Deluxe: How Luxury Lost Its Luster (23 page)

Back in the early
1990
s, when Gucci was on the verge of bankruptcy, most of its leather goods were classics that carried over from one season to the next. De Sole wanted to introduce more creativity to design and ramp up production. To achieve this, in
1994
, De Sole put Gucci production online. Poggiolini took me into a vast room in the factory filled with dozens of desktop computers on long tables to show me how it worked. “In the old days the bag went straight from design to leather, which was time-consuming and expensive and might have been right or not,” he told me. Now, technicians work on the three-dimensional computer image of the bag with the creative teams in London, Paris, and Milan to perfect the design. “You can turn around the bag on the screen and really study it,” Poggiolini explained. Once the design is green-lighted, the technicians print the pattern on pink cardboard for the prototype. The first prototype is made in a black rubberized fabric called Peplon so that the artisans can see the shape of the bag. The leather details are glued on to give the design team an idea of what the bag will look like when completed. When Ford approved the prototype, it went into production.

Unlike at Hermès, where artisans study the skins and figure out the best way to cut them for the handbags, at Gucci the computer makes a map that shows the technicians how to lay out the pattern on the material. Fragile skins such as ostrich, lizard, and alligator are cut with a metal press. Cowhide, however, is cut by a special machine (developed and used exclusively by Gucci) with water jets that move at twice the speed of sound. When experimenting with faster and more efficient ways to cut the leather, the technicians tried lasers, but as Poggiolini explained, “it burned the leather and smoked.” They finally chose the water-jet method because, as Poggiolini said, “it’s fast, it’s clean, and the quality of the cut is very good.” The water jet is remarkable to see because, in fact, you can’t see it. All you see is the leather cut, as if by magic, and a mist from the water jet dissipating to the sides. There were three of these machines at Casellina di Scandicci factory when I visited and another six at other manufacturing sites in the area.

Since
1995
, all Gucci leather goods have been designed on computers. Between
1994
and
1998
, leather goods production jumped from
640
,
000
to
2
.
4
million items per year, an increase of
277
percent. In
1997
, classic designs made up
60
percent of Gucci’s leather goods inventory. By
1999
, that had dropped to
10
percent. Production time—from prototype to warehouse—was cut from
104
to
68
days. By
2004
, Gucci Group, which then included Yves Saint Laurent, Sergio Rossi, Stella McCartney, Alexander McQueen, Balenciaga, and Bottega Veneta, turned out
3
.
5
million leather goods a year.

After our tour of the main factory, we walked across the industrial park to a small, two-story blocklike building housing one of about ten subcontractors that produced Gucci Group handbags. It was owned and run by Carlo Bacci, who had joined Gucci in
1960
as a handbag craftsman. Back then, all Gucci leather goods were produced in-house. Bacci left in
1969
to start his own company in Florence, and two years later began to manufacture for Gucci, which by then was subcontracting to outside ateliers. When I visited Bacci’s workshop during my Gucci tour in
2004
, he had twenty-three people on staff—including his wife and son—many of whom had worked at the Gucci factory across the street. He only worked for Gucci Group, with a partnership contract that stipulated that Gucci would guarantee a certain number of orders each year.

The workroom was simple: white, with cement floors, long tables, and overhead fluorescent lights. On each table sat piles of bags from Gucci, Yves Saint Laurent, Stella McCartney, and Sergio Rossi in various states of completion. Gold cowhide clutches with linen lining. Bronze crocodile purses with enamel snakehead clasps. Basic bags were produced in two to three hours; more complex ones took eight or more. Most were glued together and sewn on machines. The craftsmen worked on twenty bags at a time—five times as many as at Hermès—but like Hermès workers, they made each one from beginning to end. Bacci’s studio only produced handbags—wallets and belts were done elsewhere—and it only turned out about
250
bags a month because it did the most complex designs with the most precious skins. Each finished bag was stamped with a code that identified Bacci’s atelier. Bacci also managed subsuppliers, who did another two thousand bags a month.

T
HAT’S HOW IT IS DONE
in Europe. In China, luxury handbag manufacturing is a completely different business. Yes, luxury handbags are made in China. Top brands. Brands that you carry. Brands that deny outright that their bags are made in China make their bags in China, not in Italy, not in France, not in the United Kingdom. I visited a factory in Guangdong Province and held the bags in my hands. To see them, I had to promise the manufacturer that I wouldn’t reveal the brand names. Each brand made the manufacturer sign a confidentiality agreement stipulating that he could not reveal the fact that he produced their products in China. Furthermore, the manufacturer doesn’t let the competition know who else he is producing. When the representatives come to the factory, they are led directly to the section working on their goods, and they talk only to the team in charge of their goods. It’s as complicated as keeping a slew of mistresses.

There are three or four factories that specialize in manufacturing luxury brand leather goods in China, most in Dongguan, an industrial town about an hour north of Hong Kong. Often they do low-and middle-range business, for companies like JCPenney, Sears, Liz Clai-borne, and Ann Taylor that run $
40
to $
80
. But they also produce luxury handbags. The change came in the mid-
1990
s when Coach decided to move a small portion of its production from the United States to China.

Coach was a new player in the luxury goods category. Originally founded by an entrepreneur named Miles Cahn in midtown Manhattan in
1941
, Coach had long been a conservative stalwart of the American leather goods business: the sort of brand that suburban mothers carried before luxury brands went mass. In
1985
, the family sold the company to Sara Lee Corporation, a huge American conglomerate that was known for its frozen cheesecakes and owned such brands as Hanes underwear and Wonderbra. In
1996
, Coach’s CEO, Lew Frankfort, decided it was time to renovate the brand. He hired Reed Krakoff, a young, savvy designer at Tommy Hilfiger, as executive creative director, and together they mapped out a new future for Coach. The idea was to reposition the brand as an American alternative to Prada and Louis Vuitton, with prices ranging from $
125
to $
2
,
000
. They called it “affordable luxury.”

In
2000
, Coach was listed on the New York Stock Exchange and was split off from Sara Lee. In
2001
, its sales were a respectable $
600
million, and its customers were primarily in the United States, with some in Japan and Asia. (Coach does not sell in Europe because it believes that competition from local brands would be tough. Also, two-thirds of the luxury consumers are from the United States and Japan, which allows for plenty of growth.) That year, Frankfort and Krakoff decided to change the creative direction of the brand from traditional classics to more fashion-forward. They came up with a new Signature collection of items in leather and cheerful-colored canvas printed with the company’s C logo like a checkerboard, and began shipping new designs to stores monthly instead of twice a year. The Japanese particularly loved the Signature collection and bought it so fervently that, in
2003
, Coach became the second most popular imported accessories brand in Japan, after Louis Vuitton.

To continue Coach’s financial growth, Frankfort focused on increasing distribution and maximizing productivity. To do this, Coach rolled out new stores throughout North America and Asia, and it switched its manufacturing from company-owned U.S.-based factories to outsourcing overseas, much of it in China. Today, Coach products are manufactured in eighty-four sites in fifteen countries; “a significant majority” are made in China, a Coach spokeswoman said. In
2002
, Coach closed its last company-operated manufacturing facilities. The original Thirty-fourth Street factory is now home to Coach’s executive offices as well as a small prototypes workshop. “By shifting our production from owned domestic facilities to independent manufacturers in lower-cost markets, we can support a broader mix of product types, materials, and a seasonal influx of new, more fashion-oriented styles,” Coach said. “All product sources must achieve and maintain our high quality standards…and we monitor compliance through on-site quality inspections at all Coach-operated or independent manufacturing facilities.”

The strategy paid off. From
2001
to
2006
, Coach experienced double-digit growth every quarter; by
2006
, it was doing $
2
.
1
billion in sales. At the same time, thanks in large part to lower production costs, profits soared. Coach’s stock value increased a whopping
1
,
270
percent in the first five years after the company’s initial public offering. And contrary to conventional wisdom, the perceived quality of Coach products has risen since it shifted production from the United States to China and other countries.

Emboldened by Coach’s trailblazing success, other luxury brands quietly began to look into producing leather goods in China. Luxury brands have been hesitant to outsource production to developing nations in part because they feared quality would be compromised and, more important, because of the perceived image that the goods were no longer up to snuff. During the renovation and reinvention of luxury brands in the last twenty years, executives have trumpeted the fact that their products were made by artisans in Italy and France who had not only the experience but also the heritage of luxury craftsmanship, as if making fine leather goods, beautiful fabrics, and jewelry was in their genes, in their blood. According to luxury brand executives, that extraordinary gift could not be replicated anywhere else in the world. The “Made in Italy” or “Made in France”—or for cashmere, “Made in Scotland”—labels were the cachet, the reason these goods were “luxury” and cost so much. As labor costs mounted in Europe in the
1990
s, businesses began to source to cheaper labor elsewhere in the world.

Not luxury brands. They couldn’t publicly move production out of Europe without damaging the brand image they had so carefully crafted. Their initial response was to raise retail prices, but only slightly, so as not to chase off all those new middle-market customers. Luxury brands that were publicly traded had to answer to their shareholders, who wanted more of a return, more profits. That meant increasing volume and lowering costs. To increase volume they ramped up production and advertising, particularly for handbags.

Lowering costs was a more delicate problem. How could luxury brands slash the production cost of their goods and maintain the same high level of quality? In fact, they couldn’t. There had to be concessions. In the name of profit—or, to put it more bluntly, greed—luxury brands began to compromise their integrity. Some cut corners in ready-to-wear. “I remember being in fittings in the mid-nineties where the CEO came in and said, ‘Women don’t really need linings,’” one former major luxury brand assistant told me. Soon that became the industry standard. “There’s a raw-edge cutting, which is deemed post-Japanese avant-garde from a design standpoint, but actually is an easy way to cut production costs,” another luxury brand design assistant explained to me. “You can imagine how much less time and money it takes to make a dress or jacket if you don’t have to sew the outer fabric and lining together, press them, fold them back on themselves, press them again and add another seam to keep it together. If you do a raw edge, you just cut the edge and it’s done.” Another Italian brand trimmed costs by cutting sleeves half an inch shorter. “When you get to a thousand, you see the savings,” the assistant explained.

Many luxury brands cut costs by using cheaper materials. Example: In
1992
, I bought a pink sleeveless Prada cocktail dress that was made of thick iridescent cotton and silk faille, fully lined, and finished beautifully. It cost $
2
,
000
, but it is couture quality and will last forever. Ten years later, I bought a pair of thin cotton-poplin cropped trousers at Prada for $
500
. I put them on, and the gentle passing of my foot ripped the hem out. I put my hand in the pocket, and it tore away from its seam. I squatted down to pick up my two-year-old, and the derriere split open. I hadn’t had those pants on ten minutes and they were literally falling apart at the seams. I mentioned this to a former Prada design assistant. “It’s the thread,” he told me. “It’s cheaper and breaks easily.” When I told him about my gorgeous dress from
1992
that was as solid as a Rolls, he nodded. “That was then,” he said with a sigh.

The most obvious place for luxury brands to trim costs was the same place that every other industry was trimming costs: in the price of labor. And the cheapest and most plentiful labor today is in China. Once Coach proved that Chinese workers could meet luxury brand quality standards, several other brands moved a small amount of production there, too. Like Coach, they started with short runs of classic and basic designs of leather goods. To get the technique right, one major Italian luxury brand executive sent a team of leather goods artisans from Italy to teach the Chinese workers. With each successful run, the brands got braver, ordering more, and other brands joined the exodus. By
2006
, hundreds of thousands of luxury brand handbags, toiletry cases, and satchels were produced in China each year, unbeknownst to customers.