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The Future Laboratory: The Outside Edge: March 2010

Date: 9th Mar 10

DESPITE a decade in which the global luxury market trebled in size, the impact of the current recession means that luxury brands should not expect a global upturn in sales until at least 2011. Bad news for the desperate, but good news for those who can use this dip to redefine what luxury means to a more wary, post-financial crisis consumer. Before we look at this, some salient facts.

At present, the size and value of the global luxury market sits at about $220bn – a fall from its peak in 2007 of $244bn. For the foreseeable future this figure will remain relatively flat.

The world’s three biggest luxury markets were down in 2009; in the EU by 8%, USA by 16% and Japan by 10%. Savvy luxury companies, however, have offset these losses in their ‘home’ markets with good sales revenues from emerging markets, a substantial number of which came from China, where – according to  our friends at Ernst & Young – sales rose from $2bn in 2004 to $7bn in 2008 and to around $9bn in 2010.

But there are other strong pockets of luxury emerging round the world. Beirut is booming, with new hotels from Four Seasons and Gordon Campbell Gray, owner of London’s One Aldwych, and new luxury stores. Christian Dior and Chloé both opened 2,000 sq ft stores in December 2009. Other brands considering opening – according to Tony Salamé, local partner for Chloé and Christian Dior, and owner and CEO of Aïshti stores – are Balenciaga, Etro, Jimmy Choo, Burberry, Stella McCartney, Yves Saint Laurent, Bottega Veneta, Damiani, Camper and Seven For All Mankind. As well as Beirut, Louis Vuitton has plans to open in Egypt, Jordan and Syria, while jeweller Van Cleef & Arpels is set to double its stores in the region, opening five additional boutiques in Bahrain, Doha, Jeddah and two in Kuwait.

Brazil is another market set to flourish. There are more Tiffany stores in Sao Paolo than anywhere else, and LVMH reputedly makes some of its highest earnings in the world per square foot there. The city is set to shoot from 46th to the 5th richest by 2020.

Similar stories are emerging in India and China. In India, the number of billionaires has almost doubled over the last year, from 27 to 52, while over the coming decade the market is set to grow to the same size as the UK or France’s, with a resultant hike in the size of the luxury-consuming classes. There are now 300,000 dollar millionaires in China.

So much for the facts of luxury, now for the frictions: or at least the growing divide between how BRIC customers define luxury versus how their counterparts in developed markets define it. For the former, give or take a few sequins, luxury is still a matter of status, and the more visible that status the better. Logos, brand marques, instantly recognisable silhouettes and high prices are still a must. For the latter – the UK, US, Europe and Scandinavia – the functional aspects of luxury increasingly matter, as does a brand’s values, the story of the product and, increasingly, how a product is made, as in the real (as opposed to the perceived) cost of the materials used to make it.

Luxury consumers we have surveyed for our upcoming Luxury Futures report want their symbols, logos and marques invisible and their prices fair. More importantly, they want these prices to be justifiable: mark-ups and the perceived value of the brand in question taken into account. They tell us that Hermès and Louis Vuitton (for their subtlety and nurturing of craft etc) are worth more than Chanel and Versace (deemed to be showy and status driven), and that within certain limits, ‘the more subtle’ a brand is, the more they are happy to pay for it. But only if they can physically ‘see, touch and feel’ the quality of the craftsmanship they are paying for.

We were reminded of this in Bond Street recently, when we observed two shop assistants taking time to justify a £600 price tag on an underwhelming crease-fold gents’ wallet. The male customer was having none of it: it was worth £200 max, and that was all he was happy to pay for it. How they cajoled to justify the price, but how he held off on the grounds that size, shape, material, design and finish taken into account, it was worth, well, £200 max. So no sale, but a reminder of the new kind of customer, in the west at least; one who wants luxury at a price, rather than any price. And while the latter may be more desirable, the former, we suspect, is soon to become more commonplace, in Europe at least.

All of which suggests that we will see a new, more diverse luxury model developing: stores, ranges, products, even a customer service ethic that will increasingly reflect the values, tastes and STI levels (as in Sequin and Trim Index) of the host country or store involved rather than an overall brand aesthetic or emotional signature. In BRIC countries, we expect prices to continue to reflect the perceived value that can be extracted from the marketplace on the grounds that the right bag can enrich your sense of status and social worth, while in London, New York and Paris, we expect prices – and indeed product design – better to reflect the actual and physical worth of the object on offer. This is no bad thing; in the 1990s luxury required us to trade up ( the ‘prestige’ model); in the noughties we required it to trade down ( the ‘masstige’ model); while now we expect it to trade fairly and realistically in relation to its actual manufacturing assets. We have dubbed this ‘vasstige’, as in value.

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