range of accessible products. Driven by a similar thought process, Swatch and Ralph Lauren also launched products at lower price points. To reduce costs, some brands took their manufacturing operations to low-cost regions of the world. Prada and Burberry shifted their manufacturing base to China for certain products. Louis Vuitton considered building a shoe factory in India.
Armani suffered a 41.4 percent drop in its net profits in 2008–2009. Dior experienced almost flat sales through the recession, and Burberry, which opened stores in India, the Middle East, Macau, and China, posted a loss of $8.8 million in 2009 compared to a profit of $232.5 million in 2008. Some companies, on the other hand scaled down their operations. For instance, Dolce & Gabbana scaled back their operations in Japan. As an LVMH executive summarized, “Before the crisis, we were putting a lot of energy into beautiful stores, but now we care a bit less about expanding our network and even more about design and price.”8
However, some companies decided not to compromise on such factors. One of the major winners from the crisis, Bottega Veneta, had a very different strategy: The company decided to not change its positioning at all. Bottega Veneta continued to manufacture its products in Italy and invested in its artisans to ensure that they continued to produce traditional, quality output. The idea was to ensure that their product was exclusive enough to merit the premium price they intended to demand. It held steady and stuck to what it was best at – finely crafted products with clean, classic lines. This ensured that the brand was two steps ahead of its panic-stricken competitors. IWC also practiced this philosophy. It utilized handmade craftsmanship, limited distribution, and impeccable service. Hermès manufactured its leather goods and silk products in France and Italy and did not resort to production in China. Not only did some companies try to deliver unmatched service quality, but they also standardized this service quality across continents. This ensured that the consumer walking into an outlet in New Delhi would not get a different experience from one walking into an outlet on Rodeo Drive or the Champs-Élysées. Ritz-Carlton and HFS were brands that worked on the parameter of service excellence.
Continuing with varied strategic response, some brands saw the crisis as an opportunity and expanded through (1) widening or spreading to new geographies, and/or (2) launching new products. Notable among those companies that expanded geographically (or widened its base) were Prada, Hermès, Bottega Veneta, and Christian Dior Couture.
Prada, in 2008–2009, undertook its most aggressive investment plan. It hoped to get out of the crisis with a very strong distribution network. Having seen earnings slide by 22 percent in 2008, the company saw heavy increases in revenues and profits from 2009 onward. Hermès, like Prada, expanded during the crisis. Hermès opened stores in Manchester in England, Las Vegas, Japan, India, Wuxi in China, and Busan in South Korea during that period. Hermès was known for weathering the crisis rather gracefully.
During the recession some brands launched new and special products while simultaneously trimming their overall product lines. This resulted in fewer offerings and simultaneous price increases on both existing and new products, stimulating consumer demand and generating market interest, discontinuing low-margin products, and increasing prices in some product categories. Some companies ventured into new products and product lines (deepening), whereas others consolidated their brands under one umbrella. Burberry ventured into a new product line with a stand-alone children's store in Hong Kong, Bottega Veneta ventured into watches, and Versace launched a new fragrance, Gianni Versace Couture. Brioni reacted to the crisis by including more accessible items in its product range of suits such as T-shirts. Coach kept the prices of its regular lines stable, but introduced new lines, such as the Poppy handbags, to cater to a less affluent segment. Estée Lauder moved away from a strategy that fostered competition among various brands. It believed in following a more synergistic and coordinated policy of brand interdependence rather than competition. Its aim was probably to make the consumer feel that its brands were complementary in nature rather than supplementary. By maintaining or increasing prices for example, these brands resegmented their consumers and were more likely to pick up market share after the recession. Francois-Henri Pinault, CEO of Kering, was of the opinion that “There's a new perception of luxury, a more discrete sophisticated luxury where notions of heritage and craft play a big role.”9
During this period many consumers had to cut back on their purchases, and many sensed that it was not appropriate to show off with obviously expensive products. It was something that only traditional, artisanal, and legitimate houses could uphold. Brands did not act at all but kept true to their values and their traditional offerings. These included Hermès, Harry Winston, IWC, Chanel, and Patek Philippe.
Some brands explored new channels to deliver their products to the customer. Gucci and Ralph Lauren adopted the QR code. This was an image that shoppers could scan and download through their camera phone to obtain more information about the product or make purchases via their phone. Cartier adopted advertising through mobile phones. Companies like LVMH and Gucci also adopted online retail as an option for selling their products. This was quick to gain acceptance in Japan, where 20 percent of consumers make their purchases online.
Some brands diversified during the recession to strategic but complementary businesses or acquired greater control of their current businesses. From 2000 onwards, most if not all luxury brands, be it multibrand conglomerates or family houses, expanded horizontally into different traditional luxury categories. For example, Louis Vuitton expanded into fashion, high jewelry, and watches. Montblanc expanded into watches and jewelry. Chanel diversified into high jewelry. Salvatore Ferragamo expanded into fragrances and accessories. During the recession, Louis Vuitton, Bulgari, Armani, Missoni, and Trussardi diversified into a nontraditional luxury goods category with the opening of luxury hotels. Moreover, brands acquired greater control of their core businesses to integrate vertically, purchased key suppliers, and bought back licenses and franchises to increase efficiency, control their brand image, and generate superior margins.
Some companies tried to understand changing customer needs during the recession. For instance, Diageo noticed that people reduced their consumption of alcohol outside their homes. Thus it launched premixed cocktails such as Smirnoff Tuscan Lemonade for home consumption. Ritz-Carlton coined Mystique, its CRM system, to keep a closer tab on the consumers' pulse. Taking this flexibility a step ahead, some companies let the consumer guide the company, rather than the other way a round (which has been the norm in luxury branding). For instance, Nordstrom was lauded for its policy of refunding money to dissatisfied customers.
Conclusion
In conclusion, different brands adopted different strategies as a response to the crisis. None of the brands adopted a single universal strategy. They remained creative in their responses. Some succeeded, some did not. As the industry rebounded, they adjusted. The bouquets of responses were meant to encompass different type of customers from different cultures and geographies. A global brand strategy was needed to convince several segments of clients – so different and interested by so many various luxury sectors. With crisis it was seen that luxury loses its definition, the market remained totally open, and goods varied from premium, super-premium, and ultimate luxury.
Formerly accessible to a few, the luxury industry democratized from 1985 onwards – three decades – with brand extensions such as perfumes and eyewear attracting more numerous (and younger) consumers. The future of luxury would therefore be built on the capacity of brands to understand the scope of potential customers, fixing a strategy based on a specific language. There was no universal response, nor any universal language. Chanel speaks Chanel, Hermès speaks Hermès, and Gucci has its own vocabulary – the challenge is to keep the dream going, for everyone, after the crisis.
Figure 1.5 summarizes the different strategic responses of luxury brands to the global financial crisis.
Figure 1.5 Luxury Brands and Their
Dominique Ageorges, 2010.
