The Next 24 Months for Luxury Brands…… Innovate or Die

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by: Idris Mootee

In London this week for planning sessions. Did enjoy some quality time Sunday with my sister’s family including a quick visit to Portabello Road and then lunch at the Mandarin. This year Christmas’ decorations are done with a budget in mind and you can see it is not like other years. High Street retailers suddenly look main street.

This will be the most challenging season for retailers in 30 years particularly for those high-end luxury brands as most have over expanded over the years and there are so many marginal brands. And there will many who can prove that they can be recession proof.

There are still many things that the super rich will always pay for whatever they cost. The iPod trunk by LV is one. Karl Lagerfeld, who decided to put his hand to an iPod case himself, owns a custom iPod trunk to support his professed love of anything Mac. Lagerfeld totes his gear around in a handcrafted custom trunk from Louis Vuitton. Well, probably some bedraggled assistant has to pack his wardrobe of 20 iPods, one charger, JBL iPod speakers and a subwoofer. Too cool even to even carry the LV monogram (but they do have Lagerfeld’s initials near the handle and actually you can now order many items at LV with your own initials) the trunk is made in trademark Taiga black leather with a microfiber interior. Custom cases like these take from 5-6 months to make and costs more than $10,000. I think this is worth both the price and the wait.

Luxury goods are cyclical in nature just as other industries. The leaders in luxury goods need to take a long-term view and strategic business approach to look beyond today’s economic problems, it likely that millions will continue to become luxury good consumer around the world in the next two decades. The question is can you survive the next 24 months?

Many luxury brands are forced to take a series second look at the portfolio and need to figure our whether each brand can deliver the expected potential. Many are only moderately exciting and marginally profitable will have to deal with an uncertain future. Brands should conduct a rigorous assessment of their portfolio and unflinchingly eliminate the marginal “brands” and put a renewed focus on what you do best and innovate within those categories.

Affluent consumers are willing to pay a significant price premium for specialist brands that are the best in class. Every luxury brand will have to ask themselves the questions "what are we really good at?" Hermes has a three-year backlog of orders in Japan for Kelly bags (the bag made famous by the actress Grace Kelly). The least expensive model sells for about $3,500. Hermes can no question whether any downturn.

Massification of luxury brands brings many opportunities but also seeding future’s failure, many are diluting themselves without knowing. One of the great ways to bring down a luxury brand, albeit slowly, is to go down-market in a wrong way. Gucci made that mistake until Tom Ford saved it.

Luxury firms have homogenized luxury to the point that majority of wealthy consumers feel that luxury is being commoditized. I was at the Westfield Mall (opened a few weeks ago and is the largest in Europe); you see the same look and feel in store designs and products. Some cost four times that others and you will have to find a reason to pay more when you can find very fashionable design at Zara. This company transformed fashion and has impacted fashion in such as that will eventually to cost many “marginal” fashion brand to go out of business. As fashion ideas going to the extreme and these trends are so fake, many are faking “style” and faking that with high price.

There’s also less relevance in seasonality in fashion anymore. Isn’t that crazy when people are selling spring clothes in Feb? Isn’t it crazy that these $3000 bags simply have no reason why it cost $3000. You are not a Hermes or Louis Vuitton? The luxury good industry has always been a dinosaur rather than forward-looking. Many are so behind the curve from both offering a multi-channel and sensory experience and seeing themselves as “culture” curator.

Contrary to popular thinking that luxury goods is a tough and feel thing and there’s not much of a place for them online. The Internet will eventually provide many of the innovative solutions. Companies such as Polo Ralph Lauren are about to embark on selling its products through cell phones in the US. So while you are sitting in Dean and Deluca you are also shopping. Some call this “merchan-tainment” but I don’t’ quite now what it means. They are suing Quick Response Technology codes in its ads, mailers and store windows, which potential shoppers can scan and download on their camera phones. Once scanned, the site allows a mobile phone user to enter the world of Ralph Lauren — not just by offering the limited edition 2008 US Open collection, classic polo and oxford shirts, chinos, and even the Ricky bag, but also with exclusive video content and a style guide. Mobile commerce has been used in Asia for quite a while. The QR codes, they (and other emerging technologies), can be used by marketers in a number of creative ways. Luxury brands need to start embracing technology, as that’s the only way they can change their economics, they are now stuck. Zara is the best example of how a fashion company can have leading edge technologies.

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