A Luxury Market Update
In early May, I attended the Luxury Roundtable: State of Luxury 2013 in New York, organized and hosted by The Luxury Daily and its editor-in-chief Mickey Alam Khan. It featured speakers from the Four Seasons Hotels and Resorts, Mercedes-Benz, Donna Karan, Graff Diamonds, Michael Kors, Tod’s, The Wall Street Journal, Boston Consulting Group, ePrize and and Ipsos MediaCT. This was a very exclusive and thought provoking forum for very traditional luxury goods companies.
The overall gist of the event was that luxury’s commandments of heritage, quality, controlled distribution, and elevated customer experience are being impacted by changing demographics and new technologies. The Internet has irrevocably changed availability, distribution and control of brand messaging. The new rules of the luxury game as articulated by Jean-Marc Bellaiche, leader of Boston Consulting Group’s Luxury Practice, span new consumer values, new luxury epicenters, new platforms, and new business models. Consumer values are shifting from having or owning, to being and experiencing. More bespoke experiences involve the individual and all he or she brings to the event, including personal history, desires and dreams. One size doesn’t fit all. Top-of-the-list experiences include fine dining, spas and resorts. In fact, growth in the $600 billion experiential end of the luxury market is projected to grow at a 12% pace in 2013, versus the 8% increase for the $220 billion personal luxury goods market.
Luxury’s values are being challenged by a meritocracy mentality–most obviously by Jimmy Choo designing for H&M and Jil Sander at Uniqlo. Luxury and status are less meaningful to consumers around the world while value, wellness, ethics and craftsmanship are growing in importance, according to a Boston Consulting Group survey. The good news is Chinese luxury spending accounts for an estimated 12% of the luxury market and is heavily skewed towards acquiring! The Chinese account for about 20% of the personal luxury goods market versus 5% of the experiential luxury market.
On the business model front, more luxury brands are using licensing (breaking another luxury tenet of control over all aspects of product) to expand into new categories, as well as designing product for less wealthy customers. On the latter front, Mercedes-Benz USA VP of marketing Bernie Glaser spoke to its new $29,000 CLA Mercedes for a younger demographic, which is “every inch a Mercedes,” which the company believes will not cannibalize sales of its more expensive models such as the C Class, which are targeted at a more mature (and wealthier) population. Mercedes analyzed the situation as such; the greatest risk is irrelevancy and the risk of innovation is always present with new products. Will some C Class owners trade down or feel less exclusive as the Mercedes brand widens to attract a less wealthy audience?
Steven Kraus at Ipsos Marketing cited the bi-monthly Mendelson Affluent report (which defines 59 million affluent consumers in the US earning at least $100,000 annually) and offered the following statistics: 86% of the affluent agree luxury is in the eye of the beholder, and 54% see deteriorating quality in luxury brands and regard marketing as veneer, not authentic. On the other hand (luxury brands, make note), experiences are authentic. When queried about potential luxury brand deterioration in outlet locations, Mr. Kraus’ response was, “the new luxury shoppers are value-focused and a strong value equation will not hurt brand positioning.”