By  on November 2, 2009

Luxury has its limits, and the global economic downturn delineated them clearly.

Even as luxury goods executives grow more optimistic the worst is over, the recession will leave behind a sector with fewer players and a new set of rules and dynamics. “Value” and “meaningful consumption” are among the new buzzwords and “accessible luxury” possibly on the endangered species list.

“We live in a world of competition. Maybe there was too much,” mused Karl Lagerfeld, among major industry figures WWD surveyed to divine how the luxury landscape might look once the dust from the downturn has cleared.

The designer of Chanel, Fendi and Karl Lagerfeld collections also said an “obsession” with extreme fashion statements is also likely to ebb and “commercial,” long a disdainful termused to describe a boring fashion show, will lose its sting. “Clothes are made to be worn,” Lagerfeld stressed.

While a range of opinions emerged, designers, chief executives, analysts and other observers agreed that, in luxury’s next wave, consumer expectations are likely to be higher than ever, with craftsmanship, service, heritage and longevity among new priorities.

“They want it all: the quality, the creativity, the exclusivity and the service. You tend to forget that in good years because in good years, it’s easier,” said Pierre-Yves Roussel, chief executive officer of the fashion division at LVMH Moët Hennessy Louis Vuitton. “Being in luxury, we have to be perfect in everything we do.”

Meanwhile, on the business front, emerging markets for luxury goods, the growth of e-commerce and social networking and eco concerns are also likely to shape the industry in years to come.

Harsh market conditions will certainly separate the wheat from the chaff, some observers noted, even as there have been recent predictions the sector might see a rebound in the second half of 2010.

“Many brands have appeared that may not be perceived as ‘true’ luxury,” noted Gilbert Harrison, chairman of FinancoInc. “The changes occurring will bring a much sounder definition of what is luxury and the iconic brands will survive and continue to have demand and luster that they have had in the past.”

Below, here’s what the experts had to say.



A SMALLER SECTOR, SLOWER GROWTH

Robert Polet, president and ceo, Gucci Group: “I believe the era of ‘accessible luxury’ is over. The current crisis has been particularly difficult for these ‘affordable luxury’ brands as their customers have been most affected by it. It has also been tough on brands without a strong financial base or global profile…so I think the industry will also emerge from the crisis a bit leaner — with fewer, stronger brands offering products of superior quality and value. There is a noticeable trend away from conspicuous consumption to conscious consumption. People are returning to a consciousness of heritage, quality, craftsmanship and long-lasting value. Luxury remains about experience: the experience of heritage, quality, authenticity and artisanship. The other trend being witnessed in the industry is the ongoing importance of China and other emerging markets, which now represent a third of the luxury business.”

Michael Burke, ceo, Fendi: “There will be a lot fewer players. This is the first recession that luxury goods has entered with leverage. It shows that you can’t use the same financial tools. This recession has proved that trying to be too much to too many people is not the right way. If you want to go global, you have to be very focused. Your brand strategy can’t rely on too much diversification.

Since we’re not supposed to go after all customers, we have the luxury of being focused, the duty to be focused. Also, this is the first recession where the Internet is a major medium. People have as much information as professional investors. Your mistakes are much more visible: your expansion mistakes, your design mistakes.”

Gilbert Harrison, chairman, Financo Inc., New York: “When the economy rebounds, luxury purchases are not expected to return to the same level as experienced over the past 20 years. Consumers will have been trained to get comparable levels of satisfaction from secondary lines or private label lines. Tougher credit will limit the ability of high-value purchases [and] residual economic worries of the recession will mitigate purchasing power.…These trends have highlighted the overbranding, overstoring and overpricing of the U.S., which is leading to a major shakeout of brands and retailers. Luxury brands can use scarcity to enhance the desirability of their products. Emerging markets are widely viewed to be helpful, but not fully dependable, in serving as an offset to the sales declines and margin erosion in developed markets.”

Matteo Marzotto, co-owner, Vionnet: “The decade between 1997 and 2008 wasn’t sustainable anymore because it was too financially driven. The multiples used for the valuation of a company were mesmerizing. Already, after 9/11 there were warning signals that excess was starting to waver, but then the whole industry became too centered on finance and it fell to the floor. Now, it will take years for the consumer to go back to the pre-crisis buying approach — and even when things pick up, we must come to terms with the fact that it won’t be like 2007 anymore. More than ever, it’s important to excel in the quality-price-craftsmanship ratio because even those consumers with money and a lighthearted and whimsical shopping approach are knowledgeable and attentive to this aspect.”

Concetta Lanciaux, founder, Strategic Luxury Advisors: “Universal aspiration to luxury has never dwindled and never will. It can only increase in the years to come as all basic needs are being met worldwide. In some countries, consumers will continue to be willing to even lower their food budget in order to buy status objects. The big change is only in the level of income that people will have available to spend on luxury goods. The lasting values of luxury brands such as quality and design identity, in a market with less spending capacity, are reinforced and gain an even more central place. But the luxury market will have fewer global contenders and the offer will become clearer. Luxury brands that will be able to…offer collections with identity and relevance, but with a wider range of prices, will win the large base of the customers they need.”

Luca Solca, senior retail and luxury analyst, Sanford Bernstein: “The recession will likely usher in an era of more subdued growth, on the back of less buoyant economic growth in the medium term. Smaller players will be even more marginalized than today, while larger and stronger leading players will emerge. Consumers will avoid excesses and maintain a more considerate shopping behavior. This is showing today with major brands being preferred for their iconic products, with consumers clearly looking for ‘investment-grade’ purchases rather than newly invented fads. Similarly, consumers will question value and price more. Brands that were not seen to discount so aggressively will be preferred. Designers and apparel products, I would expect, will face the highest scrutiny and skepticism, considering that lower-priced design alternatives abound.”

Anne Chapelle, ceo, BVBA 32, the holding company of Ann Demeulemeester and Haider Ackermann:
“Priorities in spending patterns have been rearranged, and consumers haveexperienced the feasibility of this change in their everyday lives. To bring them back to their previous spending [habits] will definitely take time, care and investment from our side.Secondly, the players in the luxury business have changed as well. The economic downturn forced some, sometimes smaller and younger fashion houses, to close down or to get reorganized in a dramatic way. Consumers are [repositioning] their attitudes toward luxury….They are even more focused on the quality of materials and craftsmanship, and the choice of sustainable and truly valuable goods.”

Cristiana Ruella, group managing director, Dolce & Gabbana:
“Recession aside, the economic-social system worldwide has been hit by structural change due to the shift in the way both companies and consumers think. We will face the upcoming months with even more rationalized collections for customers oriented toward distinction and quality. We will continue to invest in a focused manner and obviously with more attention when evaluating each project to further reduce the margin of risk compared to what was tolerable in the past.”

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