The new luxury strategy
Creating buyer value at scale through curation, craftsmanship and product portfolio
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In the past decade, luxury brands enjoyed quick growth (from 2019 - 2023 sales grew thirty percent), and did not think what will happen when this growth slowed down. It inevitably does: markets get saturated as new entrants and legacy players set to capture the opportunity and grow through entering new markets, targeting wide audience, and opening new stores.
Paired with market saturation is the loss of luxury’s soft power. Luxury's soft power - desirability of items that protects luxury’s high prices and powers demand - is tied to its social and cultural capital. To regain its desirability and rebuild this capital, luxury industry needs to modernize its approach to product, merchandising and brand communication.
Producing less, and making items less available, is a way to increase their value and justify high prices. But, as Diane Rovel, a fictional character at the top of the world’s biggest luxury conglomerate in La Maison TV show, said, “please don’t talk to me about de-growth.”
Failing that, in economies where supply exceeds demand, best way towards long-term growth is to increase luxury market not in volume, but in buyer value. Aspirational markets are not a zero-sum game. Buyer value protects pricing power, as consumers are willing to pay premium for value they think they cannot get anywhere else.
To create buyer value, luxury brands create and nurture their differentiation in the eyes of consumer.
In the period of luxury’s rapid growth from 2019 - 2023, brands in the sector offered value at the price level accessible to the majority of buyers in the market. This value-creating strategy backfired once the price increased and aspirational shoppers stopped spending.
Now, luxury brands need to try something different. They need to create a new market (e.g. for pre-loved items, for NFTs, for art or gastronomy or hospitality); a new use scenario (e.g. sports collaborations, PRADA’s space suit); or to redefine what consumers are ready to pay for (e.g. hand-crafted product, superior service, personalized communication, exclusive access, invite-only membership). All three revolve around creating buyer value through product, merchandising, and cultural influence.
Product
Craftsmanship in luxury is a must-have, not a nice to have. It is the product truth, not a marketing activation. Luxury brands grew out of the exceptional product design, and the enduringly profitable luxury brands pursue product-led branding. It is not accidental that luxury brands who kept growing amid wider industry slowdown are those that have stayed close to their product creativity (Prada and Miu Miu), craftsmanship (Bottega Venetta, Hermès), or quality (Brunello Cucinelli).
All of them still influence how people dress, and put forward low-tech displays of human originality, ingenuity and creativity. To save this creativity, luxury brands have to radically reimagine it, and to modernize the organization around it. The model where a creative director staged presentations of their work for buyers and media has been stretched to its limits, with diminishing returns. No single individual can come up with the completely original, imaginative ideas every few months, consistently, for years. But a whole group of people might.
“I want to create a kind of market where various creators from various fields gather together and encounter each other in an ongoing atmosphere of beautiful chaos,” Rei Kawakubo told Dazeen in 2018. Just like an entertainment company pulls in the different talent to deliver a movie or a television show, luxury companies need to do the same - to create an entire network of creative, artisanal partners and innovators. Moncler Genius model refreshes its output by creative collaborators from a wide range of cultural fields; Prada Mode is an “itinerant gathering” for a selected group of invitees, and Prada Invites is a series of creative projects organized around the brand’s foundational nylon fabric.
Merchandising
Social and cultural currency of luxury items is easily devalued due to reverse network effects (e.g. Soho House Membership became way less coveted as the number of members increased, and a pair of Balenciaga sneakers became less covetable once everyone had it). To avoid it, luxury companies have to maintain and grow their distinction as they scale.
To maintain scale, key is for luxury brands to attract a wide customer range without seeming mass. When they are mass, luxury brands are criticized for their size, taste and lack of focus. This is also a curse of mature markets that have many different segments, which a single brand cannot successfully capture without somewhat diluting their offering.
Best way to avoid dilution is through product diversification, where everyone wears a luxury brand’s clothes but they are still exclusive and unique. In this growth scenario, luxury brand becomes an umbrella for a portfolio of limited editions, capsules, hero products, icons, classics, collaborations, collectibles, foundational items, and seasonal collections. Product portfolio allows a large part of customer base to own something unique, and limits the number of people who have the same thing.
In the portfolio approach, social media visibility becomes an asset instead of liability. Limited editions, exclusives, or restricted product styles, colors or fabrics drive brand halo instead of reverse network effects.
Having a product portfolio versus a simple product pyramid creates both a product universe and a lot of entry points into the brand. Limited editions, capsules and one-offs often lure new customers in. Icons and classics are a constant draw to the new generations. Trend-driven assortment attracts trend-driven customer. Like Marvel Cinematic Universe, product universe has its heroes that can operate individually or together, as well as supporting characters. Product universe does not limit a brand’s portfolio just to its core product offering: it opens it up to furniture, interior design, beauty, food, vintage, books, spirits or experiences, expanding the size of addressable and market providing avenues for further growth.
Portfolio creates illusion of scarcity amid ubiquity. Each product category in the portfolio focuses on a specific type of customer and gives them the superior selection of choices within that vertical. “Prada’s positive performance was supported by a well-balanced category mix: newness and icons continued to sustain leather goods, while creative dynamism drove ready-to-wear and footwear traction,” noted Patrizio Bertelli, Prada Group Chairman and Executive Director. Prada has a considered product universe.
Luxury brands with a considered product universes have a clear knowledge of what percentage of revenue goes to icons, classics, hero products, limited editions, and the rest of the product portfolio, and plan their inventory and channel allocation accordingly. Through its universe, they increase their hold on the market and fend off competition through a full range of offerings. At the same time, because the offerings are limited, product portfolio reduce the number of options in each category, preventing the negative effects of choice overload. It also organizes options in a nimble and responsive manner. If some parts of the portfolio are under-perfoming, they can liquidated without jeopardizing the brand.
Product portfolio increases the number of bets, reduces risk, preserves cultural currency, and organizes the brand around the inherent unpredictability of people’s tastes.
Cultural influence
Luxury brands are curators of taste, aesthetic, a rarefied lifestyle (at least, most successful of them like Prada or Cucinelli still are). They are tastemakers and cultural voices that set the cultural agenda, influence how people dress, and create new trends - not follow them.
Curation is the core product that a luxury brand is selling.
Curator brands are hard to imitate because they insert themselves into an aesthetic world with a strong cultural association (literature, food, design, film, photography, gender, sustainability, etc). Miuccia Prada is a taste arbiter beyond her product designs. Her taste filter expands into a curated selection of art, literature, film, photography, experiences, all living in the Pradasphere. So is The Row, Nanushka and Toteme. Brunello Cucinelli is known for citing Horace, Cicero, Socrates and Aristotle and meditating on the idea of humanistic capitalism. All of these brands are creating ideology around their aesthetics and myths around their taste: The Dream of Solomeo is a celebration of a lifestyle, humanity and betterment.
William White, a new lifestyle brand from William Cooper is a curated lifestyle above all. Homewares, furniture, kitchen accruements, apparel are all made in limited editions (10 to 20) and executed with gentleness, care and craft (Cooper makes all William White clothes in the same NYC-based factory that makes garments for Thom Browne and The Row). The idea is to provide everything that one needs to live well - and a philosophy to match.
Taste creates a powerful, multifaceted brand world. It is also a necessity: luxury brands are consumed together with everything else in culture - gastronomy, experiences, theater, art, entertainment, photography … and have to credibly play in all these fields. When a company’s business depends on social and cultural currency it creates, best is to create an entire portfolio of cultural products, across cultural fields. Starting point in building this brand world is to ask, how can our brand aesthetics and ethos be told through different cultural areas?
Outside of luxury, Hauser and Wirth, 032c, or A24 are good examples. A24 creates an entire culture - a curated mini world - around each of their movies. These mini worlds combine thematic merch with evergreen cultural products like zines, books, action figurines and membership supporting it all and providing continuity to A24 world.
Curator brands protect their entire product portfolio’s pricing and profit. By providing a filter, a narrative, and a common thread throughout the differentiated product offering, curation also holds the product portfolio together. Thanks to curatorial eye of a luxury brand founder or a creative director, product universe is in harmony and feels like a coherent whole.
Conclusion
Challenge of global luxury brands is not that they put forward an obsolete aesthetic or irrelevant style. It is that there is no longer one predominant aesthetic or style.
Consumer tastes are ever more niche. Amid micro-taste communities, luxury brands are unavoidably perceived as too generic and superficial. To avoid this perception, luxury is tasked with creating buyer value through creative portfolio of products, merchandising and marketing.
Creating buyer value is even more pressing in the aspirational economy, where consumers consider and evaluate luxury products together with art, design, entrainment, experiences, hospitality, memberships, belonging, gastronomy, self-actualization.
Right now, luxury brands pursue the high differentiation, low durability strategy. Differentiation they provide is only temporary and lasts as much as creative directors’ tenures: it is based on newness, trendiness, brand reinventions, and marketing and PR hype.
Instead, they need to pursue the high differentiation, high durability strategy. Here, differentiation is not achieved through expensive marketing, new creative director hires or expensive shows and experiences. It resides in reorganization of processes and resources that create superior buyer value delivered through product creativity and quality, portfolio merchandising strategy, and taste making cultural influence.
Product, merchandising and cultural influence power consumer desire and protect high prices. Every new collection, event, experience or product release leads to new sales, new customers and the strengthening of the overall brand perception.
Expanding the list of variables correlated to why consumers decrease their purchases of luxury goods would be helpful. The variables are many and included most recently the socioeconomic status shift from a great number in the middle class to the lower class. The change was predicated on flat wages and increasing prices. With that in play, less luxury items can be purchased by those who may have done so in the recent past. This most directly affects the volume of luxury goods consumed.
Limiting inventory to create demand will only lead to artificially creating demand (and might justify the already existing price increases). Totally agree that craftsmanship is a requirement and expected when it comes to anything luxury and should go without saying. I think it is an interesting take to see how these brands can grow and expand by creating other experiences and product diversification. I think that it might be easier to execute at smaller aspiring luxury brands than at the larger conglomerate brands. It is going to be interesting to see how the LVMHs and Kerings of the world try to regain some of the market share that they have lost.