Luxury has its limits, and the global economic downturn delineated them clearly.
Even as luxury goods executives grow more optimistic the worst is over, the recession will leave behind a sector with fewer players and a new set of rules and dynamics. â€œValueâ€ and â€œmeaningful consumptionâ€ are among the new buzzwords and â€œaccessible luxuryâ€ possibly on the endangered species list.
â€œWe live in a world of competition. Maybe there was too much,â€ mused Karl Lagerfeld, among major industry figures WWD surveyed to divine how the luxury landscape might look once the dust from the downturn has cleared.
The designer of Chanel, Fendi and Karl Lagerfeld collections also said an â€œobsessionâ€ with extreme fashion statements is also likely to ebb and â€œ commercial,â€ long a disdainful term used to describe a boring fashion show, will lose its sting. â€œ Clothes are made to be worn,â€ Lagerfeld stressed.
While a range of opinions emerged, designers, chief executives, analysts and other observers agreed that, in luxuryâ€™s next wave, consumer expectations are likely to be higher than ever, with craftsmanship, service, heritage and longevity among new priorities.
â€œThey want it all: the quality, the creativity, the exclusivity and the service. You tend to forget that in good years because in good years, itâ€™s easier,â€ said Pierre-Yves Roussel, chief executive officer of the fashion division at LVMH MoÃ«t Hennessy Louis Vuitton. â€œ Being in luxury, we have to be perfect in everything we do.â€
Meanwhile, on the business front, emerging markets for luxury goods, the growth of e-commerce and social networking and eco concerns are also likely to shape the industry in years to come.
Harsh market conditions will certainly separate the wheat from the chaff, some observers noted, even as there have been recent predictions the sector might see a rebound in the second half of 2010.
â€œMany brands have appeared that may not be perceived as â€˜trueâ€™ luxury,â€ noted Gilbert Harrison, chairman of Financo Inc. â€œThe changes occurring will bring a much sounder definition of what is luxury and the iconic brands will survive and continue to have demand and luster that they have had in the past.â€
Below, hereâ€™ s what the exp erts had to say.
A SMALLER SECTOR, SLOWER GROWTH
Robert Polet, president and ceo, Gucci Group: â€œI believe the era of â€˜accessible luxuryâ€™ is over. The current crisis has been particularly difficult for these â€˜affordable luxuryâ€™ brands as their customers have been most affected by it. It has also been tough on brands without a strong financial base or global profileâ€¦ so I think the industry will also emerge from the crisis a bit leaner â€” with fewer, stronger brands offering products of superior quality and value. There is a noticeable trend away from conspicuous consumption to conscious consumption. People are returning to a consciousness of heritage, quality, craftsmanship and long-lasting value. Luxury remains about experience: the experience of heritage, quality, authenticity and artisanship . The other trend being witnessed in the industry is the ongoing importance of China and other emerging markets, which now represent a third of the luxury business.â€
Michael Burke, ceo, Fendi: â€œThere will be a lot fewer players. This is the first recession that luxury goods has entered with leverage. It shows that you canâ€™t use the same financial tools. This recession has proved that trying to be too much to too many people is not the right way. If you want to go global, you have to be very focused. Your brand strategy canâ€™t rely on too much diversification.
Since weâ€™re not supposed to go after all customers, we have the luxury of being focused, the duty to be focused. Also, this is the first recession where the Internet is a major medium. People have as much information as professional investors. Your mistakes are much more visible: your expansion mistakes, your design mistakes.â€
Gilbert Harrison, chairman, Financo Inc., New York: â€œ When the economy rebounds, luxury purchases are not expected to return to the same level as experienced over the past 20 years. Consumers will have been trained to get comparable levels of satisfaction from secondary lines or private label lines. Tougher credit will limit the ability of high-value purchases [and] residual economic worries of the recession will mitigate purchasing power.â€¦ These trends have highlighted the overbranding, overstoring and overpricing of the U .S., which is leading to a major shakeout of brands and retailers. Luxury brands can use scarcity to enhance the desirability of their products. Emerging markets are widely viewed to be helpful, but not fully dependable, in serving as an offset to the sales declines and margin erosion in develop ed markets.â€
Matteo Marzotto, co-owner, Vionnet: â€œThe decade between 1997 and 2008 wasnâ€™t sustainable anymore because it was too financially driven. The multiples used for the valuation of a company were mesmerizing. Already, after 9/11 there were warning signals that excess was starting to waver, but then the whole industry became too centered on finance and it fell to the floor. Now, it will take years for the consumer to go back to the pre-crisis buying approach â€” and even when things pick up , we must come to terms with the fact that it wonâ€™t be like 2007 anymore. More than ever, itâ€™s important to excel in the quality-price-craftsmanship ratio because even those consumers with money and a lighthearted and whimsical shopping approach are knowledgeable and attentive to this aspect.â€
Concetta Lanciaux, founder, Strategic Luxury Advisors: â€œUniversal aspiration to luxury has never dwindled and never will. It can only increase in the years to come as all basic needs are being met worldwide. In some countries, consumers will continue to be willing to even lower their food budget in order to buy status objects. The big change is only in the level of income that people will have available to spend on luxury goods. The lasting values of luxury brands such as quality and design identity, in a market with less spending capacity, are reinforced and gain an even more central place. But the luxury market will have fewer global contenders and the offer will become clearer. Luxury brands that will be able toâ€¦ offer collections with identity and relevance, but with a wider range of prices, will win the large base of the customers they need.â€
Luca Solca, senior retail and luxury analyst, Sanford Bernstein: â€œ The recession will likely usher in an era of more subdued growth, on the back of less buoyant economic growth in the medium term. Smaller players will be even more marginalized than today, while larger and stronger leading players will emerge. Consumers will avoid excesses and maintain a more considerate shopping behavior. This is showing today with major brands being preferred for their iconic products, with consumers clearly looking for â€˜investment- gradeâ€™ purchases rather than newly invented fads. Similarly, consumers will question value and price more. Brands that were not seen to discount so aggressively will be preferred. Designers and apparel products, I would expect, will face the highest scrutiny and skepticism, considering that lower-p riced design alternatives abound.â€
Anne Chapelle, ceo, BVBA32 , the holding company of Ann Demeulemeester and Haider Ackermann: â€œ Priorities in spending patterns have been rearranged, and consumers have experienced the feasibility of this change in their everyday lives. To bring them back to their previous spending [habits] will definitely take time, care and investment from our side. Secondly, the players in the luxury business have changed as well. The economic downturn forced some, sometimes smaller and younger fashion houses, to close down or to get reorganized in a dramatic way. Consumers are [repositioning] their attitudes toward luxuryâ€¦.They are even more focused on the quality of materials and craftsmanship , and the choice of sustainable and truly valuable goods.â€
Cristiana Ruella, group managing director, Dolce & Gabbana: â€œRecession aside, the economic-social system worldwide has been hit by structural change due to the shift in the way both companies and consumers think. We will face the upcoming months with even more rationalized collections for customers oriented toward distinction and quality. We will continue to invest in a focused manner and obviously with more attention when evaluating each project to further reduce the margin of risk compared to what was tolerable in the past.â€
Lew Frankfort, chairman and ceo of Coach Inc.: â€œLuxury is changing and it will be much less about price and more about great product and exclusivity. Price will no longer be a positive factor in making a purchase decision. Consumers will want products that are extremely well made, scarce and at a good value.â€ Frankfort believes that accessible luxury will thrive given some â€œ compelling price points out there, and that you will see less conspicuous consumption in the high-tick et area. There will be exceptions. HermÃ¨s will continue to thrive. Growth, however, will be in areas that are more in reach of a more discerning consumer. The consumer will be careful when she emerges regarding how she buys and where she buys. Diamond rings over $50,000 will be trending to a lower level.â€
Pierre Mallevays, managing partner, Savigny Partners, London, a boutique investment bank specializing in luxury goods: â€œThe crisis has changed the definition of â€˜value.â€™ That was a dirty word in the luxury goods circle before the downturn, just like â€˜mass.â€™ Now the luxury customer wants value as in investment value. In luxury goods, value will come from the perception of a high degree of craftsmanship and quality combined with durability, with a good sprinkle of functionality. The customer now wants to spend right: not to accumulate or to have, but for the right reason. The investment proposal has to be right. Brands will rediscover they have a soul, and will have to engage the soul of their customers to be really successful. This will require a multichannel, interactive dialogue, where the customer will feel a sense of ownership of the brand or sharing in its set of values.â€
Stefano Pilati, designer, Yves Saint Laurent: â€œWhat happens after this kind of a cycle is that consumers become more aware of value, with a heightened attention to the exclusivity and quality of a product. They will recognize and expect expertise in design and craftsmanship, and a strong, coherent aesthetic identity from the brands they patronize. My approach to design has always given primacy to pure aesthetics without losing an orientation toward the needs of the market. At Yves Saint Laurent, we anticipated the crisis, in a sense, through the creation of the various â€˜Editionâ€™ capsule collections, which operate and respond vertically to diverse mark et needs and requests.â€
Ralph Toledano, chairman and ceo, ChloÃ©: â€œCustomers have gotten used to discounting in ready-to-wear, and that is very bad for us. I really believe people look at price, but they also want to have quality. The expression â€˜value for priceâ€™ is absolutely valid. We see in our stores the customers really want the best quality. We also see the buy-now, wear-now phenomenon. We used to deliver coats first for fall. This might change. Itâ€™ s clear we also have to look at our retail networks and our service in particular. We will be looking more at CRM [customer relations management], viral marketing, in-store events and service, service, service.â€
Patrizio di Marco, ceo, Gucci: â€œEven prior to the financial crisisâ€¦the consumer [was] placing higher emphasis on individuality, personalization and less ostentation. The crisis has increased the focus on discrete consumption and the price-to-value relationship. The crisis has lowered substantially the disposable income of entry-level, aspirational consumers with a resultant drop in traffic from this segment. For the foreseeable future, [consumers] will be more prudent, pragmatic and discerning. When buying luxury products, they will evaluate more true quality, heritage, craftsmanship, exclusivity and expect outstanding levels of service. I also believe that social responsibility is increasingly important in the minds of consumers. A concern for the environment, appropriate labor practices and a policy of giving back are all factors that can play a part in purchasing decisions today.â€
Jean Cassegrain, managing director, Longchamp: â€œWe have been less affected by the crisis than most of our competitors. Our first half of 2009 has been difficult, but we have still ended up versus last year, which was a record year. In July and August, even the markets that have been most affected by the crisis â€” the U .S. and Japan â€” were up again. I believe that this success is related to the positioning of our brand. We are a European luxury brand, but we have never been overpriced.â€¦ The customer still wants a sexy, desirable product but is no longer ready to pay $1,500 or $2,000 for a bag that is obviously not worth it.â€
Ilaria Alber-Glanstaetten, ceo of Provenance, the London-based strategic and creative marketing agency: â€œConsumers will be looking for a greater price-value ratio. I think companies will very quietly follow the lead of Dolce & Gabbana, for example, who have lowered their prices. I also think there will be a return to service. Itâ€™s no longer going to be about a power dynamic between shop assistant and customers, but more peer-to-peer selling. I was recently invited to a YSL store event in London, and the chief executive of the company was there helping the customers with the clothes. I think there may be more user-generated products similar to what you see in the mass market: more interchange between consumers and companies. Nowadays, you can design your own T-shirts, sneakers.â€
Patrick Thomas, ceo, HermÃ¨s International: â€œOne phenomenon will accelerate: There will be a segmentation between brands with high quality, craftsmanship and quality materials â€” and masstige. Consumers are quite discriminating, and within luxury goods there are high-quality players and the rest is mass luxury goods. In Japan, for instance, consumers are extremely aware of the quality of products and give a premium to products of high quality. Thereâ€™s also the growing importance of Chinese customers everywhere. Thereâ€™s a big surge, including in Paris. Itâ€™s a long-term phenomenon. For the moment, we have fewer Russian customers, but thatâ€™s not going to last.â€
Sebastian Suhl, chief operating officer, Prada Group: â€œThe current macroeconomic context clearly provides opportunities to leading brands. Those brands, which are able to develop and drive a strong retail network and support it with a solid communications platform, will ultimately come out on top. Balance is key: A leading luxury brand must maintain its appeal, offering innovative, top-quality products across all product lines and providing customers an exceptional retail experience.â€
Massimo Ferretti, chairman, Aeffe Sp A: â€œThe current downturn has certainly changed the industry environment, particularly the attitude of the clientele: more selective and more sensitive to the value-price ratio. The true challenge we face is to be in the perfect condition to catch the opportunities of the up coming economic recovery, with an efficient and flexible organization, with appealing and well-balanced collections, with a selective presence on the key markets.â€
Maria Grazia Chiuri, co-creative director, Valentino: â€œ The product remains king because thatâ€™s how we transmit our point of view.
More than ever, there has to be coherence between store windows, the ad campaigns and the relationship s with the celebrities, all for a unique vision.â€
Francesco Minoli, ceo, Pomellato: â€œ The companies that will survive the downturn are the ones that in the past years coherently carried forth an authentic message. Conversely, those that overexposed and overdistributed the brand in the name of growth will suffer, as they will inevitably be repositioned. This crisis has taught everyone that growth isnâ€™t infinite, so there will be major attention to production, stock and distribution. Shopping will be a moment of self-gratification, but a more pondered one.â€
Consuelo Castiglioni, creative director, Marni: â€œWe consider the difficult economic situation as an opportunity of growth for the future, leading to the expansion of the niche market. The customer pays more attention to the value of the items. We are concentrating on our core strengths: craftsmanship and creativity. We consider the Internet to be an important means to reach a broad clientele, even in countries that have no distribution or boutique yet.â€
Donatella Versace, designer: â€œ We designers absolutely have to re-edit our approach. Itâ€™s all about going back to your roots. The only way to entice customers to buy is to give fashion a more emotional excitement. Itâ€™s also about thinking of new ways to get your collections out there â€” social media, Internet, virtual runway shows â€” that are more cost-effective, global and creative.â€
Pierre-Yves Roussel, ceo, fashion division, LVMH MoÃ«t Hennessy Louis Vuitton: â€œI donâ€™t think the luxury industry will fundamentally change. The crisis itself is just putting us back into being better in tune with what luxury and fashion are about. The reality is consumers are and will be more demanding. People are looking for meaningful consumption. They are not just consuming for the sake of buying. People want to be reassured. Discounting is something we have to get away from. We have to get back to the true value of things. Meaningful could mean environmental issues, but there are different meanings: what it takes behind the scenes to make a product. Itâ€™s about seduction, beauty and happiness. People should feel good about buying. We donâ€™t have to find gimmicks. We just have to be true to what fashion and luxury are really about.â€
Anya Hindmarch, designer: â€œI think thereâ€™s going to be a shift to being really aware of buying things that give you years of pleasure. The power has gone back to the customer. Iâ€™ve always hated the idea of the â€˜Itâ€™ bag. Being on a waiting list for something everybody else has is not luxury. There are two very different moods. Yes, people are absolutely buying fewer pieces, but you also want something that really makes you feel amazing. I recently bought a jacket in fluorescent yellow, which says change; it says new. Thereâ€™s been a huge surge in the bag market, and analysts are saying itâ€™s going to move to jewelry, but Iâ€™m not sure. A bag is very tribal; it shows who you are.â€
Fabrizio Malverdi, ceo, Givenchy: â€œFor consumers, the biggest change in the luxury business post-downturn will be raising the consciousness of a new way of spending: not necessarily less, but more focused on authentic values, on brands that are able to tell a real and coherent story. The service and shop p ing experience we are able to supply will influence consumersâ€™ attitudes and habits. More and more, customers and their needs will be a core art of our business activities. They k now that they are able to influence the destiny of a brand, and they will be more and more demanding.â€
Graeme Black, designer: â€œRecycling has become the new cool. People are thinking of it like vintage â€” it has that sort of cachet. In terms of buying, they are pulling back â€” buying two pieces instead of five. People are also starting to think of luxury as time spent at home with the children, with the concept of creating a home.â€
Allegra Hicks, designer: â€œI think luxury is becoming much more of an internal thing. Itâ€™ s no longer about looking at the next person to see what they have â€” all that has been destroyed by the recent crisis. My vision for my customers is to come into the store to buy something that will make them feel good, something that wonâ€™t be dead in three monthsâ€™ time. I think the new luxury is about no longer running after the latest trend, but understanding your personal style.â€
Carlo Giordanetti, creative director, Montblanc: â€œThe reemerging of true, solid, inspirational brand values will be real criteria for customers to show their interest in a brand. Customers have become more demanding in their selection criteria; they have rediscovered the power of saying â€˜no,â€™ and they are not ashamed to express their need for confidence and expertise. They have also learned to favor those brands that show ethical behavior in a proven and solid way.â€
Elisabeth Ponsolle des Portes, president and ceo of the ComitÃ© Colbert, an association of 70 French luxury brands: â€œWe see consumers make purchases guided by a desire to make a real investment, to acquire a product that has a history and that can be p assed to their children. They are more and more attracted to quality products, but also to the concept of sustainability, which is set to become key for the luxury industry.â€
Sergio Loro Piana, ceo, Loro Piana: â€œ There will be a return to content rather than form, to values and tradition rather than excess, quality rather than flashiness and show-off. Customers will have a wider awareness of the environment and will be willing to buy products that fulfill a promise of quality and durability, that are sustainable and here to last. Luxury consumers will look for value and only go for the best.â€
Donna Karan, designer: â€œThere is a new way of look ing at luxury. Cashmere is cashmere. What feels good feels good, and you are not going to change that. There is a new luxury out there. I tâ€™s not only about, â€˜Oh, I am going to buy the most expensive something.â€™â€ Luxury, she added, will encompass a multitude of lifestyle issues, from finding the time to enjoy a sunset to â€œbeing able to eat well and take care of yourself and being able to have a lifestyle.