I propose to continue my discussion of the issues that the luxury industry will have to address in the coming years. Last week I drew your attention to the growing sophistication of luxury product consumers in all global markets. We need to draw some conclusions from this with regard to brands. Based on my work on luxury brands, I see four key points:
- Managing rarity: Most luxury brands, driven by their determination for global development, have lost sight of one of the basic elements of luxury - rarity. When Burberry has 75 stores in Japan and only 32 in the USA, Hermes 64 against 30, Prada 35 against 15, Bulgari 31 against 17, i.e., twice as many shops in Japan as in the USA, when the two markets are substantially identical - one can only conclude that there is "something rotten in the state of Denmark". I would also be curious to know the trend in sales per m2 in the Japanese boutiques. This luxury is no longer based on exclusivity and rarity.
Unprofitable stores will close down and there will be a review of the location portfolios. - The question of price: Luxury brands in the U.S. went through hell at the end of 2008 when department stores and other multi-brand distributors went on sale with their products at -70% and when some let themselves be carried by the tide and organized sales that were not very "private" to sell their unsold stocks (see my posts of March 15 and 1 February 2009). The informed and sophisticated consumer is smart – and only has to wait for the time and place when they can buy products from their favourite brands at -50%. The brand, meanwhile, loses its credibility: what is the actual price of the product? We see here a real "dilution of value" which brings up the question of margins.
We are going to see a reassessment of pricing policies - taking distribution channels into account: make "wholesale" and "directly-owned-stores” more impermeable with regard to collections and price / rethink the role of department stores and / or better organize the nooks by transforming them into real shop-in-shops, etc. - The issue of quality: In every country in the world consumers live with a simple equation in mind - Luxury = Quality. I fear that in several categories (except perhaps in jewellery) quality is no longer the priority of luxury brands: Buttons on shirts that fall off, belt buckles that break, colours that fade, wallets that let coins fall out, shoes with soles that are too thin, cosmetics packaging unworthy of the luxury label... signs of non-quality abound.
Brands will have to review completely - for ALL their products, not only for the really high-end – their policies with regard to quality, to merit the term luxury brand. - The issue of service: The growing sophistication of consumers prompts them to ask luxury brands to integrate products and service. We all expect a minimum of respect: That the shop calls me when my alterations are ready (even my Turkish tailor sends me an sms!!), that the vendors are familiar with the cosmetics and give me practical advice, advice that they themselves offer... Service does not mean merely opening the door when we enter a shop, or offering me a coffee ...
Luxury brands will have to make service their "new frontier" - and will need the skills to get there...
