Deluxe: How Luxury Lost Its Luster (19 page)

To celebrate the launch of Un Jardin sur le Nil, in February,
2005
, Hermès organized a trip to Aswan for two dozen fashion writers and editors as well as Hermès public relations and communications directors from around the world. Hermès chartered a plane from Paris on Air Egypt, brought along champagne and good bordeaux (which Hermès reps served during the flight, since it was a Muslim-run carrier), and lodged everyone in Aswan’s finest hotels. For three days, there were nonstop activities: boat trips down the Nile, champagne-drenched picnics, a guided tour of the Temple of Isis, a Nubian banquet under the vaulted dining room of the Old Cataract with festive music by an orchestra and choir flown in from Cairo, and of course, at midnight, belly dancing. All of this was to give the Hermès staff who attended a flurry of ideas for marketing and advertising campaigns as well as window and store displays, and to provide the attending journalists color for their Un Jardin sur le Nil stories. Everyone went home with a bottle.

A few weeks after the Aswan trip, Un Jardin sur le Nil was everywhere. I walked through department stores in Paris and was spritzed by bottle-wielding ladies. There were ads, posters, and magazine stories. “You might spend the same amount in advertising that you’d expect in first-year sales,” Tom Ford told me. “If you are expecting $
25
million in sales, you’ll spend $
25
million in advertising.” And like a mortgage, you have to keep paying. “You must invest every year in fragrance advertising,” Jacques Polge said. “When you stop investing in publicity, sales drop.” The investment worked for Jardin sur le Nil. In its first year, it did approximately $
18
million in sales, making it the number one scent in Hermès’s $
100
million perfume stable. Number two was Eau de Merveille, which debuted a year earlier and sold a bit less than Un Jardin sur le Nil. “Today, it’s difficult to have a success,” Polge told me. “When you look at the number of perfumes that are launched and how few remain…The difficulty is not only to succeed, but to last.”

W
HEN A PERFUME
does succeed, the profits are formidable all around. The laboratory sells the juice to the licensee at two and a half times the cost. The licensee retails it for two to four times its cost and earns about
30
to
40
percent in profits. The licensee then pays the luxury brand royalties for use of the name. The big money is made in volume, which is why perfumes are pushed on the mass-market level, everywhere from department stores to airport duty-free shops—two thousand points of sale in the United States for major brands such as Chanel or Dior is not unusual. Hermès, by contrast, is in fewer than three hundred.

Since the late
1990
s, perfume sales have dropped, despite a dramatic increase in advertising. Like many in the business, Polge blames the crisis on what he calls the “banalization of perfumery”: the industrialization of creation, which kills craftsmanship, the mass distribution in perfumery chains—which, Polge says, “focus on the ephemeral side of perfume. All that we put into perfume disappears [there]”—and the “quick hits” like celebrity perfumes. They can be very lucrative—Jennifer Lopez’s Glow, launched in
2002
, sold $
80
million worth in its first three years—but they generally have a short life and contribute greatly to the market’s saturation.

In response to sluggish sales and declining profits, luxury brands have quietly been slashing the cost of production. One of the easiest places to cut back on cost—and therefore quality—is in packaging. When Alain Lorenzo took over as CEO of Parfums Givenchy in
1996
, he eliminated the cellophane inside perfume boxes. Cartondruck, a leading packaging manufacturer, has been told by luxury brands “to look at how we can execute the design at the lowest price,” says Bruce Betancourt, general manager for the company’s American branch in Fairview, New Jersey. “We will run four-color process instead of twelve. We can print metallics instead of restamping them. Sometimes we reduce the size of the box so we can print more boxes per sheet.” Most luxury brands have also eliminated what Betancourt called “flute liners”: the protective corrugated paper board around the bottle inside the box. “Now that is rarely used,” he says. The same goes with bottle production. Bottles for luxury perfumes cost on average
10
percent of total production cost, a figure that luxury brands constantly strive to reduce. “Everyone cuts corners, and they do it through the production,” Catherine Descourtieux, marketing director for Saint-Gobain Desjonquères, a leading maker of perfume bottles in Paris. “You can alter the shape of the bottle slightly or work with colors that cost less—subtle things that the buyer won’t notice.” Says Betancourt: “All brands launch their perfumes with what is more design-driven and then later make value-driven decisions to maintain the same look but reduce the aesthetics to reduce costs. This is pretty consistent.”

But more and more, luxury brands are also looking for ways to produce cheaper juice. For new perfumes, luxury brands submit briefs with a final production price that is half of what it was a decade ago—a price that, Polge says, “is impossible to meet at any quality. They ask to construct jasmine without any flowers. Sure, there’s been a progress in chemistry: we can reconstruct jasmine better than we would thirty years ago, but it’s lower in quality than the lowest of real jasmine. No odor can replace another. Replacing one with another that is less expensive is the greatest error you can make.” One company looked into taking the entire production process to China. “It was going to be produced and filled at the same location,” Betancourt remembered. To lower the production cost of existing perfumes, luxury brands have done something once unthinkable: they have instructed laboratories to change legendary formulas by using cheaper flowers or synthetics, or by simply diluting the perfume. “They say, ‘We need to cut costs. Do what you can to lower your prices,’” Jean-Claude Ellena told me.

Of course, brands and noses deny this. Most claim on the record that the changes in old perfume recipes are due to new government regulations on ingredients. But the watering down of good perfumes for economic reasons does happen. When I asked Jean Kerléo at the Osmothèque, who is effectively the caretaker of perfumes for the industry, if brands dilute or cheapen ingredients in classic perfumes, he looked down and quietly said, “Yes.” When I asked which brands, he responded, “I don’t think I should answer that.”

Perhaps the greatest threat to luxury perfume sales, however, isn’t cuts in costs or quality. It’s a shift in marketing focus by the luxury brands themselves. “Perfume today is important,” Jacques Polge told me, “but couture houses live with the handbag.”

L
OOK AT A WOMAN TODAY
,
any woman, and what do you see? Clothes that are more or less anonymous. Shoes that are more or less anonymous.

And a handbag.

It could be made of leather or canvas or nylon. It could be a tiny clutch in her hand or a backpack slung over her shoulder. Never mind what’s in it. More than anything else today, the handbag tells the story of a woman: her reality, her dreams. And thanks to luxury brand marketing, that handbag changes every few months, like the seasons, like her moods.

Since the late
1990
s, handbags and other small leather goods have joined perfume as “entrance products” to a luxury brand. Once costing as much as, if not more than, ready-to-wear, luxury brand handbags now come in a wide range of materials, from nylon to crocodile, and an abundant number of styles at prices as low as $
200
. Unlike perfume, handbags are visible on the body, and—like Air Jordans for teenagers—give the wearer the chance to brandish the logo and publicly declare her status or her aspiration. “[They] make your life more pleasant, make you dream, give you confidence, and show your neighbors you are doing well,” Karl Lagerfeld told me. “Everyone can afford a luxury handbag.”

Today, when you walk into a luxury brand store anywhere in the world, you will find yourself surrounded by handbags. They are the easiest luxury fashion item to sell because they don’t require sizing or trying on: you look at it, and if you like it, you buy it. Done. They are easier to create and produce than perfumes, and the profit margin is astounding: for most luxury brands the profit is between ten and twelve times the cost to make the item. At Vuitton, it’s as much as thirteen times. Handbags are the engine that drives luxury brands today. According to annual consumer surveys conducted by Coach each year, the average American woman purchased two new handbags a year in
2000
; by
2004
, that number was more than four. At Louis Vuitton’s immense four-floor global store in Tokyo,
40
percent of all sales are made in the first room, which sells only monogram handbags, wallets, and other small leather goods.

“With the bag…there are no leftovers because there are no sizes, unlike shoes or clothes,” Miuccia Prada told me. “It’s easier to choose a bag than a dress because you don’t have to face the age, the weight, all the problems. And there is a kind of an obsession with bags. It’s so easy to make money. The bag is the miracle of the company.”

In
2004
, luxury brands collectively sold $
11
.
7
billion worth of handbags and other leather accessories, and the segment is only getting stronger. While the luxury market grew by
1
.
2
percent each year from
2001
and
2004
, leather goods sales increased by
7
.
5
percent each year. A large share of those sales are “It” bags: the latest hot designs that—thanks to luxury brand ad campaigns and fashion magazine articles—become the must-have of the season. Recent “It” bags include the Louis Vuitton Murakami, with the signature monogram stamped in rainbow tones on white leather, and the Gucci Flora, a pretty floral print taken from a scarf originally designed by the house for Princess Grace back in the
1960
s. Handbags have become so important in fashion today that an English journalist wrote during London Fashion Week in
2006
, “Everybody—everybody—is talking about handbags with the intensity of cardinals appointing a new Pope.”

The “It” bag phenomenon is young—less than twenty years old—and has been wholly created by the marketing wizards at luxury brand companies. I remember in the early
1990
s reading stories in fashion magazines that declared that if you couldn’t afford to change your wardrobe each season, you could update your look with a new handbag. Even my bureau chief at
Newsweek
in Paris picked up on the trend. Back in
1996
, as we sat in his office and discussed a fashion story for the spring season, he said, “Look, fashion is dead. It’s about accessories.” How did he know that? Because luxury brands had been pushing the message, and the product, relentlessly. “It’s like you’ve gotta have it or you’ll die,” Tom Ford explained.

Leather companies launched ready-to-wear lines to make the brands—and therefore their handbags—sexier. Fashion companies pushed handbags to the forefront of their offerings and made them the centerpiece of their increasingly provocative advertising. Handbags became an intoxicating lure.

And women got hooked, some disturbingly so. As I noted in the Introduction, there are Japanese girls who work as prostitutes to earn money to buy Louis Vuitton, Chanel, and Hermès bags. I read about a woman who played backgammon for Hermès bags. In September
2005
, victims of Hurricane Katrina used their Red Cross cards to buy $
800
bags at the Louis Vuitton boutique in Atlanta. (Once the story hit the papers, Louis Vuitton executives instructed their salespeople to stop accepting Red Cross cards for payment and reimbursed the Red Cross for the purchases already made.) Web sites such as BagBorroworSteal.com have cropped up for women to rent luxury and designer handbags for a fashionably short time instead of buying them—that way, they can change their bags more often.

Women’s obsession with logo-riddled status handbags has become such a part of Western society that contemporary artists riffed on it, often to luxury brands’ great displeasure. At the Venice Biennale in
1999
, French performance artist Alberto Sorbelli staged a happening called
L’Agressé
(The Victim of Attacks) during which he had a woman in a black minidress and spike-heeled boots and a man in a blue leather suit beat him silly with Louis Vuitton handbags. New York artist Tom Sachs produced a series of works in
1999
that included McDonald’s-style value meals done up in various luxury brands’ logo wrap, a black guillotine with a big white Chanel logo, and a miniature concentration camp made of Prada boxes. Surprisingly, Sachs received little backlash—only Hermès complained, he said. Indeed, the opening party at the Galerie Thaddaeus Ropac in Paris was a fashion happening, and San Francisco socialite and couture client Dodie Rosekrans bought the guillotine and donated it to the Centre Pompidou in Paris.

San Francisco artist Libby Black wasn’t so lucky. When she recreated a Louis Vuitton store—replete with the entire Vuitton product line, all out of paper, paint, and glue—at the Manolo Garcia Gallery in
2003
, she and her gallery owner were called to Louis Vuitton’s San Francisco office, where corporate lawyers told her she was violating copyright laws and had to shut down the show. Black kept it up anyway and never heard from Vuitton again.

I
N THE WORLD
of luxury brand handbags, as in automobiles and clothing, there is a pyramid of quality: made-to-order down to mass-manufactured. The best—the equivalent of a Rolls-Royce or Chanel couture suit—is an Hermès handbag. Made of the finest leather and fabrics, sewed by hand, and with starting prices of more than $
6
,
000
and years-long waiting lists, Hermès handbags are considered by many to be the last true luxury goods in the luxury fashion industry. They have long been the bag of choice for those who can afford to choose. Jackie Onassis was photographed so often with her Constance bag slung over her shoulder that customers would ask Hermès salesclerks for “Jackie O’s bag.” Maryvonne Pinault, wife of Gucci Group owner François Pinault, raised fashion eyebrows when she attended the Paris women’s wear shows in the fall of
2001
not with a Gucci or a Saint Laurent, but with a large alligator Hermès Birkin bag on her arm. Martha Stewart showed up at her insider trading trial in
2004
carrying a buttery brown Birkin and was taken to task by the press for her indiscretion. Carrying into a jury trial “a bag that is surrounded by such a thick cloud of wealth and privilege was ill-advised,” Robin Givhan opined in the
Washington Post
.

Today, buying a luxury brand handbag is an exercise in banality: you walk into the well-appointed store past the chic-suited security guards, peruse what’s on display, choose, pay, and walk out with your purchase. The shopping experience may have been pleasant, but in the end it was no different from going to the Gap, except for the price. There is nothing unique about the product: the brand has churned out thousands of them, absolutely identical. Unless you place a special order to have something custom made—and that is a very limited business, available at only a few companies—what you get is a ready-to-carry bag.

Buying an Hermès handbag—or saddle, or luggage—on the other hand, is still a true experience in luxury. Hermès boutiques do receive a few bags each season to sell to customers who walk in—a bit like a good restaurant always saving a table for a regular who drops in without a reservation. But generally, if you want to buy an Hermès bag, you have to order it. The bags on display in the store are just that: display models to show you the options. You choose the material: cowhide, reptile, ostrich, or even canvas. You choose the color and the kind of hardware: silver, gold, diamond-encrusted. And for the Kelly, you choose if the seams are on the outside or turned in. And then you wait several months while it is made to your specifications. When it arrives in the shop and you are invited to come pick it up, it is your bag. Another woman may have a navy blue cowhide Kelly with gold hardware and turned-in seams, but that was her idea, just as yours was yours.

Hermès handbags are the antithesis of an “It” bag: most of the designs have been around for almost a century and are coveted not because they are in fashion but because they never go out of fashion. They don’t bear ostentatious logos; the bags themselves are sufficiently recognizable. Hermès handbags convey old money and refinement—even if those who carry them have neither. They are luxury’s discreet symbol of wealth and success.

To see how an Hermès bag is made is to understand what luxury once was and what it is no longer. On a cool spring morning in March
2005
, I visited the Hermès special orders workshop in Pantin, a seedy suburb north of Paris, to get a glimpse. Pantin is only thirty minutes by car or Metro from the rue du Faubourg Saint-Honoré store, but it’s another world altogether. Here, as in many other Paris suburbs, is where the poor immigrants—mostly Muslims from Africa—have settled. Many live in public housing. Some run small businesses, like mini-markets and sandwich shops, or work in menial jobs. A lot live on the dole. The race riots of October
2005
erupted nearby and eventually spread to Pantin.

In the middle of all this is Hermès’s first subsidiary, Hermès Sellier, housed in an enormous contemporary glass-and-green-metal building constructed in
1991
and decorated by Rena Dumas, a renowned interior designer and the Greek-born wife of Hermès’s longtime head, Jean-Louis Dumas, who retired in
2006
. The building is the exact opposite of the traditional prewar aesthetic for which Hermès is known. The atrium of pale stone floors, glass walls, and glass elevators looks like that of a Hyatt without the fountains and tropical plants. One giant wall is covered in a checkerboard of Hermès silk scarves. Next to the lift on each floor is a closed-circuit flat-screen TV that broadcasts images from the store on rue du Faubourg Saint-Honoré to keep people in Pantin “connected,” a public relations woman explained.

Pantin houses Hermès’s largest leather production site—three hundred workers spread among fifteen ateliers—as well as administration for, and some production of, ready-to-wear as well as a school for leatherworking. Hermès requires that all newly hired leather artisans—most of whom have graduated from one of France’s renowned leatherworking academies—spend two years as apprentices in its own schools either in Pantin or in the Vosges, in eastern France, to learn from Hermès’s senior leather craftsmen how to cut skins and sew the house’s signature saddle stitch perfectly.

On the fourth floor is the special orders workshop. It is here that Hermès makes its gleaming crocodile-and alligator-skin Kellys, Birkins, and Constances, in all sizes, some with diamond clasps. Special orders have always been an integral part of Hermès. Among the more eccentric orders: a violinist who wanted a leather violin case lined with Hermès silk foulards, a big-game hunter who ordered luggage made with the skins of his kill, and a Japanese client who requested a Pokémon character printed on her Kelly bag. In
1957
, showman Sammy Davis Jr. ordered a black-crocodile suitcase bar to take on his travels and concert tours. In
2003
, a young wealthy Greek man brought the torn mainsheet from his yacht and asked Hermès to use it to make three Kelly bags. Dumas liked the result so much that he included the design in the following season’s collection.

The special-orders atelier has about forty workers, all young—the average age of leather artisans at Hermès is thirty-three—and, surprisingly, many are women. Hermès, in fact, is a youthful and female-driven company. Of Hermès’s
5
,
871
employees—from store salesclerks to leather craftsmen—
61
percent are forty years old or younger, and
65
percent are women. The company is growing, too. From
2000
to
2004
, Hermès created
1
,
230
new jobs, including adding more than six hundred leather artisans to three new leather goods ateliers. By early
2006
, Hermès had fifteen hundred leather artisans. “We are frightened to grow and [frightened] not to grow,” Jean-Louis Dumas once said, “or to grow so much we blow a gasket.”

Indeed, that’s what sets Hermès apart from its competitors. Whereas Gucci Group’s CEO Robert Polet declared within months of taking over the helm in
2004
that he planned to double Gucci’s annual sales, then $
2
billion, in seven years, and Bernard Arnault crowed in March
2005
how his group posted $
1
.
26
billion in profits for
2004
, Hermès takes it slow and easy. In
2005
, it did $
1
.
85
billion (or €
1
.
427
billion) in sales—a reasonable turnover compared to its competitors, considering its extremely high retail prices. Of that,
40
percent was in leather goods. During Dumas’s thirty-year reign, Hermès could have increased production to eliminate the waiting lists and sell the bags ready-made in the store. It could have become a multibillion-dollar company easily. But Dumas resisted. He preferred to run Hermès like a small, intimate luxury company, and that is the same business philosophy that drives the company today. There are craftsmen in Lyon weaving silk for scarves and ties, and others in Limoges making porcelain dinner services. There are goldsmiths in Mali crafting jewelry and Tuareg tribesmen in Niger making silver belt buckles. There are Indians in the Amazonian rain forests who harvest latex sap for rubberized handbags. In
1995
, Dumas took ten artisans from the Hermès stable of brands to the Thar Desert near the Pakistani border for a weeklong exploration of their creative roots. The silversmiths studied the chisels and hammers of local craftsmen. The perfume man sniffed the desert air. As tribesmen beat drums, the visitors hoisted a Saint-Louis crystal chandelier over a flickering campfire. For Dumas, the message was as clear as the desert night: “The world is divided into two,” he pronounced. “Those who know how to use tools and those who do not.”