Best of British bounces back into fashion

The UK's luxury goods sector is enjoying a revival after years in the doldrums. Hilary Clarke reports

When the clock strikes midnight on 31 December this year, a gigantic crystal ball will fall from above Times Square and dangle tantalisingly above the crowd below. It will be made of Waterford crystal, and the feat be watched on television by an estimated one billion people.

Waterford Wedgwood, which owns the marque, will not be the only British luxury goods company to celebrate the millennium in style. The future of British quality houseware, perfume and fashion companies looks brighter than it has done for a long time. For years, the sector was stuck in the doldrums - largely due to its lack of dynamism in design and marketing vision. But the collapse of the Japanese economy two years ago - and subsequent reduction in the purchasing power of the designer-crazy Japanese - left it really staring down the barrel of a gun.

The French and Italian marques had largely protected themselves, and the "magic" of their brands, by forming luxury goods conglomerates like France's LVMH. Although the Asian crisis severely effected LVMH's profits, the company had the capital to snap up property in the region while it was cheap, putting itself in a better position for the upturn.

By contrast, the British luxury goods manufacturers - such as Burberry, Mulberry and Royal Doulton - were left standing helplessly by, as sales plummeted and their reliance on old designs failed to capture new markets.

"They suffered from a parochialism and provincialism in the design and an over-emphasis on tradition and wholly cliched marketing like the English gentleman and that kind of tosh," said Peter York, managing director of marketing consultants SRU.

All that appears to be changing. The Asian shockwave, and the new confidence of young designers and entrepreneurs in the sector has acted as a wake- up call to the older classic luxury British brands.

"Brand owners and operators have become a lot more customer-aware," said Brian Collie, retail director with airports operator BAA, whose Heathrow and Gatwick airports are important outlets for many brands.

"The Scotch Houses and Burberrys of this world have really changed their ranges. They have reacted to the pressures of the young designers," said Mr Collie.

The revival of the British luxury goods sector is also being spurred by the buying in of new management and design talent. "Management is certainly becoming more outward looking than in the past," said James Ogilvy, publisher of the trade magazine Luxury Briefing.

It is a fact not lost on the City. A number of investment banks such as Morgan Stanley are starting to look seriously at the sector again. "These companies are hanging on to quality and the brand trademark, be it the Burberry check or the classic Wedgwood design, but they are bringing it more up to date," said one City analyst.

In many cases, help has come from abroad. At the traditional end of the market, Burberry has been going from strength to strength since it hired a bigwig from the sharp-clawed world of New York retailing, Rose Marie Bravo, as its chief executive. Ms Bravo was formerly president of the plush Manhattan clothing and accessories retailer Saks. Great Universal Stores, which owns Burberry, gave Ms Bravo the brief to upgrade the merchandise and broaden its appeal, particularly in America, where the company is still seen as "that raincoat shop".

Here, the company is planning to open a store in Bond Street for the first time next year.

There has also been some encouraging news from the wallpaper-to-handbag group Mulberry. US furniture company Kravet last month agreed to make and sell its products, under licence, across Britain, Europe, and the US. The deal offers exposure to lucrative markets without further risks for Mulberry's long-suffering share-holders. And it took an Italian business manager, Carlo D'Amario, to turn former punk queen Vivienne Westwood into a millionairess and a grande dame of English haute couture.

A new approach at Waterford Wedgwood is also paying dividends. Following the acquisition of Germany's Rosenthal, and more recently that of All- Clad, the leading US luxury kitchenware manufacturer, the Stoke-on-Trent based company recently linked up with fashion designers John Rocha, Paul Costelloe and Jasper Conran to design a range of products. Rosenthal has also formed a joint venture in branding with the Italian fashion company Versace and jewellery designer Bulgari.

Waterford Wedgwood's share price, which is listed in Ireland, had almost doubled since February to 95.5p at the close of play on Friday. The renewed enthusiasm from investors is largely due to the popularity of Waterford crystal in the US, where according to the company's chief executive Brian Patterson: "Sales are going gang-busters." Although sales of Wedgwood ceramics in Japan suffered with the economic downturn, they did not feel the pain as much as some competitors because Wedgwood has captured important niches. One example is its range of muted colours that caters for the Japanese tradition of giving funeral gifts - which continues despite the doldrums.

That said, there is still massive over-capacity in the global ceramics, and the UK market has suffered from the strong pound, which damaged UK exports and increased competition here because imports were cheaper.

All the redesign in the world seems unlikely to help the sector's embattled workforce in Stoke-on-Trent, where the UK pottery industry is based and where thousands of jobs have been lost over the past few years. Royal Doulton has suffered much more than Waterford Wedgwood. The company last week announced a pounds 31m stock issue to spearhead a return to profitability for the company, which plunged pounds 42m into the red last year.

"There remains a great deal of work to be done to restore the group's performance to an acceptable level of profitability," admitted the company chairman Hamish Grossart. Royal Doulton is planning to develop a range of new products and designs and reduce its existing product range.

But perhaps the greatest British success stories recently in the luxury goods sector have been the independent designers. One paddling his own canoe very well is Paul Smith.

"He's huge in Japan and big over here because he never lost control of the design and marketing. He's managed scale. I wish there were some more like him," said Mr York. Of the pounds 173m turnover the company generated last year, pounds 120m came from Japan. Next year, Mr Smith plans to follow in the footsteps of Vivienne Westwood and launch his own perfume.

Industry analysts also wax lyrical about the upstart cosmetics company Joe Malone, which is soon to open a shop in Sloane Street. "They are going to be very big. Joe Malone has a devoted following and carved out a very comfortable niche," said Mr Ogilvy. Model Yasmin Le Bon refuses to allow any other cosmetics near her skin.

Even so, there is still much work to be done if Britain is really going to be in a position to take on the Pradas and Guccis of this world. "We have wonderful ideas for things and wonderful products, but they haven't been given justice," added Mr Ogilvy.

While companies like LVMH can afford to pay pounds 1m for a set at the Paris fashion show, the British luxury goods sector will remain the upstart knocking on the door from the outside. Indeed, the nearest thing we have to a luxury goods conglomerate is Waterford Wedgwood, but Mr Patterson said the company was likely to stick to the houseware sector for the time being - a decision supported by analysts.

"Waterford Wedgwood have a past, which is both a blessing and a burden, but they are doing some really exciting new things now," said one. "And we are really the only country in the world that is so good in this sector, so there is definitely an opportunity here."

With regard to the other luxury sectors, despite the massive funds available, not everyone agrees that a conglomerate would be the answer to the industry's problems. Mr D'Amario, Westwood's business manager, is adamant that the creativity, and therefore the long-term marketability of fashion companies at least, would be stifled by belonging to such a large concern."

In a nation where most of the people associate the word Chippendale with a group of male strippers rather than top-of-the- range leather sofas, perhaps the British also need to be persuaded to cherish their own national brands rather than always look for excellence abroad. You only have to look at how few British brands have stores in London's prestigious Bond Street.

"If Vivienne Westwood had existed in France she would have been a multi- millionairess a long time ago," said Mr York.