The Lapse of Luxury
2009年2月21日
New York this week, London next. But away from the catwalks at this season's fashion shows, the couture industry has lost its swagger amid a global slump in demand for luxury goods. Several fashion labels have been forced to lay off staff, including Burberry Group and Chanel. French luxury goods giant LVMH Moet Hennessy Louis Vuitton reported a slump in demand for watches and jewelry. So much for the myth that luxury goods are recession-proof.
Luxury-goods sales are forecast to fall 15% this year, according to Bernstein, reflecting the unprecedented global-wealth destruction. The impact is being felt across all segments as consumers trade down or cut unnecessary expenditures. Branded-goods groups must decide how much of the slump is cyclical and how much reflects a permanent change in consumer behavior. It is a process sure to produce lots of losers and few winners.
This is a far cry from recent years. From 2003 to 2007, the global luxury market grew on average 7% a year to $170 billion, fueled by soaring asset prices. Analysts at Citigroup even coined a word, 'plutonomy,' for a world in which an ever-expanding minority of ultrawealthy individuals would fuel rapid growth for luxury. Much of this was expected from emerging markets.
The sudden turnaround creates a dilemma not only for luxury businesses, but also mainstream consumer-goods companies that bet heavily on 'premiumization' -- moving brands upscale to attract more affluent consumers. A protracted slump could mean a permanent backlash against conspicuous consumption.
Branded-goods companies must decide whether to defend their premium prices and risk losing market share or try repositioning the brand. Cutting prices could permanently destroy brand value. Luxury-fashion company It Holding, whose brands include Gianfranco Ferre, recently filed for bankruptcy protection, partly blaming the impact of heavy discounting in stores such as Saks Fifth Avenue. However, maintaining brand value requires heavy investment. French cosmetics group L'Oreal this week blamed cuts in advertising spending for a 3.5% fall in operating profit in 2008.
This new environment is sure to mean casualties among second-tier brands. The winners will be the megabrands that can outspend rivals on advertising and promotion. Also well-placed are those with well-diversified portfolios. LVMH offset weakness in watches and jewelry with strong performances from fashion-and-perfume brands Louis Vuitton and Christian Dior. In a different business, spirits giants Diageo and Pernod Ricard should do well as they can offset some losses on premium brands with gains on their cheaper, mainstream brands. Global scale also is crucial. Long term, much of the growth should still come from emerging markets.
But the biggest winners of all will be those who can reposition their brands to capture the mood of the times. Goodbye, bling. Hello, austerity chic.
Molly Neal / Simon Nixon |
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