Savour International

Is it really true that luxury goods are immune to crises? Well, it depends. The current crisis has turned out to be something of a two-edged sword for this segment.

 

There’s actually no such thing as a “luxury goods industry”, since the products and target groups in the various segments differ greatly from each other, and, on closer scrutiny, are far too diverse to make blanket statements about them.

For example, there’s a small customer segment that makes impulse purchases of very pricey luxury goods. Although these customers have been hit by the crisis and are less wealthy than they used to be, their purchasing power remains virtually intact.

 

But then there’s a far larger group that saves up to purchase luxury goods and whose purchasing behaviour has been radically altered by the crisis in that even if they’ve got together the money for that Rolex or Rolls they’ve been dreaming of for years, they’re likely to postpone the purchase. This phenomenon also varies from one country to another. Many affluent individuals, particularly from Russia, China and the Arabian peninsula, who were one of the driving forces of pre-crisis market growth, have been particularly hard hit by the crisis.

But it’s not only the customers but also the products that vary greatly. The spectrum ranges from premium to prestige products to genuine luxury products, all of which fall into highly differentiated categories such as furnishings, watches, accessories, and cars. Some customers are quite content to purchase a good premium cosmetic product in lieu of the counterpart luxury item. But, of course, the customer may well make a different decision the next time around, when economic uncertainty has perhaps lessened. This holds true in particular for products where customer loyalty is a secondary factor; think for example of furnishings as opposed to yachts.

01 | Opulent garb. India-based fashion design house Manish Malhotra is still a well-kept secret in Europe. But the demand for luxury products is rising among the nouveaux riches in India’s rapidly growing economy. This evolution has confronted well established vendors with a completely new set of challenges, which are currently being studied by Vivaldi Partners, the business consulting firm. 02 | Valentin Yudashkin, the Russian fashion designer, thrills his clientele with opulent elegance, and is a prime example of the increasing robustness of national brands in the BRIC countries.

 

(Brazil, Russia, India and China). 03 | Luxury Chinese-style. Shanghai Tang products – shown here in a Hong Kong boutique – are regarded as status symbols, and in Germany are available at only a single store that’s located at the Frankfurt airport. Shanghai Tang was acquired a decade ago by Richemont, the European luxury goods vendor, whose strategy for Shangai Tang has focused on creating an optimally wide ranging brand portfolio.

Building a brand is a lengthy process; but a brand can be brought to ruin in the twinkling of an eye. Thus price reductions of genuine luxury goods during times of crisis should be avoided like the plague. In order to protect a brand’s exclusiveness and thus its affective added value during a crisis, production should be cut back to adjust to lower demand.