Sunday, September 26, 2010

Fashion vs. Banking: 2.0-1.0

With Milan’s fashion week coming to an end, one pauses to reflect: What is going on in the retail world? And specifically, what is going on in the luxury retail world? Nothing different than what we have been observing in financial services for the last year and a half: Consolidation.
In a rather unfortunate gesture in terms of symbolism, the Milan show was moved from the 13th century Loggia dei Mercanti (Merchants’ Palace that was founded during medieval times—think austerity) to the stately 17th century Palazzo Clerici, a grand manifestation of baroque manners and tastes.
Admittedly, the move aimed at convenience and efficiency but the symbolism only highlights what one would like to forget. As happened within financial services, the retail world is currently going through consolidation on a big scale. This means that smaller brands either cease to exist or are bought up by larger, more powerful luxury groups. Thus the irony of the excessive and stately Palazzo Clerici is that the brands that staged their shows there are the smaller ones because names such as Armani, Versace, and Ferragamo remained on their own premises, their respective private palazzos and away from the populace.  Many brands were completely banned from the program according Luisa Zargani, WWD’s Milan-based journalist.
Considering that last minute name shuffling comes after a long summer during which European private equity firms enjoyed a composed shopping spree, one concludes that the rules of the game are changing. On one hand, fads are dying a fast death and brands that capitalized on the public’s want for more but are devoid of substance are disappearing. The ones with a solid value proposition are now great candidates for funding by private equity firms with cash in their hands and no other projects in the pipeline. Finally, blockbuster established names (such as Ferré that already got a fund infusion earlier this summer) are moving on to the next stage of development, namely Fashion 2.0.
Therefore, the current state of the luxury retail industry is not only the outcome of the prolonged worldwide recession but also the conclusion of a natural process of contracting and getting rid of the superfluous, non-substantive, and disruptive brands, the ones that murk the waters. For the rest, the recent boost of private funding reported in all sorts of mergers and acquisitions will only accelerate the industry’s evolution to a functional sector of the economy that consistently takes place online. This is exactly where operations-driven firms will launch their strategy game, trying to outperform one another in clearly defining their 2.0 customer who will allow brands to monetize on the investment they make now. Net-a-Porter’s success story has gilded all major business publications. Luxury can be sold over the internet and those who have not embraced it yet are salivating.
In Paris, Karl Lagerfeld canceled his haute couture show in favor of online sales. In New York, Tom Ford was criticized for his preference for a tightly controlled and very private show even though what this really means is that he has total control of his own online image both in terms of content but also in terms of time. In London, Burberry experimented with a combination of Lagerfeld and Ford strategy and opted for the live haute couture show broadcast in real time in Burberry boutiques all over the world. In Milan, the exclusion of some brands means that Fashion 2.0 is for big fish only or at least for small fish who have friends in the banking world.
Bankers have always shown a stubborn preference for numbers but it seems that for once they are open to the creative energy that comes from the luxury retail industry, itself in need of some rejuvenation against its own stubborn and self-indulgent nature.  Perhaps the financial services industry will soon follow suit.

Wednesday, September 1, 2010

The Entrepreneur as Teacher

Today, I had the privilege to attend an intimate, private luncheon, during which four recent alumni of the Leonard N. Stern School of Business joined Guillermo (Bill) Yeatts, also a Stern alum with a Master’s degree and pre-doctoral work in Economics. A Buenos Aires native, Yeatts spent several years working for multinationals in the US, Europe, and Latin America and for the last thirty years has been an active entrepreneur and successful business owner in the oil and gas business (exploration, production, refining and marketing). In addition to private equity investments and entrepreneurial projects, Yeatts has been involved in several nonprofits within the field of business education. He co-founded Argentina’s Eseade (Graduate Business School) and has been the Chairman of Junior Achievement Argentina, a position that he abandoned only to be involved on the grass-roots level and volunteer personal time and effort to teach children from Buenos Aires’s slums about basic economic principles such as the meaning of private property and the implication of citizens’ individual rights vis à vis the state.
Bill’s visit to New York followed a short trip to Washington, where a number of the nonprofits in which he serves are based. It also coincided with the publication of his latest book in English, Plunder in Latin America, a truly remarkable account of Latin America’s economic trajectory, especially during the second half of the 20th century and into the 21st. Having managed to get a hold of the book before meeting with Bill, I realized early in my reading it that his argument on why the plunder of Latin America continues today has evolved from an earlier work of his, another book written and published in English, The Roots of Poverty in Latin America (2005). The latter illuminates the economic conditions that sprang from Latin America’s discovery by the Spanish and establishes a solid historical and social framework through which the reader can comprehend how Latin American policy was drafted, how it evolved, and why there is such disparity between South and North America in terms of poverty, economic development, and sociological trends. While Bills’s work in The Roots of Poverty is presented in a very scholarly fashion with a complete historiographical analysis of the subject, The Plunder is mostly distinguished by its modern approach to a problem of economic theory, namely that modern Latin America consists of captured economies that are subordinate to rent seeking undemocratic governments. He develops his theory carefully and with plenty of empirical evidence based on market research of, for example, how globalization and particularly technology have affected the prosperity of the Latin American population, without, however, having freed its constituents from the institutional predominance of modern-day dictatorships. 
Both books are thought provoking and a pleasure to read. Plunder in Latin America is available on Amazon and would make a valuable addition to college-level Global Economy class. It would give students a chance to compare and appreciate the legal system that derived from the Anglo-Saxon world along with the liberties that the notion of individual property imbues on all citizens of North America and Europe. Both books are remarkable in their candid presentation of the powerless of Latin American citizens vis à vis the government that can, at any time, seize private assets from bank accounts and private pension funds. Plunder in Latin America hit a chord with me because it articulates the causes behind problems that have shaken Greece’s economy recently and that can be recognized as ominous presence within the greater Mediterranean region as well.
Beyond its scholarly merit, Bill’s work stayed with me because of his own presence. He is productive, tireless, and vocal about issues that will trouble several generations in the future. He is committed to his own enterprises and while he operates within the realm of private initiative to generate business and build wealth, he is also giving back through his philanthropic work and his commitment to educate young children and teenagers in business.