Elie Saab case study Students have to carefully

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9B12A023

ELIE SAAB: GROWTH OF A GLOBAL LUXURY BRAND

Nadia Shuayto and Hussam Kayyal wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality. Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email protected] Copyright © 2012, Richard Ivey School of Business Foundation Version: 2013-05-17

INTRODUCTION In the summer of 2010, Elie Saab, owner and chairman of ELIE SAAB (ES), was meeting with the company’s managing director, Chucri Cavalcanti, to discuss the company’s strategic goals and marketing strategy for the next five years. The primary goal was to grow the brand in new and existing markets while maintaining the brand’s exclusivity and position as one of the few remaining established brands in haute couture.1 Much of the company’s success in the previous five years was attributable to its rapid growth in the ready-to-wear (RTW) product line, as it became the company’s new line of business. Cavalcanti commented on ES’s success: “While revenues have been growing rapidly, 2007 showed a 27 per cent growth compared to 2006 and 2008 grew by a staggering 49 per cent compared to the previous year.”2 Operating expenses also decreased during the same time period (see Exhibit 1). While the company was witnessing impressive growth, management was dealing with the challenges of selecting the right partners, identifying new markets with the greatest growth potential and, most importantly, protecting the brand from dilution. From the start, its goal was to “attract, select and maintain customers who place significance on high-end, one-of-a-kind designs made from the finest fabrics and materials.”3 BACKGROUND The positioning of haute couture began when Saab opened his first workshop in Beirut. Saab had a vision from a young age of becoming a high-end fashion designer, and he was determined to see his vision become a reality. Saab noticed early on that there was a niche for haute couture between labels such as 1 ‘Haute couture’ is a French term meaning “high sewing” or “high dressmaking” that refers to the creation of exclusive, custom-made clothing. 2 Interview with Chucri Cavalcanti, February 2010. 3 Ibid.

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Page 2 9B12A023 Dior, Chanel, Valentino and Gaultier. Cavalcanti discussed the company’s position: “We offer competitive couture pricing without compromising on service. Our brand represents an affluent and glamorous lifestyle for the rich and famous. We stand out from other primary labels by offering exceptional service and top-of-the-line quality.”4 ES, one of the few remaining haute couture brands in the global fashion industry, was quickly becoming a preferred luxury brand amongst the world’s elite. In 2010, ES strengthened its position as the premiere luxury brand for celebrities and royalty. The company insisted on staying true to its core of exclusivity by continuing to target the high-end, super-wealthy market while intentionally avoiding the new and emerging affordable luxury market, which consisted of the affluent middle class. LUXURY CONSUMPTION AND WORLD WEALTH Brand played a very important role in the global luxury fashion industry, as consumers bought not only the product but also its associated values in terms of image, quality, fashion, store atmosphere and patron status. “Luxury brands evoked exclusivity, had well-known brand identities, enjoyed high brand awareness and perceived quality and retained sales levels and customer loyalty.”5 Consulting firm Bain & Company divided the global luxury market into three layers, each with its own dynamics. At the top tier, brands like ES, which catered to the super-wealthy, accounted for nearly a quarter of luxury spending. The next tier, representing 36 per cent of spending, was the “aspirational” market, which blossomed during the late 1980s and early 1990s, as brands like Gucci and Louis Vuitton expanded around the globe and introduced smaller, more affordable leather goods that became status symbols. Bain defined the remaining 40 per cent as “accessible” luxury — brands such as Coach, Burberry, Hugo Boss and Tiffany — that specialized in luxury accessories for the affluent middle class.6 According to the “World Wealth Report 2010,” produced by Merrill Lynch and consulting firm Capgemini, the world’s high-net-worth individuals (HNWI) grew 17.1 per cent to 10 million in 2009, despite a contraction in world gross domestic product (GDP)7. Global HNWI financial wealth also grew, posting a gain of 18.9 per cent to $3.9 trillion.8 The star performer was the Asia-Pacific region, in which the HNWI population rose 25.8 per cent to 3 million, as HNWI wealth surged 30.9 per cent to $9.7 trillion.9 The report also indicated that North America remained the largest home to HNWIs, with its 3.1 million HNWIs accounting for 31 per cent of the global HNWI population (see Exhibit 2)10. HNWIs purchased luxury products as status symbols to make an impression on and gain approval from others.11 They were concerned about their appearance, and fashion played an important role in communicating an image of exclusivity and prestige concerning the owners of such products. The global breakdown of luxury product consumption in 2009 was as follows: 37 per cent of luxury goods were

4 Ibid. 5 I. Phau and G. Prendergast, “Consuming Luxury Brands: the Relevance of the ‘Rarity Principle,’” Journal of Brand Management, 8 (2), 2000, pp. 134-48. 6 Nancy Hass, “Survival of the Finest,” November 9, 2007, http://magazine.wsj.com/nomad/report/survival-of-the-finest/, accessed August 30, 2012. 7 “World Wealth Report 2010,” Merrill Lunch and Capgemini, 2010, p. 4. 8 Unless otherwise stated all figures are in US$. 9 “World Wealth Report 2010,” Merrill Lunch and Capgemini, 2010, p. 4. 10 Ibid. 11 R. Chadha, and P. Husband, The Cult of the Luxury Brand: Inside Asia’s Love Affair with Luxury, Nicholas Brealey Publishing, 2006.

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Page 3 9B12A023 purchased in Asia, 35 per cent in Europe, 24 per cent in the United States and four per cent in the rest of the world.12 HISTORY Saab, born in Beirut, was nine years old when he developed an interest in dressmaking. He designed and sketched dresses for his sisters and used his mother’s tablecloths and curtains for material. By the time he was 18, Saab had opened his first atelier13 with 10 employees. His product line at that time included luxurious evening gowns and wedding dresses. He received extensive media coverage when he featured his first collection at the Casino Du Liban in Beirut. He was labelled as a “precocious genius” by the press.14 Saab’s career soared throughout the 1980s, and his unyielding desire to design, coupled with his public persona, caught the attention of world royalty. It was during this time that the ES couture house became renowned for innovative, sophisticated and glamorous high fashion. The 1990s saw further expansion of the ES brand. Saab’s reputation gained international media attention, and it was time to move his first atelier into a larger space while simultaneously organizing exclusive fashion shows in Europe. In 1997, Saab was the only non-Italian designer invited to participate in the Camera Nazionale della Moda Italiana, a prestigious Italian fashion association, and he began to show his couture collection in Rome during the Alta Moda Fashion Week.15 Saab launched his RTW collection in Milan and received positive reviews from the media. Sales expanded worldwide into Paris, London, Moscow, New York, Los Angeles, Madrid and Hong Kong. Saab was invited to join the Chambre Syndicale de la Couture16 in 2000. In 2002, he opened a salon and showroom in the eighth arrondissement17 in Paris. This new venture targeted high-end consumers who were seeking exclusive gowns and accessories. Saab introduced the ‘Haute Couture’ collection by the end of 2002, which generated much media attention and interest amongst the fashion elite. In that same year, Saab reached another milestone in his career when actress Halle Berry wore his dress to the Academy Awards when she became the first African-American woman to win the award for best actress. Saab launched his expanded RTW collection in Paris in 2005. Though he had been showing his couture collection in Paris for several seasons, the summer of 2006 marked his premiere as a membre correspondant18 of the prestigious Chambre Syndicale de la Couture. Saab thus joined the ranks of international designers such as Chanel and Christian Dior, who were officially showing as part of the French couture tradition. He was the first Lebanese designer to receive this honour.19

12 Ibid. 13 An atelier is a French term meaning workshop. 14 ES company documents. 15 ES company documents. 16 The Chambre Syndicale de la Couture was the regulating commission that determined which fashion design houses were eligible to be true haute couture houses. The Syndicale was a body that promoted, educated, represented, defended and dealt with social and working benefits and advised its members in all relations between labour and management, including great names of the Paris couture world. The Syndicale dealt with the piracy of styles, foreign relations and the organization and coordination of the fashion collection timetables. It also instituted some collective international advertising for the French fashion industry. http://www.modeaparis.com/en/federation/ 17 An elegant shopping district. 18 A corresponding member. 19 ES company documents.

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Page 4 9B12A023 In 2007, a flagship store was opened in Paris at the well-known corner of Rond Point des Champs- Elysees and Avenue Montaigne. The existing historical building was the base for the sophisticated and modern ES aesthetic. EXPANDING THE BRAND PORTFOLIO The company continued to expand through other forms of alliances. In 2008, for example, ES formed a strategic alliance with Tatweer/Dubai Properties to develop signature hotels. An agreement was signed for the development of an exclusive $165 million hotel bearing the ES brand in The Tiger Woods Dubai. This alliance was intended to capitalize on the luxury and exclusivity aspects of the ES brand. Saab was among many fashion designers such as Giorgio Armani, Christian LaCroix, Versace, Salvatore Ferragamo and Bulgari who were in the midst of developing luxury hotels. In July 2008, ES opened its first U.K. boutique at Harrods in the ‘Eveningwear’ department on the first floor. The boutique offered the RTW collection with a selection of items and accessories from cocktail dresses to elegant evening gowns. Saab commented on this development: “I am delighted to be opening my first boutique in London at Harrods. I believe that Harrods is the right partner for us because of its status in luxury retail in the United Kingdom and its broad base of customers.”20 Marigay McKee, Fashion and Beauty director at Harrods, also discussed this partnership: “ES’s signature gowns with dramatic silhouettes and spectacular embellishment effortlessly combine European trends with Middle Eastern inspiration. Our customers will be seduced by the elegant show-stopping creations available at the new boutique.”21 In September 2009, ES and Beauté Prestige International (BPI), the core fragrance subsidiary of the Shiseido Group, signed a 10-year fragrance and cosmetic license contract. Saab felt that creating a fragrance was the logical next step in developing the ES brand and portfolio: “We have chosen BPI as a partner who is able to actualize our ambitions. We will create together a signature fragrance and an image that embody the DNA of our brand.”22 In January 2010, ES signed with Weyves International Ltd. and Oceanco, a mega yachting company, to partner on the creation of three mega yachts. ES’s role was to conceptualize and provide the creative direction regarding the interior as well as the exterior design for the exclusive luxury yachts. In February 2010, the first yacht was showcased at the Abu Dhabi Yacht Show. Saab discussed this expansion:

I always sought to incarnate my vision of modernity and elegance beyond the conventional limits of fashion. To envision the designs of yachts, and to conceive the art of living which accompanies them, are exceptional opportunities to expand a brand’s universe through creating the experience of unsurpassable luxury.23

Saab believed that this venture was a natural extension of his fashion empire and represented his vision of modernity and elegance beyond the conventional limits of fashion: “Both haute couture and super yachts are distinctive examples of luxury.”24

20 ES company documents. 21 ES UK Ltd-Harrods Press Office. 22 ES press release September 28, 2009 23 ES press release January 2010. 24 Anouk Lorie, “Couture Superyacht Brings High Fashion to the High Seas,” CNN, March 16, 2010, http://edition.cnn.com/2010/TECH/03/15/elie.saab.yacht/index.html, accessed August 30, 2010.

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Page 5 9B12A023 Donald Potard of Weyves Couture commented on this project:

We are delighted about this collaboration with the fashion house of ES, a designer and a brand that fits naturally within the context of extreme luxury. A design project of this nature enables the couturier to express the universe of ES in the form of interior design and the art of living.25

In June 2010, ES opened its first flagship store in the Gulf region in Dubai’s prestigious Dubai Mall. The new store, located at the Luxury Circle on Fashion Avenue, reinforced the brand’s presence in the United Arab Emirates and made it more accessible to the region’s local and international shoppers. The store showcased day and evening dresses, shoes, bags and accessories from the latest RTW collections. This opening was essential for ES to meet the growing demand for the brand, and it was part of the group’s strategy to increase its worldwide retail presence through opening new stores in major cities around the world. Architect Chakib Richani designed the interior of the new Dubai store, which echoed the themes of the three other boutiques in Beirut, Paris and London. The choice of a well-known and successful architect had a positive impact on the brand’s image and standing in the region. With its 267 square metres of total area, the boutique comprised two spacious changing rooms and a service area.26 Empty space was used in the design to signal exclusivity, luxury and extravagance. Flagship stores, as an entry mode, were particularly important for ES, especially in key markets such as Paris, Beirut and Dubai. These flagship stores were positioned to have a strategic brand-building and business support functions, and they signalled an important stage in the company’s market development. Direct ownership of the stores in Paris and Beirut enabled the company to retain full and complete control over the store operations without the risks associated with reliance on a third party. However, the company felt that partnering with a well-known and respected local company with extensive experience would be the best option for opening a flagship store in Dubai given the company’s knowledge of the local market. ORGANIZATIONAL STRUCTURE As of 2010, ES Group employed 150 employees at three locations, with 130 located in Beirut, 15 in Paris and five in London. Beirut was the global headquarters of the Group and where the couture atelier was located. Paris consisted mainly of a Communications and Public Relations team, a small studio, a sales team to run the Paris boutique and a small administrative team. The London location had a sales team that ran the concession at Harrods. The Group was organized around two main functions: creative and business. The business function was managed by Cavalcanti and covered the overall company operations, execution of strategies and development of expansion plans. Saab managed the creative unit, which entailed all activities related to the design and production of the yearly collections. It was in the studio where ideas were generated and concepts were developed.

25 ES press release January, 2010. 26 ES press release June, 2010.

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Page 6 9B12A023 PRODUCT LINES By 2010, ES had four primary product lines: Haute Couture, RTW, accessories and wedding dresses. Haute Couture Every year, several hundred dresses were made to order, each personally inspected by Saab. In order to reduce the constraints of fittings, regular customers’ pictures and bust forms were kept in the atelier. This new form of couture with exceptional service was efficient and ultra-competitive. All couture orders were taken at one of the ES Couture salons in Beirut or Paris. Saab provided personalized service, as customers consulted with him on colour, designs, fit, hairstyle and jewelry selection. Saab insisted on the finest detailing, including hand-made beading and embroidery. This attention to detail required days, and sometimes months, of labour. The end result was a true piece of art. RTW As the ES brand grew, the company felt that it was necessary to introduce into its existing market an RTW line that did not require the customized service or price typical in couture. The company therefore provided its customers with more accessible garments that had the ES name, style and unique design in order to leverage the brand and build a more robust business model. ES outsourced the RTW line production to very select manufacturers in Europe, mainly in Italy and France. Suppliers were selected based on their ability to produce the high quality and standards required by the designer, as well as their ability to deliver orders on time to all the retail shops around the world. Wedding Dresses Wedding dresses were classified as either Haute Couture or RTW. The Haute Couture wedding dresses were ordered and sold through the ES Couture salons in Beirut and Paris. The RTW wedding dresses were ordered and sold through ES boutiques in Beirut and under license to Pronovias through its points of sale worldwide. Accessories This line included shoes, handbags, scarves, jewelry, belts, fragrance and cosmetics. Accessories were sold through the ES boutiques in Beirut, Paris, London and Dubai. HAUTE COUTURE AND RTW Although many companies used the term ‘haute couture’ to identify themselves as high fashion designers, there were very strict rules in the fashion world regarding the use of the term. Many definitions could be found in related literature, but the term ‘haute couture’ was typically related to clothing that was made to order for a specific customer and was made from high-quality and expensive fabric. The clothing was

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Page 7 9B12A023 sewn with special attention to detail and finish by knowledgeable and experienced seamstresses. This was often a time-consuming task, as it required hand-executed techniques. In order to be considered ‘couture’ under French law, a garment had to be produced by one of the members of the Chambre Syndicale de la Couture. According to the Chambre rules, to classify as a couture house a couturier had to produce no less than 35 new and original designs of day and evening wear for each collection. It had to show two collections per year and employ a minimum of 20 full-time technical employees in at least one atelier. Because of the Chambre’s strict regulations, only a few design houses could use the exclusive haute couture label. Member houses were entitled to free advertising on state-run French television. Private buyers formed only a fraction of a couture house’s sales. The remaining sales were from buyers who attended the fashion shows. Biannually in January and July, interested customers and world press travelled to Paris for the spring/summer and fall/winter haute couture collections. The Fédération Française oversaw the organizing of buyers and press with the Chambre Syndicale.27 Not all couture houses marketed RTW collections, which typically provided a higher return on investment than couture custom-clothing lines. The haute couture gowns displayed at fashion shows were rarely sold: they were created to enhance the reputation of the house. As of 2010, the following Parisians and French houses were the only certified couturiers: Adeline Andre, Anne Valerie Hash, Chanel, Christian Dior, Christian Lacroix, Dominique Sirop, Franck Sorbier, Givenchy, Jean Paul Gaultier, Maurizio Galante, Stephane Rolland and John Hogstad Lund. During the same time period, there were four corresponding members: Elie Saab, Giorgio Armani, Maison Martin Margiela and Valentino. Saab was invited by the Chambre Syndicale de la Couture to show his collection during the fall/winter 2003 haute couture show. Relative to couture, RTW clothing was often more practical and informal, though this was not always the case. The construction of RTW clothing was held to different standards than that of haute couture due to its industrial nature. High-end RTW lines were sometimes based upon a famous gown or pattern that would then be duplicated and advertised to raise the visibility of the designer. DISTRIBUTION STRATEGY The company’s distribution model ranged from company-owned flagship stores to the company-owned concession at Harrods in London. The brand was also available in 45 multi-brand retailers and department stores across the world, such as Bergdorf Goodman and Neiman Marcus in the United States. The company grew through various modes of entry such as licensing, partnerships, third-party distribution and company-owned stores. Each market presented different opportun

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