Lessons in LUXURY

IT'S NO SECRET THAT THE ECONOMY IS NOW AFFECTING HIGH-END SPENDING TOO. WE TALKED WITH SOME OF THE LUXURY MARKET'S LEADING EXPERTS TO UNCOVER THE KEY TRENDS THAT ARE EMERGING AS A RESULT OF THE DOWNTURN

By Lindsey Getz

While companies producing goods for the luxury market made it through the initial stages of a failing economy unscathed, the resonating effects of the decrease in spending has finally reached their doors as well. Luxury spending had fallen slightly in the earlier half of last year, but by the end of ’08 was dropping much quicker. In October alone, luxury spending fell 20.1 percent according to MasterCard Spending Pulse, an information service that tracks national retail sales. "The luxury market is in the worst situation I've seen," says Greg Furman, founder and chairman of the Luxury Marketing Council, a collaborative organization of 2,800 CEOs and marketing executives who represent more than 860 major luxury goods and services companies. "It seems nobody knows where the bottom is yet."

To stay afloat, many companies have had to rethink their strategies. Making luxury purchases has become a contemplative decision—much different from the days when impulse buys reigned. To better understand the consumer's thought process, large companies are turning to the retailer.

"From an operational standpoint, they are realizing that the people on the line should be seen as a valued strategic partner," says Furman. "The smartest brands are sharing business information with them and getting feedback about what they're seeing and hearing from shoppers."

Understanding some of the key trends that are emerging in the luxury market may be the first step toward improved success. Our luxury experts stressed the following four points.

OVERALL VALUE

Today's consumers are not only looking at price and how it equates to the brand name, but also at the overall value of an item, says Pam Danziger, president of Unity Marketing, which specializes in consumer insights for luxury marketers. "People want to feel a brand is worth spending the extra money for," she says. "The key factor in the luxury consumer's shopping paradigm is their perception of value. The consumer can find a pair of $99 eyewear or $999 eyewear. Their challenge is whether that $999 pair is really worth paying over 10 times more."

TONED DOWN LUXURY

The days of conspicuous consumption have long been abandoned, and that's becoming even more radical in these hard times, says Furman. "There's a lot of buzz about luxury guilt," he says. "And it's a real thing. People don't want to be seen driving, wearing, or showing off luxury brands. Even the types of parties people are throwing have been tempered. Everything has become moderated in the public view."

For new product launches in 2009, it will mean toning down. "It's expected logos and brands will be more subtle," says Lorre White, president and CEO of White Light Consulting, an international luxury marketing company. "Instead of two giant CCs, luxury consumers may want a more subtle Chanel logo. Being less flashy is going to be one of the effects of this downturn."

Images courtesy of: Modo and Marchon

SELECTIVE SPENDING

While it's a reality that even those who have the money available have made cutbacks, they haven't completely stopped shopping. Instead, many are being more selectiv. "Luxury consumers are not spending as much as they used to, but at the same time, they are still indulging in some very specific luxuries," says Danziger. "Where in the past a woman might have bought an entirely new outfit, today she might just pick one thing to indulge in, instead of the whole outfit. So the key opportunity is to be the brand or the product she selects to buy.

In this light, accessories might have an advantage. Whereas many clothing items come and go with the season, a classic, brand-name pair of eyewear is likely to retain its sense of style, and that's something selective spenders may see as worth their money. Retailers should talk about eyewear in terms of an investment and staying power in the fashion realm.

INTERNET PRESENCE

"One of the biggest things I've noticed is that for the first time, the luxury market is moving onto the Web in masses," says White. "Despite the fact that studies have shown that wealthier people are twice as likely to shop online than other consumers, the market has been slow to change. But since the sudden economic change, these luxury brands—particularly fashion designers—have gone online."

Retailers are going to be challenged with new ways to keep customers buying in-store, and customer service alone is not the answer. "Our research shows that many consumers will bypass good customer service for cheaper prices on the Internet," reports Danziger. "Some people may even go into a store, take up a salesperson's time in trying on and comparing products, and then ultimately buy it online. This will prove a real challenge for retailers and the key will be to know who you're dealing with."