CATEGORY DEFINITION The luxury category includes brands that design, craft and market high-end clothing, leather goods, fragrances, accessories and watches.
Consumers warm to unique craftsmanship
Of the 13 categories tracked in the BrandZTM Top 100 Most Valuable Global Brands, luxury declined most in Brand Value, with a 6 percent drop compared with a 16 percent rise a year ago.
Following a strong recovery from the global financial crisis, the pace of sales flattened for several reasons, including the economic slowdown in China, Brazil and Russia. In addition, China’s anti-corruption regulations trimmed luxury gift giving in that country.
Changing values and attitudes about consumption also impacted luxury brands. Some consumers, particularly millennials, viewed luxury products as expensive indulgences inconsistent with their desire to live in a modest and sustainable way.
In addition, luxury brands limited efforts to reach a mass audience and instead reaffirmed exclusivity as a vital characteristic of luxury. Instead of offering trinkets
at entry-level price points to widen accessibility, brands relied on content, such as live streaming fashion shows, to introduce new customers to the brand experience.
This resurgence of exclusivity created an opportunity for more ubiquitous and popularly priced luxury brands like Michael Kors. Sold both at its own locations and
in department stores in over 85 countries, Michael Kors entered the BrandZTM Luxury Top 10 for the first time this year.
Meanwhile, new luxury markets emerged – in Mexico, Turkey and Nigeria, for example. And brands also targeted the large and fast-growing demographic made up of international travelers who purchase luxury at airport shops.
Economic and currency factors
The slowdown of the Chinese economy especially impacted Prada. With one-third of its sales coming from the Asia-Pacific region, Prada’s annual profits and brand value dropped. Both Louis Vuitton and Gucci, which expanded rapidly in China, were impacted by the economic slowdown and the anti-corruption regulations that dampened official gift giving. In contrast, Herme?s was less affected by China’s economic slowdown, perhaps because the brand is a relative newcomer to China, and also because of its more discreet designs. Without the logo emphasis that had characterized some of its competitors, it better fit the more reserved mood of today’s Chinese consumers. Jewelry was popular in Asia because of its timelessness and investment value.
Because of the price transparency created by the Internet, many brands harmonized their prices across regions. Some brands harmonized prices to slow the grey market of goods purchased in Europe, at relatively lower prices, for sale in China at a profit.
While these actions protected brand equity by eliminating large price differences across markets, they also trimmed lucrative margins in certain markets. Chanel lowered retail prices in Hong Kong and China while raising prices in Europe. Other luxury brands, such as Cartier, Patek Philippe and Burberry, took similar actions.
Changing ideas of luxury
For many post-recession luxury consumers, it was acceptable to purchase and enjoy luxury but not to be profligate and ostentatious. Even shoppers who typically had purchased an expensive leather bag every season instead looked for durability, adopting an attitude that The Futures Company calls “considered consumption.”
Durability came in the form of a well- made leather bag from a famous brand, for example, or a bag from a lesser-known brand recognized by only those “in the know” for unique design and craftsmanship. One example of these small but growing brands was The Row, whose creative head left to take on the job at Herme?s.
To satisfy the consumer desire for more discreet luxury, some of the large brand houses introduced more understated designs and promoted their artisan roots. Burberry personalized perfume by etching the user’s initials on the bottle.
New products and communications
Brands responded to these trends both with new products and communications. Burberry expanded the link between fashion shows and music with Burberry Acoustic, a project that promotes young musicians. While Burberry continued to be a communication innovator, other brands began to catch up.
Louis Vuitton created a campaign around travel, connecting the brand with its heritage in fine luggage. Its Fondation Louis Vuitton art museum in Paris, designed by the renowned architect Frank Gehry, was among the most notable expressions of brand experience. Rather than sponsoring an existing art exhibition, Louis Vuitton curated its own collection.
Louis Vuitton also released a campaign called Series 1. Produced by a collective of photographers rather than a single photographer, the campaign created variety and more of a local feel rather than a global statement. The brand also built Louis Vuitton hotels, for the ultimate brand immersion.
Under the leadership of a new design head, Tiffany reinvented some of its traditional collection to meet contemporary tastes. While still a brand known for gift purchasing, it appealed to women desiring to purchase jewelry for themselves. The T collection – bracelets and other items featuring the Tiffany "T" created a new access point to the brand while maintaining exclusivity.
Matching the social mood of the times, Tiffany introduced a line of men’s wedding bands and engagement rings for same- sex couples. The initiative benefited from both the increase in same-sex marriages and the growing men’s fashion market.
Chanel made headlines at Paris Fashion Week with innovative presentations at both the spring and fall shows. In the spring, Chanel staged its fashion show as a women’s rights demonstration, while in the fall, Chanel presented its fashions ironically, using a set designed as a hypermarket. On aisles transformed into catwalks, models paraded past Chanel- branded hardware and FMCG products.
BRAND BUILDING ACTION POINTS
1. Less is more. In luxury, brands cannot be everything to everybody. Focus on developing a unique and niche perspective.
2. Start collecting data across all different channels of the business. Luxury traditionally has been a space driven by qualitative and artistic expression, rather than data-driven strategies. However, today brands must tap into this new information stream to effectively maneuver the global market.
3. Heritage remains important; the average age of a BrandZTM Luxury Top 10 brand is 129. But to cultivate the next generation of luxury customers, brands need to present the brand experience – if not the products – more accessibly.
4. As people travel more, the luxury brands need to have a consistent brand story that works internationally without being bland, and with resonance for local markets.