As if luxury brands didn’t have enough problems coping with the global recession, they now have to battle two perceptions in the minds of the wealthiest consumers they’re banking on to lead a recovery — commoditization and declining quality.
According to a recent survey by the Luxury Institute, 48 percent said luxury products are too accessible and are no longer exclusive; 40 percent believed luxury brands are becoming a commodity, and 52 percent said luxury brands that also sell products for mass consumers are no longer luxury brands. And while superior quality and craftsmanship continue to be attributes most associated with luxury brands, a large percentage of wealthy consumers perceive that those characteristics are being delivered worse today than in years past.
Looking ahead to the balance of the year, just 7 percent of wealthy consumers in the survey said they will spend more on luxury goods and services, although 21 percent said they are likely to spend more on discounted goods and services. Of those who will be spending their cash, 55 percent said they will buy more of what they need rather than what they want.
“I think the frugality will continue in luxury spending. It will be a tough slog, and will be at least another 12 to 24 months before we see any growth rates in spending,” said Milton Pedraza, chief executive officer of the Luxury Institute.
He explained, “There is a sense now of living within their means, regardless of how wealthy they are because 90 percent of them were not born wealthy.…They are sensitive to the plight of the average American because many still have family members who are middle-class.”
Of the 427 survey respondents, the median age was 51. The average annual income was between $250,000 and $350,000, and the average net worth was between $2.5 million and $3 million.
Among other highlights, 15 percent said craftsmanship is better today than in the past, while 45 percent said it is about the same and 40 percent said it is worse. As for quality, 16 percent said it is better today than in the past, compared with 48 percent who said it is the same and 36 percent who said it is worse.
Jean-Claude Biver, ceo of watch brand Hublot, owned by LVMH Moët Hennessy Louis Vuitton since 2008, has a two-pronged strategy for his watch brand. “The concept is very simple. Human beings always want what is very rare to get.”
Prong one is to deliver half of what is on order. Prong two is to control sellout and stock level. “The big enemy for brands is the discount.…Discounted brands lose prestige,” Biver emphasized.
While not new, Biver’s strategy does ensure exclusivity and curtails the possibility of discounts.