DEMOCRATIZATION OF LUXURY FASHION APPAREL TO MIDDLE-MARKET CONSUMERS: HOW DO LUXURY BRANDS DIFFERENTIATE? Prepared for Laura Dunn, Instructor ENGL U3304 Northeastern University Prepared by Léa Pernet Undergraduate Marketing Major Northeastern University February 22, 2012
1 INTRODUCTION From Karl Lagerfeld s collection for H&M to Chloé s lower-end brand See by Chloé, fashion luxury brands are without a doubt finding more innovative ways to offer their products and promoting their image to a new market; the middle class. Developing more accessible luxury lines emerged as a new business strategy in the early 2000s, many designers saw this as a profitable opportunity and began to incorporate this democratization strategy into their business plans (Faurholt, 2008). This phenomenon seems to respond to an inevitable trend, yet, it raises significant issues in terms of brand image for the luxury fashion apparel industry. Luxury brands became skeptical about the impact of these collections on their own exclusivity image and worried that the barrier between luxury and ordinary would become blurred (Flur, & Branston, 2011). Therefore, the issue for such brands is now to find a way to protect their luxurious and exclusive character within a democratization process. This report will analyze how democratization of luxury fashion apparel responds to a trend, as well as the financial and consumer behavior factors which lead luxury brands to open their goods to a wider public. The different methods to democratize luxury goods to the middle-class will also be analyzed, as well as the opportunities and risks associated with them. Finally, this report will discuss the strategies for luxury brands to redefine exclusivity and protect their brand image within their democratization process. FINDINGS The rise of democratization of luxury fashion apparel Luxury fashion brands have always targeted their products to middle-class consumers for a very obvious reason: there is a market for them. Indeed, the biggest luxury expenses come from rising middle class and new money households (Bellaiche, Mei-Pochtler, & Hanisch, 2010). What is more, for both of these segments, at least 50 percent of their luxury expenditure is spent on fashion apparel, leather goods and accessories (see exhibit 1). Therefore it is natural for luxury fashion companies to address their collections not only to upper class but also to middle class consumers. But why offer them more accessible lines when their buying pattern suggests they would be ready to pay the price of luxury? In fact, it seems that a change in the consumer behavior of these two segments has pushed luxury brands to review their strategy. In the 1990s and the early years of this decade, consumers in these segments viewed luxury items as status symbols. More recently, however, many of these consumers especially those in mature markets began to question why they buy luxury goods (Bellaiche, Mei-Pochtler, & Hanisch, 2010). The crisis, of course, can only have emphasized this trend of a more considered buying behavior from the middle class. This is perhaps one of the reasons that have lead luxury fashion brands to reassess the way they approach these profitable segments. Another possible explanation comes from the rise of working women. Indeed, in a recent report, Euromonitor International (2011) analyzed that rising disposable incomes mean that
2 women have more discretionary income to spend on non-essentials or luxuries for their own personal wellbeing. The Boston Consulting Group confirmed this theory and drew attention to the fact that women are responsible for approximately 80 percent of a household s luxury expenditures, most of which are spent on themselves (Bellaiche, Mei-Pochtler, & Hanisch, 2010). With such figures in mind, women appear as the most influential segment in the purchasing of luxury fashion goods. This idea may indicate that there has been a change in women s purchasing behavior, consequently forcing luxury fashion brands to democratize their products. And indeed there is. Women feel more need to show their sophistication through clothes and accessories in the workplace, but are starting to consider luxury fashion apparel too expensive. The commonality of affordable and fast fashion has lead them to come to terms with wearing nice designs at a more affordable price (Euromonitor International, 2011). Without a doubt, luxury fashion brands have had to react to such radical change in consumer behavior and respond to the threat of fast and cheap fashion by offering a valuable alternative to the middle-class consumers. Thus, many luxury brands have entered the era of new luxury, also referred to as mass luxury or affordable luxury, where they develop more affordable lines to middle class consumers. Two main strategies stand out: partnerships with global retailers and creation of little-sister brands. Little sister-brands, also referred to as sub-brands or endorsed brands, are line extensions of luxury brands, characterized by lower-end material and a more affordable price than the main luxury line. Think of them as children of their more established parent brands (Slavkina, 2011). Partnering with global retailers is a different process by which the retailer typically approaches the fashion brand, and designers from the two companies work together to create a line that is representative of both. To bring prices down, the designer labels use cheaper materials and simpler embellishments. (Chang, 2011). Luxury fashion companies have been using both strategies more and more in the past decade (see exhibit 2), most probably as an answer to the changes in consumer behavior described above. Opportunities of democratization As a consequence, by democratizing their products, luxury fashion brands benefit from considerable sales increases in volume. Target's launch last week of its exclusive Missoni line, for instance, led to Black Friday-type crowds and crashed the company's website. Nearly all the merchandise, priced from $3 to $600, sold out in days (Chang, 2011). But what are the opportunities that democratization offers, beyond financial gain? Firstly, democratization has proven to be an effective way for luxury brands to modernize their image. Versace is one of the most relevant examples; the brand which was considerably lacking publicity must have seen the partnership with H&M as a perfect opportunity. It is no coincidence that Versace has teamed up with H&M only months before it is to make its return to the runway with a haute couture show planned for Paris in January 2012 the designer's first couture show in seven years. The H&M collection has put Versace firmly back on the fashion radar at a crucial time for the business (Kondej, 2011). Versace, by partnering with H&M was able to directly approach its younger customers and promote a more dynamic image.
3 Moreover, as Euromonitor (2011) reported, women will increasingly move into positions of leadership, and thus their earnings and discretionary incomes will rise. Offering their products to middle class consumers might be an efficient way for luxury brands to attract future upper-class customers (Flur, & Branston, 2011). Having had a first experience with the brand through their little sister brand, or a partnership with a retailer, will likely lead them to return to the main luxury brand when their income enables them to. " If you sell a Missoni dress to a 25-year-old now, Sozzi said, maybe in 10 years, they'll remember that Target piece and will go out and buy a full-price Missoni piece when they're making more money " (Chang, 2011). Brand image risks Although luxury apparel companies can greatly benefit from democratizing their products, this process can also markedly hurt their brand image. By offering more affordable collections, luxury brands risk putting their exclusive and luxurious image in danger. Little-sister brands have been proven to have a damaging impact on the luxury brand image. In a recent survey conducted with 200 participants, the overall brand appreciation was less positive for luxury fashion brands which own a little sister brand, and better for luxury brand which do not own any. The presence of these lower-end line extensions was estimated to explain 38.8% of the difference in brand image evaluation (Magnoni, & Roux, 2011). Therefore, luxury fashion companies might lose brand attractiveness if they launch a littlesister brand. What is more, Florence Magnoni and Elyette Roux s study highlighted another significant concern; the decrease of brand appreciation is even more apparent in current customers of the brand, who devaluate the brand image by 75.9% more than non-clients. Moreover, clients purchase intention seems to decrease by 34% when a little-sister brand is launched. Therefore, with such brand extensions, luxury companies risk not only to deteriorate their overall brand image but also to lose sales from their current core upperclass customers. Although luxury brands partnerships do not seem to have a negative influence on the brand, this democratization method might result in a misinterpretation of the brands intent. For example, a few days after the launch of Missoni s collection for Target, all the stores were out of stock and consumers criticized the designer and the retailer for having voluntarily under-stocked in order to create a buzz (Chang, 2011). In this case, Missoni s effort to offer its products to the middle-class had a reverse impact on some consumers who viewed the brand as arrogant and too selective. Karl Lagerfeld experienced a similar disappointment when he launched his collection for H&M as he recalls in his interview with Vogue, They did not make the clothes in sufficient quantities. I find it embarrassing that H&M let down so many people I don't think that is very kind, especially for people in small towns and countries in Eastern Europe. It is snobbery created by anti-snobbery." Paradoxically, the retailer s decision to produce the line for a wider range of consumers sizes offended the designer: What I designed was fashion for slender and slim people. That was the original idea." (Vogue, 2004). In both Missoni and Lagerfeld cases, the lesson learnt is that the world
4 of luxury and mass retailing are difficult to combine and the effect it will have on the luxury brand s image could end up being the opposite of what the designer had initially intended. More generally, whether by creating lower-end brand extensions or by partnering with global retailers, the phenomenon of luxury democratization has become more common. Such processes have notably increased these past ten years (see exhibit 1) and such incentives seem to yield less and less excitment for consumers (Kondej, 2011). Consequently, the risk is considerable for luxury companies who seek on the contrary to create a hype around their brand. Brand strategies: redefining exclusivity The aforementioned risks confront luxury fashion brands with a paradoxical dilemma; how to promote an exclusive image while opening the collections to a wider market? This has lead marketing and brand management specialists to rethink the concept of luxury and to attempt to draw strategies that protect the identity of the brand within a democratization process. In most discussions, three strategies seem to stand out; redefining luxury, focusing on making the customer experience the brand s universe, and communicating effectively about the democratization itself. First of all, while luxury brands democratize themselves, they must put particular attention at protecting their exclusive image. But how does a consumer identify a brand as luxurious if price and scarcity do not come into account? For many specialists, luxury is a combination of a history and an advanced creativity, which both define the identity of the brand. Successful luxury brands have a history they hold on to in their communication (Tungate, 2009). Chanel s collections are still inspired by the myth of Coco, Lancel still respect the spirit of its creator, Angèle. Another eloquent example is Gucci, which recently centered its communication on its origins of Florence craftsmanship. Without a doubt, history defines the identity of a brand. Contrary to global retailers whose communication focuses on products and price, luxury companies put a lot of emphasis on promoting the universe of their brand, their customers do not want to buy only a dress, they want to buy the image it carries (Slavkina, 2011). Quality and consistency of the designs to the brand s universe are therefore of premium importance: By reemphasizing the quality of their goods and highlighting the rich creative process that designers and their teams undertake for each collection, companies can distance themselves not only from ordinary retail but also from their competitors. Indeed, the inherent value of luxury is very much a function of the uncompromising standards of its creators, who, by insisting on superior design and craftsmanship, can help make their brands unique and authentic and thus help restore the mystique of luxury. (Bellaiche, Mei-Pochtler, & Hanisch, 2010). The first advice for luxury fashion brands in a democratization process would therefore be to identify and thoroughly investigate the history that forges their brand. For an effective positioning, the collections of the luxury brand, whether it is at the higher or lower level; should always reflect that history in a consistent way. Once the universe of the brand has been clearly identified, it must be promoted efficiently in order to differentiate it significantly from the lower-end competition. For many experts, such
5 successful communication relies on interaction between the customer and the brand; the differentiation is emphasized through experience, Rather than exclusive being the clientele the brand attracts, it should instead be the experience the brand conveys. (Canon, 2011). The most obvious entry to the brand s universe is the store, premium store environments are still key to luxury positioning (Flur, & Branston, 2011). Therefore, even if the brand offers lower-end lines, a customer who enters a boutique should be able to associate the brand with exclusivity. But there are other areas where the brand can interact with the consumer; companies can also capitalize on this trend by providing value-added services such as delivery, custom tailoring, personal shopping, small in-store gifts or amenities (like coffee and chocolates), or concierge services. Companies can also add a participatory dimension to their brands by sponsoring events and activities, perhaps involving the arts or philanthropy. (Bellaiche, Mei-Pochtler, & Hanisch, 2010). Whatever the contact with the client, the experience must reveal the brand s universe. In luxury ( ) it is necessary to innovate, to surprise, not to repeat yourself endlessely, even while remaining faithful to your identity. (Kapferer, & Bastien, 2009). But perhaps the most efficient solution to protect the brand s identity in its democratization process is to communicate to its consumers with honesty and without shame. Carven for example has successfully used this strategy and passed the message that the brand came to terms with democratization. The brand identifies itself as affordable couture and therefore its collaboration with H&M seemed natural. By using consistency in its design, Carven is stocked in 50 countries across 400 independent boutiques and department stores worldwide and growth has been happening at a double-digit rate. (Guicciardi, 2011). Perhaps customers are responsive to honest communication and would rather buy from a brand which is consistent in its actions and sayings. Lanvin, in a way that may appear more subtle, also decided to communicate openly about its democratization strategy by particular attention at separating roles between the designer and the retailer. Indeed, the creator, Alber Elbaz explained that Lanvin was not going cheap but rather H&M was advancing to a more luxurious end (Chang, 2011). With such a communication orientation, the brand is selling more than a dress for less, but also legitimizes itself in its democratization process. Luxury fashion brands, which seek to democratize their products, must include a business plan that will protect their exclusive image and their identity as luxurious brands. All three strategies are without a doubt worth considering and should ideally be combined in order to ensure a durable differentiation from global lower-end brands. CONCLUSION Democratization is not only a profitable strategy for luxury apparel companies, it is also the way to go. New trends in luxury brands core consumers indicate a more considered purchasing behavior. Middle class consumers feel more comfortable buying more affordable fashion, and the crisis can only have accentuated this trend. As an answer to this threat, luxury fashion brands have increased democratization incentives by introducing little-sister brands and collaborating with global retailers. These two techniques enable the brands to modernize their image, capture potential long term consumers and of course, to generate considerable profits by increasing the sales volume. However, democratization may also deteriorate the brand image of luxury brands.
6 By offering lower-end collections to a wider range of consumers, luxury brands might lose some of their mystique and exclusivity. Therefore, it is crucial for luxury fashion to implement strategies that protect their exclusive image during their democratization process. Centering communication around the history of the brand will enable it to not to lose its identity. Moreover, brands should communicate tactfully and with honesty to their consumers, in a way that is valuable to them. It seems that consumers are looking for experiences that will link them to the brand s universe. Recently, corporate social responsibility stood out as new a way to raise the brand s profile and build customer loyalty (Bellaiche, Mei-Pochtler, & Hanisch, 2010). Ideally, luxury fashion brands should combine different strategies that will ensure their exclusive image while opening their lines to a wider market.
7 APPENDIX Exhibit 1: The Pattern of Luxury Spending Varies Widely Across Consumer Segments Exhibit 2: Democratization Timeframe, Little-Sister Brands and Collaborations with Global Retailers
8 REFERENCES Bellaiche, J.M., Mei-Pochtler, A., & Hanisch, D. (2010, December). The New World of Luxury: Caught Between Growing Momentum and Lasting Change. The Boston Consulting Group. Retrieved from: www.bcg.com Canon, E. (2011, May 4) Redefining Luxury. Fashion Collective. Retrieved from: www.fashionscollective.com Chang, A. (2011, September 24). Couture and cut-rate walk hand in hand down the aisle; Versace at H & M, Missoni at Target? Top Designers and Discounters Team up. Los Angeles Times. Retrieved from: http://articles.latimes.com Faurholt Csaba, F. (2008). Redefining Luxury: A Review Essay. Creativity Encounters. Retrieved from: http://openarchive.cbs.dk Female Breadwinners: How the Rise in Working Women is Influencing Spending Patterns. (2011, July). Euromonitor International. Retrieved from: www.euromonitor.com Flur, R., & Branston, A. (2011). New Luxury Goods Global Briefing: Luxury Brand Routes to Market: Exclusivity vs Expansion. Euromonitor International. Retrieved from: www.euromonitor.com Guicciardi, C. (2011, June 1). A Winning Combination in Affordable Couture. Fashion Collective. Retrieved from: www.fashionscollective.com Kapferer, J.N., & Bastien, V. (2009). The Luxury Strategy; Break the Rules of Marketing to Build Luxury Brands. London: Kogan Page, 24-25. Kondej, M. (2011, December 5). H&M s Love Affair With Designers Shows No Sign of Cooling. Euromonitor International. Retrieved from: www.euromonitor.com Lagerfeld s High Street Split. (2004, November 18). Vogue. Retrieved from: www.vogue.co.uk Magnoni, F., & Roux, E. (2011). The Impact of Brand Familiarity, Branding and Distribution Strategy on Luxury Brand Dilution. Université Pierre Mendès-France. Retrieved from: http://halshs.archives-ouvertes.fr Tungate, M. (2009). Fashion Brands: Branding Style from Armani to Zara. London: Kogan Page, 106. Slavkina, O. (2011, March 28). Diffusion Brands vs Parent Brands. Schmoozy Fox. Retrieved from: www.schmoozyfox.com