Janus Thinking

Time magazine is reporting on how luxury brands have taken yet another blow in the financial crisis. It is quoting a recent report by Bain & Company saying that the luxury market is expected to shrink by 10 % in 2009, with apparel being hit the hardest. This is apparent in the worlds upscale department stores where you can find racks upon racks, and sometimes entire collections of designs by Marc Jacobs, Chanel, Dior and Armani- to name a few- market down by as much as 40%.

With this in mind, the French couturier Christian Lacroixs’ recent filing for court protection from creditors (similar to Chapter 11 bankruptcy in the United States) on May 28, comes as no surprise. But despite this significant setback, Lacroix’s chief executive, Nicolas Topiol, has indicated in a recent statement that the brand will continue, saying “Since the acquisition of Christian Lacroix SNC, we have been committed to the brand and to its high-end development. We will continue to do so, but the sharp downturn of the luxury market has significantly hurt our revenues”.

Even though  clearly is indicative of the state of luxury over all, the financial crisis might not be the only factor to blame for it. Lacroix launched his label in 1987 with the financial backing of Bernard Arnault, chief of LVMH Moet Hennesy Louis Vuitton, and has seen 20 years of creative success, with a great influence on fashion. Despite this, Lacroix could never turn a profit, with a continuing inability to translate his unique high-end fashion flair into more accessible products, like fragrance, lipstick and accessories. Because of this, Arnault sold the brand to the Falic Group in 2005- at a time when luxury consumption otherwise was in full bloom.

Companies might need to turn the ways in which they communicate the benefits of their products on its head. Long lasting quality resulting in low cost-by-wear, as well as great second hand value, are recession friendly qualities that could be pointed out in a media climate where focus on ‘recession chic’ may leave a lingering distaste for conspicuous consumption and parading luxury labels.

This might be further proof that luxury consumption in the financial crisis is shifting in a Theta direction, with Thetas looking for designer goods that hold their value over time, and can be passed on to the next generation. As Lambda types instead feel that luxury holds its meaning- rather than its value- over time, they are less likely to be pursuaded by these kinds of arguments. Therefore it is still important to remember that there will always be space in the market for both Thetas and Lambdas, and although recession times might create a need to motivate consumption in new ways, long-term effects should be remembered in order to avoid alienating important customer segments.

Madison Square Garden, the world famous sports and entertainment arena in New York City, is developing a “supersuite” for the highly affluent segment of its clientele. The 5,000-square-foot suite will fit up to 300 people and is said to feature granite-topped kitchen islands, formal dining tables, full bars and a fireplace.

The cost of enjoying the supersuite remains to be confirmed as pricing decisions have not yet been made, but the Vice Chairman of MSG, Hank Ratner, has said the company is trying to learn from other sports venues who are cutting their prices in an uncertain economy. The Yankees, for example, have cut the price of over 100 front-row seats from $2,500 to $1,250 after seeing empty rows of the top-priced spots game after game.

But prices are still likely to be only in range for a select few. MSG is determined to pursue the development despite difficult financial times, and hopefully there are still enough people able to afford spending their money on this type of experience. As MSG itself is already a very strong brand on a global scale, it definitely has good prerequisites.

The supersuite is also likely to appeal to most people, whether they have Theta or Lambda worldviews on luxury. The self-focused Lambda would be attracted to the opportunity to show off his wealth in this one-of-a-kind environment. The Lambda would also be drawn to the freedom of movement and sense of independence that the suite would offer, as compared to even the most attractive seats. The socially-focused Theta would instead find it appealing as a means of gathering all of his friends and associates together in one place.

When something is scare and unique enough, people will pay a premium for it, whether there’s a recession on or not. This was eminently clear with the recent sale of the ‘Star of Josephine’, the 7.03 carat flawless blue diamond that sold at auction for £6.2 million earlier this month. It was the highest ever price paid per carat for a diamond at auction according to Sotheby’s. The buyer, Hong Kong property developer Joseph Lau Luen-Hung, named the diamond after purchasing it.

Here’s an interesting article on the state of the diamond market in Russia–they’re stockpiling diamonds while they wait for demand to return to protect the market in the long run. They’re also beginning to take charge in advertising diamonds generically the way De Beers used to. At the end of the article, the author sums up the major problem in the diamond industry, but also points to the solution:

“We have to tell people that diamonds are valuable,” [Aleksandr A. Malinin, an adviser to the president of Alrosa] said. “We are trying to maintain the price, just as De Beers did, as all diamond producing countries do. But what we are doing is selling an illusion,” meaning a product with no utility and a price that depends on the continued sense of scarcity where there is none.

At the Alrosa unit that receives diamonds, called the United Selling Organization, where about 90 percent of the output of the Siberian mines arrives for processing, Elena V. Kapustkina pours about 45,000 carats of diamonds though a stainless steel sieve every day to sort them by size.

“It’s just a job,” she said.

When asked whether diamonds had lost their romance for her, Ms. Kapustkina paused, looked down at the pile of gems on her table and blushed.

In fact, she said, her husband, a truck driver, gave her a half-carat ring 22 years ago. “Of course I love it,” she said. “It’s from my husband.”

I hope Malinin’s cynical comments won’t undermine the industry. The industry should really be focusing on people like Elena Kapustkina, who feel an emotional connection to their diamond. Understanding how people interpret luxury and how luxury can give people positive reinforcement will give marketers a distinct advantage–it’s the direction in which luxury marketing is going.

Following up on my last post, here’s Pam Danziger from Unity Marketing discussing the Luxury Consumption Index, trends in the luxury market, and what jewelers can do to capture market share in tough retail conditions:

We’ve seen many a doom-and-gloom story about the economy and the luxury market recently, so here’s one offering a glimmer of hope. Unity Marketing’s latest Luxury Consumption Index showed a slight improvement, meaning that affluent people are starting to feel slightly better about their economic situations. They aren’t necessarily willing to spend again–over 40% of the respondents still said they planned on cutting their spending on luxury over the next 12 months–but nevertheless, any improvement in attitudes toward luxury should be welcomed. People need luxury–it’s a basic human need. They need to find ways to express themselves through it.

Unity Marketing’s chief economist Tom Bodenberg expressed a worry though:

The media’s focus on ‘recession chic’ – personal expression that deliberately excludes luxury goods – may leave a lingering distaste for conspicuous consumption and parading luxury labels.

I disagree–whether something is ‘recession chic’ depends on one’s personal interpretation, and this does not deliberately exclude luxury. Luxury companies that provide true value–financially, emotionally or otherwise–will emerge from the recession stronger than before.