The float would have valued the firm at $4bn (£2.6bn) and was set to raise important capital for future growth and diamond acquisitions. But last Wednesday, with barely a week left before the listing and only half the initial stocks sold, the company was forced into a humiliating retreat. A Graff spokesperson explained: “Consistently declining stock markets had proved to be a significant barrier to executing the transaction at this time.”
Within hours journalists and investment bankers were coming up with all kinds of more appropriate headlines to explain Graff’s decision.
One City wag announced: “Diamonds are clearly not forever” while others pointed out that the deal had fallen down because too many investors had said “Dr No” to the deal.
All gags aside, the real question this week is why did Graff fail to inspire investor confidence? The brand is pristine to the point of perfection and Graff himself is an inspirational founder. Like most of the founders of great luxury brands, he came from a non-aristocratic background but then rose to the pinnacle of his business using the combined talents of unmistakable artisan skill and a flair for business and entrepreneurial thinking. Like Coco Chanel or Christian Dior, Graff is an incredible artist and an amazing businessman at the same time.
There was nothing wrong with the asking price either. Unlike the tragic case of Facebook and its ludicrous valuation price that carried a multiple of 70 times earnings, Graff was asking for a far more realistic price of between $HK25 (£2.08) and $HK37 (£3.08) a share, which translates to between 18 and 24 times earnings.
Others suggest the luxury bubble itself might be in decline and therefore the reason for Graff’s failure to inspire. But again the data suggests that luxury is doing anything but declining.
Consulting firm Boston Consulting Group has just completed its annual global survey of consumer needs and its predictions, which are usually rock solid, suggest luxury will grow by 7% this year to a whopping $1.5tr (£97bn) market.
Everything you have read about luxury is true; in times of recession the rich keep buying and the middle classes often follow with an occasional purchase to brighten the recessionary darkness.
So, if the brand is strong, the price is right and the market is stable, why did Graff fare so badly last week? The real explanation for the market’s reticence to invest in Graff is – in some ways – actually a compliment. Graff is simply too old-school luxury to be successful in the modern luxury era in which we now live.
Go back half a century and luxury brands were incredibly expensive and reserved for a tiny minority of the elite social classes. If, like me, you come from working class stock, there is almost no chance that your great grandparents ever drank champagne or owned a diamond. Luxury was for the few.
But over the past two decades we have witnessed the “democratisation of luxury”. Elite brands like Prada and Bollinger now enjoy unprecedented levels of awareness across the whole of society. The kind of demographic groups that would once never have even heard of these brands now make up the majority of their custom.
Despite being barely 50 years old, however, Graff is a classic “old luxury” brand. The brand does not enjoy or aspire to mass appeal. As its float documents demonstrate, Graff’s top 20 clients account for 44% of last year’s sales revenues. That wasn’t 20% you’ll note – that was 20 people.
Then there is Graff’s price point. Most luxury brands have created an accessible line to allow everyday consumers to buy into the brand at an entry level. You can join the world of Tiffany or Cartier for less than £100, for example. The most “accessible” Graff product will set you back £10,000. Again, old school stuff.
And finally there is the founder himself. He is central to every aspect of the brand’s operation. From buying the stones, to deciding on how they are cut, to selling them with world-acclaimed flair to a tiny coterie of billionaire clients. There is a very skilled team behind Laurence Graff but, as he readily admits in interviews, he runs his brand with the kind of overpowering flair that only a founder can exhibit over his own creation.
The real reason that the Graff IPO failed was because it is a truly traditional “old luxury” brand. And as a result it lacks all of the mass appeal and accessibility that today’s investors look for in a modern luxury brand.
It is perhaps the most backhanded compliment you can ever pay Laurence Graff and his amazing brand – but Graff is too luxurious for its own good. Some things were never meant to be owned by Joe Public.