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The luxury market, once insulated from economic woes plaguing downstream segments, now faces softer sales and other challenges ahead.

This story first appeared in the December 3, 2007 issue of WWD. Subscribe Today.

In the short term, the threat comes from a retreating aspirational shopper, who has to contend with higher fuel and energy costs, inflationary food prices, higher debt and a lower total household net worth — thanks to sagging housing prices.

But, according to a recent panel discussion at WWD, one of the biggest challenges facing luxury comes from the brands themselves. Although there is continued momentum in the luxury segment — Hermès, LVMH Moët Hennessy Louis Vuitton and others have posted strong results over the past month — the market is inundated with luxury goods that are more accessible than ever. A lack of exclusivity has industry insiders worried over the fate of the high-end market.

“Luxury risks not being luxury when it becomes ubiquitous. Exclusivity is the key to luxury, because when distribution becomes too available you lose the quality and the experience,” said Dana Telsey, chief executive officer and chief research officer of Telsey Advisory Group.

“I always come back to quality and innovation of product. I agree that if something is oversaturated it loses its specialness, but I also think that quality is very important in luxury positioning,” said Susan Sokol, president of Vera Wang, who also noted the importance of triggering an emotional response from the consumer.

Other panelists included: Glenn Rothman, chief executive officer of Hearts on Fire; Laura Pomerantz, a principal at PBS Realty Advisors; Susan Rolontz, executive vice president of Tobe, and moderator William Susman, president and chief operating officer of Financo Inc. The roundtable was held at WWD’s editorial offices and was hosted by Berns Communications Group, a business communications firm specializing in retail and fashion.

The panelists discussed the forces that drive luxury, key luxury markets, price points and the challenges of staying current as a luxury retailer, as well as diffusion lines targeted for the masses, how jewelry is positioned in the luxury market and January sales.

“We look at the preparation for the Chinese New Year because we do 22 percent of our business overseas, so it’s a good active month for us,” Rothman said of January’s sales in the jewelry market. “Domestically, we often score on people taking their bonuses and buying major pieces of jewelry or diamonds. We see major stone sales in January.”

For Sokol, January marks the beginning of the spring shipments. “You need an injection of new product in January,” said Sokol, especially after inventories are stale and markdowns have been made. “You need fresh, new products.”

Although optimistic about bolstering January sales, Sokol expects this holiday season to be a challenging one due to macroeconomic conditions, volatility in the stock market and rising gas prices. “I think we have to sit tight, wait it out and see what happens in the next several months,” said Sokol.

According to Pomerantz, wealth creation drives luxury, but the high-end market is also fueled by “the inspirational and aspirational.” The aspirational luxury consumer may be newly rich, and she is inspired by luxury. For the seasoned, affluent consumer, luxury brands are offering products that are aspirational for her as well. In both segments, Pomerantz said there is pent-up demand — especially for “must-have” items.

When it comes to where the luxury consumer shops, “Milan is still a very important European city and Copenhagen has become a seriously important fashion city,” said Pomerantz. “If you go to Copenhagen you can’t imagine the amount of fashion brands that are there now, from Mulberry to Gucci to Paul Smith to Bottega Veneta, they are all over the place.”

Telsey said globalization plays a critical role in the high-end market because people purchase and wear luxury all over the world. Whether it’s Russians going to Europe to shop or Europeans coming to the States to shop, the ability to buy brands and have a quality experience is what elevates the luxury segment.

“Wealth creation is driving luxury, more on a global basis than just on a domestic basis,” Rothman said. “It’s driving a whole new demographic to the market that is no longer just aspirational, but that is part of the luxury market.”

Rothman said the jewelry category has underperformed in the last decade because the experience of buying luxury jewelry is simply stale. “We have seen the high-end luxury market growing in double digits, and jewelry in the very, very high end has also seen the same type of growth, but the experience of luxury jewelry is old. It needs to be reinvented.”

Rothman, who is optimistic about his company’s fourth-quarter sales, following a staggering 49 percent sales increase for the month of October, said there is an opportunity for a new player to come into the market and create a fresh retail experience — one that is younger, sexier and more fun than the traditional or heritage type of jewelry experience currently offered.

One evolving trend in the market is luxury diffusion lines for mass retailers. Vera Wang’s recent diffusion line for Kohl’s, Simply Vera Vera Wang, has been very successful at giving more visibility to the Vera Wang brand and creating a more accessible line with price points that are more affordable to the masses, Sokol said.

“The last three years we have worked very strategically to build different apparel lines and really segment them in a way that makes a lot of sense,” explained Sokol, citing the ready-to-wear line, the Lavender Label contemporary line and Simply Vera. “We think that each of these collections is very successfully positioned in terms of look and feel, retail adjacencies, distribution channel, customer demographic and price point.

“We had such a limited customer that we were able to access that it’s very exciting to be able to reach a much broader demographic,” continued Sokol, adding that with this approach, each collection is so segmented and differentiated there really isn’t any kind of overlap among the lines.

As far as current luxury retailers go, Rolontz credits Neiman Marcus as the retailer who does the best at luxury merchandising. “They run their stores really well and they keep themselves current and in the mind of the public. They have been doing it for years and they always look at who they sell to and how they sell, and they constantly keep track of every single thing, while always repositioning and reinventing themselves.”

As far as upcoming trends are concerned, Rolontz said color and prints will play an important role. “I think the luxury customer particularly is going to react to new shapes in clothing that are more sophisticated, simpler and grown-up in wonderful new fabrics of all sorts, but certainly color, prints and patterns are going to be amazing for the next six months ahead,” Rolontz said. “We are going to see full skirts and dome-shape skirts, especially from designers like Oscar de la Renta.”

Rolontz said she expects to see more “one-of-a-kinds, more numbered things or special limited editions of items. This is going to become very big and more important in the luxury market than it ever was. Whether it’s cars, watches, clothes or jewelry, limited edition is a new word that adds to the exclusivity of these luxury items.”

“It’s apparent from today’s panel that luxury knows no limits,” Susman said. “But it’s clear that the luxury market should be wary of commoditization.”