Articles

Economic Crisis With A Luxury Lesson

At the 2009 World Retail Congress in Barcelona there were many different uses of the current media and political view of the world economy as an excuse for poor retail business performance. What became patently obvious from delegates dialogue was the power of repetitive propaganda to emerge verbatim from their mouths as a mantra affecting their thought processes, behavior and communication.

However, from the panel of eminent economists to the inspirational business leaders presenting, two very distinct issues emerged. The first is that there has been a very real business crisis – now gradually abating – anchored in access to credit and problems in cash flow brought about by fear of plummeting asset values and risk. But the second – and more important to the future of retail – is the consumer shift away from the seemingly endless growth of the traditional profit through volume model fueled by cheap price.

These two things are separate issues but have become blurred in the current economic debate.

The Business of Luxury session – facilitated by Teri Agins from the Wall Street Journal and with panelists including Concetta Lanciaux (former Head of Strategy for LVMH), Joseph Wan (CEO of Harvey Nichols) and Patrick Chalhoub (CEO of Chalhoub Group) – indirectly shone a light on the issues that retailers will increasingly have to wrestle with.

Despite the economic wall of sound, stand-out luxury brands such as Louis Vuitton and Hermes have seen continued strong sales and profit growth globally. As the highly credentialed luxury session panelists pointed out, these are brands that have a strong self-belief, a highly differentiated product, controlled channels to market and a strict no discounting policy. At a time when social trends have been increasingly pointing to a realization of the importance of sustainability, the questioning of value, the search for an entwined emotional and rational motivation and the blunting of the ‘more for less’ use it or throw it away appeal, great luxury brands have hit the sweet spot.

Differentiation, unique stories, value for money and magnetism is no longer the exclusive provenance of luxury goods but has spread to the whole market. Andy Mooney – CEO of Disney Products – chronicled the change of focus for a business firmly anchored by mass-merchant channels to market. By focusing on their 30 major worldwide accounts (including retailers such as Wal-Mart and Carrefour), Disney have seen the mix of the business done through these retail partners grow from 28% of sales to 49% of sales in just five years with overall growth still achieving double digits.

With every one of these channel partners, Disney now develops exclusive product that is only available through that individual retail partner and because of this the partnerships are achieving rapid and sustainable growth not just in sales but also margin. Disney is now a strong advocate that the same product through multiple outlets only leads to over-exploited discounting, commoditization of the product in the customer’s eyes and eventual failure of retail distribution. Indeed many would argue that private label programs are as much about differentiation as they are about price-point and margin.

The issue the industry is now confronting is ‘volume customisation’ not at a consumer level but at a retail distribution level. That is, retailers demonstrating individuality and differentiation in their competitive context. Differentiation that consumers see, acknowledge and recognize value in and motivation to buy – right across the market from specialty retailers through to mass-merchants.

Magnetic differentiation is no longer the trendy catch cry of Armani clad marketers. It is the lifeblood of retail as we are firmly entrenched in the new productivity based era that will see the renaissance of retail driven by a ‘more from less’ paradigm. Great retailers around the world are already there and you can see it in their results. In the U.K. Selfridges, Harrods, Topshop, Tesco, Sainsbury, Asda and their ilk prosper while their desperately discounting competitors suffer. This is reflected in almost every country in the world.

Shoppers universally spend what they perceive they can spend. This is an elastic concept to them and driven by their personal context. Foot traffic is alive and well in every market I have visited in the last twelve months.

For shoppers to buy however, they must see value for money, excitement, real choice, quality and functional and emotional benefit before they will reach into their pocket and part with their cash in increasing quantities. Retailers can no longer get away with being stockists for someone else’s products. They must add value from the shoppers perspective or fail.

This is what the great luxury brands have taught the rest of us.

Find the value you add to customers lives and enshrine it in your DNA. Then continually adapt it to exploit the circumstances you find yourself in. But above all else, be different.