S w

W12092

ELIE SAAB: GROWTH OF A GLOBAL LUXURY BRAND

Nadia Shuayto 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 cases@ivey.uwo.ca.

Copyright © 2012, Richard Ivey School of Business Foundation Version: 2012-07-26

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.

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.

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.

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.

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.

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

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 opportunities and challenges, and thus required a customized business strategy including the selection of the most suitable partners and entry mode. For example, ES licensed its name so that it could be applied to accessories to complement the company’s product offerings.

ES had forged privileged international relationships. Always available for customers, whether in the
Middle East, Russia or the West Coast of the United States, ES offered impeccable service while

27 P.W. Thomas, “Chambre Syndicale Fashion History,” Fashion-Era, www.fashion-era.com/chambre_syndicale.htm, accessed August 30, 2010.

respecting each woman’s desires. With an expert eye for detail, Saab made it a point of pride to ensure that each customer was completely satisfied.

FROM CONCEPT TO COLLECTION

The collection at ES required a team effort, so Saab worked with the creative team to develop a theme. This process involved sharing ideas and discussions regarding the needs and wants of women, the primary target market. The team agreed on the silhouettes, fabrics and colors that made up the theme for that particular season. It then worked to develop the patterns and samples to be displayed for shows. Many hours went into the production of the collection to ensure that the final product was a true masterpiece.

The finished dresses were featured at the fashion shows, and pictures of the dresses were then used to create the printed catalogs and other marketing-related materials. The actual gowns featured in the fashion show were not sold but rather were archived.

Although Saab stayed true to his celebration of femininity and elegance, he had the ability and willingness to adapt to the evolving needs of the modern woman. For example, the Saab 2010 collection had less lace and embroidery than his previous collections. He also used new fabrics such as rough silk and wool.

In addition to the studio, Saab managed two other activities:

 Haute Couture activities: Saab was directly involved in all aspects of this line, from conception to production, sales and eventual direct contact with Haute Couture customers. While there was a manager responsible for this function, Saab insisted on being close to the customer, as he was convinced of the added value that this personalized service brought to his high-end customers.

 Image and brand management: Another area in which Saab had direct involvement was the management of the brand, given that he essentially was the brand. He wanted to be involved in all decisions relating to brand communication. The Corporate Communications department implemented decisions made by Saab that fell under the business side of the company. Decisions for branding also involved the managing director and the Corporate Communications manager.

The business function consisted of the following departments and activities, each of which was headed by a director or manager:

 Operations: Divided into three divisions (Supply Chain, RTW Sales [retail & wholesale] and
Corporate Services) which handled all maintenance and support services;
 Finance: Handled all finance-related Group matters;
 Human Resources: Handled all employee-related matters within the Group;
 Information Systems: Handled all technology (software, hardware and telecommunications), email and web-related matters;  Corporate Communications: Handled all activities related to the public, including press relations, communications, dressing celebrities, organizing events (e.g. fashion shows), advertising, managing contracted external PR agencies and any other activity that affected the image of the brand  Business Development: Headed by the managing director and covered all expansion and development strategies related to the brand.

MARKETING STRATEGY

The personal service, workmanship, unique designs and exquisite materials used by Saab kept the ES collection on the forefront of the elite with stars and royalty alike. Zena Chedid, an executive as ES, discussed the ES experience:

The Haute Couture product is a lifetime experience. Our clientele receive personalized service from ES — ranging from fit and color to consultation on the design including the theme, hairstyle, jewelry and accessories. Our customers bring in their hair stylist to ensure that the entire look meets everyone’s expectations. The experience does not stop there; once you have purchased an ES Haute Couture dress, and years after the purchase, we guarantee the repair of ripped hems and alterations.

All the Haute Couture gowns and evening dresses were made in-house in Paris and Beirut. The line had an experienced team of very talented dressmakers and embroidery specialists at the shop in Beirut who created the custom-made dresses for clientele across the globe.

EVENTS, CELEBRITIES AND CROWNED HEADS

Being present at events such as the Academy Awards, Grammy Awards and British Academy of Film and Television Arts Awards was an essential marketing tool for the company and generated a large amount of free media and Internet coverage. At the 2002 Academy Awards, Halle Berry, wearing an ES dress, was voted “best actress” and “best fashion look.” The story received coverage in 33 U.S. magazines, 134 newspapers, 43 television programs and 27 websites. An Internet poll revealed that it was “The Oscar’s best fashion look since 75 years.” The value of media coverage was estimated at $1 billion.28

Saab’s designs became favorites for celebrities such as Angelina Jolie, Diane Kruger, Penelope Cruz, Beyonce, and Charlize Theron. Saab also dressed royalty, including Her Majesty Queen Rania of Jordan, Her Royal Highness (HRH) the Grand Duchess Maria Teresa of Luxemburg and HRH Princess Victoria of Sweden.

Seducing more and more public figures as well as numerous crowned heads, the brand was built on true authenticity. The prestigious VIP events of the world were the occasions on which to demonstrate the brand’s authenticity. Whether they were attending the Cannes Film Festival, on Hollywood’s red carpets or receiving prestigious awards, actresses and stars were wearing ES’s designs.

Celebrities helped to reveal the brand’s spirit. They were a natural target for fashion designers, and Saab’s approach to celebrities was the opposite of a marketing campaign: instead of choosing a celebrity and imposing his choice on her, he was instead available to many of them due to his presence during large media events. It was long-term work that involved human interactions and personal contacts.

28 ES Company documents.

COMMUNICATION AND PUBLIC RELATIONS

The primary communication objective was to build the image of the company to reflect the ES spirit of true luxury and exclusivity. The image was built through wide media coverage and other communication tools from catalogues and advertorials to the corporate website and an interactive portal.

The ES Group had three external public relations offices in London, Los Angeles and New York, as well as two in-house offices in Beirut and Paris.

In 2008, the firm’s annual communications budget represented 15 per cent of sales, two-thirds of which was spent on fashion shows while the remaining third was spent on public relations, advertising and events (see Exhibit 3). The company spent only one per cent of sales on advertising, three per cent on public relations and nine per cent on fashion shows. The remainder of the budget was allocated to events and other marketing activities.

As of 2010, the firm planned on allocating more money towards advertising, given the rapid growth of the RTW line. In 2006, the RTW line represented 40 per cent of sales while the couture line represented 60 per cent. As of 2008, the RTW line had grown to 59 per cent of sales as the couture line dropped to 41 per cent (see Exhibit 4). This shift caused the company to re-evaluate its marketing campaign and consider increasing the advertising budget to more than one per cent of sales.

Saab allocated a significant budget every year to support a charitable organization, and he made his show dresses available for runway shows during gala dinners in order to raise funds, lending his support to causes related to women and children. Saab was also passionate about helping talented young people develop their personal initiatives.

FASHION SHOWS

Saab’s RTW collections appeared on the Paris catwalks in October 2005, and they adhered to the official collection calendar set by the Chambre Syndicale. The collections were presented each season during a period known as “fashion week.” This week took place in Paris and occurred twice per year. Collections for autumn/winter were shown early in the year, usually in March, and the spring/summer collections were shown in October. RTW fashion weeks occurred separately and earlier than those of Haute Couture, in January and July.

Saab and his team developed four major collections, two for Haute Couture and two for the RTW line. Two additional minor cruise collections were offered in between. The company was constantly challenged to create the next season’s collection. Retailers, along with select customers and members in the media, were invited to attend the yearly fashion shows.

Once the RTW collection was released, approximately 85 per cent of retail orders were received within the days following the show. As for the Haute Couture collection, any dress could be made to the size and specifications of an individual customer. The company sold the RTW and accessories lines through a limited number of high-end retail stores in various countries around the world.

PRICING

ES products were not produced for the masses. They were targeted towards those who were interested in high fashion and had the ability to afford them. The price for a custom-made couture gown started at
$30,000 and rose above the $1,000,000 mark, depending on the design and fabric. Cavalcanti commented: “Given our position of exclusivity, the couture gowns and wedding dresses must remain very expensive and customers must experience the ultimate customer service.” Prices for the RTW line began at $1,200 for plain trousers and went up to $21,000 for a fur jacket (see Exhibit 5).

THE STATUS OF HAUTE COUTURE

Over time, the number of couture design houses declined. There were 106 in 1946,29 but the number declined to 11 in 2010. Couture week itself was shrinking to three days, in which only seven major houses presented.30

Gone were the high-class tastes of old-world American society. The ladies who lunched and hosted benefits and social events in couture daywear were replaced by new-world billionaires from the Middle East and Russia. For this very wealthy class, fashion was less about the luxuriousness of wearing exquisite handmade creations and more about conspicuous consumption and making museums out of their closets. Despite this shift, couture was much more than a product: it was a creative engine for an entire brand, a marketing tool and the foundation of an image on a profound and long-term level. Middle Easterners and Russians did not provide couture with the publicity and recognition that it needed to maintain its allure.31

ES was facing other trends, such as consumers shifting to a more casual style of clothing and other RTW companies raising quality and prices yet keeping the volume low in order to attract a new generation of wealthy consumers. According to Nancy Hass from the Wall Street Journal:

For most fashion houses anchored by couture, however, the cultural shift toward more casual dressing in much of the Western world, even among the wealthiest segment of the population, was a much darker cloud on their horizon. Fashion companies could not rely on income from Haute Couture alone to finance their costly 20-minute runway shows.32

FUTURE PLANS

ES planned to increase its worldwide retail presence through opening additional stores in major cities around the world.33 Plans were set to expand the geographic scope of the company by opening boutiques in Moscow, Beverly Hills, New York, Hong Kong, Tokyo and Shanghai. ES realized that each market had unique challenges, and thus it was willing to try different business models for each market. This level of customization required a huge investment. Possible new markets were also being discussed, such as

29 V.W. Thomas, “Chambre Syndicale Fashion History,” Fashion-Era, www.fashion-era.com/chambre_syndicale.htm, accessed August 30, 2010.
30 V. Friedman, (2010, August 10). The Future of Couture?” August 10, 2010, www.ft.com/intl/cms/s/0/e7325522-0c63-11df- a941-00144feabdc0.html#axzz1xalnTad6, accessed September 10, 2010.
31 Nancy Hass, “Survival of the Finest.” November 9, 2007, http://magazine.wsj.com/nomad/report/survival-of-the-finest, accessed August 30, 2010.
32 Ibid.
33 “ELIE SAAB Biography,” ELIE SAAB, ES Company documents.

Brazil, Singapore, South Korea, India, China and South Africa. New licensing projects were also in progress.

The Middle East market represented 62 per cent of the company’s sales in 2007, and 55 per cent in 2008. The European market increased two per cent from 2007 to reach 29 per cent in 2008. Another growing market was Russia, which increased from seven per cent of sales in 2007 to 10 per cent in 2008. The slowest-growing market was North America, which represented only four per cent of sales in 2008, up from three per cent in 2007. Asia, where ES saw the greatest future growth opportunity, represented only one per cent of sales in 2008 (see Exhibit 6).

ES’s vision was to place the brand on any product that was considered luxurious and exclusive. The company planned on diversifying the brand portfolio by offering new products such as eyewear, casual wear, men’s clothing, swimsuits, lingerie, leather goods, home line, airplanes, cars and car accessories, hotels, hotel amenities, luxury sports (golf), information technology and high—tech products. The company was also considering sub-brands and online sales.

The planned expansion strategy was divided into three parts:

 Geographic: Consisted of increasing the number of locations worldwide in which ES products could be purchased. This required the following: o The opening of new flagship stores (ES boutiques) in select cities worldwide based on a specific priority list. On the list were Dubai (opened in July 2010), Moscow, Beverly Hills, New York, Hong Kong, Beijing and Shanghai; o Increase the number of multi-brand shops across the globe in which ES products were available. The number of such shops was around 50, and the target was to reach 75 within the following three years.

 Product: Consisted of increasing the range of products that carried the ES brand name This could be achieved either through licensing agreements or through partnerships.

 RTW collection: Continue the evolution process that had started in the previous year and consisted of introducing more day wear to the RTW collection without discounting the importance of evening wear. This would make RTW a more balanced collection that offered a variety of looks that could satisfy the activities of the ES customer throughout her day.

As of 2010, the trend was to mix luxury with affordability. Saab explained:

You see a woman wearing a $6,000 Chanel jacket on top of a $90 pair of jeans from Zara. Therefore, we have to continue to follow the trends and needs of today’s woman and be able to satisfy her needs and desires, whether it’s Haute Couture for that extra special event or the RTW for that special occasion where our customer does not have the time to wait for the custom-made couture dress.

Looking ahead, Cavalcanti remarked:

We are one of the few remaining couture houses in the industry. The ES brand has become one of the preferred brands among the elite market, and we still have much ground to cover. We plan on reaching all parts of the globe and understand the unique needs of our high-end customers.

Special thanks to Hussam Kayyal from Exeed for his kind assistance.

Exhibit 1

ELIE SAAB GROUP HOLDING S.A.L. BALANCE SHEET 2006-2008

ASSETS

2008 | 2007 | 2006 | % of total Figuresassets 5.51% 2,102,586 10.95% 4,178,460 15.45% 5,895,6360.00% 5.87% 2,239,960 | % of total Figuresassets 5.93% 2,113,632 7.19% 2,562,734 10.90% 3,885,090 1.15% 409,895 6.50% 2,316,797 | % of total Figuresassets 3.30% 488,168 16.73% 2,474,865 10.59% 1,566,576 0.00% 0 2.31% 341,718 | 37.78% 14,416,642 | 31.67% 11,288,148 | 32.93% 4,871,327 | 61.70% 23,544,383 0.52% 198,429 | 67.74% 24,144,588 0.59% 210,294 | 66.24% 9,798,867 0.83% 122,782 | 62.22% 23,742,812 | 68.33% 24,354,882 | 67.07% 9,921,649 | 100% 38,159,453 | 100% 35,643,030 | 100% 14,792,975 |

Current assets: Cash and banks Accounts receivable Inventory
Due from related parties
Prepaid expenses and other assets
Total current assets

Non-current assets: Property & equipment Intangible assets
Total non-current assets

TOTAL ASSETS

LIABILITIES

13.73% 5,239,293 7.82% 2,984,069 0.76% 290,172 17.26% 6,585,940 8.84% 3,373,296 | 10.52% 3,749,647 10.67% 3,803,111 1.21% 431,281 16.35% 5,827,635 1.90% 677,218 | 9.90% 1,464,505 17.48% 2,585,812 0.68% 100,592 20.67% 3,057,708 3.00% 443,789 | 48.41% 18,472,770 | 40.65% 14,488,892 | 51.73% 7,652,406 | 0.00% 7.50% 2,861,9590.00% 3.39% 1,293,605 3.12% 1,192,439 | 3.84% 1,368,692 12.58% 4,483,893 21.07% 7,509,986 2.83% 1,008,698 1.50% 534,645 | 8.84% 1,307,699 11.22% 1,659,772 15.04% 2,224,863 5.59% 826,927 0.88% 130,474 | 14.01% 5,348,003 | 41.82% 14,905,915 | 41.57% 6,149,736 | 62.42% 23,820,773 | 82.47% 29,394,807 | 93.30% 13,802,142 |

Current liabilities: Due to banks Trade suppliers Taxes payable
Accrued charges and other liabilities Due to related party

Total current liabilities

Non-current liabilities: Due to related party Term bank debt
Due to shareholders
Provision for end of service indemnity
Provision for taxes

Total non-current liabilities

TOTAL LIABILITIES

Exhibit 1 (continued)

INCOME STATEMENT 2006-2008

2008 | 2007 | 2006 | % of sales Figures 100% 50,000,000 ‐22.25% (11,125,000) | % of sales Figures 100% 33,557,000 ‐20.11% (6,748,313) | % of sales Figures 100% 26,216,000 ‐30.04% (7,875,286) | 77.75% 38,875,000 | 79.89% 26,808,687 | 69.96% 18,340,714 | ‐11.04% (5,520,000) ‐42.13% (21,065,000) ‐3.05% (1,525,000) ‐1.02% (510,000) ‐0.26% (130,000) ‐1.34% (670,000) | ‐13.76% (4,617,443) ‐48.66% (16,328,836) ‐3.22% (1,080,535) ‐0.32% (107,382) 0.00% 0 ‐0.99% (332,214) | ‐10.55% (2,765,788) ‐51.67% (13,545,807) ‐0.66% (173,026) ‐2.17% (568,887) ‐1.34% (351,294) ‐2.65% (694,724) | ‐58.84% (29,420,000) | ‐66.95% (22,466,412) | ‐69.04% (18,099,526) | ‐1.65% (825,000) ‐1.50% (750,000) 4.27% 2,135,000 | ‐2.58% (865,771) 3.58% 1,201,341 3.83% 1,285,233 | ‐1.25% (327,700) 1.25% 327,700 2.82% 739,291 | 1.12% 560,000 | 4.83% 1,620,803 | 2.82% 739,291 | 20.03% 10,015,000 | 17.77% 5,963,079 | 3.74% 980,478 | | | |

Sales
Cost of materials and outsourced production
Gross profit

Operating expenses: Salaries and related charges General, selling and administrative expenses
Depreciation Provision for end of service indemnity Provision for bad and doubtful debts Provision for contingencies
Total operating expenses

Other income/(expenses): Interest and bank charges Difference in exchange Other income
Total other income/(expenses)

Profit before income tax

PR & marketing expenses (% of sales) | | PR offices & consultants | 2.85% | 1,425,000 | Marketing & advertising | 1.19% | 595,000 | Fashion shows | 8.74% | 4,370,000 | Other events | 2.28% | 1,140,000 | Other | 0.32% | 160,000 | | 15.38% | 7,690,000 |

RATIOS

Current assets/liabilities | 78.04% | 77.90% | 63.67% | Liability/owners’ equity | 166.10% | 470.46% | 1392.78% | Income/total assets | 26.25% | 16.73% | 6.63% | Income/owners’ equity | 69.84% | 95.46% | 98.95% |

Owners’ equity | 14,340,536 | 6,246,678 | 990,883 | Total assets | 38,159,453 | 35,643,030 | 14,792,975 | Total Liabilities | 23,818,913 | 29,388,122 | 13,800,816 |

Source: Financial data compiled from company files.

Exhibit 2

NUMBER OF MILLIONAIRES BY COUNTRY

Country | Numberin 2008 | Number in2009 | HNWI growth rate (%)2008-2009 | United States | 2,460,000 | 2,886,200 | 16.5% | Japan | 1,366,000 | 1,650,000 | 20.8% | Germany | 810,000 | 861,500 | 6.4% | China | 365,000 | 477,400 | 31.0% | UnitedKingdom | 362,000 | 448,100 | 23.8% | France | 346,000 | 383,000 | 10.8% | Canada | 213,000 | 251,300 | 17.9% | Switzerland | 185,000 | 222,000 | 19.7% | Italy | 164,000 | 179,000 | 9.2% | Australia | 129,000 | 173,600 | 34.4% | Brazil | 131,000 | 146,700 | 11.9% | Spain | 127,000 | 143,000 | 12.5% |

Note: HNWIs are classified as being worth more than $1 million. Source: “World Wealth Report 2010,” Merrill Lynch, 2010, p. 6.

Exhibit 3

PUBLIC RELATIONS AND MARKETING EXPENSES 2008 (% OF SALES)

10.00%
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%

2.85%

1.19%

8.74%

2.28%

0.32%

PR Offices & Consultants Advertising Fashion Shows Other Events Other

Source: Sales data compiled from the ES: ESG Holding S.A.L. Consolidated Balance Sheet.

Exhibit 4

RTW/ACCESSORIES VERSUS HAUTE COUTURE (% OF SALES)

70%

60%

50%

40%

40%

60%

54%

46%

59%

41%

30%

20%

10%

0% 2006 2007 2008 Ready‐To‐Wear & Accessories Haute Couture

Source: Data compiled from ES financial statements 2006-2008.

Exhibit 5

RTW AND HAUTE COUTURE PRICING IN 2010

Short plain dress $2,500 - 3,300 Long plain dress $4,000 - 5,000 Short dress with lace insert and beading $3,750 - 5,000 Long dress with lace insert and beading $5,000 - 8,400 Short fully embroidered dress $8,000 - 9,000 Long embroidered dress $11,400 - 12,750 Suit (jacket and skirt) $6,600 Plain trousers $1,200 - 1,500 Jacket $3,300 - 5,100 Fur jacket (variety of fur) $12,000 -21,000

Haute couture prices $34,000 - 1,000,000

Source: Data compiled from ES financial statements.

Exhibit 6

GROUP SALES BY REGION (2007-2008)

2007 Sales by Region: Total Sales

Series1, Europe,
27%, 27%

Series1, Middle East & Lebanon,
62%, 62%

Series1, Russia,
7%, 7%
Series1, North America, 3%, 3%
Series1, Others,
1%, 1%

2008 Sales by Region: Total Sales

Series1, Europe,
29%, 29%

Series1, Middle East & Lebanon,
55%, 55%

Series1, Others, 1%,
1%

Series1, Russia,
10%, 10%
Series1, North America, 4%, 4%
Series1, Asia, 1%,
1%

Source: “Company Profile,” ELIE SAAB.