Читать книгу The Road To Luxury - Blanckaert Christian - Страница 13

The strategic response to the crisis was not easy. It showed that the evolution of the luxury sector was still wide open. Transformations were taking place. Luxury could not be defined as it had been before. Brands had to reposition themselves during the crisis, adopting starkly opposing strategies.

The response to the 2009 crisis was varied. A change in consumer behavior was observed during the recession, wherein consumers spent a lot more time comparing prices of various fashion brands. Thus, the conversion of a potential customer into an actual customer required more time and resources. Before, a consumer bought 10 products, but now he or she buys just one, and only after careful deliberation.

The broad strategies adopted by players during and postrecession involved two fundamental orientations: internal and external. Internal strategies, as the name suggests, were internal to the company and were those that were not visible to the consumers, whereas external strategies were those that were undertaken to gain the consumer's attention and buy-in. The internal strategies included cost-cutting, greater focus on the product quality, financial restructuring, and downsizing. Bernard Arnault described it thus: “a natural tendency of companies during a crisis such as the one we are in now is to cut costs, drop prices, and stop expanding, because it has the most immediate impact on numbers.”6

The external strategies included expansion in terms of both product offering and geography, repositioning, upscaling of the brand to tap the richer among the super-rich, or downscaling to recruit a larger customer group.

In response to the crisis, as a knee-jerk reaction, some luxury brands tried hiring freezes, reducing the number and the size of the collections, rationalizing media spending, and reducing headcounts. It was felt that dropping prices and cutting costs were the last resorts. The press referred to it as cost containment. For example, Dolce & Gabbana slashed its prices by 10–20 percent. At the same time the company began a search for alternative low-cost stitching techniques and reduced spending on advertising (returning to low rates of 20 years before). Stella McCartney closed its boutique in Moscow just 18 months after it was opened. Richemont closed 62 stores, mainly in the United States, while Burberry absorbed heavy charges on its Spanish stores. In November 2009, Burberry unveiled a cost-cutting program, which resulted in the closure of the Thomas Burberry collection. It hoped to generate infrastructure efficiencies by shutting down six stores and reducing headcount by more than 1,000 people. All this cost Burberry $6.7 million in the period, with the hope the company would generate savings of $77.8 million. In response to the slowdown of Asia, their key market, Burberry announced in September 2012 that it would freeze hiring, lower travel expenditures, cut marketing spending, and defer IT projects. Estée Lauder followed a four-pronged strategy with layoffs of about 2,000 employees, freezes in pay, discontinuations of non-profit-making brands, and cuts in discretionary capital expenditures of 25 percent.

Contrary to the cost containment approach, Bernard Arnault stated, “What we have learned in the many crises we have been through is that this (cutting costs) is a mistake, especially when it comes to luxury… If you don't put your products on sale, consumers feel they are buying something that retains its value… Even during tough times we can continue to invest and during the crises I went through in the past 20 years, we always gained in market share.”7

Different companies tried a different set of strategies to reposition their brands. Christian Dior exited its logo and accessory product business as it pursued an upscaling drive, in the hopes that the super-rich would not be affected by the crisis. Coach, which happened to be in the heart of the subprime crisis in the United States, felt that “normal” buying behavior among consumers had experienced a shift and consumer spending levels would never return to what they had been precrisis. Thus, an internal change in the company itself was required. Coach explored lower price options for the consumer, providing them with a larger range of accessible products. Driven by a similar thought process, Swatch and Ralph Lauren also launched products at lower price points. To reduce costs, some brands took their manufacturing operations to low-cost regions of the world. Prada and Burberry shifted their manufacturing base to China for certain products. Louis Vuitton considered building a shoe factory in India.

Armani suffered a 41.4 percent drop in its net profits in 2008–2009. Dior experienced almost flat sales through the recession, and Burberry, which opened stores in India, the Middle East, Macau, and China, posted a loss of $8.8 million in 2009 compared to a profit of $232.5 million in 2008. Some companies, on the other hand scaled down their operations. For instance, Dolce & Gabbana scaled back their operations in Japan. As an LVMH executive summarized, “Before the crisis, we were putting a lot of energy into beautiful stores, but now we care a bit less about expanding our network and even more about design and price.”8

However, some companies decided not to compromise on such factors. One of the major winners from the crisis, Bottega Veneta, had a very different strategy: The company decided to not change its positioning at all. Bottega Veneta continued to manufacture its products in Italy and invested in its artisans to ensure that they continued to produce traditional, quality output. The idea was to ensure that their product was exclusive enough to merit the premium price they intended to demand. It held steady and stuck to what it was best at – finely crafted products with clean, classic lines. This ensured that the brand was two steps ahead of its panic-stricken competitors. IWC also practiced this philosophy. It utilized handmade craftsmanship, limited distribution, and impeccable service. Hermès manufactured its leather goods and silk products in France and Italy and did not resort to production in China. Not only did some companies try to deliver unmatched service quality, but they also standardized this service quality across continents. This ensured that the consumer walking into an outlet in New Delhi would not get a different experience from one walking into an outlet on Rodeo Drive or the Champs-Élysées. Ritz-Carlton and HFS were brands that worked on the parameter of service excellence.

Continuing with varied strategic response, some brands saw the crisis as an opportunity and expanded through (1) widening or spreading to new geographies, and/or (2) launching new products. Notable among those companies that expanded geographically (or widened its base) were Prada, Hermès, Bottega Veneta, and Christian Dior Couture.

Prada, in 2008–2009, undertook its most aggressive investment plan. It hoped to get out of the crisis with a very strong distribution network. Having seen earnings slide by 22 percent in 2008, the company saw heavy increases in revenues and profits from 2009 onward. Hermès, like Prada, expanded during the crisis. Hermès opened stores in Manchester in England, Las Vegas, Japan, India, Wuxi in China, and Busan in South Korea during that period. Hermès was known for weathering the crisis rather gracefully.

During the recession some brands launched new and special products while simultaneously trimming their overall product lines. This resulted in fewer offerings and simultaneous price increases on both existing and new products, stimulating consumer demand and generating market interest, discontinuing low-margin products, and increasing prices in some product categories. Some companies ventured into new products and product lines (deepening), whereas others consolidated their brands under one umbrella. Burberry ventured into a new product line with a stand-alone children's store in Hong Kong, Bottega Veneta ventured into watches, and Versace launched a new fragrance, Gianni Versace Couture. Brioni reacted to the crisis by including more accessible items in its product range of suits such as T-shirts. Coach kept the prices of its regular lines stable, but introduced new lines, such as the Poppy handbags, to cater to a less affluent segment. Estée Lauder moved away from a strategy that fostered competition among various brands. It believed in following a more synergistic and coordinated policy of brand interdependence rather than competition. Its aim was probably to make the consumer feel that its brands were complementary in nature rather than supplementary. By maintaining or increasing prices for example, these brands resegmented their consumers and were more likely to pick up market share after the recession. Francois-Henri Pinault, CEO of Kering, was of the opinion that “There's a new perception of luxury, a more discrete sophisticated luxury where notions of heritage and craft play a big role.”9

During this period many consumers had to cut back on their purchases, and many sensed that it was not appropriate to show off with obviously expensive products. It was something that only traditional, artisanal, and legitimate houses could uphold. Brands did not act at all but kept true to their values and their traditional offerings. These included Hermès, Harry Winston, IWC, Chanel, and Patek Philippe.

Some brands explored new channels to deliver their products to the customer. Gucci and Ralph Lauren adopted the QR code. This was an image that shoppers could scan and download through their camera phone to obtain more information about the product or make purchases via their phone. Cartier adopted advertising through mobile phones. Companies like LVMH and Gucci also adopted online retail as an option for selling their products. This was quick to gain acceptance in Japan, where 20 percent of consumers make their purchases online.

Some brands diversified during the recession to strategic but complementary businesses or acquired greater control of their current businesses. From 2000 onwards, most if not all luxury brands, be it multibrand conglomerates or family houses, expanded horizontally into different traditional luxury categories. For example, Louis Vuitton expanded into fashion, high jewelry, and watches. Montblanc expanded into watches and jewelry. Chanel diversified into high jewelry. Salvatore Ferragamo expanded into fragrances and accessories. During the recession, Louis Vuitton, Bulgari, Armani, Missoni, and Trussardi diversified into a nontraditional luxury goods category with the opening of luxury hotels. Moreover, brands acquired greater control of their core businesses to integrate vertically, purchased key suppliers, and bought back licenses and franchises to increase efficiency, control their brand image, and generate superior margins.

Some companies tried to understand changing customer needs during the recession. For instance, Diageo noticed that people reduced their consumption of alcohol outside their homes. Thus it launched premixed cocktails such as Smirnoff Tuscan Lemonade for home consumption. Ritz-Carlton coined Mystique, its CRM system, to keep a closer tab on the consumers' pulse. Taking this flexibility a step ahead, some companies let the consumer guide the company, rather than the other way a round (which has been the norm in luxury branding). For instance, Nordstrom was lauded for its policy of refunding money to dissatisfied customers.