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Brand MATTERS
JASON GAGLIARDI
As the world teeters on the brink of recession, many luxury brand managers are putting on a brave face. "Remember, when our customers tighten their belt, it's generally ostrich or alligator," Neiman Marcus CEO Burt Tanksy said recently.
Flashy belts they may be, but the evidence is mounting that the super-rich are definitely pulling them in by a notch or two as they feel the pinch of the economic downturn. Traditionally, luxury goods have been seen as somewhat recession-proof. This time, though, things may be different.
The failure of Lehman Brothers and the domino-like collapse of the global financial sector, and the subsequent political fall-out that has seen bankers, brokers and their bonus culture come under close scrutiny, suggests the looming recession may hit luxury brands hard. And while the worst of the fallout has so far been felt in the US and Europe, Asia will be by no means immune.
Beverley Aspinall, the managing director of Fortnum & Mason, the upmarket Piccadilly emporium, told the Daily Telegraph: "In the last few weeks people with a lot of money have started to worry about protecting their money. People are starting to think something unthinkable could happen," she said. "The number of hedge fund managers popping in for magnums of Cristal has really slowed down."
According to Mark Esiri, chairman of the British luxury leather goods retailer Smythson, "the game changed for good" following the meltdown. "Despite being eternal optimists we are realistic. We assume [sales] will be flat year-on-year." Where it can, Smythson is implementing a strategy of "de-specking" products, removing some of the bells and whistles that allow products to be sold at a lower price, but keeping the quality intact.
In the US, the super-rich are changing their spending behaviour. Justin Sullivan, the head of Regent Jet, a brokerage that buys private jet time for high-end clients, said before the crash, clients would ask on-board caterers to lay on a spread, usually featuring lobster bisque, caviar, and bottles of Cristal. "Now, almost no one books the in-flight lunch. Instead they ask to stop at delicatessens en route to the airport and brown bag it. It's amazing, and a really interesting snapshot - our clients don't have a problem spending $30,000 to fly across the country. They have a real problem spending $50 on a box lunch."
It's symptomatic of a wider trend as even the rich feel the downturn's bite. Mr Sullivan dubbed it a new "value-consciousness" that he first noticed a few months ago and that has gathered steam since the banking crisis. Those who have it are less likely to want to flaunt it in such reserved times. Wealthy Americans are choosing to fly business class instead of first, and eschewing the season's must-have designer handbag.
Pamela Danziger, whose Unity Marketing charts trends in the US$330-billion US luxury goods sector, says fashion and accessories are taking a huge hit.
Her latest survey of affluent people - those with average income of $204,800 - shows luxury consumer spending in the second quarter of 2008 was down 5.3% on the previous quarter and 20% on the same period last year. Meantime, the Dow Jones Luxury Index, which includes global luxury companies such as LVMH, BMW, Porsche, Compagnie Financiere Richemont SA (owner of Cartier and Alfred Dunhill) and Christian Dior, was down nearly 19% last month since the start of the year.
However, the news may not be all bad for purveyors of "true luxury". Indeed, the luxury brand consultants Prince & Associates have just released a survey that suggests the truly rich - consumers worth more than $10 million in assets - planned to increase their spending this year on luxury goods, while those with less will cut back.
According to the survey, the very rich do not spend on branded items at shopping centres, but splurge instead on art, cars, yachts and real estate. The recession may thus be far more damaging for "affordable luxury" brands than for true big-ticket luxury items.
Robert Siragusa, president of the luxury watchmaker Maurice Lacroix USA, says luxury brands do not need to panic, but must make sure their brands remain pure and retain their high-end cachet, rather than risk brand image by reducing prices and having sales. "Things go in cycles in life and business, up and down," he said. "You must stay focused on the top of the hill rather than the bottom."
It's also more important than ever in a recession to keep a brand dynamic and relevant. Smart luxury brand managers will see an opportunity to reach out to new customers and explore new strategic alliances. Emotional connections between brands and consumers will outlast any recession as long as mindshare is maintained.
Brands should also look to build on their heritage, as consumers will gravitate to brands that are time-tested and trustworthy. As Fortnum & Mason's Ms Aspinall says: "When you've been trading for over 300 years you know you can weather any storm."
Jason Gagliardi is the Senior Creative Director at Creative Inhouse, a local branding consultancy and ad agency. He can be reached at jason@inhouse.co.th
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