Article luxury and crisis

LUXURY AND THE RECENT ECONOMIC CRISIS Par Robert Olorenshaw « Jamais comme pendant les crises les biens de luxe ne sont l’objet de tant de convoitise … Bien plus que des objets de désirs, de fantasmes, de convoitises, audelà des codes ou des symboles de distinction sociale, les biens de luxe en temps de crises (guerre, pénurie, crise économique) dépassent la notion d’utilité, de nécessité, de satisfaction; leur consommation s’offre à compenser les frustrations de l’existence. » (Danielle Allérès, Luxe, Stratégie Marketing)

Résumé Le luxe n’est pas un secteur mais un domaine trans-sectoriel qui fonctionne selon un ensemble de ‘paradoxes’ par rapport à d’autres activités. Ainsi cerné, le luxe peut devenir une puissante force d’attraction en raison de, et non malgré, une crise économique. Les marques qui ont le plus profité de la crise sont celles qui avaient mis en place des stratégies adéquates avant 2008/2009. Les grands groupes comme LVMH et Hermès ont également consolidé leurs positions suite à la crise, non seulement dans des marchés matures, mais surtout en Extrême-Orient et notamment en Chine. Les paramètres sociaux et psychologiques concernant la consommation du luxe ont peut-être connu des mutations durables suite aux événements économiques des quatre dernières années.

Mots clés: Paradoxes, biens Veblen, la pyramide du luxe, réactivité, transcendence, destockage, contrôle de la distribution, marques expérientielles.

Abstract : Luxury is not a sector but a trans-sectorial domain that functions according to a series of paradoxes when compared to other activities. Thus delineated, luxury products and services can exert a powerful attraction, not despite but because of an economic crisis. The luxury brands that have most profited from the recent crisis are those that had put in place correct product strategies before 2008/2009. Major groups such as LVMH and Hermès have also consolidated their position not only in mature markets but also in Asia, especially China. The sociological and psychological parameters of the consumption of luxury goods and services have also been affected, perhaps durably, by recent events.

Keywords : Paradoxes, Veblen goods, the luxury pyramid, reactivity, transcendence, destocking, control of distribution, experience brands.

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1. The problem of definitions: is luxury a sector?

If there exist widely acknowledged definitions of economic and financial crises, definitions of ‘luxury’ can be contentious. Consumers and non-consumers alike perceive names such as Patek Phillipe, Louis Vuitton, Rolls Royce or Château Margaux as luxury brands and this facility of intuitive recognition can mean that luxury is often referred to as a sector, not only by consumers and external commentators, but also by professionals. The website of the French Ministry of Industry has on offer a collective publication entitled The stakes and strategies of the luxury sector. 1 In the United Kingdom, the Walpole Committee, the principle organization that promotes the collective interests of British luxury, gives Awards for Excellence that “honour individuals and companies for their work in the luxury sector.”

The concept of economic sector, coined over two hundred years ago, corresponds to the development of productive activities sharing common characteristics in an economy of increasing specializations. In addition to Colin Clark’s famous distinctions described in the Conditions for Economic Progress (1940) between Primary (agricultural, extractive), Secondary (manufacturing) and Tertiary (service) sectors, supplemented by the later addition of the Quaternary sector (education, the arts, the ‘knowledge economy’) or to other macro-divisions such as public and private sectors, a modern economy presents a multitude of specialized ‘microsectors’. Luxury is found in many of the latter, for example, real estate, clothing and accessories, food and drink, transport, hotels and restaurants, cosmetics, musical instruments, the art market, leisure and sport, ‘high-tech’ products, automobiles or even the pet market. Luxury seems to be ‘everywhere’. If we use the Clarkian-based categories, luxury can be located within Secondary, Tertiary and Quaternary sectors.

Given this apparent ubiquity, it is advisable to avoid the word ‘sector’ when speaking about luxury. It would be more accurate, though admittedly more ungainly, to describe luxury as a trans-sectorial domain.

A further problem when speaking about the luxury domain today arises from the presentation of luxury as an anthropological invariable, as old as mankind itself.

According to Vincent Bastien and Jean-Noël Kapferer: “Far from being a recent phenomenon, typical of our Western society, luxury goes back to the dawn of humanity (…) The desire for luxury is deeply rooted in human nature (…) From the moment that man knew he was mortal, the height of luxury for him, beyond any notion of object or of status, is to be able to survive, and decently, after his death.”

Bastien and Kapferer argue that a ‘luxury industry’ existed in the Nile Valley and that it “follows a path identical to the one that is followed today : democratisation. As the 11

http ://www.industrie.gouv.fr. Among other activities associated with luxury, the Ministry sets the schedule of conditions for ‘haute couture’.

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mummies and tombs show, luxury gradually extended to more ordinary men and to some sacred animals, then in later periods, to all Egyptians and domestic animals” (Bastien and Kamferer, 2008). As well as the confusion between ‘democratisation’ a political process that involves the growing enfranchisement of the general population - with greater accessibility of products and services (but like ‘sector’ the term ‘democratisation’ when applied to luxury is probably too deeply ingrained to be removed), the authors fail to distinguish historically defined and extinct religious practices from the contemporary trade in luxury objects and services. An Egyptian of 3,000 years ago who placed artefacts in a tomb was engaging in a qualitatively different activity to a Chinese tourist who buys a Louis Vuitton bag while on holiday in Paris. One of the most important differences is that today’s consumers are buying luxury brands whereas brands per se did not exist in Ancient Egypt. As such oversights can be made even by those who are professionally involved in luxury, perhaps it is not redundant to state the obvious.

Other authors would prefer to locate the birth of luxury, and especially French luxury, in the reign of Louis XIV: “In the mirrored fastness of Versailles, Louis set the bar of opulence so high that even the wealthiest nobleman was unable to compete with him. He devoted hours to his toilet and literally dictated the fashions of his day (…) The King’s tastes spread beyond fashion to influence architecture, gardening, furniture and the decorative arts. Henceforth, Paris was eternally linked with le luxe.”

(Tungate, 2009) Again, luxury brands as such did not exist in the 17th Century and, furthermore, it is a mistake to confuse a rigidly hierarchical society in which sumptuary laws stipulated what objects members of a social class were obliged to display (for example, gold and silver trimmings were outlawed for all social classes except the King and his court) with contemporary societies where there is no legal obligation to display objects intended to indicate a real or projected social status. The purchase of luxury objects and services is determined by individual, and sometimes, corporate wealth alone and each individual is free to display publicly any luxury object he or she can afford. Indeed such ostentatious freedom is an essential part of the behaviours associated with the luxury domain today.

2. The paradoxes of luxury.

2.1 The paradox of function The luxury domain can best be characterised in terms of a series of paradoxes (Sicard, 2003), in the sense that the defining features of luxury, although they might peripherally influence the marketing and purchase of certain non-luxury goods and services, contradict widely held tenets concerning ‘normal’ consumer behaviour as well as classic economic theory. Understanding these paradoxes is necessary for an understanding of consumer and corporate behaviour with respect to luxury brands during an economic crisis.

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The most obvious paradox concerns function. Luxury goods are clearly not purchased to satisfy so-called primary needs such as clothing, hunger, thirst, shelter or transport.

Their function is psychological - they promote a sense of well-being - and social as they serve as markers of a real or projected status. One does not buy a Porsche Carrera GT for around 340,000 euros because one has to drive to work but neither does one buy a Louis Vuitton attaché case for just over one thousand euros because one must find a receptacle for one’s papers.

2.2 Luxury, price and Veblen goods The function of luxury goods is a derivative of their cost. The retail price at which most luxury goods are sold can contradict classic economic theory as demand, instead of increasing with a decrease in price, can follow the opposite trajectory. A bottle of perfume that costs 85 euros can be more attractive to a purchaser than a bottle costing 20 euros, although intrinsic differences might be insignificant. The demand curve does not increase indefinitely with price and once a certain threshold has been reached, demand will drop or fall away completely, but the propensity to purchase goods and services on account of the higher rather than lower price differential compared to average prices in a generic category is undoubtedly one of the principle characteristics of the luxury domain.

Because the Norwegian-American Thorstein Veblen was the first economist to describe this phenomenon at the beginning of the 20th century in The Theory of the Leisure Class, luxury products are sometimes referred to as ‘Veblen goods’. It is to Veblen that we owe the coinage and popularisation of the terms of conspicuous consumption, vicarious consumption (the purchase of goods and services for other people such as a spouse or servant), conspicuous leisure and status symbol. Writing at a time when economic theory was dominated by neo-classical, utilitarian notions which did not take into account interpersonal effects, i.e. psychological and social pressures inciting individuals to purchase status-conferring goods and services, Veblen’s insights refuted the widely held notion that aggregate demand could simply be calculated by compounding individual demand schedules. Despite some efforts at theorising this question of ‘non-additivity’ (Leibenstein, 1950), economic theory continued to be derived from the model of the ‘rational consumer’ as a socially isolated individual whose major priority is the purchase of goods and services that satisfy ‘primary needs’. Keynes, although he nods towards a certain recognition of the importance of Veblen goods in The General Theory of Employment, Interest and Money did not incorporate the behaviours Veblen described into his economic theories. This non-incorporation of interpersonal effects has no doubt contributed to a separation between economic and marketing theory with the latter, especially with respect to luxury, more dependent upon the insights of psychology, sociology and semiology than upon classic economics. Most books in French on luxury as a commercial activity (and French is the most widely used language for works on the subject) are generous with quotes from Freud, Jean Baudrillard, Pierre Bourdieu or Roland Barthes but are parsimonious in their references to mainstream economists.

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Price differentials within the luxury domain, even for the same category of product can vary widely. One of the pioneering theoreticians of luxury, the late Danielle Allérès suggested that a simply but effective analytic tool to understand these differentials is a tripartite ‘luxury pyramid’. (Allérès, 1995)

Inaccessible Intermediate Accessible

Inaccessible products are perceived as unattainable by the vast majority of consumers not only because discretionary income forbids purchase in absolute terms but also on account of an excessive price differential in relation to average prices within a generic category. In the inaccessible part of the pyramid are found, for example, French haute couture (with about 450 clients worldwide), a Vacherin Constantin Tour de l’Ile wristwatch costing over one million euros, a bottle of The MacAllan’s 1926 Vintage Single Malt at 23,000 euros, one night for 12,200 euros at the most expensive villa at The Mansion at MGM in Las Vegas or one kilo of the Chinese goolong tea, Tieguanyin, priced at 1,950 euros. But a handmade By Terry lipstick costing ‘only’ 780 euros, or the approximate price of an economy class return airfare between Beijing and Paris, would also be classified as ‘inaccessible’.

Intermediate goods (at least in North America, Western Europe, the Far East and increasingly India and Brazil) are purchased by a wider client base and would include a pair of John Lobb men’s shoes costing 1,100 euros, a meal at a three star Michelin restaurant at 300 euros per person or a bottle of Petrus Rouge Pomerol at 540 euros.

Accessible luxury goods and services are purchased by a very wide client base and include such items as Chanel N° 5, ready-to-wear designer labels or a Rolex Air King watch at 2,680 euros. Many commentators, such as Kapferer and Bastien (ibid) would prefer to relegate the category of accessible luxury to ‘premium’ level, reserving the term ‘luxury’ for intermediate and inaccessible products. We prefer to describe accessible items as luxury ones because there is a significant interaction between this level and inaccessible luxury.

The values of inaccessible luxury in fact underpin incentives to purchase both intermediate and accessible items. One striking example of this interactive process 5

can be observed in the magazine Propriétés de France, published by Le Figaro. Most of the pages in the review, which costs 10 euros, are taken up by advertising from French real estate agencies, with properties on offer that would include, for example, a luxurious duplex on the Ile de la Cité, a Bordeaux wine estate and an art deco twelve-bedroom mansion in Biarritz. The properties, counting among the most expensive in France, are clearly in the inaccessible part of the luxury pyramid. Yet this magazine is available at newsagents and kiosks throughout France and in all types of residential areas.

According to the website of the magazine, 64% of readers possess a main residence worth only 300,000 euros or less and 78% of readers have annual revenues of 122, 000 or less. It is certain therefore that only a very small percentage of readers of Propriétés de France are really in a position to purchase the homes on offer. This section of the readership can be called the real audience. The other readers, in the vast majority, belong to what can be called a symbolic audience. They will in all probability never acquire or even be invited into the category of private homes displayed, but they can gain a form of access to this inaccessible world by spending 10 euros. They are therefore not so much buying a magazine as a symbolic entrance ticket into a social world from which they are in fact excluded. If the price of the magazine were lower (and from a strictly commercial point of view, Le Figaro could lower the price as the advertising alone would generate sufficient margins) then both the real and symbolic audiences would be discouraged from purchase, as a perceived ‘normal’ price would entail brand dilution of the publication.

2.3 The paradoxes of communication, distribution and production Furthermore, luxury brands such as Chanel or Cartier often purchase full-page inside cover or back-page advertising space in Propriétés de France to display inaccessible jewellery, which the majority of readers could not afford. By doing this, luxury brands are injecting a dose of brand equity into their intermediate and accessible products, which the symbolic audience might indeed purchase. In other words, the objects that are advertised in the luxury domain are not necessarily the products that are being promoted.

This is part of the paradox of communication in luxury which, like the other paradoxes, can be largely derived from the primary one of price but it must be emphasized that this can be a question of managed perceptions.

Luxury goods are perceived as being relatively scarce, if not unique, and their mode of distribution too is perceived as being restricted. If fast-moving consumer goods seek to maximize ‘capillarity’ or the number of retail outlets and modes of distribution, then luxury often publicizes the selective and limited number of shops and stores where items can be purchased. An advertising campaign for the Chanel Camelia brooch gives the addresses of six shops in France where the item can be purchased. An advertisement for Vertu mobile phones gives just three addresses in 6

Paris and one in Old Bond Street in London, where customers may go ‘by appointment only’.

Scarce, expensive goods distributed in a limited number of outlets are usually perceived as being exclusively or mostly hand-made. The latest advertisements for Gucci, abandoning the dubious charms of Tom Ford’s porno-chic campaigns, show white-coated middle-aged men in workshops handcrafting luxury leather goods.

Vertu claims that its mobile phones are “assembled by hand in pristine workshops.”

On its website, Chateau D’Yquem emphasises that each individual grape exhibiting the right degree of ‘noble rot’ is hand-picked. According to Hermes, their famous Birkin bag is “hand-sewn and hand-polished”.

2.4 The paradox of time The proclaimed mode of production of luxury goods is, ideologically, pre-capitalist and pre-industrial, which in turn means that luxury entertains a particular relationship with time. Luxury often aspires towards transcendence of the present moment, an aspiration that accompanies frequent references to previous historical periods and nostalgia for a vanished past. These elements are built into the identities not only of many luxury brands from vintage wines to hotels but also the bodies that defend the collective interests of luxury. The name Walpole Committee has not been chosen by chance. Horace Walpole (1717–1797), the eccentric son of Prime Minister Robert Walpole, was famous as a novelist, art collector and historian as well as the instigator of the Gothic Revival movement in England, indeed, in Europe. The Committee’s French counterpart, the Comité Colbert (seventy five maisons de luxe belong to the Comité) owes its name to Jean-Baptiste Colbert (1619-1683), often considered responsible for France’s economic development during the reign of the Sun King, Louis XIV. Age often increases the value of luxury goods. A Rolls Royce in good condition manufactured in the 1920’s will cost more than one made in the 1980’s although the latter is more technologically advanced. The same applies to ‘vintage’ watches.

Even if this aspiration towards timelessness and transcendence must not be confused with any anthropological invariable to consume luxury goods, it can indicate that luxury brands should not be observed to be ‘over-reacting’ to an economic crisis as the perception of their transcendence would be damaged. This propensity is visible in the self-description of many luxury brands and can be observed in the following account of her company, the British perfume house Penhaligon’s, made in early 2010

by CEO Sarah Rotheram.

We consider ourselves to be much more of an Edwardian brand. King Edward was fast living, he loved his horses, he loved his women, he loved his cigars and what he did for

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British society and London society in particular was make it much more fun and gay and decadent with all that wonderful decorative influence of the Victorian era.

And it was during this time in 1902 that William Penhaligon created what we refer to as his masterpiece, which was the Blenheim Bouquet, created in 1902. … And even today despite being created in 1902, this is our global best seller (…).

Today, we’re constantly referring back; it’s like a constant history lesson, we’re constantly referring back to the things that would have happened in London society in the past and in Penhaligon’s past and we use that as a true inspiration in terms of living and breathing life into new fragrances. We are a true niche British fragrance house, And what we do today is (…) work with some master perfumers. We don’t give them a marketing brief. We give them an olfactory brief in the sense of a place or a moment that we consider to be iconically British and ask them to interpret that into a fragrance or olfactory experience. (We) give the perfumers the license to truly create in their labs, by whichever ingredients that they feel are necessary to interpret that experience.2

Ms. Rotherham, in announcing the genetic code of Penhaligon’s, originating in Edwardian England and strengthened by the longevity of core product Blenheim Bouquet (priced at 205 euros per flask for the splash eau de toilette) simultaneously announces, at least publicly, the irrelevance of market research in the elaboration of a new fragrance. Penhaligon’s is first and foremost loyal to its own DNA, the loss of which would undoubtedly lead to brand dilution. This, of course does not mean that Penhaligon’s has not got its ears close to the ground of present markets - the firm successfully sells a series of line extensions from shaving sets to silver accessories, and has shops and franchises throughout Europe, Asia and North America - but it does show that even in a London-based luxury firm any overt allusion to present economic difficulties is studiously avoided. Being consistent with itself, Penhaligon’s also has not decided to engage in discounts or the introduction of low-priced extensions. On the contrary, in 2010 the firm raised the price of its market entry 200ml shower gel from £15 to £20 and of certain 50ml scents from £35 to £45 per flask.

There is a further paradox of luxury associated with time, namely the time that elapses between the moment of placing an order and that of delivery. The adage “You must not keep the client waiting” is habitually turned on its head in luxury.

An important part of the branding of the Birkin bag is the fact that Hermes has kept its clients waiting for up to six years, although as of 2010 waiting time has been shortened. Concerning its customized hand-made shoes, British firm John Lobb announces: “To receive your first pair of shoes would generally take about six months, possibly longer.” Wait time for the Lamborghini Murcielmago LP640 is approximately eighteen months and for the Aston Martin DBS, two years and four

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months. Keeping the client waiting in luxury compounds desire and strengthens perception of the transcendent, timeless object that is hand-made and unique.

2.5 The paradox of competition Finally, there is the paradox of competition, encountered mostly although not exclusively in the inaccessible part of the pyramid. When Rolls Royce brings out a new model, or when an haute couture house shows a new collection, fidelity to the brand’s own genetic code or the creative urges of the designer are determining elements rather than what other brands might be doing to occupy the same market niche. There are two reasons for this. First, the rich are often not confronted with an either/or choice. A very wealthy person can afford a Rolls Royce and a Ferrari or can purchase a Patek Philippe Sky Moon Tourbillon watch plus a Vacherin Constantine Tour de l’Ile. In fact, most purchasers of watches costing more than 60,000 euros have several timepieces of different brands costing the equivalent or more. Secondly, leading luxury brands must usually be perceived precisely as that, as market leaders for whom a happy synergy of creativeness, innovation and tradition, rather than subservience to the rules of competition, determines product launches and line extensions. Luxury brands should not be seen to be entertaining the same relationship to one another as Kit Kat Balls does to Maltesers.

3. The present economic crisis A recession, often triggered by a financial crisis, is characterised as a continuing decline in Gross Domestic Product for at least six consecutive months and a depression is often referred to as a recession that lasts for more than two years. The paragon for a state of crisis thus defined would be the collapse in 1929 of financial and stock markets in America followed by the Great Depression of the 1930’s.

The memory of events in the USA of eighty years ago has no doubt contributed to the perception of acute crisis conditions in recent years. The sub-prime crisis in the real estate market that emerged in 2007 in the USA was followed by a financial crisis, spectacularly illustrated by the collapse of Lehman Brothers in September 2008. As in the 1930’s, a liquidity crisis (i.e. when the demand for money outstrips supply) emerged in the banking sector necessitating the intervention of national governments.

However, the differences between the 1930’s and today are also apparent. No national economy has yet entered into a period of depression, and even economies heavily reliant on financial markets such as Great Britain’s, are slowly emerging from recession. Unlike demographic patterns in the 1930’s, there has been no largescale emigration from any Western nation or any major population movement within any country on account of the financial and economic crises. Even in Spain, Portugal and Greece, countries with a recent history of autocratic regimes, there has been no major political upheaval on a scale remotely comparable to what Europe experienced in the 1930’s. Furthermore, the American economy does not exert the same influence 9

on the world economy as it did in the 1930’s. It is often pointed out that China has not entered into a recession and that the strength of the Chinese economy, of great importance to many luxury brands, has helped lift the economies of Western nations out of recession.

4. Consumer behaviour If consumer behaviour during an economic crisis is determined by the diminishing availability of liquidities, this does not signify that expenditure is restricted to what is commonly termed ‘essential items’. The latter are not anthropologically constant either and are subject to evolution. The range of ‘basic requirements’ has widened considerably over the past decades to include electronic goods, leisure items or holidays spent away from one’s place of residence. This aspect of consumption, which contradicts classic economic theory centred upon the behaviour of the ‘rational purchaser’ impinges upon the purchase of luxury goods Expenditure, according to ‘rational consumer’ notions can appear to be ‘irrational’ in times of economic crisis. In the USA during the Great Depression, when 25% of the nation was unemployed, cinema theatres welcomed audiences of 60 to 80 million per week.

According to one social historian : "Whether films (in the 1930’s) offered visions of order restored, affirmations of work-centered values, or celebrations of a culture rooted in the mythic American village, they also held out images of competing worlds that might be entered through mimicry or consumption." (Cooney 1995,).

Cooney is describing behaviour which is identical to that of a symbolic audience purchasing Propriétés de France. If we define ‘escapism’ as the process of entering through ‘mimicry or consumption’ an imaginary world from which one is in reality excluded, then one can expect the purchase of mimetic luxury goods to increase rather than decrease during an economic crisis. Oscar Wilde quipped: “Anyone who lives within their means suffers from a lack of imagination.” In times of economic hardship, ‘imagination’ can be a powerful motivation to buy so-called ‘non-essential’ goods.

Repeating the high figures for cinema audiences in the USA of the Great Depression, we find, for example, that according to the Society of London Theatres, for the first six months of 2009, show attendance for all categories of production (concerts, musicals, circuses, plays) increased by 2.5% to just under 7 million, and box office receipts went up by 3.5% compared to the same period in 2008 with attendance figures increasing by 19% for musicals alone. ‘Escaping’ into another world through musicals and circuses is akin to escapism into an imaginary world through the purchase of luxury goods.

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4.1 Counterfeiting This mimetism, though, is not confined to the purchase of authentic luxury items: counterfeiting remains a serious issue for leading luxury brands especially in the perfume, fashion, watch and jewellery sectors. Louis Vuitton, probably the most widely counterfeited luxury brand, states that “ on a daily basis” it carries out in conjunction with law enforcement agencies, “25 anti-counterfeiting raids”, engages in “60 new legal proceedings” and has “one website closed” (Louis Vuitton, 2007).

According to a spokesperson at the Union des Fabricants, the main body defending the intellectual property rights of French firms, six out of eight products in circulation sporting the Louis Vuitton logo, or one closely resembling it, are fakes.

The problem in the first instance is not one of loss of market share but of brand dilution. Counterfeiting is a frontal assault upon luxury’s defining paradoxes of production, price, distribution, scarcity, quality and time. The social function of luxury goods as markers of projected status can be maintained, though, via the purchase of counterfeited items.

“Consumer likelihood of purchasing counterfeit luxury brands will be greater when their attitudes towards luxury brands serve a social-adjustive function than when their attitudes serve a value-expressive function.” (Wilcox, Kim & Sen). It is the ‘socialadjustive’ function of luxury goods that can lead to loss of market share as a potential real consumer might hesitate to buy a bag with a conspicuous Louis Vuitton monogram if she or he considers that those observing the item would believe it to be a fake. Therefore the propensity to purchase other brands or models less exposed to the problem can be expected to be intensified. Research needs to be conducted into the question of whether in times of economic crisis the ‘social-adjustive’ function of luxury goods for a symbolic audience is heightened. If so, then one can expect the purchase of counterfeited goods to rise rather than fall. If however, the valueexpressive function predominates then, hypothetically, the purchase of counterfeited items should decrease. From the comments of experts it would seem that the former is the case. According to Mark Rosenberg, an intellectual property lawyer at New York firm Sills, Cummis and Gross: “The longer the economy remains relatively stagnant and discretionary income limited, the more likely it is that consumers desiring luxury goods will consider purchasing a less expensive counterfeit.”

Internet has revolutionised the distribution of counterfeit goods, making their purchase far easier. It is no longer necessary to buy from street markets as there are now many sites specialising in counterfeits. Even bona fide sites like Ebay and Google have been found to actively encourage the promotion of counterfeit goods.

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5. The response of luxury brands 5.1 Reacting to the crisis before the crisis It is also possible to sell accessible products to consumers while not neglecting a value-expressive function, in other words offer authentic affordable items that can still bear the social cachet of luxury and satisfy ‘psychological’ needs. It can be expected that certain brands fulfilling these requirements would perform well during an economic crisis.

In October 2009, for instance, Tommy Hilfiger opened a 22,000 square foot store on Fifth Avenue in New York. According to Mr Hilfiger himself: “We are positioned very well with accessible, affordable luxury and this is something we have been doing for 25 years.” Tommy Hilfiger group (now a subsidiary of Philips Van Heusen) posted revenues of $1.6 billion for financial year ending March 31st 2009. One year later this had risen to $2.1 billion and for the first quarter of 2011 the company recorded revenue of $704.7 million with total revenue for 2011 expected to be around $2.8 billion. One hundred and forty new freestanding stores, including 21 in China, have been opened, bringing the total to 796 retail outlets. The group also recently acquired former licensees in Japan, Europe and Canada.

New York socialite Tory Burch provides another example. After working for Harper’s Bazaar and Ralph Lauren, she founded her eponymous brand in 2004.

Retailing commenced in a Manhattan store of which Ms Burch and her husband had purchased the leasehold. Specialising in women’s clothes and a style frequently described as ‘ preppy-Bohemian’, Tory Burch has most of its products manufactured in China, but other items such as the highly successful Reva ballet slipper, are made in Brazil. Ms Burch has stated: “ When I was researching my business plan, I came up with the idea of what was missing from the market. I wanted beautifully made but accessible priced clothing. Since I had worked in the business, I knew what kind of margins and mark-ups were being made. I knew that price was going to be a challenge.” 3 Tory Burch has consistently pursued a policy of in-house control with no outsourced licensing. Although as a privately owned company, annual revenues are not published, it is reported that sales in the first year of operations stood at $2 million, rising to $115 million four years later, then to $200 million in 2009 and $260 million in 2010. High-end retailers such as Bloomingdale’s and Neiman Marcus distribute Tory Burch products, but the company has concentrated on developing independent outlets with 36 Tory Burch boutiques in the United States, ten of which were opened in 2010. Five boutiques were also opened in 2010 in the Far East (Japan, Korea, Taiwan, Hong Kong) as well as one in London and one in Rome.

A parallel situation exists for Marc Jacobs, the artistic director of Louis Vuitton, who launched a second line Marc by Marc Jacobs in 2001 in which accessories and ready 3

New York Times, 20/10/2009 12

to wear men and women’s fashion items were noticeably cheaper than those offered by the first line, Marc Jacobs Collection. A leather coat from the latter sells for 2,730 euros whereas a Packables Duffle Bag is priced at 62 euros at Marc by Marc Jacobs whose most expensive dress sells for 420 dollars. The distinction between the upmarket Marc Jacobs and the very accessible Marc by Marc Jacobs was encouraged

by LVMH that has had a majority stake in Marc Jacobs since 1997. The Marc by Marc Jacobs style could be described as fun, urban and ‘grungy’ with downmarket brand stretching developed into a fine display of subversive irony. The Paris Marc by Marc Jacobs’ boutique, at the end of 2008, was offering lipstick shaped pens for two euros and braces for twenty euros.

Although production for men’s fashions of the Marc Jacobs Collection has been outsourced through a licensing agreement to the Italian company, Staff International, production of items for Marc by Marc Jacobs is in-house. It is probably the first time that two very distinct brands bearing the name of the same creator and corresponding to very different market niches have successfully co-existed. Marc by Marc Jacobs items are mostly distributed in eponymous stores, the number of which has increased to about 150 worldwide.

Domenico Dolce and Stefano Gabbana have adopted a similar strategy. Their first line collections are marketed under the name Dolce & Gabbana and can include inaccessible items such as an evening dress for 120,000 euros. The cheaper, second line called D&G is aimed at younger clients and have been made in wholly owned production units since 2006 when the brand ended a licensing agreement with the Ittière group. Since then, the D&G line has seen annual average sales growth of more than 8 %. For financial year ending March 31st 2010, D&G sales stood at 706 million euros, representing roughly 44 % of the group’s revenues.

These brands have common features. They are all eponymous brands with relatively short histories or ‘brand narratives’ and are dominated by the personalities of their founders. A charismatic designer like Marc Jacobs, through his irreverent, ‘edgy’ personality can successfully straddle the distance between Louis Vuitton and Marc by Marc Jacobs. 4This also means that his brand, with no constraining genetic code stretching over generations, enjoys a higher degree of credible creative freedom than more established ones.

Second, the four brands have succeeded in reducing costs in various ways, from inhouse production and rigorous management of the supply chain, to the repurchase of licenses and, more significantly, greater control over distribution with freestanding stores gaining in importance over third-party wholesalers and retailers. However, the most important factor in their success in times of economic crisis is the launching of their accessible products or second lines aimed at the lower end of the market before 4

The same can be said of Karl Lagerfeld who spans the gap between Chanel, where he is artistic director and his recent venture as designer of diet Coca Cola bottles.

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the anni horribili of 2007 and 2008. In other words, they were not perceived as reacting to a crisis but as consistently pursuing a commercial strategy despite the crisis. Business as usual meant better business for them. The luxury value of transcendence had been preserved.

5.2 Jewellery: the case of Mauboussin The same argument holds good for the independent French jeweller Mauboussin, founded in 1898 by Georges Mauboussin. From 1955 to 2006, the sole outlet for the brand was its flagship store in the Place Vendome, the historic address in Paris for jewellers. Concentrating on a very small number of extremely wealthy clients such as Marlene Dietrich and the royal family of Brunei, for whom Mauboussin had created a unique collection of bejewelled musical boxes, the maison decided to adopt a different strategy when orders from this minuscule client base began to diminish Starting in 2004, the firm sought to reach a new client base composed of independent women who “do not need a man to offer them a piece of jewellery.” This marketing strategy is reflected in the tongue-in-cheek ‘subversive’ names given to rings such as Le Vice et La Vertu (4,195 euros), Libre et Sensuelle (1,495 euros) and Ni Naïve Ni Soumise (3,390 euros)5. Irony is perhaps an effective, undervalued and certainly unresearched form of communication when a luxury brand decides to go after a wider client base.

Mauboussin spends 17 % of turnover on advertising including in low-prestige mass media such as television, the free press and posters in the Paris metro. In these campaigns, Mauboussin has consistently put forward competitively low prices as its USP. The maison now has about 120 freestanding shops in France and in 2008 opened a flagship store on Madison Avenue. It also has shops as well as franchised outlets in the Far East. About half the company’s turnover is made with jewellery costing between 850 and 3,500 euros but the emphasis placed on accessible items has not meant that inaccessible jewellery has been abandoned. In fact, the sale of jewels costing between 30,000 and 85,000 euros accounts for about one third of turnover.

Since the paradoxes of distribution, price and scarcity have been provocatively flouted, the interesting question is why rich purchasers have not been alienated by aggressive downmarket brand-stretching.

It can be argued that Mauboussin has bridged the gap between the two ends of the market through publicly targeting a well-defined consumer group of independent women, whether wealthy or not. In other words, it is this broad client base that is shaping a brand in which it finds an ideal reflection of itself. The CEO, Alain Lemarq 5

An allusion to the Muslim women’s protest movemnt Ni Putes Ni Soumises – Neither Whores nor Doormats.

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responsible for Mauboussin’s turnaround remarks: “The schema of the jewel as a social trophy acquired by men for womenfolk is now a thing of the past. Purchases are made more and more by women themselves.”

Bringing both ends of the market together is adroitly accomplished on the home page of brand’s website where an image of a Metro station with Mauboussin posters greets the visitor. However, the station is called Place Vendôme (no such Metro station exists) and an escalator takes the visitor up to the neo-classical splendours of the Place and to Mauboussin’s flagship store.

It is interesting to note that Mauboussin does not have a store in the Middle East, where all other Place Vendôme jewellers have a high-profile presence. Jewellery in the Middle East is indeed purchased for women by men as a ‘social trophy’. By not having any outlet in this geographical zone, Mauboussin is being consistent with the brand identity it wishes to project.

It is clear that the strategy of Mauboussin, aimed at undercutting competitors (jewellery sales worldwide saw a drop of 12% in 2009 compared to 2008, making brands like Bulgari vulnerable to a takeover from LVMH) through targeting a new client base, has paid handsome dividends.

5.3 Restaurant; Joel Robuchon and L’Atelier In another sector, we can take the example of Joel Robuchon, voted best chef in the world by the International Herald Tribune and whose restaurants have been awarded 25 Michelin stars, a record for any living chef. But Robuchon has not concentrated on the top end of the market. For more than twenty years, he has been collaborating with Fleury Michon to produce ready-to-cook dishes, costing between four and seven euros, available in supermarkets. Robuchon is also a famous TV chef and author of several best-selling recipe books.

In 2003 he opened two restaurants, called L’Atelier de Joel Robuchon, in Paris and Tokyo before expanding to London, New York, Honk Kong and Las Vegas. A second L’Atelier was opened in Paris in 2007 and in April 2011 Robuchon inaugurated L’Atelier in Singapore. Wherever the city, the dress code is ‘smart casual’ and prices the same. L’Atelier offers a lunch menu for 30 euros and a typical evening meal would cost around 120 to 150 euros per person with wine. They can be termed ‘concept restaurants’ as they all have seating on stools around a bar from which diners can view cooks preparing meals.

According to Robuchon, the L’Atelier is a “… winning formula especially in times of crisis as it corresponds exactly to what gourmets and business people want, namely a counter giving directly on to the kitchen, no long waits, no unnecessary fuss, fresh high-quality produce, stainless steel cutlery and a relaxed service.” He continues: 15

“Great French cooking gets on my nerves (… la grande cuisine française m’emmerde…). Ultra-sophisticated dishes, stiff tablecloths, the ballet of three waiters serving dishes at stratospheric prices, the silverware and so on. Ça suffit! If you go into the ‘great’ Parisian establishments now you will find that they are half empty whereas my restaurants are always full.”6 L’Atelier, like Mauboussin and the successful apparel brands discussed above, is not responding to but is profiting from crisis conditions or diminishing liquidities (which could also be a question of reduced expense accounts). As with Mauboussin, and its empowered female client base, L’Atelier with its barstool seating around the kitchens, is introducing a strong element of collective identity and conviviality that prevails not only between clients but also between the latter and the chefs. This is in marked contrast to the seating arrangements of ‘great Parisian establishments’ with their rigorous codes, staff hierarchies and exclusive tableware that Robuchon is mocking. In fact, the brand identity of L’Atelier derives in large part from such contrasts. Coming ‘downmarket’ is now not only a strategic commercial choice but also a social value for such luxury operators.

6. Price reductions and destocking Elsewhere there has been overt reactiveness to crisis conditions. The prices of Dolce and Gabbana’s first line summer collection of 2010 were suddenly decreased by 10 to 15%, a case of a second line strategic cart being placed before a first line horse and leading to brand dilution. In 2009, Vera Wang simply dropped prices of its wedding dresses by 40% leading to many negative comments on Internet forums.

Other strategies have included ‘reinterpretations’ of historic models at reduced prices.

In 2009, Givenchy issued a Redux line which resurrected flagship items such as the famous blouse blanche created by Hubert de Givenchy in 1952 as well as his equally well-known gilt-studded sailor’s jacket. As a Redux item, the latter was being sold for 300 euros but in the first line, the shop price for an almost identical model was 800 euros. According to Fabrizio Malverdi, the managing director of Givenchy Couture : “The Redux collection is not a response to the economic situation but has been conceived to offer a wide choice to our customers as well as iconic pieces.” This is not how potential purchasers viewed matters as they perceived that there was no justification for such a wide price differential between two similar items in two different product lines.

Cutting retail prices as a response to diminishing liquidities has not only been practiced by certain brands themselves, but more significantly by wholesalers and retailers over whom the brands do not exercise control. According to the luxury consultant Bain & Co, between 1995 and 2007, the world market for all sectors of luxury goods doubled to reach 170 billion euros but fell to 150 billion euros in 2009.

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L’Express, June 11, 2009 16

This fall can be explained not only by a drop in demand (minus 4%) but even more by a fall in prices (minus 7%), a move that especially affected the mature markets of North America and Europe.

In late 2008, major multi-brand luxury stores such as Saks of Fifth Avenue and Nieman Marcus reduced prices by up to 40% in an effort to sell surplus stock. These operations, called destocking, are in large part due to the fact that major retailers order goods up to nine months in advance, but in the wake of the crisis they were faced with the problem of unsold inventory. Sudden and drastic price reductions for Veblen goods can have a negative impact on brand identity and consumer perception.

They must not be confused with successful price management practised by brands like Tory Burch, Marc by Marc Jacobs, Mauboussin or L’Atelier.

The perfume multi-brand retailer Marionnaud (563 shops in France and over 600 in the rest of Europe) was the most important ‘destocker’ in the sector in Europe. Major watch manufacturers also accumulated unsold stocks in 2008 and 2009 which they tried to move by resorting to unofficial distribution channels including Internet sites like Watchfinder and Chronoprestige where luxury brands were being sold with markdowns of up to 70% of displayed prices.

According to Grégory Pons, the editor of Business Montres: “There was a great need for destocking during the crisis. Before, brands sold 50 % new models and 50 % from older collections to retailers. Now, retailers only want new models following client demand. Brands deny what is happening because they are ashamed. In luxury circles, with its codes linked to prestige, desire and perfection, engaging in destocking is an avowal from the brands that the model did not sell well and that they have not been successful.”7 The sale of watches in the parallel market outside the network of licensed retailers expanded with the crisis and concerned newer as well as older models. Exports of Swiss watches dropped by 24 % between January and November 2009, but the parallel market increased by 10 % to take up one quarter of the total market (Sovanny Chun).

For the former director of Hermès International, brands that have “ … most suffered from the crisis are the brands with (third-party-) distributors, because distributors destock and it’s been a disaster for some in the watch and perfume sectors.”

(Blanckaert, 2010). However, it must be pointed out too that it is the brands themselves that can decide to clear stock at reduced prices. What is important is that the paradoxes of price, distribution, scarcity and transcendence are no longer respected by such actions.

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Quoted in Le Nouvel Economiste, 17

7. Successful Groups 7.1 Hermès :plus ça change In 2010, according to Bain & Co, single brand luxury outlets saw a 20 % growth in sales compared to just 6 % for wholesale and multi-brand stores. The capacity to invest in brick-and-mortar stores means control over image and prices, outweighing the main disadvantage of freezing capital in fixed assets.

Hermès itself (founded in 1837) is an excellent example of the positive results that can accrue to a major luxury group thanks in large part to control over wholly owned retail stores.

In the first half of 2009, in the 290 freestanding shops of Hermes throughout the world, turnover progressed by 9 % compared to the same period for 2008 and by the end of the year sales had risen by a total 24 % in these stores. Thirteen new freestanding stores were opened, with four in China. Core brand leather goods, especially bags, accounted for about 50 % of sales with new models performing very well. According to CEO Patrick Thomas, sales were also assisted by excellent results from Hermès’ famous silk scarves and other fashion accessories.

By the end of 2010, at constant currency exchange rates, Hermès had a total turnover of 2.4 billion euros, an 18.9 % increase compared to 2009. Operating profits rose by 40% to reach 650 million euros compared to 462.9 million for 2009. These figures would have been even higher if a 22% drop in sales value for items distributed by wholesalers and multi-brand networks practicing price cutting and destocking had not hurt the brand. Hermès, despite LVMH recently acquiring up to 20% of shares, is still 73% owned by family members and now has a stock market value of about 10 billion euros or more than twice that of PPR (owners of Gucci, Bodega Veneta, Yves Saint Laurent, Balenciaga, Alexander McQueen, Boucheron, Sergio Rossi and Stella McCartney) and approaching half the value of LVMH itself.

The success of Hermès has meant that the company by the end of 2010 had exhausted part of its stocks of leather goods to satisfy demand. The response of Patrick Thomas to this situation is interesting. He said: “Even if we try to speed up production we are still dependent in the medium term by our craftsmanship approach. Altogether it takes four years to train a leather worker … Hermes recruited 125 craftsmen in 2010 and intends recruiting a further 165 in 2011.” Furthermore, Hermès has no intention of increasing the prices of its silk scarves and bags. “It is not because customers would be ready to accept higher prices that they have to be increased. ” Hermès publicly displays the luxury values of non-reactivity or transcendence to general economic conditions and reasserts the importance of the genetic code of an historic prestige luxury brand, especially with respect to the “paradox” of production. But this 18

reassertion of the defining features of a luxury brand also corresponds to contemporary tendencies. Patrick Thomas states: “The values of elegance and discretion that the firm has professed for a long time are in tune with today’s trends, far more so than the values of abundance, glamour and showing off, communicated by other luxury companies.” 8 7.2 LVMH rules Even more spectacular than the performance of Hermès has been that of the world’s biggest luxury group, Louis Vuitton Moët Hennesy (LVMH). Turnover in 2010 increased by 13% to reach a record 20 billion euros. Although a full break down of these results is not available, it is believed that the growth of the Louis Vuitton brand was above 20% for 2010 with a turnover of 5.5 billion euros. Louis Vuitton has never practiced price reductions or seasonal sales of any of its items, a policy that has been strictly adhered to during the economic crisis.

LVMH is present in fashion and accessories (thirteen brands), wine and spirits (nineteen brands), the media (Les Echos, Radio Classique), perfume and cosmetics (eleven brands), luxury yachts (two brands) and watches and jewellery (seven brands). The sector over which LVMH exercises least control concerning distribution is wines and spirits. LVMH’s champagnes, which are profiting from a recovery of the worldwide champagne market9 are not subject though to serious price-cutting and destocking from distributors.

Regarding other sectors LVMH not only emphasizes one-brand retail outlets but also controls other distribution networks. LVMH is the owner of the Sephora chain of perfume and cosmetics stores (760 stores in 17 countries), of the Paris department store Le Bon Marché, Miami Cruiseline Services and DFS Galeria that runs multibrand stores and duty free shops principally in the Middle and Far East. DFS does not have any stores in mainland China but is present in Hong Kong and Macao. The CEO of LVMH, Bernard Arnault, has recognized the importance of such an indirect presence for the Chinese consumer. “With DFS, which not only sells LVMH brands but also its competitors’, we are leaders in sales to Chinese tourists. Macao gets more visitors than Las Vegas.”

Within China proper, Louis Vuitton has 37 stores with ten further openings planned.

It is present in all provincial capitals and has even opened a store in the Mongolian capital Ulaanbaatar. In Europe Louis Vuitton has concentrated on the expansion of existing stores notably in Munich, Cannes, Rome and London where turnover doubled in 2010.

8 9

Le Figaro, 4/02/2011 After a fall of 5% in 2008 and 9% in 2009, champagne sales increased by 8.9% in 2010.

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LVMH has managed as a group to withstand the economic crisis partly because of its very wide product portfolio where a slackening in sales of one brand or sector can be compensated by positive results elsewhere. In addition to its great size the group, like Hermès, also exercises considerable control over distribution.

Furthermore, like Hermès, but unlike the great majority of luxury brands in the fashion and accessories sectors, Louis Vuitton has never in its history engaged in any licensing deals that would involve selling a brand name to third parties. The decision to do so means greater control over image and better management of customer relations.

The capital funds available to LVMH have meant that in March 2011 the group was able to acquire Bulgari, the world’s third largest jeweller after Cartier and Tiffany. In 2009 Bulgari, suffering from the general decline in sales value of high-end jewellery and watches had seen, after a drop in sales of 18%, net losses of 47 million euros.

Although sales picked up by 8.3% in 2010 the relative weakness of the Italian familyowned firm led its owners to relinquish 51% of their share capital to LVMH for 3.7 billion euros with the French group free to launch a take-over bid for the remaining 49 %. The acquisition means that LVMH can double the size of its watches and jewellery division and develop Bulgari stores, especially in China.

8. The Chinese market: El Dorado with a health warning The so-called BRIC nations (Brazil Russia, India, China) have been a very important source of revenue for European luxury brands, but it is especially China that has been a motor for growth. In 2010, China displaced the United States to become the second largest luxury market in the world, behind Japan, and is forecast to become the world’s most important luxury market by 2015 (Bain & Co, 2010).

A high number of Chinese with annual incomes of between 10,000 and 20,000 euros buy market entry or accessible luxury goods, often saving for months to purchase a bag or watch. Furthermore, luxury spending is spread across a broader age demographic than in Europe and North America. According to McKinsey and Company, luxury goods purchasers are younger than their European and North American counterparts, with nearly 50 % aged between 18 and 34 years old, whereas the same age group accounts for 30 % of total luxury purchases in Western Europe.

At the other end of the spectrum, according to the Hurun Wealth Report, the number of dollar millionaires in China in 2011 stands at 960,000, a 9.7 % increase compared to 2010. More than 60,000 Chinese enjoy personal wealth of ten million euros or more. Mainland China now has 115 dollar billionaires compared to 64 in 2010, the second highest number in the world behind the United States.

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But it is not only inside China itself that luxury purchasers have had a positive impact as Chinese tourists are now the highest spending foreigners in luxury stores in European and American cities. According to the Boston Consulting Group, 70% of Chinese luxury shoppers would prefer to shop outside mainland China if the opportunity presented itself.

Since the financial and economic crisis of 2007 and 2008, the Chinese market has proved to be extremely important for the jewellery and watch sector as it now represents 31% of the global market.

The world’s second-largest luxury group, Richemont, based in Switzerland and owners of Cartier, Van Cleef & Arpels, Piaget, Vacheron Constantin and JaegerLeCoultre is more dependent on this vulnerable sector than LVMH and saw sales decline between April 2008 and August 2009 by 36% in North America and 22% in Europe. In Asia, principally China, sales progressed by 5%. Between September 2009 and September 2010, the Asian-Pacific market (excluding Japan) saw sales grow by 36% from 771 million euros to 1157 million euros compared to sales in North America that progressed from 325 million to 489 million euros. Cartier has opened a number of boutiques in Chinese provincial cities and this is expected to expand to 55 or 60 by 2014.

The Chinese market has also been a boon for luxury cars that saw sales decline in European and North American markets after 2007 and 2008. Most luxury car brands have showrooms in Beijing and Shanghai. It is reported that the Shanghai Auto Show 2011 was a “good harvest’ for Rolls-Royce, Bentley, Ferrari, Lamborghini and Maybach. Five models of Aston Martin’s 77 series, selling at 5 million euros, were bought before the official opening of the show. According to HIS Automotive market research firm, 727,000 ‘high-end’ cars were sold in China in 2010 and this is forecast to grow to 1.6 million by 2015. China is expected to become the second biggest market in the world for Lamborghini and Ferrari by that date.

However, a note of caution needs to be sounded. Many high net-worth Chinese have made their money from real estate, riding on the back of property prices that have risen by an annual 50 % in major cities. If the property bubble burst, this could inflict massive damage on household income and public finances. As in North Africa and the Middle East, unpredictable political events could change the economic landscape.

China as a fertile land for luxury brands would then look less promising. To diversify risk, Cartier has decided to open more shops in Europe and the USA. According to CEO Bernard Fornas: “There are always risks everywhere. You have to prepare yourself for the worst when everything is going well, so let’s be careful about overdependence.”

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9. Value-added luxury 9.1 Experience brands As luxury consumers, the Chinese tend to favour conspicuous status symbols, a phenomenon that is typical for a country that has seen rapid change, where luxury consumers are relatively young and where traditional hierarchies based on birth and inherited titles have been destroyed.

In mature markets in Europe and North America this is not necessarily the case. It would appear that the economic crisis has led to more discreet patterns of consumption with a growing emphasis on luxury as an experience rather than as an overt marker of status. Luxury is also more closely associated with ethical initiatives.

In other words the psychological satisfaction that luxury can procure seems to be growing in importance compared to luxury’s social adjustive function.

Major brands have in the past three years opened immense ‘concept’ stores that offer immersion in a multi-sensorial environment. For example, at the Hermès store in the Rue de Sèvres, opened in November 2010, there is a florist’s, a bookshop and a restaurant, Le Plongeoir, so called because it overlooks the carefully restored art deco swimming pool of the Hotel Lutetia. From the surface of the pool, three immense huts, made of interwoven strips of ash wood and recalling African dwellings, rise up nine metres towards the skylights. The items on sale appear to be an organic expression of this environment.

In London, Louis Vuitton opened its enlarged and completely redesigned New Bond Street store in May 2010. A wall of vintage trunks stretching up two floors greets the visitor, recalling the genetic code of the brand,. Other walls are of bamboo or silk: hand-carved Louis Vuitton monograms have been set into the floor. A glass staircase leads down to the men’s department where leather chairs and low tables provide a ‘clubbish’ atmosphere. The store has a bookshop, selling works on contemporary art as well as an art gallery, and on the top floor there is a private suite to which access is granted only by invitation and that shows that Louis Vuitton is consciously respecting the values of inaccessibility.

Hermès and especially Louis Vuitton are using the values of art and books as markers of social distinction (Bourdieu) to enrich a multi-sensorial environment. It is this environment that is giving brand value to the items on sale, enabling the firms to develop harmonious line extensions which otherwise might appear disparate or “inorganic” in relation to the brand’s genetic code. Hermès, for example, is introducing a line of home furnishings for the first time in its Rue de Sèvres store.

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What can be said about the experience offered by the service sector can also apply to these concept stores. “Beyond a simple service, the company offers its consumers an experience which the consumer places at the centre of his perceptions towards the brand. The management of the experience thus becomes a strategic element in the management of the brand, all the more strategic as the experience is under the control of the company.” (Camelis 2009) 9.2 The spa experience Other luxury enterprises have extended this brand experience to hotels and spas.

According to its website, at the spa centre at the Armani Hotel, opened in Dubai in January 2010 : “…the spa therapies have been designed to fulfil different goals. MU quenches a desire for relaxation and stillness. LIBERTA encourages freedom of movement and the release of physical pain. And FLUIDITA enhances vitality, restoring internal balance. These therapeutic treatments are enhanced with bespoke natural fragrant Armani oils of Bois, Jasmine and Jade.”

At Bulgari’s hotel in Bali the brand’s skincare products are used in the spa centre that offers guests “… a luxurious treatment by a team of four therapists including deep massage with exotic oils and herbs and the placing of warm volcanic stones on the chakras, the body’s seven energy centres, providing total relaxation and a soothing anti-stress effect.”

Here the luxury firms are enriching brand meaning not only by offering a total luxury environment but also by investing the body with ‘spiritual’ values . Luxury spas are in a privileged position to give ‘deep’ meanings to the body other than those of external signs of social status. There has been a growth in such spa centres since 2007. One of the world’s largest hotel groups, Starwood, with 992 properties around the world, has spas in 58 of the 87 hotels in its Luxury Hotel Collection. According to the group’s website: “Focusing on the key principles of health, beauty and inner peace, each Luxury Collection Spa celebrates local culture and natural elements while remaining true to its central standards.” The Maroma Resort and Spa in Yucatan located “… between jungle and ocean – also supports the restorative process (…) in keeping with Mayan philosophy each building and treatment room of its Kinan spa has been aligned to the stars to ensure positive energy flows, to create harmony between body, mind and spirit.”

The CHI Spa at the Shangri-La Hotel in Bangkok maintains that Chi, “…the universal life form, must flow freely within the body to ensure optimum health and vitality. Spa treatments creating movement to ‘unlock’ stagnant Chi energy, all contribute to creating a harmony between the body’s Yin and Yang and ultimate balance.”

The New Age philosophy of these centres caters to the desire for an original luxury experience, almost certainly heightened by the recent crisis. A cosmic pre-modern 23

‘ontology’ is attached to epistemological individualism, to self-knowledge and selfrealization. The soul is massaged and the body is spiritualized through connection to transcendent forces. The spa also represents community values (going to a luxury spa resort is also a social experience where one mixes with equals) that have replaced those of religious communities, bestowing a greater degree of meaning to luxury.

According to the Boston Consulting group: “In the new world of luxury, consumers are looking more to ‘be’ than to ‘have’.”

9.3 Luxury and Social Solidarity.

Luxury is sensitive to major social catastrophes such as wars and terrorist attacks.

After 11 September 2001, the luxury market in almost all sectors went into steep decline throughout the United States. Social groups such as firemen and policemen became the category of reference, displacing the rich and powerful. Displaying the outward signs of social superiority through the conspicuous consumption of luxury brands, instead of generating recognition and respect, can have the opposite effect during a social crisis.

During the Great Depression, it became a taboo to drive lavish luxury cars like Pierce-Arrow, Packard and Peerless – brands that went out of business because of the crisis. The rich often did not drive the cars that they had in their possession and even deliberately damaged them by denting the bodywork. Similar patterns of behaviour may be observed today. The general manager of Moritz Cadillac near Dallas has been quoted in the New York Times (July 16th 2010): “I think everybody was affected when they saw the stock market go below 10,000. Even though it may not effect their ability to buy or not, it affects their thinking.” Customers who had recently bought new cars were sometimes fearful of being labelled conspicuous consumers. Some Texan consumers “ (…) insisted on buying new cars in the same colour as their old models. They didn’t want their employees to know they bought a new car. It doesn’t look good during a wage freeze or when they’re cutting people.” Purchasing a luxury experience, attending a luxury resort or spa may be a non-conspicuous substitute for the purchase of an ostentatious luxury object.

What is significant is that this tendency towards social solidarity is not only apparent in consumer attitudes but also in luxury enterprises. Programmes of Corporate Social Responsibility have existed for a long time among luxury brands, concentrating mainly on the environment and sustainable development. Since 2009, there have been original and even surprising developments in CSR for luxury enterprises. In 2010, for example, many luxury restaurants in the United Kingdom participated in an Action against Hunger Campaign. Certain dishes were priced an extra pound or two and diners could choose to pay the higher price rather than the lower with the difference going towards a campaign to end child hunger in African countries. Many famous chefs endorsed the campaign. Raymond Blanc, proprietor of the Michelin-starred Manoir aux Quat’Saisons near Oxford stated: “This is a great opportunity to be part of a premier fundraising campaign for restaurants that is simple, rewarding and 24

helping to raise money to prevent dying from malnutrition. Just a little of your time an effort can male a positive difference to people’s lives.” 10 In September 2010, Louis Vuitton launched a campaign with Irish rock star Bono, well-known for his radical politics, and his wife Ali Hewson. This is centred on a joint venture with the couple’s clothing brand Edun, in which Louis Vuitton has acquired a 51% stake. Edun works with African co-operatives and encourages production of bags, clothing and accessories in countries like Kenya and Uganda. In its press release Louis Vuitton states that such initiatives are helping the inhabitants of a region in northern Uganda where “…almost two million people were displaced, forced to live in Internally Displaced Persons camps and suffered from disease, poverty and starvation.” 11 Luxury in these two instances is also closely attached to values of solidarity but, unlike luxury as a bodily experience, a certain ‘exotic’ distance is nonetheless maintained. The campaigns focus on Africa and not on the under-privileged in England or France. But the campaigns do answer a growing consumer ‘need’ for luxury, at least in mature markets, to go beyond a social adjustive function or, in other words, for conspicuous generosity to be incorporated into brands, bestowing luxury with another ‘post-crisis’ meaning.

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www.restaurantsagainsthunger.org Louis Vuitton “Ali Hewson and Bono star in Louis Vuitton’s Core Values Campaign”, September 2010.

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Bourdieu, P., La Distinction, Critique sociale du jugement, Les Editions de Minuit, 1979, Blanckaert, C., Les 100 mots du luxe, Presses Universitaires de France, 2010 Camelis, C., 2009, “L’influence de l’expérience sur l’image de la marque de service”, Vie et sciences économiques, N° 182.

Chum, S., , “Le marché secondaire, corollaire inévitable des circuits traditionnels”, Le Nouvel Economiste, March 17th 2011 Clark, C., The Conditions of Economic Progress, Macmillan, 1940.

Cooney, T., Balancing Acts: American Thought and Culture in the 1930’s, Twayne Publishers, 1995.

Hurun Research Institute, Hurun Wealth Report, April 2010 Leibenstein, H., “Bandwagon, Snob and Veblen Effects in the Theory of Consumers’ Demand”, The Quarterly Journal of Economics, Vol. 64, N°2, 1950, Louis Vuitton, Fighting Counterfeiting, 2007 Richemont, Annual Report and Accounts, 2009 and 2010 Sicard, M-C., Luxe, mensonges & marketing, Pearson Education France, 2003

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Tungate, M., Luxury World, The past, present and future of luxury brands, Kogan Page, 2009 Veblen, T., The Theory of the Leisure Class, Penguin Classics, 1994 Wilcox, K., Kim, H., and Sen, S., 2008, “Why do Consumers buy Counterfeit Luxury Brands”, Journal of Marketing Research, Volume 45.

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