Luxury’s Talent Factories

Fifty years ago fashion and luxury goods were all about family businesses and entrepreneurial designers. Today most of the best-known brands belong to a diversified group like LVMH, Richemont, or Kering. The success of such groups contradicts the management notion that a focus on one core leads to superior returns—and that diversification adds little value. An analysis of the performance of 350 fashion houses suggests that group affiliation does add value, say INSEAD’s Andrew Shipilov and Frédéric Godart. They found that the fashion collections of group brands were more successful, and judged more creative by industry buyers, than those of independent brands over a 10-year period.

How do luxury groups get this edge? Through the way they groom their designers and managers. The groups exploit the variety of their businesses by setting up internal talent markets that offer rich learning opportunities. Rising stars are thus less tempted to leave the organization, and cross-group job moves help spread knowledge and best practices. Group watchmaking companies, for instance, have been able to boost their sales by hiring experts in marketing and CRM from their groups’ fashion and cosmetics firms.

Worldwide operations give groups another advantage, because spending time overseas is critical to executive development. This is especially true in the luxury field, where international experience exposes designers to creative influences and executives to new but fast-growing customer segments.

However, it isn’t just in their approach to internal talent that groups excel. They prime the entry-level pipeline by sponsoring educational programs and offering apprenticeships to promising students, as well as recruit external functional know-how more effectively than the independent brands do.

HBR Reprint R1506H