Saturday, 22 November 2008
New article for Mediacat
QUALITY, LUXURY AND VALUE
There’s a sharp recession starting in the UK at the moment. Of course there is a global financial crisis, high fuel and food prices, and knock on effects on export markets, tourism, currency – so people in many places (but not all) are feeling it too.
Because of this it’s not looking a particularly great time to be a luxury brand at the moment. The truly wealthy have been hit harder than anyone else in the credit crunch. These are the people who were heavily in debt, bought lots of shares, had big property investments, put money into hedge funds and generally lived on speculation. What went up has come crashing down. In Moscow, which had more millionaires per head of population than any city in the world, things have gotten so bad that some high end restaurants have stopped accepting credit cards.
Where does that leave luxury brands? On the whole in quite a lot of trouble. Management consultancy Bain predicted last month that the global luxury market will be down up to 7% next year. Contrast that with the many years of growth, buoyed by a new mass market for high priced shoes, wines and perfumes plus the growth in markets such as Brazil, China, India, Dubai and above all Russia.
It’s worth understanding what kind of trouble exactly because very large parts of this downturn will be driven by positioning and psychology, not just raw economic necessity.
Here are the key luxury backlash insights:
Sacrifice. People are looking for highly symbolic signs to themselves that they are getting their finances under control, reducing credit, not spending on inessential items.
Inessential. “Luxury” as a word carries the connotation of something extra – something you can live without. It’s nothing to do with premium pricing on its own. There are two markets in so-called luxury goods – essential and inessential. People reading this may be cautious about buying a new luxury watch, but I seriously doubt many are considering buying cheaper suits.
Ostentation. American trend guru Faith Popcorn said recently: “if you go up Madison Avenue [in New York], past Fendi and Prada, those stores are empty. Women are shopping in their own closets. You feel shame in buying even if you can buy.” Even if you can still afford it swilling champagne while others lose their jobs is suddenly a very antisocial and unpopular choice.
But it's not necessarily the case that luxury brands will all be hit equally hard. That’s because there are other ways to position luxury than “luxury” and this is where sustainability comes in.
A number of recent studies have shown that every €1 spent in the shops equates to 1kg of carbon emitted. It barely matters if you buy a carrot, an iPod or a car, the embedded carbon (the emissions due to raw materials extraction, manufacturing, transport and disposal) are similar. There are differences and of course some products use energy (cars, lamps) while others don’t (sofas, shoes). But broadly speaking the cost in energy and raw materials to make something is usually very closely related to its price. The result is 'the rebound effect' when people save energy and save money, find they have a few pounds left in their pocket and spend it on something else. So that their carbon footprint actually doesn't change. The exception? Luxury goods.
Luxury goods are much more eco friendly for the following reasons, which also are potentially antidotes to the backlash against luxury:
Responsibility. Luxury goods attract very high premium prices. Like art you are not paying just for the paint and canvass you are paying for the aesthetic pleasure. Hence the carbon/money ratio is much lower. Economically they are like the idea of carbon sequestration – they are attracting and locking up money that could have been spent on many more disposable items.
Longevity. They are very well made, durable, and are so expensive that they are worth repairing. Some luxury goods are fashion items which are hence used for a short part of their potential lifetime. Or are consumed (like perfume, wine). But many are ‘classic’ items which are bought with the mindset of a collector and can become heirlooms. A great pen will last you a lifetime. You treasure them.
Value. Luxury goods are also commodities which can retain value. When currency is unstable people rush to convert any money they have into commodities – the classic example being gold. My own ‘luxury’ weakness is vintage music synthesizers. Can it be a coincidence that the prices in this market appear to have nearly tripled in the last year. We have not yet – touch wood – seen new bursts of hyperinflation, but with current levels of American and other government borrowing it is a very real possibility. When currencies go crazy, people will need other stores of value. If you owned a famous painting in the 1920s and 30s you’d be in a much better position when the economy recovered than if you owned a savings account with the equivalent amount.
Philosophically luxury goods divide those working with green marketing. Some hold them as the emblems of rampant, irresponsible consumerism – everything is trying to be a luxury good, everyone to live like a royal family (once only the rich drove cars) and it is this aspiration on a mass scale which is stripping our beautiful natural world. Others - and I might be one of them - see a future that resembles the ancient world – where an appreciation of a few fine things was mingled with a culture of the beauty of simplicity, true appreciation of nature, and a thriving intellectual culture.