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Breeding luxury
by May Yip

Chanel flower farm in Grasse, south-eastern France.

It's not enough that the storied Ermenegildo Zegna Group is the sixth largest luxury company in Italy - thanks to its sales of upscale men's suits. Its latest accolade is, however, a little less sexy-sounding: The 104-year-old house is now an official wool grower. Earlier this month, the menswear heavyweight announced the acquisition of a majority stake in an Australian superfine wool farm Achill, where merino wool sheep are raised.

"The opportunity to better understand the daily work of the graziers, sharing the culture and the philosophy of quality and the technical side of this magnificent fibre is quite exciting," explains Paolo Zegna, chairman of the Ermenegildo Zegna Group. "By supporting the work of a young, talented farmer, we have a unique and sizeable opportunity to faithfully look at the future of an industry which we want to preserve and protect for future generations."

Today, the Zegna Group treats and consumes 1.5 million kg per year of the highest grade wool available. With over 500 standalone boutiques around the world, the fourth-generation family business also produces suits for brands such as Gucci and Tom Ford, and is one of the biggest producers of luxury fabrics in the world. To maintain its demand for ultra-fine wool fabrics, company reps explored the idea of being in the business of producing the raw material during a trip to Sydney. Inking the deal with the family-owned wool farming company then officially completed the brand's supply chain.

"Since luxury brands compete on the basis of heritage, craftsmanship, and authenticity, with the rapid global expansion of the big players like Gucci and Louis Vuitton, high quality raw material becomes relatively scarce," says Qing Wang, professor of marketing and innovation at Warwick Business School. "Ensuring their availability becomes a critical condition and strategic consideration for business success."

Pinning down the palette of the season or securing prime retail real estate are miniscule cogs in the massive wheel that drives the revenue streams of big brands. Vertical integration - whereby Zegna, for example, is now fully involved in the entire value chain from the production of wool up to selling products to the final consumer, is now essential for the bigwigs of fashion to keep abreast of the competition.

Last year, Loro Piana, the LVMH-owned Italian purveyor of swank cashmere and wool products, bought a controlling stake in an Argentinean firm that has the rights to shear the wild vicunas (smaller-sized llamas) in the Catamarca province to produce the prized, ultra-silky fibre. And it's a worthy investment for a company regarded as a rival to Zegna, as coats spun from the rare, gossamer-light hairs of the animal could fetch over US$20,000 due to the limited number of herds.

Such deals not only allow brands to maintain the cost of such rarefied commodities - which inflate with demand - they also create an exclusive stronghold on an entire product category. LVMH, for example, famously paid 47 million euros (S$78 million) for a 51 per cent stake in Singaporean crocodile hide tannery Heng Long, and owns the Johnstone River crocodile farm in Australia to meet demands for the exotic skin. Meanwhile, Hermes has been buying tanneries since the late 1990s and owns an alligator farm in Louisiana, US; and crocodile farms in Australia. The buying frenzy means only top echelon luxury goods makers could command astronomical profit margins.

"Luxury used to be fuelled by individualism, by families who understand a trade or a line of artisans," laments homegrown bespoke bag designer Ethan Koh, who also happens to hail from the family behind Heng Long. "The market is very crowded with a lot of noise but no voice, filled with companies with a lot of financial backing to acquire plenty of assets. But they are too generic. There should be more initiatives to help artisans and farms grow, and not just acquisitions for the sake of dominating the industry."

These days, apart from owning the producers of raw materials outright, brands are beginning to contribute funds to preserving resources. Loro Piana also established a reserve to study the animals and increase their population. And way back in 1987, Chanel established the first partnership of its kind with the largest flower producer in Grasse - a French town regarded as the world's perfume capital. The farm run by the Mul family has produced the May roses and jasmines that go into the famous Chanel No. 5 perfume since its inception in 1921.

"We continue to improve our techniques to get the very best out of our plants, without ever taking the risk of exhausting our land," explains Fabrice Bianchi, the son-in-law of Joseph Mul, the fifth generation farmer of his family to have worked for Chanel. "We let our parcels rest between each crop and carry out in-depth analyses to understand their language. We aim to produce the most fragrant flowers and ensure the same quality in the future."

Apart from boasting a stake in the farm, the privately-owned company has also brought together 10 artisanal ateliers - including feathers-and-flowers maker Lemarie and hat maker Maison Michel, and launches an annual ready-to-wear collection called Metiers d'Art to showcase the savoir faire of the craftsmen. In 2012, it also bought the Barrie Knitwear cashmere mills in the Scottish Borders to secure the jobs of workers, after the company's owner was placed in administration.

However, for less moneyed makers of high fashion products, gaining access to such recherché materials or esteemed craftsmen at a reasonable price may be as elusive as a pink Birkin.

"This trend of vertical upstream integration set by the big players has important implications for small, independent and artisanal brands, as such a business model may not be financially viable nor desirable for these brands," adds Prof Wang. "To ensure long term survival and prosperity, these brands will need to find a new business model and differential advantage from the big players and provide unique value propositions for the target consumers."

While the future might seem bleak for independent creators of luxury products, one designer who has a unique advantage over his peers is not daunted by the race by major labels to snap up suppliers.

"Having direct access to my family's business is just one of the many factors contributing to a successful couture brand," says Mr Koh, who just unveiled his first-ever boutique in London department store Harrods last week. "Growing up in a tannery exposed me to the intricate steps required to make a bag. But vertical integration is a very generic advantage to have. At the end of the day, someone could buy a goldmine or a multitude of gems, but would he know how to create jewellery to maximise the beauty of such precious materials?"

Indeed, the way to go for indie designers is perhaps cutting-edge design and the creative use of alternative materials. Who knows, high-end consumers might one day tire of paying nosebleed-inducing prices and settle instead for the antithesis of luxurious materials - synthetics. And rather than environmentally unfriendly PVC, brands are innovating and coming up with new alternatives. Croc-embossed biodegradable "bioplastic" shoes by Stella McCartney, anyone?

This article was first published on July 26, 2014.
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