Luxury brand consumers a fading commodity

Feature Visiting luxury boutiques these days can seem like stepping into a time capsule, and in a sense, you are.

Luxury 'wannabe's' are no longer admire iconic brands as they did before the financial crisis struck.

They have the sepulchral feel of rediscovered tombs. Lavish. Silent. Undisturbed. Visiting luxury boutiques these days can seem like stepping into a time capsule, and in a sense, you are, as retail and marketing plans and products conceived during the bully days of early 2008 are still on display and feel, in this post-luxury age, as anachronistic and appealing as Zeppelin travel after the Hindenburg disaster. A recent afternoon visit to several luxury boutiques in New York's SoHo confirms this brand and consumer disconnect. Luxury firms seem adrift and lost amid the deepest and most brutal fall-off in sales since the Great Depression. Suddenly, the acres of rare hardwoods, the vast yardage of animal skins, the bling, the gaudy logos everywhere, the suggestion by one Prada salesman that he would recommend a particular crocodile skin suitcase "only if you fly privately"?it all seems so 2007.

"How many of these are you selling?" I asked that Prada salesman, my hand on the crocodile skin. ("From the belly of a Nile Crocodile," I was assured. "Caught in the wild but with no battle scars.") "In 2009?" He paused. "None." Firms like Prada relied on the halo of that US$36,000 (Dh132,000) piece of luggage to diffuse through the brand and inspire those who could never afford such ostentation to purchase, perhaps, a bottle of fragrance, a pair of sunglasses, a T-shirt, some small piece of the brand so that they, too, could bask in the reflected glory of such splendour. But with the American consumer facing unprecedented wealth destruction?home values plummeting, 401(k)s halved, credit card debt interest surging, unemployment booming?that emulation of the haves by the have-slightly-lesses seems to have gone the way of liar-loan-backed CDOs. Part of the problem is that we have seen a generation of the ultrawealthy exposed for unbecoming behaviour; the rich just don't seem as cool as they used to, so why should we all aspire to look and act like them? "It's like the French monarchy is falling," says David Wolfe of the Donneger Group. "Who wants to look like the old regime? The core of the problem is that luxury needs luxury wannabes, and those folks are all jumping ship."

The numbers are frightening: Retail sales at luxury retailers are down 30 per cent. Luxury brands now confront a consumer who is earning less and saving more in a marketplace where, for the first time in several generations, there is actually some populist revulsion with conspicuous consumption. If we are really living through, as Time magazine proclaimed, "The End of Excess," then how do companies?indeed, an entire economy?geared toward excess and aspiration retool and convince weary, debt-burdened consumers disgusted by their own previous spending that their brands are really not about excess at all?

How do you sell luxury in a post-luxury age? The last time luxury faced such a reckoning was the 1930s, when the American consumer, facing an even worse cataclysm than today's, revolted and rejected the gaudy glamour of the previous decade. Luxury brands built during that earlier profligate era of debt creation and financial chicanery entered the '30s trapped in a similar time warp to today's luxury brands. It is striking to go back and look through magazine advertising of the period to see how the message of those luxury brands that did survive changed from the heady days of 1929 to the dark, Depression depths of 1932. The first 10 pages of the 112-page, July 1, 1929, Vogue, for example, features ads from Raleigh Cigarettes, Tiffany & Co, Barbara Lee Costumes, Dunlap Hats, Vici Kid Shoes, the Shelton Looms, Ocean Bathing Suits, Bon Ton, Frigidaire, and International Exposition Barcelona. Typical is the aspirational tone of the Vici Kid Shoes ad: "In Europe?where feet aren't built on the American plan?the lucky traveller who never gets museum legs or a Riviera limp is the one who brings over plenty of shoes of Vici kid." Vanity Fair's first 10 pages of a 110-page, January 1929 issue included Crane Fixtures, Tiffany & Co, Caron Fragrance, B Altman, Guerlan, Best & Co, Walk-Over Shoes for Gentlemen, Marcus & Co Jewelers, and Lord & Taylor. The tone was similar, all aspiration and the idea that somehow, by purchasing these brands, one could join the leisure class.

At the beginning of the Depression, wrote Jackson Lears in Fables of Abundance, "The business strategy of dealing with hard times was systematic denial." Unable to adapt to the new reality, luxury fashion brands as eminent as Callot Seours, Vionnet and Poiret, and premium carmakers like Hispano-Suiza and Pierce-Arrow were among the high-enders who didn't make it through the depression. By July 1932, Vogue was down to 81 pages and the only surviving front-of-the-book advertiser was Tiffany & Co. Vanity Fair, by 1934, was at 72 pages and had become a venue for consumer goods like Listerine (which was then, curiously, an anti-dandruff treatment) and Heinz tomato juice. The luxury advertiser had nearly vanished, as would Vanity Fair itself a few years later, a victim of the very same trend. (Vanity Fair, of course, was relaunched in 1983.)

The eventual response, derived in part from consumer focus groups and widespread surveying?both innovations of the 1930s and part of the advertising industry's response to the Depression?was the selling of utility over luxury, craftsmanship over status, quality over excess. There is a reason Tiffany & Co. survived as an advertiser and enterprise: Its message was always based on heritage and history. It was running the same ads in 1932 it ran in 1929, an austere white page featuring its logo and its address. Tiffany, which was a 90-year-old firm during the Great Depression, will certainly emphasise its heritage during this recession. "In times like this, people go home," says Caroline Naggiar, chief marketing officer for Tiffany. "Certainly we will be listing up our core values and traditional values. ... We are not moving or going anywhere, there are so few institutions left which have held up the test of time, all of that works so well in this environment."

The Tiffany approach, then, seems the paradigm. It is remarkable how little has changed from Great Depression to Great Recession. It turns out, we have lived through the End of Excess before?luxury firms hope that excess is like a zombie that you can't really kill?and so we have some idea how luxury firms survive. Luxury brands today, one after another, are making this "flight to quality," lest they fall away like so many Vionnets. "We are seeing the consumer move away from the prestige purchase, the blingy, the flash, to quality," says Mary Beth Whitfield, senior vice president of the consulting firm Retail Forward. "Consumers will still resonate with something that is marketed as premium or classic."

That is the playbook: Find your heritage, your traditional values, your long commitment to craft and quality?or make up those attributes if you have to?and then retire the marketing campaign of shirtless models sipping Cristal in the back of a G4, and replace that with an austere, calligraphy typeface of your brand logo and then, below that, something like, "Family Owned Since the Reign of Xerxes." Or, expect more shots of the product, less of the luxury lifestyle. The goal becomes to communicate the workmanship and quality of that $5,000 handbag, rather than just the buy-in to a cooler class. Thomas Frank, author of the advertising cultural history The Conquest of Cool, observes that "What happens in hard times, traditionally, is the advertising switches to product centric quality, some really tangible aspect of the product." Hermes, which has traditionally featured its product prominently in its campaigns, often at the exclusion of models and celebrities, would seem to have beaten its competition to showing the Birkin. "Hermes will be fine," says David Wolfe. "They're in the right place. But I don't know how a luxury brand that has been chasing that whole red-carpet thing is going to reposition itself."

Gucci and Prada would seem to fall into the latter category. So what's a Gucci to do? "We are going to emphasise family values passed down from generation to generation," says Robert Triefus, director of worldwide marketing for Gucci. "We believe our clients are wanting the reassurance of that near-90-year history." Can Gucci really make that work? The Gucci group eked out a 4.5 per cent increase in sales in the fourth quarter of 2008, and fell 3.4 per cent in the first quarter of 2009. But the outlook is less sanguine, even with this renewed belief in its own history, and there were troubling numbers buried amid the generally solid performance: The Gucci Group's superluxury leather-goods maker Bottega Venetta posted a 2.3 per cent decline in the fourth quarter. Bottega Venetta, which dates to the mid-'60s yet has only been introduced to global consumers by Gucci in the last decade, faces a difficult challenge. Even Gucci insiders wonder how you position yourself as having stood for quality and history when your history, in most consumers' minds, goes back to W's first term.

The brands refuse to admit this, but they are all looking at tweaking not just the message but also the product, considering where they can lose the buckles, zipper, or extra pleat or where they can switch from alpaca to cashmere. They are looking to sell their less-costly diffusion lines, their D&G instead of Dolce, their DKNY instead of Donna Karan, to make up for some of that vanished higher-end revenue. "For sure, the consumer is going to be more picky here," says Mimma Viglezio of Gucci. "You're not going to see it in our product, of course, but some companies are going to try to focus on value, on bargains."

The larger question is whether consumers are just shell-shocked and will really return to the front lines of luxury retailing or if consumer behaviour has fundamentally changed. It is unlikely that we have reversed the trends of capitalism, that Thorstein Veblen's "invidious comparison" no longer applies. But what if the status we seek, the expression we hope to make through our purchases, has fundamentally shifted? That is the view of some in the luxury business, that a large swath of the luxury consumer is not merely skittish but gone?financially unable to purchase or, having traded down to a more moderately priced good, found the drop-off in quality to be negligible. How, then, do you convince the affluent consumer to stay loyal to the premium brands? "With these luxury brands," says Thomas Frank, "what they have been selling is the lifestyle and mystique of the brand. They have to find a new way to make that proposition enticing. ... The question is, can they market themselves as something else?"

Michael Silverstein of the Boston Consulting Group believes that luxury brands traditionally have competed on three dimensions?technology, function, and emotion?and says that the battle is now shifting more toward technology and function, away from Frank's "lifestyle and mystique." "The best companies, Silverstein explains, "are investing in technical and functional capability." BMW is certainly making that investment. Jack Pitney, the head of global marketing for BMW, which has actually expanded market share since the financial crisis began, talks about BMW being a technology and environmentally friendly company?while reminding that the BMW is still the "ultimate driving machine." The company's response to the current crisis consists of both that message and, eventually, new products reflecting that message. Pitney is emphatic that the BMW culture of high-technology and fuel efficiency-especially a new generation of high-performance diesel engines?will drive away yesterday's notion of BMW as a status symbol and vehicle of choice for certain type of aspiring alpha-male. "Brands that have substance and integrity and that are authentic and recognise what has brought them the success and don't deviate from that will weather any economic recession best," Pitney says. "What luxury products do need to do in the short term is to allow customers to rationalise their making that investment in a premium product. You need to make them feel good about the fact that they've gotten value, that it's a smart buy."

Yet the challenge BMW faces in getting its message up to date is exemplified by where Pitney is laying out his vision. We are back in that time warp of yesterday's marketing plan, looking suddenly and painfully obsolete. Pitney is in Los Angeles to host a launch party for the new BMW 7 series amid an exhibit of BMW art cars, various makes and models painted by artists ranging from Warhol to Peter Max. Pitney stands, cocktail in hand, in the entrance foyer of the L.A. County Museum while bow-tied waiters serve from trays of lamb meatballs and mini-burgers and guys wearing shirts opened one button too many chat up women who seem to have opted for one cup size too large. It is hard to take seriously a brand's commitment to technology and the environment when it is delivered while Joan Collins and Dennis Hopper exchange air kisses in the background.

Luxury will survive, as surely as there will always be wealthy folks and those who aspire to look like them. We are a nation of would-be predators, and some portion of us will always revel in conspicuous consumption. But luxury brands, to thrive as they have been this past heady decade, need more than just that an elite demographic, they need to sell to the vast swath of those whose place in the food chain is just a notch below the top one-percenters, that group of the affluent but not superwealthy who have been most stung by the recent economic cataclysm. And will a history lesson or a quick primer in the virtues of a certain kind of hand-tooled leather really convince those consumers to keep paying those premiums?

Maybe, but if not, then the luxury-goods brands might have to do something really crazy: charge less.