Deluxe

by Dana Thomas

  Back in the early 1990s, when Gucci was on the verge of bankruptcy, most of its leather goods were classics that carried over from one season to the next. De Sole wanted to introduce more creativity to design and ramp up production. To achieve this, in 1994, De Sole put Gucci production online. Poggiolini took me into a vast room in the factory filled with dozens of desktop computers on long tables to show me how it worked. “In the old days the bag went straight from design to leather, which was time-consuming and expensive and might have been right or not,” he told me. Now, technicians work on the three-dimensional computer image of the bag with the creative teams in London, Paris, and Milan to perfect the design. “You can turn around the bag on the screen and really study it,” Poggiolini explained. Once the design is green-lighted, the technicians print the pattern on pink cardboard for the prototype. The first prototype is made in a black rubberized fabric called Peplon so that the artisans can see the shape of the bag. The leather details are glued on to give the design team an idea of what the bag will look like when completed. When Ford approved the prototype, it went into production.

  Unlike at Hermès, where artisans study the skins and figure out the best way to cut them for the handbags, at Gucci the computer makes a map that shows the technicians how to lay out the pattern on the material. Fragile skins such as ostrich, lizard, and alligator are cut with a metal press. Cowhide, however, is cut by a special machine (developed and used exclusively by Gucci) with water jets that move at twice the speed of sound. When experimenting with faster and more efficient ways to cut the leather, the technicians tried lasers, but as Poggiolini explained, “it burned the leather and smoked.” They finally chose the water-jet method because, as Poggiolini said, “it’s fast, it’s clean, and the quality of the cut is very good.” The water jet is remarkable to see because, in fact, you can’t see it. All you see is the leather cut, as if by magic, and a mist from the water jet dissipating to the sides. There were three of these machines at Casellina di Scandicci factory when I visited and another six at other manufacturing sites in the area.

  Since 1995, all Gucci leather goods have been designed on computers. Between 1994 and 1998, leather goods production jumped from 640,000 to 2.4 million items per year, an increase of 277 percent. In 1997, classic designs made up 60 percent of Gucci’s leather goods inventory. By 1999, that had dropped to 10 percent. Production time—from prototype to warehouse—was cut from 104 to 68 days. By 2004, Gucci Group, which then included Yves Saint Laurent, Sergio Rossi, Stella McCartney, Alexander McQueen, Balenciaga, and Bottega Veneta, turned out 3.5 million leather goods a year.

  After our tour of the main factory, we walked across the industrial park to a small, two-story blocklike building housing one of about ten subcontractors that produced Gucci Group handbags. It was owned and run by Carlo Bacci, who had joined Gucci in 1960 as a handbag craftsman. Back then, all Gucci leather goods were produced in-house. Bacci left in 1969 to start his own company in Florence, and two years later began to manufacture for Gucci, which by then was subcontracting to outside ateliers. When I visited Bacci’s workshop during my Gucci tour in 2004, he had twenty-three people on staff—including his wife and son—many of whom had worked at the Gucci factory across the street. He only worked for Gucci Group, with a partnership contract that stipulated that Gucci would guarantee a certain number of orders each year.

  The workroom was simple: white, with cement floors, long tables, and overhead fluorescent lights. On each table sat piles of bags from Gucci, Yves Saint Laurent, Stella McCartney, and Sergio Rossi in various states of completion. Gold cowhide clutches with linen lining. Bronze crocodile purses with enamel snakehead clasps. Basic bags were produced in two to three hours; more complex ones took eight or more. Most were glued together and sewn on machines. The craftsmen worked on twenty bags at a time—five times as many as at Hermès—but like Hermès workers, they made each one from beginning to end. Bacci’s studio only produced handbags—wallets and belts were done elsewhere—and it only turned out about 250 bags a month because it did the most complex designs with the most precious skins. Each finished bag was stamped with a code that identified Bacci’s atelier. Bacci also managed subsuppliers, who did another two thousand bags a month.

  THAT’S HOW IT IS DONE in Europe. In China, luxury handbag manufacturing is a completely different business. Yes, luxury handbags are made in China. Top brands. Brands that you carry. Brands that deny outright that their bags are made in China make their bags in China, not in Italy, not in France, not in the United Kingdom. I visited a factory in Guangdong Province and held the bags in my hands. To see them, I had to promise the manufacturer that I wouldn’t reveal the brand names. Each brand made the manufacturer sign a confidentiality agreement stipulating that he could not reveal the fact that he produced their products in China. Furthermore, the manufacturer doesn’t let the competition know who else he is producing. When the representatives come to the factory, they are led directly to the section working on their goods, and they talk only to the team in charge of their goods. It’s as complicated as keeping a slew of mistresses.

  There are three or four factories that specialize in manufacturing luxury brand leather goods in China, most in Dongguan, an industrial town about an hour north of Hong Kong. Often they do low-and middle-range business, for companies like JCPenney, Sears, Liz Clai-borne, and Ann Taylor that run $40 to $80. But they also produce luxury handbags. The change came in the mid-1990s when Coach decided to move a small portion of its production from the United States to China.

  Coach was a new player in the luxury goods category. Originally founded by an entrepreneur named Miles Cahn in midtown Manhattan in 1941, Coach had long been a conservative stalwart of the American leather goods business: the sort of brand that suburban mothers carried before luxury brands went mass. In 1985, the family sold the company to Sara Lee Corporation, a huge American conglomerate that was known for its frozen cheesecakes and owned such brands as Hanes underwear and Wonderbra. In 1996, Coach’s CEO, Lew Frankfort, decided it was time to renovate the brand. He hired Reed Krakoff, a young, savvy designer at Tommy Hilfiger, as executive creative director, and together they mapped out a new future for Coach. The idea was to reposition the brand as an American alternative to Prada and Louis Vuitton, with prices ranging from $125 to $2,000. They called it “affordable luxury.”

  In 2000, Coach was listed on the New York Stock Exchange and was split off from Sara Lee. In 2001, its sales were a respectable $600 million, and its customers were primarily in the United States, with some in Japan and Asia. (Coach does not sell in Europe because it believes that competition from local brands would be tough. Also, two-thirds of the luxury consumers are from the United States and Japan, which allows for plenty of growth.) That year, Frankfort and Krakoff decided to change the creative direction of the brand from traditional classics to more fashion-forward. They came up with a new Signature collection of items in leather and cheerful-colored canvas printed with the company’s C logo like a checkerboard, and began shipping new designs to stores monthly instead of twice a year. The Japanese particularly loved the Signature collection and bought it so fervently that, in 2003, Coach became the second most popular imported accessories brand in Japan, after Louis Vuitton.

  To continue Coach’s financial growth, Frankfort focused on increasing distribution and maximizing productivity. To do this, Coach rolled out new stores throughout North America and Asia, and it switched its manufacturing from company-owned U.S.-based factories to outsourcing overseas, much of it in China. Today, Coach products are manufactured in eighty-four sites in fifteen countries; “a significant majority” are made in China, a Coach spokeswoman said. In 2002, Coach closed its last company-operated manufacturing facilities. The original Thirty-fourth Street factory is now home to Coach’s executive offices as well as a small prototypes workshop. “By shifting our production from owned domestic facilities to independent manufacturers in lower-cost markets, we can support a broader mix of pr
oduct types, materials, and a seasonal influx of new, more fashion-oriented styles,” Coach said. “All product sources must achieve and maintain our high quality standards…and we monitor compliance through on-site quality inspections at all Coach-operated or independent manufacturing facilities.”

  The strategy paid off. From 2001 to 2006, Coach experienced double-digit growth every quarter; by 2006, it was doing $2.1 billion in sales. At the same time, thanks in large part to lower production costs, profits soared. Coach’s stock value increased a whopping 1,270 percent in the first five years after the company’s initial public offering. And contrary to conventional wisdom, the perceived quality of Coach products has risen since it shifted production from the United States to China and other countries.

  Emboldened by Coach’s trailblazing success, other luxury brands quietly began to look into producing leather goods in China. Luxury brands have been hesitant to outsource production to developing nations in part because they feared quality would be compromised and, more important, because of the perceived image that the goods were no longer up to snuff. During the renovation and reinvention of luxury brands in the last twenty years, executives have trumpeted the fact that their products were made by artisans in Italy and France who had not only the experience but also the heritage of luxury craftsmanship, as if making fine leather goods, beautiful fabrics, and jewelry was in their genes, in their blood. According to luxury brand executives, that extraordinary gift could not be replicated anywhere else in the world. The “Made in Italy” or “Made in France”—or for cashmere, “Made in Scotland”—labels were the cachet, the reason these goods were “luxury” and cost so much. As labor costs mounted in Europe in the 1990s, businesses began to source to cheaper labor elsewhere in the world.

  Not luxury brands. They couldn’t publicly move production out of Europe without damaging the brand image they had so carefully crafted. Their initial response was to raise retail prices, but only slightly, so as not to chase off all those new middle-market customers. Luxury brands that were publicly traded had to answer to their shareholders, who wanted more of a return, more profits. That meant increasing volume and lowering costs. To increase volume they ramped up production and advertising, particularly for handbags.

  Lowering costs was a more delicate problem. How could luxury brands slash the production cost of their goods and maintain the same high level of quality? In fact, they couldn’t. There had to be concessions. In the name of profit—or, to put it more bluntly, greed—luxury brands began to compromise their integrity. Some cut corners in ready-to-wear. “I remember being in fittings in the mid-nineties where the CEO came in and said, ‘Women don’t really need linings,’” one former major luxury brand assistant told me. Soon that became the industry standard. “There’s a raw-edge cutting, which is deemed post-Japanese avant-garde from a design standpoint, but actually is an easy way to cut production costs,” another luxury brand design assistant explained to me. “You can imagine how much less time and money it takes to make a dress or jacket if you don’t have to sew the outer fabric and lining together, press them, fold them back on themselves, press them again and add another seam to keep it together. If you do a raw edge, you just cut the edge and it’s done.” Another Italian brand trimmed costs by cutting sleeves half an inch shorter. “When you get to a thousand, you see the savings,” the assistant explained.

  Many luxury brands cut costs by using cheaper materials. Example: In 1992, I bought a pink sleeveless Prada cocktail dress that was made of thick iridescent cotton and silk faille, fully lined, and finished beautifully. It cost $2,000, but it is couture quality and will last forever. Ten years later, I bought a pair of thin cotton-poplin cropped trousers at Prada for $500. I put them on, and the gentle passing of my foot ripped the hem out. I put my hand in the pocket, and it tore away from its seam. I squatted down to pick up my two-year-old, and the derriere split open. I hadn’t had those pants on ten minutes and they were literally falling apart at the seams. I mentioned this to a former Prada design assistant. “It’s the thread,” he told me. “It’s cheaper and breaks easily.” When I told him about my gorgeous dress from 1992 that was as solid as a Rolls, he nodded. “That was then,” he said with a sigh.

  The most obvious place for luxury brands to trim costs was the same place that every other industry was trimming costs: in the price of labor. And the cheapest and most plentiful labor today is in China. Once Coach proved that Chinese workers could meet luxury brand quality standards, several other brands moved a small amount of production there, too. Like Coach, they started with short runs of classic and basic designs of leather goods. To get the technique right, one major Italian luxury brand executive sent a team of leather goods artisans from Italy to teach the Chinese workers. With each successful run, the brands got braver, ordering more, and other brands joined the exodus. By 2006, hundreds of thousands of luxury brand handbags, toiletry cases, and satchels were produced in China each year, unbeknownst to customers.

  Few admit to it. The small Italian leather goods firm Furla said it began to produce some of its wallets and handbags in China in 2002. Despite Bernard Arnault’s declaration at a luxury conference in Hong Kong in December 2004 that only European artisans truly knew how to make luxury goods, one of his LVMH brands, Céline, produced its denim and leather Macadam handbags in China the following year. A brown leather tag inside the bag stated that it was designed in Paris and “handcrafted in China with the greatest attention to quality and detail.” In May 2005, Prada CEO Patrizio Bertelli boldly told the Financial Times that the company, which at the time claimed that all its clothing and accessories were made in Italy, was “currently evaluating a series of opportunities” to produce in cheaper labor markets elsewhere in the world, including China. In fact, Prada had already been producing leather goods in China for at least six months when Bertelli made that statement.

  Today, the luxury brand handbag is a study in globalization: hardware, like locks, come from Italy and China (primarily Guangzhou); the zipper comes from Japan; the lining comes from Korea; the embroidery is done in Italy, India, or northern China; the leather is from Korea or Italy; and the bag is assembled partly in China and partly in Italy. The sourcing is sometimes as questionable as the true provenance of the bag: one manufacturer told me that one supplier claims his silk is British when in fact he buys it in China, stores it in the United Kingdom, and then sells it at European prices.

  Most luxury brands don’t produce a lot of different styles in China. Instead they reproduce the same designs in different colors or materials. The luxury brand’s design team dreams up a new bag and sends a pattern to the factory in China. The manufacturer does the research to find the materials, hardware, and, if needed, a source to do the embroidery. Sometimes the manufacturer’s research pays off: one replaced an Italian-made fabric that cost $21.50 (€18) a yard with one from Korea that cost $12, and, he added, “the quality is better.” The Chinese manufacturer makes the prototype. Once corrected and approved, the bag is put into production.

  The luxury brands are fiercely protective of the logo and only send the number of labels needed for the amount of bags in each order. “If that label turns up on other bags, the logo is worthless,” the manufacturer told me. Few bags actually carry the “Made in China” label. If they do, it is well hidden. For one bag, the tag was sewn into the bottom seam of the inside pocket. For another, it was stamped on the reverse side of a postage-stamp-size leather flap that bears the brand’s logo. You need a magnifying glass to read it. The majority, however, carry a “Made in Italy,” “Made in France,” or “Made in the U.K.” label. The brands have little tricks to get around the China label. One brand’s “Made in China” label is actually a sticker affixed to the outer package. The luxury brand rips it off when the goods arrive in Italy and replaces it with a “Made in Italy” label. Another has the entire bag made in China except for the handle. The bag is shipped to Italy, where the Italian-made handle is attached. Some brands ha
ve the tops of shoes—the most labor-intensive part of the process—made in China and then attach the soles in Italy. These items can carry the “Made in Italy” label.

  The craftsmanship can be complicated. I watched Chinese girls make intricately braided leather handles and tassels. “We learned the technique from Italy,” the manufacturer told me. The amount of glue used to construct the bag dictates the level of luxury—and the retail price. Low-end luxury brands use a lot of glue. Higher-end brands use little. One young and highly respected European brand that produces only very fine leather goods doesn’t use glue at all—but it does quietly produce most of its goods in China. When you walk into its production room, you only smell leather. “I hate glue,” the manufacturer told me. “But that’s how the brands can afford it.” And how they make their profits.

  Production in China costs 30 to 40 percent less than in Italy. “So we aren’t dirt cheap,” the manufacturer said. “There is a preconception in the U.S. and Europe that if the brands move to China they’ll get it for 10 percent. Sure, there are factories that will do that, but the quality won’t be there and the brand will suffer. If we do it right and they get good products from our effort, they will make money. In the end, we are the money generator for them.”

  Indeed they are. The evening after I visited the factory in China, I met some friends for a drink at the bar at the new Harvey Nichols store in Hong Kong. As I entered the store from the Landmark luxury shopping mall in the heart of the Central business district, I passed through the handbag department. To my right, on the shelf, sat the exact same bag I saw the Chinese girls making in the factory. It cost the brand $120 to produce. It was for sale at Harvey Nick’s for $1,200.