March 27, 2013
It is only a few days after the announcement that conglomerate PPR is changing its name to Kering and the snide remarks continue.
There are mainly two groups of analysts who dismiss the change of name: news analysts who continue to view the conglomerate as a portfolio of disparate brands, the strategy of which they are unable to articulate; and financial analysts whose interest is focused on financial results exclusively.
Whether the conglomerate assumes a new name is irrelevant as long as it does not hurt the share price.
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As for business strategists, whose voice has not been heard yet neither have their quotes been printed to weigh in on the matter, they are busy re-examining their own company’s strategy.
While everyone is observing how their shares are treading in the market (at market closing on 3/22/2013: LVMH at $130.85 EUR and 0.15 percent up; Hermès International at $262.55 EUR and 0.93 percent up; Richemont 73.15CHF and 0.15 percent), the Pinaults, the founding family of PPR (Kering as of June 18, 2013, pending legal approvals) are taking the heat.
PPR’s share price fell to $171.95, a change of -1.22 percent, after the name change announcement.
Chanel, the fifth star in the game, is a family-owned company, not listed on the exchange.
Rather than talk about a universe of luxury brands, which erroneously makes the market seem more competitive than it truly is on its macro scale, one must remember that the five aforementioned companies are the major players when it comes to luxury brands.
In other words, this is not a universe but a microcosm. And in that microcosm, what counts is a tightly defined business strategy.
Let us forget for a second that PPR’s name is changing and let us look at the company’s portfolio.
The company divested of the Parisian department store Printemps (the second P in PPR’s name) and is in the process of selling the mail-order business Redoute (the R in PPR’s name), among other suffering assets such as FNAC, the international entertainment retail chain that offers cultural and electronic products and that needs a major business overhaul.
That is to say, two letters of the three-letter acronym have been on their way out for a while now.
What remains is to determine what type of strategy Kering is implementing, especially as it compares to its major competitors in luxury.
Creation of synergies within the group will determine the value of the conglomerate as the financial value of its brand.
What I am suggesting therefore is that the change of name is not a case of “corporate rebranding,” as several analysts rushed to contemptuously point out, [one destined] “to fill a library” along with those that failed to move the needle upwards.
This change of name, along with its tag line, “Empowering Imagination,” are expressions of the conglomerate’s clearly defined business strategy in creating synergies among its brands.
LVMH has not forced any synergies among its brands, but has deliberately maintained its brands’ independence, a trait that seems to be a strength in this particular group.
Hermès is tending to its own brands (Crystallerie Saint Louis, Puiforcat, Périgord, John Lobb) with the type of care and attention parents show to their children: They are all trained the same way, and groomed according to the same standards, so as to showcase their individuality in the best possible way.
Chanel is consistent as a fashion company. Its owners, the Wertheim family, carefully keep other brands as entirely different enterprises (i.e. bathing suits by Eres).
Where does all this leave Kering?
Designs on brand
It seems that the important change in the conglomerate is the synergistic approach to managing its brands.
This does not necessarily mean corporate synergies, since Kering’s portfolio includes some very powerful names and market competitors such as Bottega Veneta, Gucci, Saint Laurent Paris and Balenciaga, although grooming talent and gradually assigning greater responsibilities to executives within the group has worked for LVMH.
Kering is positioning itself for strong creative synergies, in what is pejoratively known as “right-brain” operations.
As François-Henri Pinault has asserted, “No individual designer should have a bigger brand than the parent company.”
“Empowering Imagination” is a motto with tremendous power in the company’s management of its individual brands.
Expect to see younger designers at the various helms, including its sports and lifestyle companies.
Anticipate a very strong openness to change and trend setting, two ingredients without which the fashion industry would cease to exist, or, at least, would cease to be profitable.
Finally, look forward to a brand (Kering) that will employ luxury business strategies to manage its fashion business.
If the conglomerate continues on such a clearly defined path as it has under François-Henri’s leadership, the share price will see an uptick very soon.
Thomaï Serdari is adjunct associate professor of marketing at New York University’s Leonard N. Stern School of Business, New York. Reach her at email@example.com.