What Ever Happened to Caring About Brand Dilution?

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Remember when you couldn’t open your laptop without getting bombarded by “race to the bottom” brand messaging? They were selling Coach and Kate Spade at T.J. Maxx and we couldn’t stop talking about it, and whether the brands would be able to retain their value positioning. Analysts feared that brand dilution would be the death of retail. Not one of us had an inkling about the global pandemic that was about to turn the retail industry on its head, bringing fashion retail closer to swimming with the sharks than anything to precede it.

The pandemic curtailed concerns about the “race to the bottom.” Suddenly, retailers were more focused on remaining operational than on retaining their brand positioning. Flash forward to 2023. “The Myth of the Maxxinista” has now been around for nearly a decade. Most consumers are still aware that they can buy an item from the same brand at Saks and T.J. Maxx and receive two very different quality goods.

Next gens, however, are rejecting us/them mentalities, particularly those built on factors that people cannot change or choose. Sexism, ableism, racism, bigotry, chauvinism and –– yes –– classism, have little place in the hearts of next gen shoppers. Luxury and high-ticket brands face the unique dilemma of creating exclusive merchandise at exorbitant price points that also feels accessible enough to inspire next gen shoppers.

But far be it from luxury brands to miss out on the opportunity to sell low production cost items at high price points. There’s a new retail con in town that’s taking place, not just at off-price stores, but within the walls of the most heralded luxury boutiques. Let’s talk about the new expectations for high price point brands, whether “premium mediocre” goods will win out over sustainability, and whether brand dilution is still a concern in 2023.

Why Aren’t Luxury Consumers Holding Grudges?

An interesting phenomenon happened during the height of the pandemic. While governments around the world released stimulus packages to help consumers weather the financial storm, many luxury brands took the opposite approach. Brands such as Chanel, Louis Vuitton, Prada, Gucci, Salvatore Ferragamo, Hermes and more opted to hike prices to combat the financial impacts of the pandemic on investors.

What’s fascinating is that, during the same time period, consumers were boycotting brands for reasons such as a lack of diversity in the C-suite, not enforcing mask policies, and not adequately compensating frontline workers. Yet luxury consumers haven’t seemed to hold an ounce of grudge about mid-pandemic price hikes. In full “let them eat cake” fashion, luxury brands brazenly embraced the fact that their core customer was largely unaffected by the economic crisis.

Can a Brand Be Simultaneously Inclusive and Exclusive?

The luxury industry was built on the back of unspoken social caste systems. Exclusivity was integral to the value proposition on high ticket purchases. Next gens, however, are rejecting us/them mentalities, particularly those built on factors that people cannot change or choose. Sexism, ableism, racism, bigotry, chauvinism and –– yes –– classism, have little place in the hearts of next gen shoppers. Luxury and high-ticket brands face the unique dilemma of creating exclusive merchandise at exorbitant price points that also feels accessible enough to inspire next gen shoppers.

Luxury brands have tried a few different approaches to give exclusively priced products an inclusive vibe: collaborating with subversive artists, tapping into the culture of the masses to sell to a privileged few (see Balenciaga’s Fortnite collab), selling licensing rights to retain margins, and producing basic goods with luxury branding –– i.e. premium mediocre goods.

Selling licensing and producing premium mediocre goods, although lucrative, also can create brand dilution. The primary issue with brand dilution? It lowers the perceived value of products: Nobody wants to pay $600 for a t-shirt that someone else found at T.J. Maxx for $200. Once consumers have seen a brand’s products marked down enough times, they become unwilling to purchase them full-price –– this is particularly true right now, when “smart shoppers” reap more social praise than those that those that cough up exorbitant sums to pay ticket price.

Will Sustainability Win Out Over Premium Mediocre?

First off, let’s define “premium mediocre.” It refers to luxury houses creating low-production, low-cost goods with luxury branding. Think flip flops, nylon t-shirts, ball caps, keychains, and such. Critics of this trend say that slapping a luxury label on everyday goods causes brand dilution. The opportunity for a huge ROI, however, has most luxury houses are saying yes to producing premium mediocre items in spades.

Premium mediocre goods are quickly coming to replace many of the diffusion lines we saw five to ten years ago, many of which have been folded into luxury houses’ full-price offerings. Brands now have their off-price divisions built into their full-price inventory –– with the only difference being the cost of the goods and the materials used to produce them. Premium mediocre goods, by nature, are rarely sustainable. The reason? They’re margin-builders, made out of low-cost materials and sold at a premium to boost profits and introduce customers to the line–– much like the “door busters” at mainstream department stores.

Luxury Resale

But there’s another option for consumers that want luxury quality at bottom barrel prices, or just want to make more strategic investments in luxury fashions. Fashion resale will be the biggest trend in the luxury category in 2023. Sites like The RealReal and Vestaire Collective give consumers a chance to experience highly considered luxury products at premium mediocre prices.

This is strategic: Much like a car purchase, luxury items lose a huge chunk of their value once they’re driven off the lot (or strutted off of Rodeo Drive, as it were.) Resale provides financially savvy and value-focused consumers a chance to experience luxury fashion at a fraction of the price. As long as products are professionally cleaned before being resold, there’s little risk of brand dilution – secondhand luxury products, although worn, are of the same quality as their full-price counterparts.

What’s Old Is New

Premium mediocre products don’t create the entry level luxury experience they’re purported to promote. The quality isn’t there. Diffusion lines once provided a viable alternative for fashion consumers that weren’t part of the luxury set, but they’re also subject to the quality issue. Hence, diffusion lines are giving way to vintage, consignment, and fashion rental companies. In this way, luxury products that were produced with effort, care, and quality materials are being protected from low quality goods with a logo slapped on them. The cream always rises to the top and mediocre or even fake luxury is only a race to the bottom.

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