Can your Brand Survive the Growth of the Luxury Market?

Thomas Brownlees

Thomas Brownlees

CEO and Founder,
440 Industries

Introduction

The growth of the luxury market presents a great opportunity for many companies wishing to attract and covert a wider range of consumers. However, opportunity and risk are often synonyms, especially when looking towards the Chinese market.  In this post, we are going to present some ideas on how fashion companies can adapt and challenge the new boundaries of luxury, making sure their brands are able to stand the test of time. 

In this article, we are going to discuss:

  1. How to update your recipe for luxury fashion retail
  2. How to counter the widening overlap between masstige and luxury
  3. Understanding the growth of masstige in luxury
  4. How to maintain brand value, by focusing on scarcity
  5. Conclusions

1. How to update your recipe for luxury fashion retail

For as much as we want to complicate the matter, fashion management still relies on three fundamental relationships:

  • Consumers. Understanding and intersecting consumer behavior is essential to generate first-time buyers, and hopefully, transform them into returning customers. As we discussed in this post (How to Design a Bespoke Brand Experience) the relationship with consumers is 80% perception and 20% delivery. Leveraging an aspirational and emotional component in the mind of consumers allows brands to bypass the pricetag. As fast-fashion retailers have shown us, the thrill of a discounted item can really go a long way in terms of sales, especially when you are able to create a constant sense o contingency and opportunity, capable of making your clients come back to the store again and again. At the same time, we need to make sure our brands incorporate values that don’t only look at fast conversion. An example above all is represented by the dire need for sustainable brands and sustainable production cycles. This is the ultimate challenge which is in fact pursued, albeit at different paces, by any player in fashion. Unsustainable brands are undeniably destined to go out of fashion.

However, we must not forget that any emotional or experiential element needs to be grounded upon operational efficiency. And this leads us to our next point. 

  • Operations Management. Operations are about efficiency, but that’s not all. If you think that steadily attending to your customers is all you need to do, think again. Successful operations management is about creating a store experience, within the brand experience. How do your customers feel when they enter the store? What kind of narrative are they participating in when touching your products. What kind of staffing strategy is able to find the right individuals to personify your brand?  What makes the visit to the physical store worth the effort? These are only some of the questions you need to answer if you want to bring your “retail game” to another level. This aspect, however, is not to be considered only on the grounds of physical retail experiences, but in the wider (and much more competitive) context of omnichannel distribution. This leads us to our third and final level of strategic planning: e-commerce management.

  • E-commerce and Social Media. The reason why these two terms are part of the same sentence is because in my opinion come 2020 there is no real distinction between them. Social media is e-commerce, e-commerce is social media. The Chinese marketplace was able to show us the strict interrelationship between the two, ever since digital commerce was introduced to Chinese consumers. When it comes to luxury, however, there is a challenging conundrum to solve: if luxury is about standing out, how can it be available to everyone? Each brand has to look at itself in the mirror and find their own answer to this matter, as so much of the brand’s perception will derive from understanding how far a firm is willing to go to expand on its target audience. We will discuss this point in section 3 of this post, but for now, a word of warning: not making your products available online will not prevent your brand to become a mass-brand, a company can in fact find its brand diluted simply because of its own success. LMVH in the Asian markets is a prestigious example of how, despite their efforts to limit access to their products to online consumers, they are still suffering from a masstige effect on their purses. More on this later in the post.

Let’s now move on to identifying the core elements which define luxury. These are the elements we want to focus on, as we dive into the future of luxury brand management.

2. How to counter the widening overlap between masstige and luxury

As we try to identify how we can tackle the challenges of luxury in the new decade, we might want to reflect on the foundational aspects of luxury. What does luxury mean, why does it never go out of business and why is it an expanding market?

  • Fitting In\Standing Out. Luxury has many purposes but in simple terms, we can say that the reasons are mostly two contradicting ones: on the one hand to fit in, on the other to stand out. In general terms, we can say that luxury work around the concept of a “third space”, we can say in fact that in our daily lives, we spend time at home (first space) and in our office (second space). In these first two spaces, we rely much more on who we actually are and much less on how we look. In the third space, however, we take more into account the image we project. This space could be a coffee house, a theater, a party, or wherever else we end up going. In this “third space” we seek to project a certain identity and luxury goods are essential to this goal. In this sense, we need to show belonging while at the same time, distance from everyone else, through the subtle (or not so subtle) separation created by luxury.

  • Being part of a big story. Anyone who works in fashion knows that a brand is only as good as the story it is telling. The narrative of a brand is a way to provide its customers with a way to understand their place in the world. Fashion is about identity and creating a plot where your customers can become the main starring actors, is one of the most relevant strategies you can put in place. At the same time, we should not forget that a story does not go very far if it’s not being retold. Or better yet re-tweeted. By this, we mean that luxury is social, is about social aspirations, and this is why social media and e-commerce platforms are utterly devoted to providing tools that allow customers to gain advice, validation, and gratification from their purchases. Social commerce is perfectly suited to luxury commerce as in fact it draws most of its appeal from juxtaposing different layers of society.

  • Comfort. Last but definitely not least we have the element of comfort. As luxury provides also a function of utility. This utility is represented by choice. This choice is often represented through omnichannel distribution. We discuss this topic in-depth in this article (Flagship Stores and the Future of Fashion Retail). In this sense, in order to pursue HNWI (high net worth individuals) firms need to understand the service component of luxury. Luxury is not only the product, but luxury is also the summation of the value co-created by the brand as it engages its customers. The service component of luxury should push companies to pursue the full extent of phygital (physical-digital) retail experiences in order to capture the trend towards increasing price points in digital commerce. Customers are progressively trusting more and more electronic transactions, to the point that the goods they are willing to buy are increasing in value. As an anecdote, we could mention that at the beginning of the digital era, the travel industry was the first to boom, and this was due to the fact that people were already used to purchasing something intangible, as the right to board a plane, as opposed to a piece of the aircraft itself. Slowly but steadily consumers have started to buy physical products and now, pioneering real estate agencies are trying to sell houses online, assuming customers are not even willing to visit the property they are about to purchase. This trend shows how much a brand can go when it comes to pushing luxury though integrated, omnichannel services.

3. Understand the growth of masstige and luxury

Some say that Luis Vuitton bags in South Korea have become the “secretary’s bag” or the “three seconds bag” due to the fact that on Seol high street you can spot one every three seconds. This phenomenon means two things:

  • Masstige in Luxury. The first observation we can make is that Luis Vuitton has become almost a mass-prestige (or masstige in short) brand. This is unheard of, as masstige refers to products in cosmetics and beauty, whereby a branded lipstick or mascara can be an accessible way to feel part of the dream factor of a luxury brand (we discuss fashion and luxury segmentation in this post: Market Segmentation in the Fashion Industry).

  • Too successful, or too available? The second element of reflection is that Luis Vuitton may have become so successful that its iconic bags have become the object of desire of every person even remotely capable of acquiring one. This second consideration, however, is a little unsettling, is there such thing as too successful? Well, in our opinion the answer is no. But there is such a thing as too available. In this context, the challenge for luxury companies is to still be able to deliver a global presence, while maintaining the perception of scarcity. How can you do that? Well, by creating hurdles for your customers to overcome in order to purchase your product. This might seem counterintuitive or better yet, crazy, but it does work. It works because this is luxury, and luxury has such strong aspirational values embedded into it that customers are willing to go great lengths in order to stand out\fit in. Would this work in other industries or business sectors? Probably not, but luxury does not deal with reason or even common sense.
In addition, we should have a profound reflection on cultural awareness. Many studies show how Chinese consumers are behaving more and more as westerners, and westerners (especially in the US) are behaving like the Chinese. In “The Bling Dynasty” by Ewan Ramburg (link at the bottom of the article)  the author uses there descriptors of American consumer behavior by stating that they are:
 
  • Feeling guilty. In a post-recession America, buyers are restraining from purchasing luxury items, as they feel that it is an unnecessary expense in light of the people who lost jobs and of the economy which has recently undergone recession.

  • Staying quiet. Those who are purchasing more expensive and luxurious items are not showing them off as much. On the contrary, those who are still taking advantage of a more expensive lifestyle are not showcasing it as much as before.

  • Buying cheap. In general terms, there is a return to a discount culture, to make sure consumers can take advantage of sales and bulk purchase, as a form of careful spending.
 All in all, this should warn us about the way in which consumer attitudes and behavior can change rapidly in no time whatsoever.

4. How to maitain brand value, by focusing on scarcity

Just as in the tech industry companies thrive due to planned obsolescence, then we could argue that in luxury, companies will thrive due to planned scarcity. However, in a globalized world where brands need to be on every high street, providing a perception of scarcity is no simple task. So how can firms implement this approach? Here are some examples:

  • The unveiling is the new fashion show. Fashion shows have been for decades the quintessential dream-factor moment for many luxury firms. However, we all know that just 1% of the target audience will transform into a target market, or in simple terms: only 1% of the audience will consider buying haute-couture clothing. In this sense, you don’t need to rent a full runway to fit that audience, on the contrary, you could fit them into a small loft, or apartment. If you do, you end up offering a prestigious experience of inclusion into a very selective environment where items are not displayed, but actually unveiled for a very exclusive audience. This strategy does provide an outstanding service to loyal customers and shows that certain products are very, very limited in production, enhancing the brand’s equity, thanks to the delivery of a sense of scarcity.

  • Fixed-track purchases. The textbook on this topic was undoubtedly written by Ferrari. Ferrari, in fact, has created a system according to which, if you want to buy the latest Ferrari, then you need to show your loyalty to the brand by owning other Ferrari cars too. This creates a hurdle to entry that creates competition within an already scarce and competitive industry, further enhancing the value of the brand. Other luxury brands can take this as an example to realize how you can create fixed-track purchase experience, capable of fueling your customers with a renewed sense of competition across the board.

  • Temporary\Popup stores. Another option is more radical. This means not actually having physical premises, but only temporary ones. By opening pop-up\temporary stores, you are conveying to your customers that there is an extreme sense of scarcity and contingency when a window of opportunity to buy your products opens up.

  • (Artificially) limited collections. Brands can choose to produce a collection, or a product in a limited series with the goal to ignite desire in customers. There are many examples of success with these initiatives. One of the most remarkable was the partnership between Chanel and H&M for the launch of  Karl Lagerfeld collection in H&M stores. H&M got great publicity out of the initiative, and Chanel did boost its cool factor, by showing that it was a much younger brand than people imagined.

Won’t people be offended if they are not able to take advantage of these opportunities? Well, if this wasn’t luxury, probably they would, but again the competition in status is a powerful fuel. Besides, these challenges also give customers a story to tell and that word-of-mouth advertising, is nothing but collateral gold.

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5. Conclusions

As we’ve seen the opportunities and problems for luxury companies discussed in this post apply to luxury firms that are not willing to take an honest look at themselves. In consideration of the fact that luxury markets are expanding in Asia, there is a challenge awaiting all of the western brand managers operating in luxury, and that is to leave the ego at the door. So much or your success will depend on understanding the value of luxury, which differs from country to country (we discuss this in more detail here: The Importance of the Country of Origin Effect).

A further complication is presented by speed. As consumers in luxury are growing younger and younger, their tastes and preferences will change faster and faster. As a result, those companies who are saying how unloyal luxury customers have become may need to realize that loyalty is not the issue, but speed is. With this, we don’t mean to suggest that brands have to pursue a fast luxury model, but instead to reflect on the needs of a different psychographic segment. This may, for instance, involve hiring younger brand managers, capable of identifying those trends which will be worth taking advantage of, and those who are not worth the time.

All in all, we tried to summarise some of our thoughts on the new trends affecting luxury, suggesting how self-awareness and flexibility are still the foundation of a successful luxury brand.

Suggestions for Further Readings

Web Sources for Further Reasearch

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Thomas Brownlees

Thomas Brownlees

I am an Anglo-Italian business consultant and lecturer. In 2017 I started 440 Industries, a consulting company focused on assisting businesses in accessing international market opportunities through the design and implementation of digital strategies. And cultural awareness.

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