Issues Luxury Faces in a World Grown Complex (1)

Bain announces a stable 2010 for luxury goods (+1% on the basis of fixed exchange rates) after two disastrous years: 2008 with -2% and 2009 with -8%, which would set the global luxury market at 155 billion Euros, i.e. at the 2005/2006 level. Analysts diverge between the idea that 2011 will take off "like before the crisis", and fears that it has fundamentally changed consumer behaviour. I propose an analysis that is more nuanced – spotlighting the new complexities of the luxury market. This post is the first of a series on the issues of luxury – we shall return to study them point-by-point.
Let us first talk about markets:
Western markets: Many factors tend towards a questioning of conventional attitudes vis-à-vis luxury and to a revision of values.

• The decrease in incomes and the end of a cycle of easy credit will significantly reduce the purchasing power of "middle-of-the-road" customers of luxury brands.
• The emergence of a new collective ideal that I call "The Era of Responsibility" will make more and more consumers prioritize and measure the consequences of all that they purchase: fewer of the frivolous, more of the useful – constant appraisal - a search for accountable pleasures.
• The most affluent purchasers of luxury will also return to values that are more simple - those of the middle class from which they come: the money will go primarily into the education of their children, their homes, to their hedonistic and intangible experiences... not necessarily to material goods.
• We should therefore see conspicuous consumption being put into question ("could you please put this bag in an unmarked bag?" being one of the manifestations) in these markets.
• Finally, as the studies in my posts of 13 and 20 September 2009 stated, Japan is no longer what it was: it has become a mature market like the Western markets - and should therefore be treated as a market of very sophisticated and demanding consumers.

Emerging markets are seen by most brands as their new El Dorado. I believe that one should keep one’s head.  In fact:

• The Russian market has collapsed;
• The Indian market is not living up to expectations: when Mumbai is flooded with messages like: “Last 10 days of up to 60% off on Moschino, Ferretti, Jean Paul Gaultier & Marc by Marc Jacobs at the Taj Colaba! 4 brands at one place! Grab yours!”, “1st Time in Mumbai DVF designer collection! Indulge yourself in bold colours and lush prints. Discount up to 50 %”, one can rightly say that there is a misconception somewhere (I will soon return to the Indian market in detail).
• The Chinese market will indeed become the second most important global luxury goods market. But as I said in my posts of 19 May and 17 October 2009, Chinese consumers are becoming more sophisticated at a pace never seen before. Analysts from Bain say: "Top tier cities suffering from already "maturity" of the local luxury consumer" ...

So, from a market perspective, the coming years will demand responses that are much more complex than those which most brands are used to.
Next week I will offer a follow-up of this analysis: I will address the issues of price, quality & service...