Luxury goods that put profits before prestige in a slowdown risk long-term brand damage

Gucci
Gucci

LONDON - Once the preserve only of the rich, luxury is now reliant on a wide range of consumers, leaving the sector more exposed during a recession.

As consumers tighten their purse strings, luxury brands face a quandary: lower people's expectations to retain profit, or, as some experts suggest, preserve their Uber-premium status, thereby reducing the risk of brand damage.

Gucci, which is owned by French retail group PPR, last week revealed plans to promote items with lower price tags to remind consumers that, in addition, to its high-end lines, it offers goods such as its famous handbags that are priced in the hundreds rather than the thousands.

While the initiative is too late to head off a drop in sales, it may prevent a further slide. For the three months to 31 March, sales of the brand fell 3.3% to e513m (£402m). This compares with fellow PPR-owned brands Bottega Veneta and Yves Saint Laurent, which grew 25.2% and 14.5% respectively over the same period.

Gucci has advertised cheaper lines before, as an entry point to the brand, but this has been for its licensed goods, such as perfumes and sunglasses. Its core advertising, meanwhile, has favoured its more exclusive items. 'Our aim last year was to reinforce the high-end image of the Gucci brand,' said PPR chairman and chief executive Francois-Henri Pinault. 'But we let up the merchandising and advertising pressure on our mid-range products - a segment currently dragging down Gucci's momentum.'

Pinault confirmed that his brand will now remind consumers that they can buy a piece of luxury without spending thousands, a strategy that could be followed by other brands in Gucci's sector.

While some analysts view the decision as an effective way of protecting a brand against recession, Ariane van de Ven, a strategist at Brandhouse, warns of the dangers of focusing on mid-range goods during a slowdown in consumer spending. 'By promoting its least inspiring products, such as its double-G logo goods, Gucci risks losing its luxury positioning,' she says. 'The top range represents the creativity of the brand and the advertising must reflect this.'

Moreover, by focusing on items with a prominent Gucci logo, the fashion house is in danger of falling into the category of logo-heavy brands. This is a mistake Burberry made a few years ago with its distinctive camel, red and black check print, which became associated with 'chavs' due to a flood of counterfeit goods, and led to a consumer backlash against the brand.

Van de Ven cites Chanel as an example of a luxury brand with an effective mid-range strategy - its accessories portfolio, including iPod cases and Wellington boots, are considerably more affordable than its bags or clothes, but are available only in limited quantities. 'The consumer who buys a lower-priced accessory at Chanel doesn't feel like she is trading down. She feels lucky to have been able to secure one of the very few top accessories of the season, due to the limited availability,' she says.

Suzanne Hader, founder of New York luxury brand consultancy 400twin, believes that luxury brands will be less recession-proof now than in previous slowdowns, due to the saturated market. 'Luxury brands have expanded so much, it is a different ball-game from that of previous downturns,' she says.

However, Hader also claims that Gucci is well-positioned to shift its strategy during the current slowdown. 'Gucci is smart about market research and keeps a close eye on how its customers relate to it,' she says.

She is quick to stress, though, that the advertising for Gucci's mid-range products must be well-executed to avoid long-lasting damage to its brand. 'It is vital that the creative is received in the same way as the ads for its priciest goods,' she says.

Some experts believe that 'real' luxury brands are immune to recession because they retain their focus on top-tier consumers, as opposed to middle-class luxury consumers, who are more likely to be affected by the downturn and thus will trade down.

Mid-range products are bought, primarily, for what they represent. So if a brand's aspirational attributes are damaged, its sales are likely to suffer the consequences.

Datafile: luxury
  • One in four consumers currently buys luxury brands.
  • 60% of consumers wear designer brands to project their social status.
  • 23% of consumers would shun an international luxury brand in favour of buying a 'local designer' from their country.
  • 35% of consumers would buy a mobile phone that was co-branded with a luxury marque.
  • One in three consumers would buy a co-branded designer laptop; one in four would buy a 'designer' flat-screen TV and one in six would buy designer-branded MP3 players and kitchen appliances.
  •  Source: Nielsen's Global Luxury Brands Survey (Feb 2008)

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