Jun 12, 2009
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Luxury sellers tap new doors for raw materials

Jun 12, 2009

By Dhanya Skariachan - Analysis

NEW YORK (Reuters) - From breeding their own crocodiles to tapping new low-cost centers for raw materials, luxury retailers are stepping up efforts to improve sourcing of goods, labor and expertise in the global economic slowdown.

As economic woes deprive high-end retailers of the luxury of raising their prices, many are focusing on smarter sourcing initiatives to manage costs better.

"In today's market, when something is real expensive, it doesn't mean that it is necessarily better; it just means it is more poorly sourced," U.S.-based luxury designer Jonathan Adler told the Reuters Global Luxury & Retail summits in New York this week.

While French luxury group Hermes (HRMS.PA) is breeding its own crocodiles on farms in Australia to address demand for its leather bags, Adler is tapping countries such as Peru, Vietnam, India and China for raw materials like textiles and pottery.

"I think the stigma of China is waning. And I think it should, because certainly, I am a potter, and "china" is what people call their dishes. (That) is because China knows how to make stuff," Adler said.

But Edgar Huber, president of Juicy Couture -- owned by Liz Claiborne (LIZ.N) -- said he was evaluating places to buy goods outside of China, citing rising wages in the most populated country.

Swiss watchmaker Parmigiani Fleurier also brooded over labor costs.

"Labor is the most expensive thing for us," Parmigiani Fleurier Chief Executive Jean-Marc Jacot said.

"If you have to cut staff, it then takes three-to-four years to restart a team," Jacot said.

British luxury car firm Rolls-Royce, owned by Germany's BMW (BMWG.DE), was fortunate to have been able to maintain its full employment since laying off temporary staff last November, CEO Tom Purves said in London.

"Since then, we've kept everybody (craftspeople) on because we know we need them with the 'Ghost' (car) coming, and also because we know they are highly skilled and highly qualified and it's much better for us to retain than not," Purves said.

As it gears up to unveil its new 'Ghost' car model this September, the Sussex-based firm has maintained the number of its craftsmen despite the worldwide slump in vehicle demand.

While several luxury retailers lamented labor issues, Hermes CEO Patrick Thomas said the company's most limiting factor was sourcing of raw materials such as particular exotic skins.

"Raw materials are very difficult to source. Cashmere already is a big challenge," Thomas said in Paris.


Luxury goods sellers have been hit by a double whammy in the global economic crisis as some of their existing suppliers file for bankruptcy and even their wealthy clientele are turning thrifty.

"It's not easy to change suppliers ... it's been a problem in the last six months," Italy's Fashion Yachts chief executive, Fabrizio Politi, said.

If a supplier was threatened with bankruptcy, the company would lose time trying to buy materials directly, resulting in a delay in the construction of a yacht, said Politi, whose company makes vessels with gold leaf and crocodile skin fitted in the interiors.

"We have a problem finding the know-how. A good company in financial problems may want the money up front or maybe we have to call his supplier directly," Politi said.

Some luxury giants said they would help their regular supplier avoid bankruptcy rather than face the difficulties of finding a replacement.

Although Britain's Rolls-Royce, owned by Germany's BMW (BMWG.DE), deals with a small number of suppliers, and its suppliers tend to be high-end, it too is affected by the tough economic times.

"It doesn't mean we're not affected though by change in the economy. If we're a small percentage of somebody's business, and the bulk of the business is with General Motors (GMGMQ.PK) or Chrysler, then clearly we're affected," CEO Tom Purves said.

"So far we've been able to manage, and good luck tells me don't get too excited about it. This is a very difficult period for automobile suppliers."

"Some of the specialist firms that we work with, they're heavily affected too. Whether they are very big or very small, everybody is in this critical situation."

(For summit blog: blogs.reuters.com/summits/)

(Reporting by Dhanya Skariachan; additional reporting by Jo Winterbottom and David Jones in Paris and Marie-Louise Gumuchianin and John Bowker in London, editing by Matthew Lewis)

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