Christian Lacroix became the first big-name designer to fall victim to the global economic slump when his Paris fashion house confirmed on May 28 that it had filed for bankruptcy.
But while the news made headlines worldwide, it came as no surprise to BÉatrice Garcher and her former co-workers at SociÉtÉ Internationale de Lingerie (SIL), a French company that made high-end lingerie for luxury brands, including Christian Lacroix, Kenzo, and Sonia Rykiel. SIL closed its doors in January after suffering a steep decline in orders, throwing 130 employees out of work. The company had been in business since the 1960s, and many employees had held their jobs for decades. "It happened very fast, everyone was in shock," says Garcher, who worked at a factory in the town of Nevers in Burgundy.
These are hard times for almost everyone in the luxury business. Sales are down at all the major groups, including France's LVMH Moët Hennessy Louis Vuitton (LVMH.PA), Switzerland's Richemont (CFR.F), and Gucci Group, owned by Paris-based PPR (PRTP.PA). Consultancy Bain & Co. predicts that industrywide revenues, after falling 8% during the last quarter of 2008, will slump an additional 10% to 20% during the first half of 2009. "Luxury shoppers are spending less, traveling less, and feeling less confident," says Claudia D'Arpizio, a Milan-based luxury analyst with Bain.
Internet discounters thrive
Some of the major groups have delayed expansion plans, and a few have downsized. Paris-based Chanel, for example, laid off about 200 temporary workers at the beginning of this year, and Gucci Group sold an underperforming Swiss watch subsidiary, Bedat & Co., to a Malaysian group in February. For the most part, though, the big groups look set to weather the storm, thanks to their size and the diversity of their product lineups.
But as illustrated by the demise of SIL, the risks are far higher for the small and midsize European companies that supply the luxury houses with everything from hand-tooled leather to perfume bottles. (In France alone, an estimated 6,000 companies are luxury goods suppliers, although the number dependent solely on the luxury business is much smaller.)
A wave of bankruptcies has begun hitting these businesses, many of which were already struggling to hold their own against lower-cost competitors in China and elsewhere. One of the latest victims was Sopim, a business in the city of Poitiers that supplied leather goods to Lancel, a luxury brand owned by Richemont. In business since 1967, Sopim had reduced its workforce from 400 to only 44 employees by the time it closed in May. Another recent casualty was Piochel, a company in Normandy that polished and tinted glass used in high-end perfume bottles.
At least one part of the luxury business is thriving, though: Internet-based merchants that sell luxury manufacturers' excess inventory at discount prices. One such company, Paris-based EspaceMax, says its business is up 50% this year. Among the items it's currently selling: 400,000 pieces of luxury lingerie made by the defunct SIL.
And guess who's cashing in on EspaceMax's success? A company spokeswoman says that Bernard Arnault, chairman and CEO of LVMH, is a "significant" minority investor. Some luxury moguls, it seems, can thrive in any economic climate.
Matlack is BusinessWeek's Paris bureau chief.