The Value of Luxury in the Fashion Industry

Thomas Brownlees

Thomas Brownlees

CEO and Founder,
440 Industries

Introduction

Luxury may seem like a simple concept, one which we tend to only associate to the high price of certain goods and services. In luxury,  however, pricing is only one of the elements that comprise the end cost of a product. Luxury is about detaching the price of an item, or service from its perceived value. 
Obtaining the “luxury experience effect” is a challenge for many companies, but those who can compete in this segment can access a very profitable market.

In this post, we are going to discuss the concept of luxury in fashion in more detail and clarify all of the implications related to selling luxury goods and services.

Here is a list of the main topics we are going to cover in this post:
1. Understanding the value of luxury and brand equity
2. How companies can develop a “luxury experience”
3. Elements of a luxury fashion brand
4. Conclusions

fashion retail

1. Understanding the value of luxury and brand equity

The luxury segment requires companies to compete on two different levels, one operating internally and pertaining to a vertically integrated value chain, and one operating externally, relative to the implementation of high-value adding marketing strategies. The combination of an ‘internal excellence‘ and an external marketing appeal allows firms to access the “luxury” markup. Luxury companies are in fact able to draw higher profit margins, due to the lifestyle associations which increase the perceived value of the brand.

In simpler terms, luxury is a word capable of evoking high brand equity. When this is achieved, a company can “stretch” aside from its core products and cover a much wider product range, still benefiting from the same luxury markup achieved in its core product line.  When a brand is associated with luxury, it can monetise this “added value” on all of its products, because of the aspirational values connected to the brand itself. Achieving a luxury status, however, can be a wildly expensive endeavour but the payoff is certainly worthy of consideration.

Luxury, however, does not apply to all the segments, business models and firms in fashion. Within the fashion industry, luxury is usually connected to only the top two tiers of the ‘fashion pyramid’: the haute couture and ready to wear/prèt-a-porter segments.

Despite applying only to this particularly exclusive market segment, luxury products foster great movement in terms of brand positioning. 
If on the one hand haute couture brands try to ‘stretch’ their brand with “second lines” or “masstige” products in order to monetise their brand equity, on the other hand, designer brands try to create ‘limited collections’ to further enhance their exclusivity factor and narrow the gap with more luxurious heritage brands. 

An example of this is shown by established luxury brands like Hermés moving from leather goods into the fashion apparel segment, while other Italian brands like Prada are moving within the apparel line towards custom-made collections.

The concept of luxury, however, is a cultural relative. According to different nationalities, luxury and ‘access to luxury’ can be perceived in very different ways. According to different nationalities, the value of luxury can vary greatly, let look at some examples:

  • In France, luxury is often associated with privilege, and often is often perceived as a privilege of high birth.
  • In the US instead, the notion of luxury is more democratic and is perceived as a prize or reward for one’s professional and social accomplishments.

As other countries – like China and Russia – are growing their luxury markets, a unique connotation of this term will be developed to better describe the unique nuances of their customers. The perception of luxury is, in fact, a function of the welfare of a country whereby consumers transition from satisfying more essential needs (like health and education) to making more status-oriented purchases.

When it comes to the product itself however, luxury goods are items often associated with the individual as they represent objects with a high intrinsic value which fit particular product categories.
The fashion luxury system can be broken down in the following segments: 

  • Accessories: leather goods, shoes, silk items
  • Apparel: haute couture and ready to wear
  • Perfumes and Cosmetics
  • Jewellery and Watches

Brand equity in luxury relates to how ‘credibly’ a company is able to stretch its ‘luxury umbrella’  in order to cover product categories that are not core-specific. In the case of fashion firms, we use the term ‘masstige’ to refer to those commodities sold by luxury brands at higher price points because of high value of luxury branding.

2. How companies can develop a "luxury experience"

In luxury, we see very clearly that no product is “only” a product. A product is always – at least in part – a service, or better yet an “experience”. Fashion companies are global companies that try to access a variety of international markets in different regions of the world,  by subtly adapting their products to better fit new social and cultural environments, with a compelling unique selling proposition. 

When it comes to entering foreign markets, fashion firms thy to access international distribution networks to physically move products and merchandise abroad. The challenge in these operations is maintaining a consistent “luxury experience” at every point of contact between the customer and the brand.

Often times, this “service component” can only be provided through vertically owned retail stores, which allow firms to manage entirely the relationship between the brand and the final customer. Moreover, owned retail stores allow companies to expand the relationship with a paying customer, by offering a series of post-purchase services which helps retaining a client and keeping him loyal.

By developing a firm’s owned retail stores global products can be supported worldwide by a clear brand and retail identity capable of adapting products to the particular shopping expectations of the foreign market.

‘Purchase Experiences’ are more than the sum of its parts, as they allow firms to detach pricing from the material aspect of the purchase, and leverage intangible aspects of the shopping experience which are simply hard to price, like the quality of customer service. 

3. Element of a luxury fashion brand

As discussed in the previous section, delivering a “luxury” experience is a challenge for many fashion firms. A luxury experience is, in fact, a hybrid experience between the item a customer purchases and the service provided in the store. 
The service component of luxury comprises:

  • Exclusive services to save the greatest luxury of all: time.
  • Premium retail experiences through concept stores, flagship stores, and exclusive distribution locations.
  • Luxury hospitality and other services which expand the lifestyle component of a luxury brand.

The luxury products that are sold in-store, however, need to be aligned with the total brand experience delivered by the firms’ communication department.  This typology of high-end communication entails:

  • Association with powerful imagery (dream factor). This is essential, as what luxury companies are selling goes beyond an object’s use, but relies on its social value.

  • High price, as a form of exclusivity. Price allows to create a barrier of entry to the product’s ownership and ignite a stronger desire in consumers to achieve a prestigious status.

  • Originality, associated with creativity and innovation. Luxury brands are capable of setting themselves above the noise and connect with their audiences by creating iconic pieces which will influence all other companies over the decades to come.

  • Superior quality with no compromises. A luxury item is a guarantee that lasts a lifetime. As the object itself is timeless, it can be passed down from mother to daughter as it will never go out of fashion.

  • Selective Distribution. Exclusive and selective distribution are essential components of a luxury marketing mix as they allow to create a sense of scarcity in a market where everything else is available in real time. The need to maintain a component of exclusivity also explains why many luxury firms were late entrants in the e-commerce and digital distribution channels.

  • Elite Advertising. Using top models being photographed by the most famous visual artists in the most iconic locations and showcased in glossy magazines is an essential part of the delivery of the values associated with luxury.

How can a company create a luxury experience capable of leveraging on all of these factors? There are places where companies are able to create a theatrical, educational and purchases experience where all of these elements can be delivered seamlessly. Fashion firms create flagship stores to provide the “stage” for all of the firm’s stakeholders to engage with the brand and celebrate it. We discuss the relevance of flagship stores, as well as the future of fashion retail in this post.

4. Conclusions

If fashion is about ‘today’ or about anticipating the future, luxury is about celebrating the past. There is no recipe to create a luxury product or service, but heritage and storytelling go a long way in delivering a brand identity which speaks above the noise of fast fashion companies. 

An important role in creating a luxury effect is leveraging the country of origin effect and allowing a brand to be imbued with values which are associated with the brand’s country of origin.

We’d like to close this post with a quote from Coco Chanel which is able to perfectly summarise what luxury is about.

Some people think luxury is the opposite of poverty. It is not. It is the opposite of vulgarity.” 

As we delve deeper into the tangible and intangible elements of a luxury fashion brand, we need to address the country of origin effect in the next instalment entitled: The Importance of the Country of Origin Effect.

Bibliographical Sources and Further Research

Web Sources

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The Value of Luxury in the Fashion Industry Fashion and Luxury have many areas of overlap due to the dream factor associated with an exlusive lifestyle. Luxury is more complex that it may seem.
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Thomas Brownlees

Thomas Brownlees

I am an Anglo-Italian business lecturer and consultant based in Florence, Italy. In 2017 I started 440 Industries, an education and training company focused on fashion, music, and technology. Our mission is to help students, entrepreneurs and managers in overcoming the challenges of starting, developing and scaling their business in the creative industries. When there's a will, there's a way!

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