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Finding the Right Fit: Smaller Brands Thrive Under New Ownership

Having the right parent or owner has become a hot-button issue in the luxury goods industry, with plenty of failures and successes to talk about.

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But consultants, executives and analysts caution that luxury groups have so far had a poor track record of minding large families of brands, despite the mad rush in the Nineties to snap up companies left, right and center.

Betsey Pearce, a New York-based lawyer who represents fashion clients in contract negotiations and acquisitions, said questions of compatibility and expectations are rarely addressed when deals are initially struck.

"What's lacking objectively is what both sides have in mind," she said. "There's not enough attention put into constructing the mutual incentives, coming up with a business that's going to work for everyone. Too often, you've got each side seeking a win."

For example, she said buying a "beautiful designer" might represent a prestigious holding for a group, "but it may not hold the attention of the top management." There are also important cultural differences to consider, say, when a French group tries to manage an Italian or American brand, she added.

That said, observers allow that brands can flourish under new owners. As examples, they cite Bottega Veneta, now owned by Gucci Group; Burberry, only recently demerged from Great Universal Stores; Louis Vuitton, merged with Moët Hennessy in 1987 to become part of Bernard Arnault's luxury empire, and Chloé, the Richemont-controlled house that has become one of the most admired in the business.

Pearce also said she's optimistic that Joseph, which had been owned by Albert Frere's Compagnie Nationale à Portefeuille, has found the right parent in Onward Kashiyama, its longtime men's wear partner in Japan.

Another brand that seems to be benefiting from a change of ownership is BlissWorld, one of the niche beauty companies LVMH snapped up in 1999 and flipped last year to hotel and resort operator Starwood.

"I think even the brightest child can't blossom under parental stifling or restricted exposure and investment," said Ross Klein, senior vice president and chief marketing officer for W Hotels Worldwide, which already has four new Bliss spas in the works. "All brands, like offspring, need the nurturing of their parents and especially parents that aren't fighting internally while the decisions that can make or break the child suffer or go unattended."
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