It is a bright, beautiful day on the terrace at Le Meridien Beach Plaza, an upscale hotel on a private beach overlooking the Mediterranean sea. Inside, the second annual Monaco Symposium on Luxury has adjourned for lunch and attendees are seating themselves at immaculately set linen-covered tables to network and regroup after a series of morning speakers and panel discussions. The two-day Symposium is a desirable destination for researchers of the world to gather and present their most recent findings.
It’s an ideal setting for academics, students and luxury industry executives to interact and connect directly to discuss the most pressing issues of the day. At this particular time in the industry, the issues are rather concerning: Chief Executive Officer of Burberry, Christopher Bailey has described the business climate of luxury apparel as ‘challenging’ as sales in Hong Kong fell more than 20 percent for a third straight quarter.
LVMH’s revenue growth missed estimates and Prada posted its lowest annual profit in 5 years. This ‘new normal’ is being felt in emerging markets like China, where the luxury industry is rapidly slowing. Ongoing depressed European demand, anti-corruption policies, and cultural instability have all have created a slowdown in sales.
Financial markets are reflecting the dismal news that many luxury groups have lost stock market value in recent months, placing strain on CEOs and company leaders who are seeking new ideas and avenues to slow the losses. Everything from spirits, liquors, watches and apparel is experiencing this slow-down phenomenon.
At the opposite end of the scale, discount and off-price retailers including Ross Stores Inc, and DSW Inc, are seeing an increase in profits, driven largely by record-low oil prices, currency exchange volatility and a variety of other market pressures.
Oliver Chan, an analyst at research firm Cowen and Co. noted the discrepancy between spending by low-end consumers and premium brand shoppers, saying “retailers with exposure to low-end consumers are currently in a healthier position versus those with high-end exposure. Our fireside chats with Ralph Lauren, Sotheby’s and Hudson’s Bay Co. indicated that high-end consumers remain cautious given financial market volatility concerns, global political and economic uncertainly, and the stronger US dollar”.
So what’s a luxury brand to do?
Like any industry that faces a challenge, the first helpful step is to focus on its strengths. And the luxury industry possesses many of them. If consumer buying behaviour is based on emotion, then there is no emotion greater than a luxury purchase. Emotion is luxury and luxury is emotion.
This is what the research and scientific studies of luxury present over and over again. And these sentiments were echoed directly by Jean-Noel Kapferer, who I had the great pleasure of sitting with over lunch. Monsieur Kapferer is a well-renowned, highly respected academic and author of many best-selling books on branding and luxury, with a keen understanding of the new mass interest in luxury. The internet, Instagram and myriad other social media tools have brought the mass consumer closer than ever to a world that was previously only accessible to the most privileged.
Kapferer likens the previous world of luxury to the movie, Titanic, saying, ‘At that time, luxury was segregation. You had people at the bottom of the pyramid – or the boat – and people at the top, and they didn’t mix. They were not allowed to move from one tier to the other. Today that is finished.
There are still people at the top and still people at the bottom, but they want, for maybe 5 minutes, ten minutes or half an hour, to go to the top of the boat and to enjoy luxury’. The shift toward digitalization means entirely new customers are emerging, among them a younger, more savvy and sustainability-focused segment of Millennial consumers, now driving this push to experience this 5 to 10-minute visit to the top of the boat, while still happily enjoying the lower recesses and the entertainment that level inherently provides.
Kapferer is very much aware of this huge push to technology, saying “luxury brands are watching what their counterparts are doing. They are asking, what is it I should not embrace, copy, or follow. What should I not do like everybody? Chanel posts very little on social media. Valentino has more posts. Who then is the leader and who is in charge? How do you recreate a new or different pecking order?”
This then presents another strength of the luxury industry. It is a very particular sector. Its business model is one of exclusivity, of rarity. The expression ‘scarcity is a strength’ is a concept on which the entire diamond industry is built. In fact, in his most recent book, ‘Kapferer on Luxury: How Luxury Brands Can Grow Yet Remain Rare’, he recounts a behavioural experiment, where social psychologists made cookies and withheld them from one group, while another was fully able to purchase them.
Results following the experiment showed that the perceived value of these cookies was higher in the first group than in the second. He notes that ‘Apple also capitalizes on this effect by creating an artificial scarcity at each new product launch.
And therein lies the conundrum: how do you provide access to the mass consumer to enjoy the top deck of the boat, while also keeping it as exclusive an experience as possible, to maintain its desirability due to its lack of accessibility? As it stands, ‘masstige’ or ‘mass prestige’, both terms used to name the mass marketing of luxury, has been successfully providing access to aspirational middle-class shoppers, which is what has been driving the success of brands like Coach and Michael Kors. What would encourage a happy, satisfied consumer to want to access a much more expensive luxury brand?
This then brings us back full circle to the original sentiment associated with premium lifestyle: luxury is emotion.
What emotion then would the masses like to feel in order to actively consume higher luxury brands? Do they want to feel privileged? Do they want to feel validated? Do they want to feel enchanted? Do they want to feel successful? What is the emotion associated with these higher luxury brands? If it is any of these or all of them, how will luxury brands cater to this new customer, and why would their customer choose one particular brand over another? Because at the heart of this new direction for the luxury industry, is perhaps the most compelling intersection of interests: which is more important, the awareness that the masses want access to the luxury brands, or that the luxury industry now needs access to the mass consumer?
In asking this question, I can’t help but think of the movie Pretty Woman. Released in 1990, the American romantic comedy is a story centered on a struggling Hollywood escort, Vivian Ward, who is hired by Edward Lewis, a wealthy businessman, to attend several business and social functions.
The film is one of the most popular of all time; it saw the highest number of ticket sales in the US for a romantic comedy. One of the most memorable scenes in the film is Vivian, played by Julia Roberts, entering a clothing boutique on Rodeo Drive in Beverly Hills to purchase new clothes for her dinner engagement with Edward.
Dressed in what would in these modern days appear to be completely appropriate, with thigh-high boots, a short mini skirt, and a revealing top, Vivian is dressed down by the shop associates who tell her that she likely couldn’t ‘afford’ the dresses in the shop, while then being shoo-ed out of the store.
What follows weeks later is a transformed Vivian character, dressed to the nines, who makes a point of returning to the same store to remind the shop associates, who do not remember her, that they had previously turned down her attempts to buy their clothes. She very poignantly says, ‘you work on commission right? Big mistake. BIG mistake.’
And this is of course the fine line that the luxury industry must now walk. If previously the masses were considered to be segregated from the exclusive luxury lifestyle of champagne wishes and caviar dreams, how receptive will they be, longterm, now that they have the funds and consumer power to access the very lifestyle they once were exempt from experiencing? Will everyone be granted access within the mass market to experience this new luxury paradigm, or just a chosen few?
How will brands create an emotion for the masses that reflects a feeling of inclusion while also maintaining a sense of exclusivity? The new pecking order might very well be realized by which consumers will be targeted to represent and purchase these luxury brands. The customer experience will be the greatest differentiator in the success of the new luxury model. A positive customer experience is crucial.
Customers are savvy and with such broad digital access, they now have the power to choose between competing brands. In a recent study by the White House Office of Consumer Affairs, 80% of US consumers would pay more for a product or service to ensure a superior customer experience. With all the choices now available to a larger playing field, the customer experience is the next competitive battleground and key differentiator.
Building relationships with customers and influencers will go a long way in helping luxury brands to forge authentic and meaningful connections that inspire loyalty and ongoing business. Anais Nin, an essayist and memoirist born to Cuban parents in France once said, ‘The value of the personal relationship to all things is that it creates intimacy…and intimacy creates understanding…and understanding creates love.’
To gain access to the mass consumer, it is safe to say that the luxury industry will have buy-in from a number of consumers keen to experience this once inaccessible lifestyle. The greater opportunity lies in learning to understand and convert their new, more discerning consumers; those consumers living in countries and cultures around the world, educated and aware of this paradigm shift.
What can luxury brands do to match their unique differences and needs? The more effectively this connection is made, the more likely that luxury brands will enhance the brand experience and emotional tie to their products. With this approach, sustained growth and profitability are inevitable.
For more information on the Monaco Symposium on Luxury, please visit this link.