Ubiquity Versus Exclusivity

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\"mdriscoll-ubiquity\"The Evolution of Luxury Taste

Disruption in a myriad of forms impacted luxury brands in 2015, slowing growth to a glacial pace globally and forcing brand managers to think the heretofore unthinkable and embrace e-commerce, social media, and the accompanying loss of perceived exclusivity. For too long, most luxury brands have remained on the edges of e-commerce, fearing potential overexposure and lack of control in the online environment. But the luxury shopper is online as are the potentially new customers luxury brands seek to attract and convert as digital research drives up to 60 percent of retail sales.

The proliferation of new products and brands supported by weakened barriers to entry provided by the Internet’s worldwide access have forced a moment of truth, and luxury brands are adapting to a new normal. In the past six months, many luxury brands are getting real and selling (an edited assortment of) their goods online.

Luxury’s New Normal

Technology and the Internet have democratized luxury. By providing 24/7 global access to information and product, they have knocked luxury off its arcane pedestal. The jury is still out as to whether access and the concomitant loss of exclusivity will significantly impale luxury’s allure. Many feel exclusivity remains an important part of luxury’s value proposition. But exclusivity looks different in 2016 than it did in 1996. It is limited editions, artisan uniqueness, bespoke products, and Etsy. Yes, Etsy. Although luxury brands benefit from global awareness, sophisticated luxury shoppers increasingly seek regional uniqueness—and therefore, exclusivity—when traveling internationally. When luxury goods are the same everywhere on Rodeo Drive, Fifth Avenue, Avenue Montaigne, and Bond Street, ubiquity breeds boredom and, ultimately, contempt.

“Big is the enemy of cool,” says Dick Hayne, founder and chairman Urban Outfitters. The new mantra is “If everyone has it why should I?” No wonder store traffic is down. Everything looks the same everywhere. Luxury brands are wise to offer select product, exclusive to each international flagship. This drives store visits and provides luxury clients with products they can wear as a badge of their uniqueness. And if retailers play their cards right, they will offer customers a story and a memorable experience, which enhances the intrinsic value of the purchase.

Millennials, Again

Millennials are driving the demand for personalization, and agile luxury brands are responding. Not surprisingly, Karl Lagerfeld at Fendi was among the first to deliver handbag charms, such as ‘Pompom Karl’ ($1,450 at Nordstrom). Modern luxury brands have been quick to follow suit with interchangeable handbag straps and handbag charms. Think luxury made playful, accessible, and personalized.

Sales Plummet

Social media, changing consumer lifestyles, and custom demands, to say nothing of the macro political/economic factors of currency swings and terrorist attacks, dovetailed in 2015 in a perfect storm, and the luxury market lost its immortality as it swan dived to earth when sales trends weakened. According to Bain’s 2016 Spring Update, global luxury sales rose a meager one percent in constant currency exchange rates to $253 billion, which compares with the 20-year, 6 percent CAGR during 1995–2015.

Trends in 2016 look to be lackluster at best as the world continues to feel the impact of slowing international tourism. According to Global Blue, global travel spending declined 12.8 percent in April (15 percent in Europe). Tourists, notably, the Chinese, have reduced foreign travel in light of the recent terrorist attacks in Paris and Brussels; Chinese spending in Europe was off 23.8 percent. Bain has the global luxury market up one percent in the first quarter of 2016, and projects a similar trajectory for the full year, within a range of flat to up two percent.

Luxury in the Rearview Mirror

Here’s a quick history lesson: In the past four decades, luxury went from the virtually exclusive terrain of the wealthy Europeans to a vastly more accessible and democratic product category worldwide. Along the way, the large luxury brand portfolio companies have brought professionalism, organizational expertise, and structure to what were previously family-owned, under-capitalized houses of artisanal, luxury craft.

In the 90s, the Japanese drove the luxury market. The Chinese picked up the mantle in this decade. Today, the Chinese account for approximately 31 percent of luxury purchases, although only 7 percent of those luxury purchases occur in mainland China. In 2015, however, the confluence of China’s clampdown on gifting, the heightened terrorist concerns in Europe, and volatility in currency rates muted global luxury sales growth.

The anticorruption campaigns first implemented late in 2012 by President Xi Jingping continue to discourage lavish gift giving, and since then the Chinese domestic market has been re-setting to the more modest demands on a growing middle class. This means the sales of $100,000 Cartier watches and other very high-priced goods (jewelry and watches, as well as uber-premium leather accessories) have been replaced by new middle class aspirational luxury brands like Burberry and Coach, as well as opening price point goods at Louis Vuitton and Gucci.

But don’t give up hope, yet. The long-term trends for the luxury sector are quite favorable based on worldwide growth of an expanding middle class in many emerging and developing markets who are aspirational customers, the backbone of most luxury brands.

New Luxury

The new luxury is the $300+ sneaker. The new luxury customer? Urban millennials, especially Hispanic consumers who over-index spending on apparel. Mega-global luxury brands such as Louis Vuitton, Chanel, Dior, and Burberry might want to address this new customer, as should Coach, Michael Kors, and Ralph Lauren. Entry-level luxury is a $36 lipstick, a $75 candle, $150 eau de parfum, $250 sunglasses, or a $600 wallet. It’s these tokens of accessible luxury that will drive growth.

A steady stream of new luxury buyers and the expected growing sophistication of existing luxury buyers, who are moving up a product and service luxury continuum, will drive luxury sales through 2020. When the upwardly mobile middle class emerges around the world, the aspirational luxury customer emerges along with it. But be forewarned, the new luxury is not the iconic luxury. Brands such as Louis Vuitton, Gucci, and Coach are endangered by their ubiquity. Brands that display overtly large logos are becoming even less desirable among new luxury buyers.

Getting It Right

Millennials are redefining the luxury market. They demand authenticity along with the brand ethics, ethos, value, and a purpose clearly articulated on social media. Millennials may still just represent a small portion of luxury sales, but they are the future. Every luxury brand should be thinking about how this demographic thinks and buys.

Mobile first is a must as this is where millennials (and others) begin and end their day. Mobile-optimized luxury retail experiences are requisite. Online shopping has to be engaging, interesting, immediate, and easy—reactive in real-time, with the ability to share via social media. This is a generation that celebrates self-confidence, ergo, selfies. Millennials are their own personal brands and any other brand, luxury included, is subservient. In-store experiences have to be worthy of social posting and sharing.

Today’s successful luxury brands will need to get comfortable with adapting to co-ownership of the brand with digitally empowered consumers. And hold onto that exclusive brand DNA. Tell brand stories that allow clients to participate in the dream and even the creation of a product.



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