Magazine article Marketing

Mark Ritson on Branding: In with the Old Luxury, out with the New

Magazine article Marketing

Mark Ritson on Branding: In with the Old Luxury, out with the New

Article excerpt

We are in a global downturn, so luxury brands are screwed, right? Well, actually it depends on what kind of luxury brand you represent For the past five years there have been two distinct types: old luxury and new luxury. It is more than just semantics - the latest set of sales results for 2007 reveal two very different stories.

The story of new luxury emerged five years ago when Boston Consulting Group partner Michael Silverstein and Bath & Body Works chief executive Neil Fiske published Trading Up: The New American Luxury, which identified a growing consumer trend. As middle-class consumers grew richer, they were trading up from traditional mainstream brands toward more luxurious offerings. Silverstein and Fiske also identified a number of brands that had begun targeting this segment.

The star of the new luxury universe was Coach. The US handbag and accessories brand has had a stellar five years, with global revenues leaping from dollars 500m to more than dollars 3bn. Creative director Reed Krakoff criticised European luxury brands for being overpriced, and built Coach's amazing sales growth on handbags with an average retail price of only dollars 300.

Even some of the more established brands got in on the new luxury market. Burberry, in particular, has benefited from consumers looking to trade up. Former chief executive Rose-Marie Bravo repositioned Burberry around 'accessible luxury,' and the results spoke for themselves.

But the new luxury party is over. The middle-class consumer is under financial pressure and the first sacrifices are all the accessible luxury purchases that they made when times were good. Burberry sales were below target late last year. Coach, traditionally a strong Christmas performer, announced its same-store sales had dropped by 1% last quarter. 'We are not immune to a slowing consumer environment,' was Coach chief executive Lew Frankfort's explanation. 'Some of our customers traded down to lower-priced items.'

The only bright spot for Coach was a 13% increase in sales of their dollars 400-plus handbags. 'It is the middle class that is being hit,' Frankfort said. 'The truly upper-income consumer does not seem to be affected.' This is the key lesson for luxury brands in 2008. Brands such as Burberry and Coach, which grew their business with accessible luxury during the boom years, are now in trouble. …

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