2015 Luxury Disruption Chaos & Hope
Changing Pillars of Luxe
The luxury industry is steeped in heritage that is paramount to brand positioning, so it’s no surprise that it lacks the flexibility required of 21st century companies. Luxury brands are being pulled into the digital age at varying rates of speed. Some—notably Burberry, Ralph Lauren and Coach—lead the industry in adoption and integration of social media and technology into their business strategies. But for most, the pace of change has been glacial. Until recently.
And it’s none too late! The luxury landscape is undergoing rapid disruption on almost every front: an evolving definition of luxury; an ever-changing consumer with mutable desires; reduced brand loyalty; and increasingly fragile pricing architectures. Price adjustments in Asia are top of mind thanks to recent press coverage. In Asia, the typical premium for a luxury product has been 40 percent to 60 percent higher than in the luxury brand’s country of origin, but with the decline of the euro (about 24 percent year over year versus the US$ and 22 percent for the Chinese Yuan Renminbi), it has increased to as much as 70 percent to 75 percent. This increase is in tandem with a number of factors that have slowed the rapid growth of Asian luxury sales: the anti-corruption efforts in mainland China, a slowing economy, and the growing number of Chinese luxury shoppers who are traveling and availing themselves of the lower prices on luxury goods elsewhere in the world. In March, Chanel lowered prices 20 percent in China and Hong Kong while raising them a comparable amount in Europe in an effort to adjust global pricing. In China, lines formed around Chanel as eager buyers saw prices fall. According to our sources, increased demand for Chanel goods lasted about two months before settling back to normal. Chanel’s price adjustments went global in April, reflected in lower prices in Korea, Vietnam, Thailand and Russia and stable pricing in Japan, the U.K., U.S. and Canada. Other luxury brands are contemplating similar adjustments to their global pricing architecture though the benefits aren’t so clear.
But pricing isn’t the only problem. Ubiquity is another.
Asia Luxury Slowing Down
According to Bain, luxury sales in mainland China actually declined 1 percent in 2014, in part reflecting growing sales to Chinese luxury shoppers in Europe and North America. Over the past 15 years, the complexion of the Asian luxury consumer has rapidly become more complex, reflecting heightened sophistication, a desire for new and different, a willingness to experiment with new luxury brands and, increasingly, the demand for experiences and luxury lifestyles such as cruises and leisure vacations. Simple logo’d products have lost their appeal for many. In our connected world, big brands with the same product in flagship stores on the Champs-Élysées, Fifth Avenue, and Via Condotti, to name a few, aren’t worth visiting. A better approach is for luxury brands to create locally exclusive products that drive international visitor traffic so customers visit your shop when traveling. A sense of exclusivity helps!
Luxury Goes Digital
Also this spring, Chanel got its toes wet with ecommerce. Partnering with Net-A-Porter, Chanel opened a pop-up shop at netaporter.com for CoCo Crush, a line of fine jewelry. Plans are for Chanel to open its own ecommerce website in 2016. As a long-time holdout to online shopping, this decision is revealing. The Chanel brand lives at the heights of luxury and is much admired and beloved throughout the world. Following the desires and demands of its customers online would seem out of character; Chanel has always led the market and this marks a sea change for the brand. It acknowledges the pragmatism and give-and-take of the brand’s relationship with today’s luxury consumers. It follows a similar decision at Fendi to go online (Karl Lagerfeld is creative designer here as well and likely was influential in that decision).
We know that digital is neither a retail channel nor a new marketing strategy. But all things digital have taken over an increasingly larger portion of our lives. According to McKinsey, ecommerce represents approximately 4 percent of all luxury sales, but is growing about 3.5 times as fast as the industry. Wealthy consumers are already actively using the channel (about 80 percent), while only an estimated 40 percent of luxury brands are offering online retailing. It’s time to get moving! Interestingly, about 70 percent of online luxury sales occur in an off-price venue, such as Gilt.com or yoox.com, and this speaks to the efficiency and price-seeking mode of online shopping.
As the world has become increasingly more high-tech and high-touch, a new focus on connecting with the consumer at the front end of the supply chain is imperative. This requires brands to cater to new millennial consumers by providing them with high quality experiences, wherever and however they want. A fabulous product with a strong story that includes brand heritage and artisan development has become the price of entry for luxury brands today.
Luxury Brands, Shape Up!
Does all this speak to a changing zeitgeist of the luxury shopper? We’ve amassed closets full of designer shoes and bags and the acquisition of one more thing, pretty and luxurious as it may be, just rings a bit too hollow today. Experiences and souvenirs are the answer. At the Stylus New Era Luxury Forum (April 24, New York), they spoke of a new paradigm for luxury, driven by young affluent consumers. Luxury today has to reflect the lifestyle of its consumers; it needs to be high-charged and high-performance, and is being reinterpreted as the pursuit of well-being, heightened by social communities.
In the developed world, time is often considered the biggest luxury and this has implications for the association of luxury with healthy lifestyles. Fitness and health have become the new status symbols with premium products and services that only the affluent can afford, Let’s face it, anyone can beg, borrow or save for a Chanel handbag. A healthy, buff and toned body takes time to achieve, and it communicates a luxury lifestyle and super-charged status. An active lifestyle speaks volumes, saying, “I have the time and money to spend on taking care of myself.”
So the new luxe is working out in high-performance gyms. Getting into the hottest fitness classes is as hard a feat as getting into the hottest nightclubs, thus oozes status. This is experiential luxury, and luxury brands need to learn how to better weave their brand story into our changing lifestyle preferences. Active brands, such as Sweaty Betty, Lululemon, Nike and Under Armour, are well positioned to benefit from the increased focus on health and wellness and experiential luxury. Moreover, these brands resonate with their consumers and these two-way brand relationships are growing deeper enhanced by social media, gamification on various digital platforms and a presence in activity-based venues.
The ever-present smartphones and mobile devices (the real wearables) provide consumers with a wealth of information at their fingertips. They use mobile to seek detailed information (spanning brand stories, raw material origins, product inspiration as well as price, availability and more mundane data) from brands in order to make more enlightened purchases. What we have is a new well-informed luxury consumer eager to purchase goods with a more educated and considered mentality. Brands need to cater to these new consumer expectations.
Data has become an important tool for brands to create a genuine connection and relationship with consumers. People increasingly create their own personal brands by assembling a handful of brands they choose to interact with. This underpins today’s power shift from brands and brand managers to the people who actually choose the brands, the consumers, who are the ultimate brand managers and have the ultimate power to shape a brand.
A Market of One
At the Luxury Summit (April 29, New York), Tom Zara, executive director of strategy at Interbrand, addressed the “age of you” saying, “Looking to the future, the logical progression will be a world composed of 7 billion brands, that each one of us will define based on our unique worldview and self-view, the brand that we are and the brands that participate in defining who we are. Each of the world’s 7 billion consumers will become their own brand, and their decisions regarding which brands to interact with will have more power to shape brand identity than a company’s in-house branding team.” This is an acknowledgement that brands are, in fact, the markets’ and the customers’ worldview, living in the minds of consumers and not really owned by the brand managers. Operating in this new age, data will become more important Than a brand’s financial assets in achieving success.