Resilience in the luxury market amid downturn

March 18, 2010

Ben HughesBen Hughes is deputy CEO and global commercial director at the Financial Times. The opinions expressed are his own. –

Last month Italian luxury fashion house Fendi unveiled a handbag made of python leather and dipped in 24-carat gold. Price? A cool $36,000.

You would expect the bag to last the buyer for quite a while. This, after all, is the point of difference between a ‘luxury’ item and a ‘designer’ one.

As well as being the beautiful creation of a famous name, luxury goods should be manufactured to the highest standards.

The ‘vintage’ areas in used clothing shops are more likely to have luxury brands simply because they are built to last. Don’t be surprised to find a Saville Row suit from the ‘70s is in better nick than one bought from TKMaxx six months ago.

People think the luxury sector will be the first to suffer in a recession, but, like the products themselves, it is actually proving to be very resilient.

While fashion and luxury experts have seen consumers become more selective in these straightened times, this has actually heightened shoppers’ interest in longevity and craftsmanship.

Gone are the days of extravagant purchases made on a whim. Luxury consumers in 2010 expect both beauty and substance. They also demand a better level of service, both in store and online.

This shift in consumer behaviour has presented something of an ‘easy kill’ for the luxury market. Luxury goods manufacturers build their reputation by using top quality materials, craftsmen and production techniques, and highlighting this often forms part of their marketing strategy.

They also dedicate large resources to customer service. Signing off 10,000 pounds to revamp a website must look like small beer when compared to the millions a flagship store costs to run. Both Tiffany & Co and Astley Clarke now offer personal shoppers who clients can call for advice while they are shopping online. This is a wise investment.

A study by Interactive Media in Retail Group on behalf of British luxury industry body Walpole recently predicted online sales will account for 20 percent of the 60 billion pound UK Retail market by 2011. Similar trends are highlighted in Europe and the US.

“E-commerce is becoming more and more of a priority for the luxury industry,” Walpole CEO Julia Carrick told me recently, but even lifestyle sites in the luxury sector are thriving.

Financial Times luxury supplement How To Spend It launched in October 2009. The demand from advertisers was high enough to make it a success from day one, and 500,000 people visited it within the first four months.

There is another reason for the global luxury market’s resilience – the increasing spending power of developing world consumers.

A report released last year by industry research outfit World Luxury Association found affluent Chinese shoppers lavished $8.6 billion on luxury goods in 2008, making China the world’s second largest consumer of luxury goods behind Japan.

China’s super-rich bought 27.5 percent of the world’s luxury goods in 2008, and brands are positioning themselves to take advantage.

An example is high end French cosmetics brand L’Occitane, which plans to expand its 40 outlets in China.

It is also rumoured to be listing on the Hong Kong Exchange next month after posting double-digit annual sales growth in Asian markets in the two years to March 2009.

Latin America is also set to be a key growth region for the luxury goods industry. Gucci group CEO Robert Polet recently announced the company was looking to expand into Brazil, Mexico and Chile, and Walpole is holding a seminar on 25 May looking at growth opportunities in Latin America, focusing in particular on Brazil. Speakers include Daniel Gestetner, CEO of Myla, and Jimmy Choo CEO Joshua Schulman.

The appetite for luxury from Asia and Latin America means there’s a fair chance Fendi’s gold python handbag will end up thousands of miles away from the Italian workshop that produced it. The global economy may be struggling, but the luxury market is growing thanks to its dedication to longevity.

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The Chinese luxury market is really interesting. A study this week found that nearly 40% of Beijing white-collar workers buy luxury goods regularly, and companies are reaching out to budding consumers in smaller cities like Nanjing and Xi’an to get more interior market share. The two-tiered luxury strategy, offering high-priced, exclusive items in more “picky” cities like Beijing and Shanghai while aggressively expanding in the interior regions, is really paying off for luxury brands like Gucci.

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