Economic Downturn

Luxury products as alternative investment

Isaac Mostovicz writes that that luxury consumers are putting their money into tangible goods...

With the rise in protests rebelling against supposedly growing inequality, and the palpable economic uncertainty in the West’s financial institutions, it might be assumed that luxury purchases would be seen as just that – a luxury that cannot be afforded given the current climate.

However, the luxury consumers disagree, as a recent Financial Times blog post highlights.

According to Bain & Co’s 10th annual Worldwide Luxury Goods Market study, 2011 is going to be a record-setting year for the luxury goods market, with sales increasing by 10% from their current value of €173bn.

Cartier gold bangle

Moreover, the demand is emanating from the very areas – Western Europe and the US – that have seen this recent economic uncertainty, not just the emerging markets of Shanghai and Mumbai. Bain predicts that sales in Europe will rise by 10% and those in America by 16%.

As unemployment continues to rise in these areas, it seems counter-intuitive that demand is so high, particularly in the very visible branded jewelry and watch markets.  However, Bain claims that this actually makes sense, and that the wealthy are eschewing volatile banks and devaluing bonds and instead putting their money into tangible (and portable) goods.

“…the affluent have adopted luxury products as a form of alternative investment.” (Financial Times)

In the Financial Time’s Vanessa Friedman’s words, they are “sewing their gold and silver and diamonds into their garments” for security, with branded goods remaining the most popular, despite a growing demand for understated and logo-free luxury.

That Cartier gold bangle?  It’s a serious business investment for the luxury consumer.

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US consumers start to spend again

Isaac Mostovicz writes that US luxury consumers are loosening their purse strings, with some restraint...

An ongoing research project of wealthy individuals is showing signs that luxury consumers in the US are feeling more willing to spend their cash.

During the recession, for the wealthiest people in society there was a feeling of unease about spending money, leading to dismal sales figures for the luxury sector. Gradually people are starting to ease up and spend more. Over the last year, the stock market has made some big gains that have helped provide a more stable financial setting to these high net worth consumers. Also, as the economic situation of the rest of America improves, there is less guilt and self-consciousness around flaunting wealth. During the downturn, there was perhaps a greater sense of community, of “we’re in this together”, and to swan around in a new luxury car would look distasteful.

Now that the things are on the up, the luxury consumers are back out in force, which is actually crucial to the economy’s recovery. In America, consumer spending is responsible for about two-thirds of the nation’s economy.

Although they are spending again, there are some lessons learned from the nation’s hard economic times. Consumers are still looking for good deals and refraining from the very high-end items, such as luxury yachts.

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Luxuries Don’t Have To Be Expensive

Isaac Mostovicz writes that small luxuries are as important as big luxuries...

An interesting report by the research group Mintel came out this week on how British people are living and spending money during the economic downturn. While many people are cutting costs, people are continuing to spend on small luxuries, particularly on alcohol (£622 per person annually); on smoothies, coffee and soft drinks (£230 per person annually); on personal beauty and grooming (£216 per person annually); and on clothing and accessories (£750 per person annually).

One would think that these would be the sorts of things that people could cut back on, and I imagine some have, but that the figures have remained so high shows how these very personal items represent luxuries in people’s lives. The way that one person interprets luxury could be completely different from the way someone else interprets luxury. A woman might continue to get a weekly manicure because of the way it makes her feel. She might be better off financially not doing it, but her weekly manicure gives her some quiet time to be pampered, and this relatively small expense makes her better able to tackle the challenges in her life. These small luxuries are worth it when they make people feel better about themselves.

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Louis Vuitton opens “boutique fantasque” on Bond Street

Isaac Mostovicz writes that Louis Vuitton does well by focusing on quality...

The new Louis Vuitton flagship store opened in London last week. Situated on Bond Street and designed by Peter Marino, the multi-million pound “boutique fantasque” seeks to be like a home to well-heeled “collectors,” which speaks to both Theta and Lambda personalities. There’s currently a special exhibition of the 24 collections Marc Jacobs has designed since he first arrived at LV. Akin to that of a fashionista’s walk down memory lane, the whole effect is ‘expensive, quirky, glamorous – and totally contemporary’, writes Hilary Alexander, Fashion Director at the Telegraph.

When asked by Alexander about possible issues concerning the economic recession on the store’s opening, Jacobs replies “I know for a fact that business is good.” He goes on to say:

Louis Vuitton is a unique organisation: the products never go on sale, nor are they sold at duty-free shops. We create what people desire. And I love that commitment to quality.

Perhaps it’s this uncompromising nature that continues to maintain the brand’s revenue, despite the state of today’s economy. However, this approach only works for truly innovative, unique and long standing brands like LV. Not all designers can be so uncompromising. As seen in a previous post of mine on designers’ optimism, fashion designer and entrepreneur Carolina Herrera talked about the difficulty of maintaining the brand and its customers with the need to cut costs. Slashing prices on luxury brands is always dangerous as you risk jeopardizing the brand’s integrity and exclusivity. There are ways around this, as proven by the likes of Tiffany and Co. who avoided slashing prices by decreasing inventory levels instead.

Describing himself as a ‘collaborator’ and not a director, Jacobs dismisses the thought of a couture collection or the possibility of designing costumes for films, stating that the “ready-to-wear [lines] is pretty much at couture level, anyway.” Clear on the direction he wishes to take the brand towards, Jacobs plans to launch the first ever Louis Vuitton fragrance.

By maintaining a high standard of quality, Louis Vuitton has managed to thrive, not just survive, during this global economic recession. As the economy improves, they’ll hopefully be able to keep it up.

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