Luxury brands 2009 and beyond

As 2009 shapes up to be the most challenging year in more than a generation for luxury items such as high-end apparel and fragrances, marketers’ plans for targeting aspirational 16-year-olds and expanding rapidly into the new money hubs of Russia or the United Arab Emirates are suddenly “out,” according to a panel at the recent Wharton Marketing Conference. What’s now “in” for marketing luxury in this difficult era is pampering the wealthiest and most loyal customers with everything from monogrammed shirts to personal in-home visits.

The foundation of luxury is customer service that is what we are hearing. The designer’s growing chain of fashion houses we will see because of the economic crisis is that you lose a certain amount of that aspiration customer. Somebody who will buy a couple pairs of shoes over the course of the year is making other choices. The core for a luxury brand is a customer with very considerable wealth.

The issue of who will remain wealthy over the next two years, and how they might spend their disposable cash, was very much on the minds of the panelists, including top marketers with experience at some of the most storied names in luxury items and apparel — from Gucci and Prada to Tom Ford and L’Oréal.

In a recession in which even upscale consumers may find themselves strapped for disposable cash, it is a bad strategy to chase customers too far down the economic ladder.

Marketers do not want to see huge price cuts that will create a lower-priced brand. That’s because they do not want to tarnish their brand. When this is all said and done, you still have your brand reputation to uphold. Indeed, the deepening economic slowdown was such a hot topic for these luxury marketers. Targeting the New Luxury Consumer in a Flat World: Identifying Opportunities for Growth in a Global Luxury Market.

Firms remain hopeful that the next couple of years will bring expansion into some of the world’s fastest-growing economies, including the so called BRIC nations of Brazil, Russia, India and China, as well as the oil-rich Middle East.

But they added that the rapidly evolving financial turmoil could hinder some of their most ambitious ideas. Alexandra Gillespie, who launched her own FLR Group for luxury marketing after a stint as senior vice president of Gucci, warned about “focusing too much on the luxury sector in emerging markets” because they, too, have been deeply affected by the economic downturn.

Many experts believe that the economic pain of the deepening recession could fall disproportionally on these marketers of high end perfumes, trendy clothing or sleek fashion accessories.

A study in October found signs of a slowdown already in the personal luxury goods sector that includes shoes, jewelry and fashion; it predicted that sales could drop by as much as 3% to 7% in 2009 if current trends continue.

It was predicted that 2009 will be the worst year on record for the luxury sector. The parent of her former employer, Gucci, just reported its worst third quarter since 2005 because of the slowdown.

Conspicuous consumption seems practically un-American in these troubled times, according to some observers. If you go up Madison Avenue in New York past Fendi and Prada, those stores are empty. Women are shopping in their own closets. One feels shame in buying even if he or she can buy.

But that glum tone was not evident at the Wharton panel discussion. Several participants noted that their core customer base, the truly wealthy, may cut back some on their discretionary spending but will not eliminate luxury purchases altogether. According to executive vice president of marketing and advertising for Prada USA, roughly 50% of the firm’s sales come from just 5% of its customers, although she is worried about the potential loss of some so-called “aspirational” middle class consumers — 16-year-old girls spending a small fortune on the “it” handbag during a recession.