Luxury Brands Happy To Hold Their Own During Recession

Posted by Barry Silverstein on September 18, 2009 10:14 AM

The big branding story of the past year's recession has been the threat to the luxury category. Luxury, once thought recession-proof, seemed in danger this time around because of the broadening appeal of discount brands.

As Interbrand's Best Global Brands 2009 report, released today, observes:

In Western markets, the rise of the hi-lo consumers -- people who save on what is less relevant to them so they can indulge in what they find to be truly meaningful -- has made discount shopping not a sad compromise, but a joyful form of smart allocation.

Despite this pressure, the brand value of the luxury category in the Interbrand study actually grew in 2009. Individual brands were happy to stay flat in this environment, with Hermes up one percent, Gucci down one, and Prada and Louis Vuitton down two percent. (In the automotive sector, Ferrari was the only brand that didn't lose value.) Companies that had diluted their brand equity with moves toward the mainstream, like Armani and Tiffany, lost more ground.

According to Interbrand, luxury brands that target "wealthy connoisseurs" are most likely to prosper. Successful luxury brands set themselves apart using "authenticity, legacy, and excellence," the study concludes. European luxury brands who fared best this year -- LV, Prada, Hermes -- maintained their focus on craftsmanship and exclusivity.

Asian luxury trends have followed a different pattern. While political leaders, expected to be role models, have made a public show of shunning luxury, the public has not followed suit, and—in general—continues to spend.

It is no easy task for luxury brands to be accessible on the one hand and exclusive on the other. "Too high end to be mass, too mass to be high end" is a dilemma that tripped up brands like Armani. Those that fared better emphasize the "roots and meaning of their excellence" to reassure customers about their authenticity, value and relevance.

More about: Interbrand, Best Global Brands, BGB

Geert Stox says:

Not surprising seen the constatation that hard discounters suffer far more than retailers with a specific brand-offer profile in their range. Consumers are looking for fixed values to hold on to and to give relevance. Only sharply profiled brands can do that in a clear and 'efficient' way. Thus rather 1 Hermes than 2 Armanis...

September 21, 2009 05:11 AM # Reply

Jan Van Loon says:

Agree the bottom-up spending in China and the AP region on luxury brands remains, but also noteworthy is the fact that designer rental stores see an increasing proliferation in these markets (Japan and China to name just two). "Spending yes, but not necessarily owning it" as a new way on the rise to show face in these luxury loaded markets.

September 22, 2009 04:27 AM # Reply

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Luxury goods are said to have high income elasticity of demand: as people become wealthier, they will buy more and more of the luxury good. This also means, however, that should there be a decline in income its demand will drop. Income elasticity of demand is not constant with respect to income, and may change sign at different levels of income. That is to say, a luxury good may become a normal good or even an inferior good at different income levels, e.g. a wealthy person stops buying increasing numbers of luxury cars for his automobile collection to start collecting airplanes (at such an income level, the luxury car would become an inferior good).

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I think the key to a good brand is holding back on some points and letting loose on other points.
Armani is a good example where more was let loose then held back.

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