What is France's most valuable asset

France

Markus Gabel

Dr. Markus Gabel is a publicist at La Documentation française (Direction de l’information légale et administrative, Paris) and a freelance researcher at the Institute CIRAC (Center d’information et de recherche sur l’Allemagne contemporaine).

France's outstanding position in the luxury market is based on a successful, centuries-old interaction between the state, craft and society, coupled with a corporate strategy that has been very efficient in recent years. Large luxury holdings and world-famous brands guarantee France a world market share of over a third in this segment. However, its success is limited to the traditional luxury goods industry.

The domed hall of the Galerie Lafayette. One of the oldest and most luxurious department stores in Paris. License: cc by-nc-sa / 3.0 / de (Jorge Royan)

Originally, luxury means opulence and diversity. In France it is said that the focus is on the joy of enjoyment. The importance of luxury in France, with its emotional and social aspects, has something to do with the historical roots of the industry: luxury as a commercial and valuable item in France goes back to the 17th century, the epoch of Louis XIV. Even today the Sun King stands for pomp and royal splendor like no other. In this context, however, his finance minister, Jean-Baptiste Colbert, was more important than the French monarch. His idea was to fill the state coffers with foreign trade: more export than import. In order to achieve this, Colbert intensively promoted the founding and expansion of factories that were supposed to manufacture high-quality products and deliver them abroad, including fine fabrics and porcelain. Over the centuries, this development has developed into a tradition in France that has also gained importance for national consciousness. Not least for this reason, the state helped the industry with extensive subsidies during the 2009 financial crisis.

Luxury is not the same as luxury

Given this long tradition, it is hardly surprising that such a successful luxury industry has emerged in France, which mainly includes clothing, accessories, jewelry, watches, fragrances, cosmetics and furniture. For example, in Germany, which also has a luxury goods industry that should not be despised, other branches of industry are primarily established, including luxury automobile brands and technology at the highest level, which have strong market power worldwide.

If you look at the people with the greatest wealth in both countries, according to the Forbes 2011 ranking there are four representatives of the luxury goods industry in the first five places in France: Bernard Arnault (LVMH Group), Liliane Bettencourt (daughter of the founder of L'Oréal ), François Pinault (former president of Pinault-Printemps-Redoute - PPR) and the Wertheimer brothers (owners of Chanel). The only industrialist is Serge Dassault (aerospace) in fourth place. On this side of the Rhine it is not luxury goods that the richest Germans have brought to their fortunes, but discount retail (Karl and Theo Albrecht; Aldi) and mail order (Michael Otto; Otto Versand). At the same time, industry (Quandt family - Johanna Quandt, Susanne Klatten and Stefan Quandt; BMW, Altana, SGL Carbon) and logistics (Klaus-Michael Kühne; Kuehne + Nagel) are at the forefront. The dualism is thus distorted almost to the point of caricature: the beautiful, noble, splendid versus the sensible, useful and even cheap.

Personal luxury goods industry: France leads the way

With its luxury goods industry, France has a highly profitable sector that is a primary component of the French economy and society: for a clear majority of the French, luxury is a central symbol of the country, for which they are prepared to spend an above-average amount. Paris is considered the global center for luxury goods: in the "Triangle d'or" between the Rue du Faubourg Saint-Honoré, the Avenue Georges-V and the Avenue Montaigne, as well as in the Rue de la Paix and the Place Vendôme have many of the big ones Brands their headquarters.

The share of the traditional luxury industry in the national product in France is just under one percent (for comparison: in Italy it is 1.1 percent, in Germany - excluding the automotive market - 0.3 percent). In 2012, global sales in the luxury goods market will exceed the 200 billion euro mark for the first time. Europe still has the largest market share (around 35 percent), just ahead of America. The Western European markets are partially saturated, but Germany is one of the countries with some catching up to do in terms of luxury goods consumption. While Japan continues to be an important market here with over 10 percent, the strongest growth rates are in the BRIC countries Brazil, Russia, India and China.

The largest luxury companies by sales 2011. License: cc by-nc-nd / 3.0 / de / (bpb)
Worldwide, the extremely export-oriented French manufacturers account for almost 40 percent of sales. These are less medium-sized companies than the big international players. Among the ten companies with the highest turnover worldwide, LVMH and PPR are in the top two. Hermès in eighth place rounds off the French supremacy. In 2011, 53 percent of the sales of the ten largest manufacturers of luxury goods were generated on the other side of the Rhine. Manufacturers from the United States, Switzerland and Italy follow in the rankings.

In France, the sector has an efficient lobby group in the form of the Comité Colbert. Founded in 1954 on the initiative of Jean-Jacques Guerlain, it now represents 75 French brand manufacturers - from Bacara and Boucheron to Chanel, Christian Dior, Lacoste, S.T.Dupont, Givenchy, Hédiard, Lancôme, to Remy Martin and Van Cleef and Arpels. Since 2011, it has also united non-French manufacturers with Leica, Montblanc (both German), Herend (Hungarian) and Moser (Czech).

Luxury holding and brand control

In the wake of the global economic slump in 2008/2009, the luxury industry was initially predicted to have a bleak future. However, the industry recovered very quickly and reached new highs. One explanation for this development lies in the stable growth in the emerging countries as well as in the fact that luxury items (jewelry, watches and high-quality brands in general) are increasingly viewed as investments of stable value and safe havens in times of economic uncertainty and fear of monetary devaluation. In order not to endanger the exclusivity of the products, there were no dumping prices and sell-offs in the luxury segment during the crisis.

The most valuable luxury brands worldwide 2012. License: cc by-nc-nd / 3.0 / de / (bpb)
The brand is the most important good in the luxury goods market. Luxury brands are among the most valuable labels in the world. If you leave out the automotive sector, the most valuable luxury brand is undisputed Louis Vuitton (17th place worldwide). Gucci, Hermès, Cartier, Tiffany and Prada are also outstanding labels with a corresponding reputation.

Bernard Arnault recognized the potential in the luxury goods industry very early on. With the purchase of Dior in the 1980s and 1990s, he laid the foundation for what is now the world's largest luxury holding company, LVMH (2011 turnover: 23 billion euros, profit: over 3 billion euros). The name is composed of the first letters of well-known luxury brands. The success is based on a particularly broad line-up with over 60 luxury brands that are sold in over 2,500 stores around the world and employ almost 100,000 people. The range includes wines and spirits (including Moët & Chandon, Hennessy), fashion and leather goods (including Louis Vuitton, Kenzo), perfume and cosmetics (including Christian Dior, Givenchy), watches and jewelry (including TAG Heuer, Zenith) and retail ( inter alia Sephora).

Like LVMH, the world's second largest luxury company, PPR, is a relatively bland abbreviation. Founded by François Pinault and now run by his son François-Henri, PPR generates a little more than half the turnover and profit of LVMH. PPR has its origins in mail order and retail. The turn to the luxury sector took place in the 1990s with the takeover of the Printemps department store and the Italian brand Gucci. The German label Puma (more of a problem child) has also been part of the group since 2007.

Numerous other French brands such as Chanel or Hermès continue to bear the name of their brand and have been able to maintain their independence to this day. Many of the companies are family-owned - the founding family of Hermès still holds around two-thirds of the shares even after the IPO - or are run by experienced top managers who pursue a long-term strategy.

One recipe for success is the extensive control of one's own brand. The sales of representative flagship stores are managed in-house in order to keep the important price setting in hand. Furthermore, the strength of the French brands is based on internal production and the safeguarding of the supply chain; Louis Vuitton and Hermès, brands that are particularly well positioned, also have an above-average share of production under their own roof (around 80 percent). At Prada or Hugo Boss it is only 20 percent.

With the combination of a strong brand, expensive products and exclusivity, high profits are achieved. The pricing power, which French companies do not always find on the world markets, is comparable to that of German medium-sized hidden champions, the hidden world market leaders who, thanks to their quality and innovative strength, often have monopoly-like positions in niche markets.

Blessing or curse?

The luxury goods industry is one of the industrial success stories of the recent French past. Not only has the industry, which employs around 200,000 people in France, escaped the general negative industrial trend - the share of industry in the national product has fallen in France since 2000 from around 18 to approx. 12 percent - together with the aerospace sector, the pharmaceutical industry and the agricultural sector, it is one of the few French economic sectors that generate a stable and significant external trade surplus.

If one also includes luxury cars (especially the German manufacturers Porsche, Daimler and BMW) and upscale services (e.g. wellness hotels and other upscale tourism), the global luxury market exceeds the 600 billion euro mark. Europe holds a share of 70 percent (approx. 450 billion euros) - this corresponds to over 4 percent of the gross domestic product of the euro zone. The industry exports successfully: Luxury goods account for around 10 percent of all European exports. The sector is also less susceptible to delocalization and has important spillover effects (spill-over effects) on innovations, supply chains and parts of the manufacturing industry. Overall, the industry employs around 1.5 million people in Europe and is therefore an important anchor of stability for the labor market.

For the next few years, the luxury goods market is predicted to have a consistently high growth rate. However, this development also poses several challenges for France. The relative share of French manufacturers is decreasing, especially in the traditional sectors. Emerging countries are building their own luxury brands and are striving for western markets. In addition, far higher sales (and thus profits) can be achieved in the luxury car market than in the area of ​​personal luxury goods (leather bags and perfume). Here, however, French providers are clearly lagging behind. Finally, it should also be remembered that countries, like companies, are increasingly also being understood as brands. France stands for luxury, for the noble, the fine and the beautiful. On the world markets, where bulk goods and industrial machines set the tone, this classification is increasingly becoming a problem for French suppliers of industrial durables and consumer goods - especially in comparison with its neighbor east of the Rhine, which has achieved record results with "Made in Germany" .

Bibliography

Barmeyer, Christophe (2007), "Luxe, calme et volupté". The French luxury goods industry, documents, 1/2007.

Frontier Economics (2012), The value of the cultural and creative industries to the European economy, Frontier Economics Ltd., London, June.

Problèmes économiques (2010), Le luxe ne connaît pas la crise, Dossier, La Documentation française, December 8th.

Roland Berger and Direction général de la compétitivité de l’industrie et des services (2009), Etats généraux de l’industrie: industrie du luxe, December 24th.

Schubert, Christian (2012), The Far East Strikes Back, Frankfurter Allgemeine Zeitung, September 21.

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www.comitecolbert.com

www.forbes.com