BrandWatch by Michel Gutsatz

The new boutiques of beauty brands

The discovery of the new Giorgio Armani Cosmetics boutique in Hong Kong (see Brandwatch of 26 January) and the new format of the Chanel Beauty boutique (see Brandwatch of 8 September 2013) prompted me to look closely at what luxury brands are preparing as new retail concepts for their beauty offers.  As it often happens, these new concepts are tested and developed in Asia, as near as possible to the most demanding market ... with the greatest potential.


• HONG KONG: 

  A Beauty Gallery has opened in Pacific Place where, alongside brands already well ensconced in retail (La Prairie, La Mer, Nars, Natura Bisse) we see new players - including Chanel, Burberry, and two L'Oréal brands (Giorgio Armani, YSL). This clearly speaks for itself: luxury brands are opening beauty boutiques, thus arming themselves with new distribution channels, in addition to their corners in department stores. This allows them access (at long last) to the final consumer, until now exclusively handled by Sephora, Marrionaud and other multi-brand retailers. The battle for consumer databases and the implementation of serious "precision marketing" has begun.
  
  
  
  
  
  
  
  

• MUMBAI:

  India is still in many ways a mission territory for luxury brands.  Yet you can already find beauty boutiques there.  I found two - Chanel (at the Palladium Mall) and Lancôme (at the Grand Galleria outside the Palladium) – in Mumbai. But what was even more interesting was the L'Oréal Paris boutique I discovered, dedicated to makeup!  I earlier mentioned the L'Oréal Paris Institute boutique on a Costa cruise ship – and we realize that the work begun by Jean-Paul Agon in the USA, where he opened boutiques for the brand, is now continuing in Asia.  We can expect the opening of L'Oréal Paris boutiques worldwide - reinforcing its current strategy of moving upmarket and its "exit" from supermarket shelves...
  
  
  
  
  
  
  

Whither to, Levi's?

Levi's does not stop "reinventing" itself, to quote the Wall Street Journal. The brand is growing upwards and downwards. Two details seem to prove this, but is there a strategy at all?

1. The brand is re-launching its top-end range: It has restructured its premium offers, retaining only two lines, Made & Crafted ("a premium denim line featuring Better fabrics and fit"), and Levi's Vintage Clothing which offers re-editions of its classic models. This offer - with prices between $ 148 and more than $ 200 - is distributed through circuits that are unusual for the brand, such as Barney's and Saks.
2. The company has just announced the launch of an entry-level brand, reserved exclusively for the Chinese market. Levi's, which already has a strong presence in China with 620 outlets, intends to position the new brand in the $ 40 / $ 60 price range and distribute it in its own boutiques (20 expected to open in 2010 - with a target of 1,000 in 2015). This brand is conceived as an entry-level brand allowing an entirely new Chinese clientele access to Levi products.

This announcement reminds me of a previous initiative by Levi's in 2003: the creation of the Signature by Levi Strauss range. Seeing the growth of private labels in jeans - and wishing to cater to all customers who buy jeans in supermarkets (representing approximately 40% of market share in the USA), Levi's conceived the "Sell Where They Shop" strategy, a sub-brand dedicated to major retail outlets and distributed at Walmart (among others). Two converging points are worth noting:

• Levi's has never marked down its products - and therefore this price-cutting strategy is a first.
• The logo chosen immediately shows why this line is doomed to failure: the consumer is convinced that it is a cheaper Levi's product - which is totally contrary to the brand’s positioning. Nothing shows that it is a line called "Signature".

Launched in Europe, then in Asia, the consequences were immediate. I would name 3:

• In 2005, Walmart launched its jeans under its own brand, Metro7: 10% to 15% more expensive than Signature but much more "stylish". In the first quarter of 2006, Levi's announced that Signature sales had fallen sharply because of Metro7’s success. This relative failure is therefore not a question of price, but of the offer.
• In September 2006 Levi's announced that Signature would be withdrawn from Europe in June 2007: it had never managed to impose itself, representing less than 3% of the jeans market in supermarkets in France.
• The strategy was completely overhauled - with a new logo as the essential element: Levi Strauss (finally) becomes "guarantor" of a “Signature” brand.

Despite this, Signature still represents only 5% to 6% of Levi sales (mainly the U.S.) and it does not seem that it is making an effort to really develop itself. One might therefore ask why the company is launching a new brand in China: why not use Signature?

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...

The Walmart Strategy in India: JV & Private Labels

On BrandWatch, I referred several times to the new strategy of some U.S. retailers (like Safeway), which consists of building a private label in the U.S. and then selling it abroad at other retailers' outlets - making it into a true national brand. IndiaRetailBiz now tells us that Walmart is implementing a similar strategy in India. Walmart, in November 2006, signed a joint venture with Bharti Retail - a subsidiary of Bharti Enterprises, a company of the Mittal Group, which specializes in distribution. It turns out that India does not (yet) authorize foreign investment in multi-brand retail so Walmart stepped in, in two different ways:

• Walmart provides back-office consultancy in technology, logistics, supply chains ...
• Walmart formed a 50/50 JV, the ultimate purpose of which is to build a chain of Wholesale Cash & Carry stores (where foreign investment is allowed): fifteen of these wholesale stores named "Best Price Modern Wholesale" will be opening in India in the next 3 years - the first was opened in Amritsar on the 30th of May.
  
  

  

  


The question of retail and direct access to consumers then comes up. The answer was simple. Bharti Retail opened stores under the "Easyday" ensign (there are thirty in the Punjab and Haryana - and now in Delhi). These stores have two distinct features:

1. Their graphic identity is a replica of that of Walmart: we are at a Walmart without being there, formally speaking. 

   

   

   

   
 
 
2. Their assortment of private labels (which today represents 15% of sales, and is expected to increase to 30% within 3 years), includes 8 Walmart private labels - including Great Value, George, Equate ...

We find ourselves, for all practical purposes, at one of Walmart's partners, but the American retailer establishes itself in the Indian distribution landscape without doing so officially, by means of its products and its graphic identity: when the Indian regulations change, only the sign will have to be modified and the name Walmart attached.