Luxury Hits the Sales Rack – 2/25/09
Luxury-goods sales are expected to fall 15 percent this year, according to Bernstein Research, as even the well-to-do are trading down or cutting back on unnecessary expenditures. According to the Wall Street Journal, luxury brands must decide how much of the slump is cyclical and how much reflects a permanent change in consumer behavior.
The slowdown represents a sudden turnabout for a sector that some felt could be recession resistant. From 2003 to 2007, the global luxury market grew on average seven percent a year, and future growth was expected to be driven by “an ever-expanding minority of ultra-wealthy individuals.” Many of these individuals were expected to come from emerging markets.
But Saks began slashing prices by 70 percent on designer clothes before the holiday season even began, and soon Neiman Marcus and Barneys joined Saks in cutting prices and canceling orders. Smaller boutiques such as Scoop and Intermix in New York City were forced to sell their goods for less than they bought them.
According to the Journal, the steep discounts in the high-end channel ended up “toppling longstanding agreements on pricing and distribution, and destroying the very air of exclusivity that designers are trying to sell.”
Discussion questions: Should luxury brands and designers be lowering prices? How risky is it for high-end brands to bring in lower prices or lower-priced extensions? What’s the best strategy to do so?
Like so many of the economic “miracles” of the last 20 years the luxury segment grew beyond it’s natural state driven by easy credit and the top end of the middle market consumers reaching for aspirational symbols of wealth and status. The luxury manufacturers and retailers who have avoided the excesses of many of their consumers by avoiding the lure of expansion through taking on enormous debt and who have remained true to their artisan heritage will survive and even thrive in what is sure to be a slower growth sector for many years to come. The emerging market consumer will continue to drive growth for many but a new sense of sanity will likely pervade this category for many years to come. The brands that choose to create lower price products for H&M and other value retailers will manage to continue growing for a time but will likely lose the luster of their true luxury heritage. It the design of the product remains excellent they may find a new niche for their brand at lower price points. Otherwise those brands will either wither and die, or become simply a moderate brand. That may be fine for investors, but surely removes them from the pantheon of true luxury brands. You’ll never see Hermes or Cartier in H&M and I wager brands like these will be here in 2109.
Mike Osorio, your Dare to be Contagious! TM strategist
Go to the full discussion at RetailWire.com:
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