Browne's fashion show last week may have worn some unusual styles like short-sleeve blazers and quilted codpieces. But they also sported one of the most iconic preppy items ever: the white braided-rope friendship bracelet.

Preppy signatures seem everywhere. Polo shirts have become a trendy uniform with young women favoring the tight-fitting, navel-bearing Lacostes while men opt for faded or oversized versions. The white dress shirt has staged a comeback, and no-iron technology has made them a best-seller at Brooks Brothers.

But are we really in the midst of a preppy trend? Or are some savvy companies and designers - other than Ralph Lauren, of course - now realizing that there are not a lot of "proper" or "appropriate" clothes on the market?

"Fashion is fun and intoxicating, but most of it is fantasy," said Jenna Lyons, the creative director of J. Crew, the U.S. catalog and retail purveyor of chic and casual sportswear. "'I have always had an appreciation for approachable, wearable clothes. There is nothing more satisfying than giving real people a hint of glamour."

Lyons says that one of J. Crew's strengths is its ability to update the classics. This approach to design helped the company's revenues grow 27 percent in 2006, to $366.7 million. And energizing classics and inventing new ones has been a key factor of Ralph Lauren's success. Polo Ralph Lauren saw revenues rise 15 percent, to $4.3 billion, for the fiscal year ended March 31, 2007.

"Maybe we are the reason why this trend is happening," Claudio Del Vecchio, the owner and chairman of Brooks Brothers, said as a joke - sort of. He noted that the popularity of preppy and classic clothes is taking place simultaneously with the renewed success of Brooks Brothers.

Del Vecchio acquired the 189-year-old company from Marks & Spencer in 2001 and, in addition to restructuring, Del Vecchio and his team have sought to improve the quality and style of the men's and women's selections. For example, the company recently added a "trim fit" option to its basic oxford shirt for men, "opening the door to younger customers," Del Vecchio said.

He also surprised the fashion world last year by inviting Thom Browne to create "Black Fleece," a capsule collection for men and women that had its inaugural party in New York Tuesday.

Observers note that the preppy out there today is not the clichéd preppy uniform of the 1980s (like a twin-set with pearls) but a more interpretive version ranging from the sexy, soft button-downs and super low-waisted jeans of Abercrombie & Fitch to the sly martini glass-printed ties of nine-year-old Vineyard Vines.

Yet Lilly Pulitzer, reborn after being acquired by Scott Beaumont and James Bradbeer in 1993, continues to thrive with its super-preppy signature bold floral prints for women and girls, and brightly printed blazers from its recently debuted men's collection.

Many believe that this preppy peppering of fashion will be around for some time. "If our orders for upcoming seasons are any indication - and we book our orders a year ahead - then we expect this preppy or classic trend to continue," said Shep Murray who, along with his brother, Ian, fled New York in 1998 and founded Vineyard Vines with an $8,000 charge on their credit cards.

Last year, this fashion firm, based in Stamford, Connecticut, which makes clothes and accessories for men, women and children, had sales of $37 million - and this year they expect sales to rise 60 to 70 percent. The Murrays do not disclose profit or other figures of their privately held company.

Ian Murray notes that the bulk of the Vineyard Vines business is done in staples - khaki pants, solid polo shirts or cabled sweaters - as opposed to their tongue-in-cheek brightly patterned preppy separates, even though the louder pieces draw customers into their stores.

"Preppy has always been around, but now its fashionable," observed Robert Siegel, the chairman and chief executive officer of Lacoste U.S.A. For the American market, the subsidiary of the venerable 74-year-old company tweaked the shape and fabrication of its legendary polo shirts, introducing new form-fitting cuts, stretch blends and a tinier crocodile.

The reasons behind this so-called trend are many. Lyons at J. Crew referred to the lack of designers creating innovative, modern classics. Thus, those who do stand out and have an impact in the market.

Robert Burke, founder of the Robert Burke Associates luxury brand and fashion consultant based in New York, followed the same train of thought. "Consumers don't want to look like fashion victims," he observed.

Tiffany Vasilchik, a principal at BrainReserve, the trend forecasting and marketing consultant founded by Faith Popcorn, said the preppy trend is a result of "icon toppling" trends and expects it to continue for what the agency describes as "the medium term."

"People are frustrated by big corporations, from the Catholic Church to Enron, and the scandals. They are thirsty for stuff that's good. Preppy is here as a solution; it's a clean look, more innocent," she explained. "It's why some are flocking back to classic retailer Talbots because they want their children to actually look like kids."

Many in the business use the terms "preppy" and "classic" interchangeably but most consider preppy to be the extreme or exaggerated pink-and-green interpretation of classic styles.

"Preppy is polos, cables, pink and green, pears and seersucker, all worn together," Lyons of J. Crew said. "Classic is taking those pieces you've owned for years and making them look new with your own take and style."

The term "classic" is generally frowned upon in the fashion world because it conjures up images of frumpy navy blazers or practical trousers. But some of the more "fashion forward" designers like Thom Browne exploit classics and take them to the edge.

"My signature collection started from a classic point of view - timeless, effortless. It's how you take something classic and interpret it," Browne said in an interview earlier this year.

"Classic becomes a bad word when it's lacking in personality or identity," he added. "If it's simply a commodity, then it's nothing. Yet, there is nothing more beautiful than a classic white shirt."

'Preppy' and 'classic,' but so 21st century.

TIME: Fashion's Final Cuts

TIME | KATE BETTS

It's not every day that the Orangerie at Versailles is transformed into a bal des artistes complete with flamenco dancers, a gospel choir and a guest list that includes supermodel Gisele Bündchen, Spanish director Pedro Almodóvar and hedge-fund billionaire Steve Schwarzman. But this was the 60th anniversary of the house of Dior, and the resident designer, John Galliano, was putting on the glitz, while his boss, LVMH CEO Bernard Arnault, ensured that the fabled French house's high-end image was telegraphed around the world with all the rat-a-tat-tat of a flamenco beat.

Although Galliano, 47, was celebrating only his 10th anniversary at Dior, there were other, more poignant and symbolic anniversaries at the fall 2007 haute couture shows in Paris and Rome this past week, including Valentino's 45th, where, it had been rumored, he would announce his retirement. Like Giorgio Armani and Karl Lagerfeld, Valentino, 75, is part of a generation of designers in or nearing their 70s. And the questions hovering over the runways concern not trends or silhouettes but rather the end of a golden era in fashion that has been defined by a handful of visionary designers.

"When all these grands mâitres disappear, this world of hypersophistication will disappear too," says Jean-Jacques Picart, a Paris-based consultant who for many years helped Christian Lacroix build his business. "It will become a niche business. The world is changing, and appearance is less important than before." Certainly the kind of appearance that requires deep pockets and two or three fittings in a Paris haute couture salon will eventually disappear. Indeed, much of the pageantry at places like Versailles is for image and also, to a certain extent, to influence more accessible markets like ready-to-wear and even the fast-fashion labels. The pale blue of Galliano's Renoir-inspired Dior couture dress might inspire a trend for blue in the house's ready-to-wear collection next season or a dress that will show up on the racks at H&M next summer or even an eye shadow on the cosmetics counter at Macy's.

But, in many ways, the same marketing machine that has taken fashion global and made luxury titans like Arnault rich has also made it impossible for a younger generation of designers to build their reputations and brands the way their predecessors did. Galliano, for example, has had to rely on the name recognition that comes with working for an international powerhouse like Dior to bolster his eponymous label, which is also backed by Arnault.

"Today it's a very different way of creating businesses than 30 or 40 years ago," says Robert Burke, a luxury consultant. "Back then designers were able to take their time and to focus on the high end, but today it's increasingly difficult to make money on the high end. You have to diversify and license your product very quickly."

And yet the business model needs star power to drive the marketing machine and inspire the creativity that influences fashion at every price point. There would be fewer eye-catching options at the local mall without the high end to inform them. And the high end in turn demands the vision of a personality or a point of view. "Miuccia Prada's personality permeates every bit of that brand," says Tom Ford. Unlike the brands of most other new-generation designers, his menswear line is funded entirely with his own money. "It helps to have a personality to latch onto as a brand. It absolutely matters not only as a public face of the brand but also for the creation of the product."

But not everyone agrees with Ford. Gucci Group CEO Robert Polet has long insisted that the brands are the stars now, and his strategy of hiring lesser-known designers, including a few of Ford's former design assistants, seems to have paid off: sales at Gucci have soared to $2.1 billion. "Brands can survive without the namesake designer if you have a team and staff who understand the DNA of the brand," says Dana Telsey of the New York City--based retail-research firm Telsey Advisory Group . "Most of these brands that are global now could never have gotten to where they are with just one person anyway."

Ultimately, fashion is a keen reflection of the times. And if the golden era of couture ends with this generation, perhaps that is inevitable. Says Lagerfeld, who, like Valentino, started as an assistant in Paris' couture houses 50 years ago: "Times are what they are, and you have to find your niche in the moment and not dwell on the good old days."

TIME: The Third Season

TIME | KATE BETTS

Back in the late 60s and early 1970s, fashion designers created warm-weather clothes for affluent women who were heading south to the tropics, where they would wait out winter's chill in more temperate climes. They called it resort or cruise wear, and the tags stuck even when many of those women started staying home and going to work.

Today resort, that élitist-sounding fashion niche, has exploded into a full-blown category complete with runway shows, designer appearances and lots and lots of very salable merchandise. Originally conceived of as clothes to wear on a vacation--casual separates, swimwear, maybe a few simple cocktail dresses--these days resort includes evening gowns for the red carpet, accessories and suiting in lightweight fabrics like cool wool or cotton, something that could be worn to the office in mid-fall or early spring. As a business, it has become as important to big-name designers as the more high-profile clothes they create for their spring and fall seasons, not only for the long shelf life--merchandise sold under the resort label can sell at full price from late October all the way through to early April--but also as a fashion testing ground. Many European designers use their resort lines to try out ideas for upcoming spring collections. A color like last spring's grass green and a shape like the skinny pant first emerged in resort collections. For its 2007 resort line, Prada is introducing a new fuller shape, floral prints and a brightly colored soft leather bag. Chances are a variation on these looks will show up again on the label's spring runway. Prints are also an important trend at Louis Vuitton, where designer Marc Jacobs worked with English artist Pippa Cunningham to create travel-themed prints that playfully feature airplanes, anchors and motorboats.

Resort collections also provide an opportunity for press attention at a time when the market is quiet. In May, both Dior and Chanel invested in full-scale runway shows in New York City and Los Angeles, respectively. Chanel's elaborate presentation at a private hangar at the Santa Monica airport included a host of camera-friendly celebrities like a pre--Memorial Day rehab Lindsay Lohan, Victoria Beckham and Demi Moore, plus two Challenger 601 jets that carried the models right onto the "runway."

Resort wear is typically high-priced, and according to designer Michael Kors, the resort season represents the biggest sales opportunity for his signature line. In response to the demand for these clothes, Kors will, for the first time in 26 years, schedule trunk shows this fall to presell the collection to clients in his own stores.

"The idea that people are only buying these clothes to go to the Caribbean or on a weekend in Palm Beach is a complete misnomer," says Robert Burke, a luxury fashion consultant at Robert Burke Associates. "For retailers, it's about having fresh product on the floor. The luxury shopper is shopping now multiple times during the year. They're not just going into stores in March or September to buy their spring or fall wardrobes."

And they're not just shopping in the U.S., either. Many of the products designers offer--whether they be a floaty chiffon Dior cocktail dress or a printed Gucci skirt--are also in demand in new and expanding luxury markets, such as Dubai, India and parts of China. They're perfectly in keeping with another trend: global warming and the desire for lighter clothes. "From the Sun Belt to the global-warming issue, [resort wear] has evolved to reach a very broad audience," says Gucci CEO Mark Lee. "If you look at the items offered in the collection, there is a complete spectrum, from summer-weight suits to leather pieces."

For businesses like Versace S.p.A., the resort collection has provided an opportunity not only to presell most of the collection (as much as 70%, according to Donatella Versace) before it hit the runway but also to create clothing that is ultimately more accessible than the usual runway theatrics. "The customer feels more comfortable with this collection," says Versace, who made a special trip to New York City this month to present 24 resort looks to the press and buyers. "There's an easiness that is hard to do on the runway because the expectations are so much higher for fashion shows."

Indeed, a simple white piqué A-line Versace coat or a classic Chanel tweed jacket might not make the headline news that fashion houses are seeking for their big spring and fall presentations. But then again, as Versace reflected, "maybe the time of fashion shows as major events is over. This is a time of reality now."

TIME: Fashionably Late

TIME | ADAM SMITH

With its dark furniture, high-tech gadgets and model jet plane, Philip Green's London office feels a lot like the work area of an investment banker or hedge fund manager. On the wall behind his enormous desk, there's even a photograph of Wall Street antihero Gordon Gekko. But on this May morning, a daytime-TV segment flickering on his sleek, flat-screened television betrays his role as a master of an entirely different universe: women's fashion.

Green, the billionaire owner of the Arcadia Group, which controls a clutch of U.K. clothing chains like Miss Selfridge and Wallis, is watching a spot about the latest fashion collection to hit Topshop, the jewel in Arcadia's crown. The much-ballyhooed line inspired by Kate Moss — the supermodel's own wardrobe formed the basis of the designs — went on sale the previous night at the chain's flagship store in London. Basking in the nonstop Moss-fueled coverage, Green can't help but smile: "You couldn't dream for a better start," he says. And on May 9, the hype hopped the Atlantic when Barneys, one of New York City's toniest department stores, opened a boutique selling Moss's striped blazers, skinny jeans and hot pants. After four hours, the boutique sold out; even the mannequins were stripped of their dresses.

Moss's new line is only the latest in Topshop's recent successes among "fast-fashion" retailers, which specialize in almost constantly updating collections of cool clothing at prices so low the clothes are almost disposable. Over the past nine years, Topshop has carved an enviable niche atop this hypercompetitive sector in Britain by appealing to a broader demographic than its competitors, by getting its new designs quickly to market and — in a category where inexpensive too often equals cheap — by emphasizing quality. Topshop's combination of fashion and value has "changed the way we dress," says Lauretta Roberts, editor of Drapers, the British fashion-business bible. That mix has also made it a hit not just with the masses but with celebrities and fashion bigwigs as well. No American fashion editor's trip to the U.K. is complete, for example, without a pilgrimage to Topshop.

The Topshop formula is proving not just popular, but profitable, too. The chain made around $200 million in pretax earnings last year on revenues of approximately $1.14 billion. That's about half the total profits and a third of sales at the privately owned Arcadia Group. It wasn't always this way. As recently as the late 1990s, says Nick Bubb, a retail analyst at Pali International in London, profits were as little as one-tenth last year's haul.

How did Topshop turn it around? By heading (relatively) upscale. Tired of its reputation for tackiness and losing out to budget chains in the '90s, Topshop's managers decided to stop competing just on price. "The decision was made to create a fashion authority," says Mary Homer, a joint managing director of Topshop who's been at the retailer for 20 years. (Green, a retail entrepreneur with years of experience in various types of businesses, acquired Arcadia in 2002, and helped execute the strategy already under way.) The company now employs 22 of its own designers, up from around a dozen in 2002, and they aim to create new looks just as deftly as they copy those from the catwalks.

Getting new fashions into stores even faster than before also became a central part of Topshop's revival. While traditional clothing retailers might take six weeks to get a design to sales floors, Topshop's trucks are delivering new duds to its outlets usually just two weeks after suppliers have received the order. The result: Topshop debuts hundreds of new pieces in its London flagship outlet every week. And if the emphasis on speed and stylishness means Topshop's togs are a bit more expensive, then so be it. That's a premium the chain's customers have come to expect and are willing to pay for. "If we can get it in four weeks in the U.K., we'll buy it at four weeks in the U.K. rather than buying it cheaper" elsewhere over a longer time frame, says Karyn Fenn, Topshop's other joint managing director.

With 300 stores in the U.K and 100 international outlets (all of them franchises) in Asia, Europe and Latin America, Topshop is looking to expand its reach further overseas. "There's no lack of demand," Green says. Even after opening its biggest international store in Stockholm, he says, Scandinavia still holds tremendous potential. But to grow much larger, Topshop will have to make some radical changes. Today, no matter where its smock dresses or miniskirts are stitched together — or where they're destined — everything passes through the U.K. "The existing franchising model and supply chain would not work for significant global expansion and will need to be adapted," Green says. To construct an efficient, decentralized distribution system is a logistics puzzle management is now attempting to solve.

Caution also defines Topshop's approach to the U.S. There's no denying the lure of the American market: while fast fashion accounts for around 12% of the British clothing market, that figure drops to just 1% in the U.S., according to Bain, a consulting firm. Spying massive opportunities, Topshop's European rivals have been quick to pile in. Spain's Zara has two dozen stores in the U.S.; Swedish chain H&M boasts more than 100.

Not Topshop. Though it is content to market individual collections in America — alongside Barneys' agreement to flog the Moss range, Topshop's Unique line already sells in the Opening Ceremony boutique in New York City — it has not yet followed with any stand-alone stores. The track record of British clothing retailers in the U.S. is not particularly auspicious. A number of retailers, including the ubiquitous U.K. chain Next, have retreated after failing to find their feet in the competitive U.S. market.

While it looks into diversifying its supply chain, Topshop's go-slow approach to the American market is especially prudent. And glitzy department stores are an ideal venue to test market the Topshop brand. Moss's 50-piece collection might seem cheap compared to most else Barneys has to offer — prices range from around $24 for a strappy tank top to $300 for a leather jacket — but these days, says Robert Burke, a retail consultant in New York, fashion retail's territorial lines are blurring. "Traditional categories no longer exist, he says, "There's almost a reverse snobbery today: people really like the idea of mixing a variety of price points." In other words, few fashionistas think twice about pairing a $1,000 jacket with a $20 T shirt anymore. Launching Moss's opening collection in Barneys, Burke says, makes "perfect sense."

Even so, opening stand-alone stores in the U.S. is clearly one of Green's ultimate goals. "I'm not going to get enough scale out of Barneys," he says, adding that he set up a series of real estate meetings in the U.S. to coincide with the Barneys launch. But with competitors like H&M and Zara already flourishing in the U.S., is there room for Topshop? "H&M and Zara are hitting the ball out of the park," reckons Howard Davidowitz, chairman of Davidowitz & Associates, a New York-based retail consultancy. But thanks to its broader customer appeal, Davidowitz says, the potential for Topshop "is better than either of these."

Not that there isn't plenty of opportunity to occupy Topshop at home. The company is looking at ways of expanding its brand into new areas in the U.K., too, from confectionery to luggage to footwear. With Topshop stores already selling 35,000 pairs of shoes each week, says Green, "We've got a very good shoe business. Is there a Topshop shoe business in its own right?"

With a brand this strong, it's difficult to see why not. Earlier this month, 21-year-old student Caroline Dickinson joined thousands of shoppers for the launch of Moss's collection in London. She waited in line for four hours to buy a $100 white cotton dress to wear at her university ball. By the time she got inside the store, however, she was told that item wasn't available. Unperturbed, Dickinson emerged a quarter of an hour later and a few hundred dollars lighter with two other dresses and a couple of vests. And she vowed to track down the white frock another day. That is the kind of loyalty any retailer would envy.

FINANCIAL TIMES: From gangsta rappers to classic chic

FINANCIAL TIMES | ELIZABETH RIGBY

Tommy Hilfiger is reclining in a deep sofa in a private room at Claridges Hotel in London trying to weigh up which is his preferred Hilfiger pin-up: Is it Paris Hilton, the poster girl of Hollywood’s brat pack, or Lauren Bush, the archetypal all-American girl?

“You can never control who wears our clothes,” says the immaculately dressed fashion entrepreneur. “But we feel that with our European-influenced approach, the sophisticated and higher level of quality and fashion somehow reaches the type of people who represent the brand very well.”

A decade ago, Mr Hilfiger may have given a very different answer. Back then, the label he launched in 1984 had turned into a mega-brand on the back of celebrity endorsements from edgier stars such as Snoop Dogg, the gangster rapper.

But its success as the favourite and most fashionable label with America’s youth was short-lived.

By the early noughties, through a mix of changing tastes and competition from newer brands such as Abercrombie & Fitch, the business was struggling. Profits fell from $123m in 2001 to $85m in 2005.

The solution was radical: Hilfiger, which had a far more chic image outside of its home market, was taken private in a management buy-out by its European team, led by Fred Gehring, now chief executive, and backed by Apax Partners. The headquarters were moved from New York to Amsterdam and Mr Hilfiger, who remained creative director, dropped streetwear for classic chic.

The positioning of Europe became the positioning for the rest of the world. “Fred started Tommy Hilfiger in Europe 12 years ago, and he positioned the brand on a much higher level,” explains Mr Hilfiger. “He put clothes only into very sophisticated, better specialist stores.”

Turning round an all-American brand from the vantage point of Amsterdam is a novel – and high-risk – idea. But Mr Hilfiger, kitted out in a pristine pin-striped suit, complete with brown suede desert boots, says he had little choice but to turn to the European team.

“Decisions were being made that were not necessarily the best for the business, and it was very frustrating,” he says, looking back. “Tommy Hilfiger was struggling, it was public and decisions were made to do certain things that were not healthy for the business.”

He is about to go on but is cut short by Mr Gehring. “I don’t think you should go into that,” he says.

Mr Gehring says he has “redefined” America over the past three years. “We have shrunk the business and traded it up. We have a position now where there is a significant level of demand and a much lower level of supply.”

The fashion label has signed an exclusive wholesale deal with Macy’s to stock Tommy Hilfiger Sportswear. This is the classic casual line – navy wool jersey dresses paired with riding-style burgundy boots – that Mr Hilfiger showed on the catwalk at the Lincoln Center in New York. It is aimed at 25- to 45-year-old Americans, who have a household income of at least $75,000.

Street wear is over, with the old US “baggy jeans” collection replaced with Europe’s Hilfiger Denim. This line is targeted at 18- to 24-year-olds and competes with the likes of Diesel, Replay and G Star.

It is an “unusual” rebranding exercise, says Robert Burke, founder of Robert Burke Associates, the New York luxury consulting firm. “It is always more difficult to trade up than trade down in any brand. I think that Tommy Hilfiger and his team are repositioning in Europe first because they have a better chance trying that in Europe,” he says.

The next stage is to introduce Tommy Hilfiger stores into the US. Of 550 shops around the world, only six are based in the US. In November, the company plans to open a flagship on Fifth Avenue in New York for conservative, affluent urbanites. It will open up to 10 stores a year for “several years”.

“Our own brand is positioned in a different way [now],” says Mr Hilfiger. “Ten years ago it was positioned with a lot of red, white and blue and a lot of logos and you would look at these street kids wearing the clothes as billboards.”

Now Tommy Hilfiger – as modelled by Ms Bush – represents something very different. “The brand had been known for its streetwear and now it is not as much on people’s radar, which is probably a good thing when they go about repositioning,” says Mr Burke.

TIME: Stealth Style

TIME | MARION HUME

IT COULD BE A RECIPE for how to go broke in the fashion business: establish yourself somewhere far off the style map, target women over 35, ignore the current accessory-driven business trend, and insist on using luxurious fabrics so that your clothes become prohibitively expensive. And don't forget to make sure your heritage is as unhip as possible, something along the lines of your grandmother's founding the family company with an apron business.

Despite all these odds, Akris (an acronym from the name of the above-mentioned grandmother, Alice Kriemler-Schoch), based in the Swiss town of St. Gallen, has elegant women across North America praising its elusive balance of style, fit and quality. Women tend to discover Akris for themselves. Nicole Kidman spotted a coat in a store window on a Sunday evening and ordered it the following morning. Other fans include Susan Sarandon and Secretary of State Condoleezza Rice.

Not surprisingly this Swiss family company, now helmed by Alice's grandsons Albert and Peter Kriemler—the designer and the president, respectively—is lauded by retailers for its precise deliveries and perfect execution (at the factory, each garment is accompanied by a dossier explaining what needs to be done and what can go wrong) as well as for actually listening to what stores want. When Joseph Boitano, a senior vice president of Saks Fifth Avenue, explained the importance of offering a cruise collection (a concept less established in Europe), Albert headed to Florida, where he spent weeks studying what chic women want on vacation.

"Akris is in the top 15 brands in all areas of Saks," says Boitano, noting that Saks carries the main line in 20 stores and the bridge line, called Akris punto, in 47 stores across the U.S. "When you consider Akris does not have shoes, handbags, fragrance, and its sales are driven entirely by ready-to-wear, that is a major feat."

Robert Burke, who heads his own consulting business in New York City and was previously with Bergdorf Goodman, says a single salesperson there writes several million dollars' worth of orders for the label each season. Burke even mentions Albert Kriemler, whose name is still far from well known, within the designer superleague: "Albert is unwavering in who he is appealing to. You look at the great designers—Ralph Lauren, Chanel, Giorgio Armani—and what links them is they stick to their own aesthetic, they stick with their customer."

St. Gallen is not where you would expect to find the next Armani. Yet being based not only in Switzerland—which has one of the most expensive labor forces in the world—but in a little town bordering the Appenzell region is an advantage, insists Albert Kriemler. He is not what you would expect of a fashion designer, given that he is rather serious and erudite (his references can include modern art and Russian philosophy). Being isolated means that the tailors and technicians he collaborates with, all of them full time and many with the company for years, think Akris from morning to evening. "That's why I don't work with freelance people," he says. "It's not right for us that someone leaves and misses the evolution in our overall process."

Albert's vision is simple: to create clothes that enhance the personality, never hide it. "I think it is inappropriate if the first thing you notice is a woman's dress, when you should see the woman first," he says. "Also, we have other senses besides eyes. We feel clothes on our body, and this is as important as looking right. And I have the conviction women should have the same rights as a man: if she loves a jacket, a pant, she should continue to wear it next season."

David Asher, vice president and general merchandise manager of womenswear at Holt Renfrew, the Canadian department store, says the savviest of shoppers get Akris because these fashion purists "aren't motivated by splashy ad campaigns but by fresh femininity, superior construction and focus on each piece of clothing, rather than on an overextended megabrand with its name on every manner of product category."

Pretty views, an equable climate and the fact that because St. Gallen is not a fashion mecca, the designer is not distracted by what he sees around him mean higher productivity for Albert Kriemler, who works either in his attic studio atop the old school that houses the Akris ateliers or at his desk at home, looking out onto a meadow of wildflowers and an installation he commissioned from the artist Ian Hamilton Finlay.

In 1922, Alice Kriemler-Schoch could never have imagined that her grandson would one day show on the official Paris fashion-week schedule (the first Swiss designer invited to do so) or that in starting her little apron business for something to do while she raised two sons, she was founding a dynasty. After the death of her husband in 1944, the business passed to their eldest son Max Kriemler. In 1980, Max's eldest son Albert, then 20, was about to move to Paris when his father's right-hand man died suddenly, and Albert stepped in. Seven years later, after completing studies in law and business management, Peter joined the family firm. (Albert and Peter have a sister who is a doctor.)

"We always felt responsible for what we inherited from our parents and for the loyal people of this company," says Albert. When the brothers took over, their target was to dress the customer seven days a week from morning into evening. "I said to Peter, We must do what we feel, without listening to what others are doing," says Albert. The brothers still agree. "When you get along within the family, it is the most beautiful thing that can happen in your life," Albert says. "Two people mean two opinions, and when there is a disagreement, you must be able to talk this through."

Albert Kriemler may be more reserved than your typical designer, but he recognizes that part of the role of the designer is to be the front man, and he shields his businessman brother from media attention. The businessman gives the designer something rare in return: time. Albert can work at his own pace to ensure the perfection for which Akris is now celebrated.

The structure of this private company is also unique. "The moment you get into classical management structures where you do budgets for the next five years, it's so insecure. We do not do that," says Albert. "What we do is dependent on how each collection performs. We don't have accessories, we don't have licenses; we need to do fashion well."

A downside of any family firm is that it prompts the question about the next generation. Albert understands that interest, "for there was already a pressure in our case because our parents and our grandparents had run a successful business. My brother and my sister have children, but it's premature to discuss their futures."

What seems certain is that the two brothers will continue together in their quest to turn a company based in rural Switzerland into an international powerhouse. Albert recently refused an offer from a major design house because, he says, "you cannot have two souls." His is clearly in such a quiet place that when he strokes a fabric and falls into silent contemplation, you can hear the tinkle of cowbells from the nearby hills.

TIME: Art of the Deal: Green is the New Black

TIME | DEIRDRE VAN DYK

IN DECEMBER 2003, Robert Burke, then fashion director of Bergdorf Goodman, was in Paris giving a talk on the booming business of fur accessories when he looked around the ballroom at the Hotel George V and noticed that a quarter of the seats were filled with men in business suits. During dinner and coffee breaks at the two-day luxury conference, the suits from places like Bear, Stearns cornered Burke and bombarded him with questions about luxury businesses—which ones had potential to add secondary lines and which ones could expand with worldwide licensing.

For years the luxury sector, now a $140 billion business growing at approximately 7% a year, according to the Telsey Advisory Group (TAG), an independent research firm based in Manhattan, has been populated by a handful of familiar faces: Bernard Arnault of LVMH, François-Henri Pinault of PPR and the odd manager of Gucci or president of Chanel. But cash-rich private-equity firms have taken note of the impressive numbers those companies are posting. Gross profit margins for apparel are 50%, and for leather goods they can be as high as 77%, according to TAG. So it's not surprising that in the past two years dealmaking in this sector has shifted into overdrive. Since February alone, Jil Sander was snapped up by London-based Change Capital Partners, English luxury retailer Asprey was bought by New York City--based Sciens Capital Management and a U.S. hedge fund, and the Italian apparel brand Piazza Sempione was acquired by Paris- and Milan-based L Capital. More deals are rumored to be in the works.

"I get calls every day," says Robert Bensoussan, CEO of Jimmy Choo, who, with funding from private equity, took the brand from $20 million to $140 million in sales in five years. "Whether they are managers asking for advice on how to speak to private equity, family-owned companies asking what working with private equity is like or private-equity people saying, We're interested in your success story."

Bensoussan, who had orchestrated the sale of British apparel firm Joseph to a Belgian investment group and before that had been president of Christian Lacroix at LVMH, ultimately sold Jimmy Choo in 2004 to Lion Capital for five times what he and his partners at Phoenix Equity Partners originally paid in 2001. "It gave a lot of people a wake-up call," he says.

Most analysts say the attraction of luxury these days is the growth opportunity. TAG's Dana Telsey, who has tracked retail for 21 years, attributes the increased interest to "how profitable these businesses can be when run well." Companies like L Capital have earned five times their investment in firms like retail clothier Gant and three to four times their investment with Antichi Pellettieri SpA, an Italian apparel and accessories company—in just over three years.

Investors see the possibility of expanding the brands in China, India and Russia, adding secondary lines and product extensions. "All companies we get involved with have attractive growth characteristics," says John Megrue, a co- CEO of Apax Partners, which just bought Tommy Hilfiger. "Well-run consumer companies ought to grow way north of the GDP."

But not every deal hits the ball out of the park; fashion remains a risky go-with-your-gut business. Every six months the creative cycle has to rev up again, and God forbid the brand doesn't hit the right trend one season. The result can be costly, with stores filled with unsold merchandise. The potential for failure is great, "but the upside opportunity is also that great," says James Hurley, who follows the luxury market at TAG.

One of the reasons Change Capital viewed Jil Sander as an attractive investment was that it doesn't rely on up-to-the-minute trends to the degree that a brand like Dolce & Gabbana does. "You would not expect a collection to come out and lose 50% of your sales because you didn't hit the right button," says Stephan Lobmeyr, a managing director at Change Capital. "I'm not saying it's not innovative. You need innovation or you don't have a place in high fashion, but it's more stable."

Bensoussan helped limit his risk potential at Jimmy Choo by building a classic collection. "There were these fabulous styles that they used to throw away every season," he says. "Now 10% of our collection is made up of classic styles, and that group has become 25% of the business." Bensoussan made other changes too, streamlining production, opening more stores and adding handbags and eventually fragrances to the line. "We had a Ferrari, but we had to put a bigger engine in."

Good management like that, something relatively new to the fashion business, is what draws investors in. "That's probably the No. 1 criterion for any private-equity investment," says Philippe Franchet, a partner at L Capital, explaining why they invested in the low-profile Piazza Sempione brand. "The management team is brilliant." Translation: it has a manager with a good production record and a solid business plan. When Enrico Morra, managing director of Piazza Sempione, and the company's founders met with L Capital's partners, they outlined exactly what they wanted to do, including opening more stand-alone stores and expanding into categories like handbags and shoes. In short, they had an estimated $60 million business and wanted to take it global.

"Entrepreneurs can grow a business to about $50 million," says William Smith of Global Reach Capital, a new private-equity firm that specializes in consumer brands and just invested in Tory Burch, a New York City--based apparel and accessories brand. "That's where we come in. We can take it to $250 million." Says Burke, who now works as a consultant to private-equity firms, including Global Reach Capital: "There are a lot of great fashion brands that don't have the capital or the business acumen to grow." That's where a private-equity firm can provide them with the money and the right kind of management."

Private-equity cash allows a small company to expand worldwide quickly and strategically. "It's not just an injection of money," says Morra. "They're a sparring partner, someone to sit down to discuss, 'Do we have to open on Madison Avenue or in the meatpacking district?'" He partnered with L Capital because its advisers knew how to get handbag and shoe lines up and running, something that could help Piazza Sempione avoid missteps.

For family-owned companies like Piazza Sempione eager to maintain some sort of control, private equity is a plus. "Before, the only chance for a family company was to sell themselves to a big conglomerate or luxury group," says Bensoussan. "And then they would lose all their power." And it's good for managers; it gives them something they like. "Freedom!" says Bensoussan, laughing. "If you deliver what you promise, it's a dream world." Working for a conglomerate like Gucci or LVMH has its advantages—access to real estate, saving on advertising. But there are downsides. "Sometimes the smaller companies don't get all the money, all the care, all the love that is needed," he says.

But unlike Gucci Group or any other conglomerate, private-equity firms aren't in the investment for the long haul. Brands bought today will undoubtedly be on the market again in five or so years, sold to another private-equity firm or a luxury conglomerate—or they are taken public. "It's a different approach," says William Cody, a professor in retail and marketing at University of Pennsylvania's Wharton School. "Gucci is looking to build a brand to fold into its business. Private equity is looking to build a brand to sell. They always have an exit strategy." So if things aren't working out, the owners or managers may be moved aside. But, adds Cody, "private equity can give them the capital to move them from the runway to the street." Which is good not only for fashion but also for consumers. "We may get access to designers who may not be able to get into the stores on their own. It all adds up to more choice."

In the end there needs to be a balance between the showroom and the boardroom. Designers may know how to make a gorgeous frock, but "sometimes they do more for the image than the profitability of the company," says Lobmeyr. "If the two parties respect each other—when the financial people do not try to influence the creative process and the creative people understand there are basics that must be followed in order to run a company profitably—it's actually a winning formula."

But will that formula change the face of luxury? "If they change something in fashion, it will be in how they manage companies, but it will never be the product, the style, the design," says Bensoussan. "They don't know anything about it. After all, the next day they are looking into fruit smoothies."