Feeling entitled, consumers spent on luxury goods
Luxury brands expanded their presence with new stores, e-commerce and extensive advertising.
Having endured several years of economic difficulty, North Americans and Europeans who could afford luxury indulged. More people of average means engaged with luxury brands, purchasing an affordable item, if possible. And luxury brands continued to enjoy healthy sales in China and other fast growing markets with expanding middle classes.
Increased urbanization also contributed to the demand for luxury. And in both developed and developing markets, luxury increasingly was less about bling and more about appreciating craftsmanship and sharing the pleasure. Consumers focused less on collecting luxury labels and more on creating a unique personal look that often mixed luxury brands with more affordable options.
International travel increased the appetite for luxury in fast growing markets and drove category sales. The impact was large enough to earn the label TLC, Traveling Luxury Consumer. Travelers purchase about half of all the luxury goods sold in Europe, according to Goldman Sachs, with Chinese travelers accounting for about 18 percent of European luxury sales.
Although luxury goods predominately remained the domain of European and North American brands, several luxury brands originated in Brazil and Russian luxury brands started to appear. Even in China, where the upwardly mobile display luxury to denote status, consumers demonstrated a high level of brand knowledge and appreciation for craftsmanship.
Meanwhile, luxury brands continued to struggle to reach the right balance between protecting the exclusivity that to an extent defines luxury, and making the brand experience accessible to a wider audience.
Building on quality and exclusivity
In its determination to reject a takeover by LVMH, Hermès reflected the characteristics traditionally associated with luxury: heritage, craftsmanship, elite access and strong emotional appeal. Hermès operating income increased 32.5 percent to €885.2 million ($1.2 billion) on sales growth of 18.3 percent to €2.8 billion ($3.8 billion).
The result reflected strong performances in most regions, led by Asia (excluding Japan), which was up by 29 percent and the US, up 26 percent. Even in economically stressed Europe, Hermès sales grew by 16 percent. In contrast, Japan sales were flat, suggesting that economic problems compounded by the tsunami and nuclear disaster impacted the appetite for luxury.
In a similar way, Rolex and Prada emphasized the exclusivity of their brands. Prada owns the Prada, Miu Miu, Church’s Shoes and Car Shoe luxury brands. Sales of their brands increased by over 21 percent through the first half of 2011, driven by a 35 percent spike in Asia with strong growth in North America and Europe.
Followig its IPO (Initial Public Offering) in June 2011 on the Hong Kong Stock Exchange, which raised over €206 million ($275 million), Prada planned to add about 80 stores annually over the next three years, including a total of 30 stores in China. Most of the openings will be Prada brand stores, reflecting a general trend among luxury brands to assert tighter brand control by shifting away from licensing and franchising. The brand currently operates more than 200 stores worldwide and also distributes through an extensive wholesale network.
Making heritage contemporary and relevant
Burberry extended the brand’s appeal, creating a youthful virtual world in which customers experience the brand by viewing fashion shows, for example. The brand added a new twist to its iconic trench coat with Burberry Bespoke, a website facility that enables the customer to assemble a unique trench coat online, selecting style, fabric, color and other individualizing options.
Brands also attempted to unify the advertising and online expressions of the brand with the in-store experience. Louis Vuitton, for example designed a store on Marina Bay in Singapore to resemble a cruise ship, reflecting the brand’s travel heritage, which also is celebrated on the LV website.
In an effort to widen its audience to younger people, Tiffany launched a site called “What Makes True Love,” on which any couple can post a photo of themselves and tell their love story. Dunhill uses an augmented reality application that integrates its print and online experience into a single unified campaign. A mobile device held in front of a Dunhill ad animates it. Chanel used an iPad application to promote its J12 Marine watch series.
To reach new followers brands also experimented with collaboration and co-creation, sometimes with bloggers. Working with the Royal College of Art, Fendi provided teams of students with supplies of leather and challenged them to design works of art for display in the brand’s newest London store.