What Price Luxury? Brands Go High, Low To Spur Tough Market

Many of today’s biggest fashion houses have been fiddling with price tags, but it’s stirring a sharp debate in the luxury market.

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Still, he defended the advent of opening-price items as crucial to attract and engage young customers who want a piece of its brand. "We’re preparing them to buy the real thing," he said with a chuckle. "Hermès does it. Vuitton does it. The lower-price products don’t contribute a lot to the total business. It’s for aspirational customers, to bring them into the store and to convert the customers to the brand." But Toledano stressed that even affordably priced items for the young set must have all the "quality and details" of more expensive items.

Rita Clifton, chairman of Interbrand Corp., said fattening the offer at either the top or the bottom of the price tier is not necessarily a hazardous policy. For example, she said, Giorgio Armani does a "very good" job in subtly signaling to customers that Emporio Armani and Armani Jeans are "a different type of Armani" from the top line, but still positioned at the upper end of the sector in which they compete. Likewise, affordable products at Dior are targeted at a "younger, racier" customer who is still spending more for a like product at Dior than she would elsewhere.

Of course, everything has its limits.

"If people are hearing more about your brand from the bottom end rather than the top end, that’s a recipe for taking a brand downstairs," Clifton warned.

Ironically, could companies that energized their brands by reversing the freewheeling licensing of yore be heading down that same path themselves? Bergdorf’s Frasch called it a "huge mistake" for a luxury brand to sell and produce logo bags and other low-cost items. "Most [luxury houses] have to do it, because they’ve opened up so many stores around the world, and you have to sell something," he conceded. "But I think at some point it will catch up to them. We won’t be buying those entry-level price points."

Armando Branchini, vice president of consulting firm InterCorporate in Milan, agreed that fashion companies trying to generate as much revenue as possible in tough times may ultimately pay the price in terms of their image. "In the last 10 years, these companies have made their growth strategy out of increasing the size of their consumer base," he explained. "But when there is an economic recovery, these companies will see a downgrade of their brand positioning. I think it is very negative."
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