Luxury Institute News

May 9, 2017

Millennials think Coach is ‘boring.’ Will acquiring Kate Spade help?

The Washington Post
By: Abha Bhattarai
May 8, 2017

Luxury handbag maker Coach is buying rival Kate Spade, a brand known for its whimsical designs and colorful patterns, for $2.4 billion in cash, the companies announced Monday.

The deal would bring together two New York-based brands that have competed in recent years to win over younger customers and build a global presence.

“This deal gives Coach a real toehold into the millennial market,” said Ed Yruma, a retail analyst at KeyBanc Capital Markets.

“Kate Spade can substantially expand in China and Japan — there are so many new opportunities for revenue — and Coach is in a great position to take that on,” said Oliver Chen, an analyst at Cowen Group. “The fact that Coach has transformed itself before gives it credibility to do it again.”

Coach executives have spent three years trying to persuade customers to think beyond its ubiquitous logo bags and outlet stores. To that end, Coach introduced its 1941 luxury label, acquired shoemaker Stuart Weitzman, added more stores abroad and stopped offering as many discounts. The changes seem to be working: After years of stalled growth, profits and sales are up.

Now executives say they would like to make similar changes at Kate Spade — where 60 percent of sales come from millennials — to turn it into a larger, more global brand.

“The lessons we have learned during our own transformation provide a blueprint for guiding our strategy with Kate Spade,” Victor Luis, chief executive of Coach, said in a Monday call with investors. “We believe our extensive experience in opening and operating specialty retail stores can unlock Kate Spade’s largely untapped global growth potential, notably in Asia and Europe.”

Among his first moves, Luis said, would be to cut back on online flash sales and deep discounts on Kate Spade goods.

“These channels are profitable and can drive growth,” he said but warned that “they can lead to brand deterioration over time.”

On Monday, for example, Kate Spade’s website was touting half-priced cross-body satchels for $149 (“today only!”). Another bag, the Cobble Hill Adrien, was discounted 60 percent, from $428 to $171.

“There’s been a vicious cycle of overproducing, then discounting prices and hurting your own brand,” said Milton Pedraza, founder of the Luxury Institute, a New York-based research firm. “It will be painful to dial this back — surgical, even — but it needs to be done if Kate Spade is going to become a lean, efficient brand.”

Coach is paying $18.50 for each share of Kate Spade, a 9 percent premium on Friday’s closing price. The deal is expected to be finalized in the third quarter of this year, and executives say they hope to save $50 million by consolidating parts of the business over the next three years.

But while Wall Street seemed pleased by news of the takeover — shares of Kate Spade rose 8 percent Monday, while shares of Coach were up 5 percent — some customers were wary. Kate Spade shoppers took to social media to voice their misgivings.

“WHY WHY WHY UGH,” a user named HellOnHeelsGirl tweeted in response to the news.

“I find Coach to be boring with their brown, unoriginal bags,” tweeted another. “Kate Spade had color and uniqueness! Bye bye pretty bags.”

Coach executives said Kate Spade will remain an independent brand with its own design, merchandising, marketing and sales teams. In addition to handbags and wallets, the company has expanded into jewelry, children’s clothing and homeware.

Kate Spade founded the eponymous brand with her husband in 1993. (She recently legally changed her name to Kate Valentine to coincide with the launch of her new brand, Frances Valentine). The couple sold a majority stake of Kate Spade to Neiman Marcus in 1999. Liz Claiborne bought the brand for $124 million in 2006. (Liz Claiborne was later renamed Fifth & Pacific and is now called Kate Spade & Co.)

In December, the Wall Street Journal reported that Kate Spade began looking for a potential buyer after shareholders said a larger company could help the brand grow faster. Analysts quickly began speculating that Coach would be the buyer.

“This has long been expected,” said Dana Telsey, chief executive of Telsey Advisory Group, a research and consulting firm in New York. “Being part of a larger organization will obviously get [Kate Spade] going where it wants to, faster.”

And, she added, this is part of Coach’s long-term plan to assemble a collection of brands into what it is calling a “New York-based house of modern luxury.”

“This won’t be the last acquisition for Coach,” Telsey said. “This is part of something much bigger.”

Two years ago, Coach paid $574 million for Stuart Weitzman and hired a former Valentino executive to become the brand’s chief executive. In the quarters since, the luxury shoe brand has turned a steady profit and helped boost its parent company’s earnings.

“With Stuart Weitzman, Coach has demonstrated that it can bring in another brand and nurture it,” said Pedraza of the Luxury Institute. “Now the challenge will be, can they do the same for Kate Spade without watering it down?”

Source: https://www.washingtonpost.com/business/economy/millennials-think-coach-is-boring-will-acquiring-kate-spade-help/2017/05/08/50bd9e9c-33f9-11e7-b4ee-434b6d506b37_story.html?utm_term=.ce0be13f8676

 

High-end bag maker Coach splurges and buys rival Kate Spade

Marketplace
By: Jed Kim
May 8, 2017

Luxury goods maker Coach announced today it’s splurging. It has agreed to buy rival company Kate Spade for $2.4 billion. Coach has already acquired high-end shoe designer Stuart Weitzman, and with the Kate Spade purchase, it seems it’s on a mission to create a stable of luxury brands.

To hear the fully story, including insights from Milton Pedraza, click the link below to access the Marketplace website for the audio story: https://www.marketplace.org/2017/05/08/business/high-end-bag-maker-coach-splurges-and-buys-rival-kate-spade 

April 21, 2017

Ducati Stretches Its Sex Appeal

Departures
By: Brett Berk
April 20, 2017

Can the exclusive Italian superbike manufacturer change its game without sacrificing its reputation? Necessity suggests the brand has no other choice—if it wants to survive.

It came as a surprise to supercar purists when, in 2012, Lamborghini first hinted that it would release an SUV—a vehicle seemingly antithetical to the brand’s aggressively impractical essence. But what may be experienced by some as a sign of brand suicide is actually an act of survival: The performance-oriented Urus is expected to double Lamborghini’s sales once it hits stores by the end of this year. In the eternal quest for increased market share, the automaker known for its fiendish six- and seven-figure supercars has had no choice but to diversify. And in this competitive market, they’re not the only ones.

The 90 year-old Ducati brand is the Lamborghini of motorcycles: exclusive, expensive, performance oriented, and effusively Italian. The brands’ spirits have only become more kindred since 2012, when the motorcycle marque became a wholly owned subsidiary of Lamborghini (itself owned by German carmaker Audi, and part of the Volkswagen Group). And just like its hyper-potent owner, Ducati has begun to dip its toe into the market beyond the high-speed, high-price racing bikes for which its known.

 

Working on a Ducati Multistrada. Courtesy Ducati

 

This year alone, Ducati plans to release eight new bikes across a number of new, more accessible segments the brand has shied away from in the past. New models include the Multistrada 950, a touring “multibike” (January 2017, $13,995); a suite of Scramblers, as part of the two-year-old sub-brand, including the off-roading Desert Sled (March 2017, $11,395) and a 1960s-inspired Café Racer (April 2017, $11,395); and a versatile, entry-level sport/comfort SuperSport (April 2017, $12,995). The XDiavel, a cruiser intended for an aging buyer (someone over 40 in motorcycle-speak), launched in December 2016 ($23,495).

These additions are a far cry from the developments of previous years, which saw R&D dollars generally go to making their superbikes ever faster and more technically advanced. But those investments have had an unforeseen side effect: As progress has allowed high-end motor vehicles to become incredibly fast, safe, and easy to drive, access to the full experience they offer has become almost impossible to achieve on public roads.

 

The Ducati Scrambler Café Racer. Courtesy Ducati

 

“The risk,” says Jason Chinnock, CEO of Ducati North America, “is that the motorcycles, like supercars, get so far advanced that it limits their actual use.” The brand had to adapt or perish—or at least, start collecting cobwebs in the garage. Already the move seems to be paying off. Global sales are up nearly 25 percent, reaching a record 55,450 bikes purchased in 2016. Part of this can be attributed directly to the new offerings, especially the Scramblers, which immediately became Ducati’s bestseller when the line was introduced in 2015. “It was very important for us to able to expand,” Chinnock says. “Now I can say that we cover about 60 percent of all motorcycle segments, versus in the past where we were around 23 percent [with just superbikes].”

“There are always going to be purists out there,” says Milton Pedraza, CEO of luxury research and consulting firm the Luxury Institute. “But I think most of us are willing to accept a more sedate, or different versions of a brand that is still in the same category. The Ducati brand has a sex appeal, besides the performance appeal.”

 

The Ducati XDiavel. Courtesy Ducati

 

Ducati won’t completely leave its past behind: In May, the brand will debut the 1299 Superleggera ($80,000), the fastest twin-cylinder in history (at 215 horsepower) and first-ever street-legal full-carbon fiber structure superbike. But the marque will continue its expansion into existing and incipient categories moving forward. Chinnock hasn’t ruled out a fully electric motorcycle, which, with its instant power, stealthy silence, and eco-friendly approach, may soon garner significant demand. “It’s something that we’ve continuously looked at, but the technology isn’t at the point yet where we can insure the proper experience for our brand,” he says, citing Ducati’s rousing heritage, founded in part on its aggressive and mechanical sound.

One style Ducati fans likely won’t find any time soon, however, is a self-driving motorcycle. “I think that autonomy has an excellent place in the world of transportation, but why people get on a motorcycle is not necessarily to move from point A to point B,” Chinnock says. “We ride to escape, we ride for sport, we ride to clear our head. That’s the difference between entertainment and transportation.”

Source: https://www.departures.com/lifestyle/automobiles/ducati-dips-into-new-motorcycle-segments

February 27, 2017

The 4 hottest trends for the upper crust

The New York Post
By: Zachary Kussin
February 24, 2017

 

Wealthy New Yorkers are usually on the vanguard of the latest high-end gadgets and lifestyle crazes. So we asked Milton Pedraza, CEO of The Luxury Institute, to reveal this year’s toniest trends. Below, he offers his predictions on what will be making waves in the worlds of luxury automobiles, travel, style and living. 

Real Estate

Ritzy residential developments aren’t just for major metropolises anymore. “[People] everywhere want lots of amenities,” Pedraza says. Indeed, posh residential towers that cater to both young professionals and empty nesters are popping up across America — from the glassy One Light in Kansas City to the elegant Residences at Mandarin Oriental, Boca Raton (above), that Florida town’s first five-star hotel-and-real-estate combo.

Travel

“Hotels are understanding the paradox that you need to feel the literal comforts of home [on your] adventure,” Pedraza says. So they’re adding ultra-personal touches and stocking up on guests’ favorite snacks, bedding and products. Aloft hotels rolled out voice-activated rooms (above) that set temperature, lights and music just as you’d have them en casa, while 1 Hotel South Beach just debuted “Personal Gurus,” who will stock suites with requested groceries and newspapers before check-in.

Transport

Sleek design and an elite engine don’t make a luxury car stand out these days. Advanced tech features — including self-driving mechanisms, onboard Wi-Fi and virtual assistants, like the “Eleanor” system aboard Rolls-Royce’s “Vision Next 100” concept car (above) — will be in the driver’s seat. “You’re going to see technology become more pervasive,” predicts Pedraza, noting that safety features will matter most: 360-degree visibility and stay-in-the-lane technology among them.

Jewelry

Instead of browsing baubles dug from mines, the fashionable set will embrace lab-grown diamonds and other customizable gems. “The quality is extremely high,” Pedraza says. Man-made dazzlers (like the above o.75-carat Brilliant Earth sparkler in an 18-k white-gold setting, from $3,080) are indistinguishable from real rocks to the naked eye and offer a bright alternative to environmentally destructive mining — at a lower price point. (Shhh — no one has to know about that part.)

Source: http://nypost.com/2017/02/24/the-4-hottest-trends-for-the-upper-crust/

January 22, 2017

Luxury Executives Talk About How To Get More Of Your Money

Forbes
Doug Gollan
January 18, 2017

Global luxury from autos to jets to watches, jewelry, home, arts, beauty, and travel is a trillion dollar industry. What will it take for luxury brands to successfully sell and serve you? Top executives gathered in New York today at Luxury Daily’s annual Luxury FirstLook 2017 to discuss best practices in getting you to open your wallet. Below are some highlights.

1. It takes impeccable service. Luxury providers need to give front-line staff more decision-making authority. Mehdi Eftekari, the general manager of Four Seasons Hotel New York, says the group allows its employees to resolve complaints. As an example, he says a customer checking out complains his room service coffee was cold. The typical hotel rulebook would have the clerk get a manager. Instead, Four Seasons’ employees can take the charge off the bill on their own. He says removed charges actually decreased. Hotels and airlines are often concerned about travelers who try to game the system. Eftekari told the audience, “That’s 1/10th of 1 percent. I tell my team to focus on the 99.9%.”

2. Look to Jeff. Amazon is already a powerhouse in luxury sales, according to Bob Shullman, CEO of The Shullman Research Center. He said 74% of the top 1% bought luxury from Amazon in the past year. Moreover, as luxury brands try to figure out how to better sell their wares in an omnichannel world, he says Amazon customers rate the retailer better than other retailers by an 110-to-1 margin. He says top luxury brands typically score a 2- or 3-to-1 margin. “(Amazon CEO and Founder) Jeff Bezos doesn’t see any limitations,” Shullman told the group, noting it has launched its own private label fashion line after many top luxury brands eschewed the sales platform. What’s more, Amazon has a power database of both customer emails and home addresses. Moderator Milton Pedraza, CEO of The Luxury Institute, noted the online retailer needs to fix its reputation that it doesn’t treat its employees well. “It matters,” he says.

3. Shopping needs to be memorable. Retail stores have to move “from nicely furnished stock rooms with well-dressed stock people” to centers of experience, says Ken Nisch, chairman of JGA.. He notes with retail leases running 10 years or more, retailers are under pressure to figure out how you will shop not next month but five years from now. He says malls have increased “experiential” retail space that includes things like restaurants, exhibits and hair styling to 25% from 8%. He quoted Walt Disney, telling the executives, “A picture is worth a thousand words but an experience is worth a million.”

4. Sustainability needs to be relatable. Luxury companies haven’t done a good job communicating what they are doing let alone making it inspirational to you the consumer. Charles Stanley, US CEO for De Beers’ Forevermark said there are a multitude of statistics about how the diamond industry supports sustainability, however, to make an impact his company created short films to show consumers real examples. One vignette shows a single mother who was able to launch a successful business creating more jobs based on funding from Forevermark. Kane Sarhan, marketing boss for 1 Hotels, a new group based on the core value of sustainability (They know where everything from carpets to bathroom fixtures were made and how.) wants guests to go away understanding how they can bring sustainability back into their regular lives. He says a survey of over 50,000 guests found “49% said staying at our hotel made them change life at home.” The hotel has meters in its showers so you can moderate your water use. He says in the future the hotel may reward guests who consume less water or electricity.

5. Brands need to rethink their approach to events you get invited to. David Friedman, co-founder of research firm Wealth-X says most event marketing is based on trying to one-up other events and the guest list isn’t well targeted. He coined the phrase “Hope Marketing.” In other words, hold and party and hope the right people show up and then buy. Friedman says when targeting Super Rich/UHNW consumers, marketers need to turn it around and focus on what the customer is interested in, be it fishing, football, collecting stamps or the opera. Shamin Abas, who owns a PR company that works with jet and yacht companies told the audience to think small. For a client that makes $3.5 million submarines, an event meant bringing an Ultra High Net Worth prospect and his family to the Bahamas for a test dive. For another client that manages private jets, but was worried about what will happen as fathers grew older and turned over operations of their empires to their children, she helped orchestrate a father/son event so the jet company could get to know the next generation.

6. Traditional advertising no longer works. Pam Danziger, president of Unity Marketing, said the average consumer gets 362 ad messages a day, but few of them resonate or stand out because they are in the wrong platforms. Greg Licciardi, chief revenue officer of Elite Traveler (Disclaimer: I co-founded the magazine in 2001 before selling my interest in 2014) said niche media is the key. For companies that want to reach the Super Rich, the publication is distributed on private jets and terminals. Shullman says digital media such as e-mail is effective in driving recall with luxury buyers. Tracy Doyle, creative director for fashion and luxury at The New York Times T Studio says more and more marketers want customized “native content” messages. Licciardi noted that with over 80% of UHNWs having made their money in the past 15 years, luxury marketers can’t assume you know about their heritage or what uniquely sets them apart. “Luxury marketers need to tell the story and educate,” he says.

Doug Gollan is Founder and Editor-in-Chief of DG Amazing Experiences, an e-newsletter for private jet owners.

Source: http://www.forbes.com/sites/douggollan/2017/01/18/luxury-executives-talk-about-how-to-get-more-of-your-money/#66f92d6c4549

January 16, 2017

To be creative or not? That’s the question for luxury handbag-makers

FashionUnited
By: Angela Gonzalez-Rodriguez
January 16, 2017

The economic slowdown in China; terror attacks in main international luxury plazas such as Paris and the fights against counterfeits have taken a toll on handbag-makers’ creativity.

According to a recent research by Edited, a fashion analysis firm, Michael Kors Holdings Ltd., Prada SpA, LVMH’s Louis Vuitton and Burberry Group PLC all reduced the number of styles introduced last quarter.

In the final three months of 2016, the number of new styles introduced by Michael Kors dropped 24 percent from the preceding quarter. Prada and Louis Vuitton rolled out 35 percent fewer new designs, while the number at Burberry dropped 8 percent, according to Edited, whose clients include Ralph Lauren Corp. and luxury e-commerce retailer Net-A-Porter.

On the other hand, a few brands such as Kate Spade & Co. and Ralph Lauren, did introduce more new designs in the fourth quarter, Edited found.

Brands needs their bags sales, which account on average for 40-60 percent of total sales.
“There’s a feeling of doom out there in the industry – everything is defensive and not offensive,” said Milton Pedraza, a luxury consultant who runs the Luxury Institute. “What you’re seeing is a tremendous amount of copying, less innovation and less creativity, at a time when exactly what you need is to be bold.”

And truth is that luxury brands need their bag sales. Bags account for 39 percent of Gucci’s products priced over $1,000. They make up 65 percent of Fendi’s and 82 percent of Prada’s 1,000 dollars or more assortment, reports Edited in their corporate blog.

“Dropping newness too low could certainly threaten sales,” said Katie Smith, a senior fashion analyst at Edited. In fact, rolling out the right number of styles is no easy task. Smith stresses that brands need to strike a careful balance between creating an excess of inventory while ensuring they remain trendy and therefore relevant.

Handbag-makers have faced other challenges as well. Younger consumers are demanding faster availability of the latest trends, and some are showing preference for shoes and jewelry over bags.

Sales growth in handbags is estimated to decelerate to 3.1 percent by 2020, from 16 percent in 2012, according to data collated by Euromonitor. The slowdown has forced companies to diversify. Michael Kors is expanding into menswear, and Kate Spade is growing in other categories such as home goods.

In this regard, Pedraza recalls that “For the first time in many years, there’s a real sense of threat,” he said. Companies are focused “on survival and dismantling the old structure.”

Photo: Louis Vuitton Official Web

Source: https://fashionunited.in/news/business/to-be-creative-or-not-that-s-the-question-for-luxury-handbag-makers2/2017011614691

January 12, 2017

Handbag makers find it hard to carry on like before

The Strait Times
January 12, 2017

They’re cutting back on styles as demand for luxury items wanes

NEW YORK • Handbag makers are busy battling waning demand and markdowns at stores, and that may have diverted their attention from what could make them successful in the long run: creativity.

Michael Kors Holdings, Prada, LVMH’s Louis Vuitton and Burberry Group all reduced the number of styles introduced last quarter, according to Edited, which provides fashion industry analysis.

Though manufacturers and retailers are worried about being saddled with too much merchandise, the lack of innovation will make it tough to recapture the excitement of shoppers, said Mr Milton Pedraza, a luxury consultant.

“There’s a feeling of doom out there in the industry – everything is defensive and not offensive,” said Mr Pedraza, who runs consulting firm Luxury Institute. “What you’re seeing is a tremendous amount of copying, less innovation and less creativity, at a time when exactly what you need is to be bold.”

Demand for US high-end products took a hit last year from a strong dollar and global economic woes. Terrorism fears also crimped tourism, a big source of luxury spending. Shares of upscale brands suffered.

Michael Kors, Coach and most other rivals underperformed the Standard & Poor’s 500 Index in last year. Ralph Lauren was down 19 per cent last year.

TIME TO BE BOLD

There’s a feeling of doom out there in the industry – everything is defensive and not offensive. What you’re seeing is a tremendous amount of copying, less innovation and less creativity, at a time when exactly what you need is to be bold.

MR MILTON PEDRAZA, a consultant who runs the Luxury Institute.

Prada was the rare exception, rising 9 per cent in Hong Kong last year to outperform the Hang Seng Index’s 0.4 per cent gain. It rose as much as 9.6 per cent to HK$30.70 yesterday, reaching the highest intra-day level since March.

At many stores, the handbag selection from several high-end labels was significantly smaller over the holidays. In the final three months of last year, the number of new styles introduced by Michael Kors dropped 24 per cent from the preceding quarter.

Prada and Louis Vuitton rolled out 35 per cent fewer new designs, while the number at Burberry dropped 8 per cent, according to Edited, whose clients include Ralph Lauren and luxury e-commerce retailer Net-A-Porter.

Michael Kors did not have an immediate comment on the reduction, while LVMH, Prada and Burberry declined to comment.

Rolling out the right number of styles is no easy task. Brands need to strike a careful balance between creating a glut of inventory – so-called “dead stock” – while ensuring there is enough trendy, new merchandise to entice consumers, said Ms Katie Smith, a senior fashion analyst at Edited.

“Dropping newness too low could certainly threaten sales,” she added.

A few brands, including Kate Spade and Ralph Lauren, did introduce more new designs in the fourth quarter, Edited found. But many tried to ride out the holidays without breaking fresh ground.

Handbag makers have faced other challenges as well. Younger consumers are demanding faster availability of the latest trends, and some are showing preference for shoes and jewellery over bags.

Sales growth in handbags is estimated to decelerate to 3.1 per cent by 2020, from 16 per cent in 2012, according to market research firm Euromonitor.

Source: http://www.straitstimes.com/business/handbag-makers-find-it-hard-to-carry-on-like-before

Should luxury retail move away from discounting?

Luxury Daily
Sarah Jones
January 12, 2017

Discounting is on the rise in the luxury sector, as retailers strive to make up for slowed spending by cutting prices.

The annual post-holiday sales are currently on, promising price cuts of up to 80 percent. While discounting may drive traffic and sales, is the hit to retailers’ positioning and profits worthwhile?

 “Luxury brands require strong leadership and vision to manage soft periods,” he said. “Weak brands discount when sales are weak. The trick is getting clients back without discounting.”

Reduced retail

A number of factors are making success in the luxury industry more difficult, and financial results are showing the challenging climate. From reduced tourist traffic to the slowdown in China, retailers are finding themselves needing to recoup sales.

According to a recent report from Bain, off-price retail is now 11 percent of the luxury market. While this segment of the sector grew less rapidly in 2016, it was still up by double digits.

Additionally, 37 percent of luxury sales today come from marked down merchandise (see story).

Luxury retailers including Nordstrom and Saks Fifth Avenue have aggressively expanded their off-price chains. Nordstrom Rack’s 215 stores far outnumber its 123 full-line stores, and Saks Off 5th similarly has 118 locations compared to the brand’s 41 full-line outposts.

 

Nordstrom ecommerce

Image courtesy of Nordstrom

“In the luxury boom of the mid-2000s, there was a lot of ‘aspirational luxury shopping,’ fueled by mass affluent and upper middle class consumers, rather than a traditional wealthy consumer,” said Steve Kraus, chief insights officer at Ipsos. “The attitude at the time was ‘I’m going to buy luxury, it’s going to be expensive and it’s going to be worth it.’

“With the recession, and continuing on afterwards, this aspirational luxury shopping has dried up, and the consumer mindset has become ‘I’m going to buy luxury, and I expect a deal,’” he said. “It’s the great paradox of the recession – it didn’t lower consumer expectations, it raised them.

“Value expectations are now a part of luxury in a way that they weren’t in the mid-2000s. Discounting is now widespread, in luxury and in mass markets, particularly as more and more shopping is done online.”

While many retailers limit their sales to specific times of the year, such as after the holidays, when they do cut prices it becomes the main event.

For the opening of the Harrods Sale on Boxing Day, the retailer traditionally pulls out the stops for the crowds gathering in line, passing around hors d’oeuvres and putting on a show.

Selfridges saw 1 million visits to its ecommerce site as its winter sale kicked off, and its stores pulled in $2.5 million in sales within the first hour of business on Dec. 26 (see story).

 

Harrods Sale promo

Promotion for Harrods sale

While the blowout sale at the end of a season is common practice among multi-brand retailers, some particularly tightly distributed labels avoid this strategy.

Louis Vuitton reportedly destroys merchandise that is unsold at the end of a season rather than selling it at a reduced price.

“In the long-term, I think success has come more to luxury brands who have not discounted–for example, Louis Vuitton, Hermès, etc.,” Mr. Kraus said. “They build their value equation around quality and heritage, rather than discounts.”

In general, luxury brands are trying to pull back and become more strategic in how they approach off-price.

For instance, U.S. fashion label Michael Kors has pulled back its inventory in department stores mainly to avoid its merchandise being placed on sale by its retail partners, protecting both its profits and image (see story).

 

Michael Kors

Image courtesy of Michael Kors

“Many brands are moving away from department stores due to their addiction to discounting,” Mr. Ramey said. “Discounting exists outside the ‘luxury code.’

“Luxury is about fantasy; price is about reality. Discounting price diminishes brand value,” he said. “Consumers demand value. Too many retailers define value as price.

“Successful luxury brands are disciplined. They must reinforce the brand narrative and create desire. No luxury brand has ever been built on price.”

Consumer behavior

Luxury brands often believe that their clientele will not be swayed by a deal, but this may not always be the case.

According to a report from Unity Marketing, the majority of affluent consumers employ a number of shopping and saving tactics to manage their money, with 52 percent of ultra-affluents regularly comparison shopping.

Luxury marketers often think that affluent consumers want to spend their money as fast as they earn it, but the affluent are actually invested in saving their money. These strategic spending habits call for a revised marketing plan that recognizes that consumers care more than previously thought about what they purchase (see story).

 

bloomingdales.athletic wear 400

Image courtesy of Bloomingdale’s

“Discounting illustrates the schism between a luxury buyer and an affluent buyer,” Mr. Ramey said. “The one commonality amongst the affluent is they save money.”

Similarly, the Luxury Institute’s Milton Pedraza noted in an interview with Luxury Daily that consumers are less loyal today, and they can be wooed by a better offer from a competitor (see story).

Keeping up with competitors is often the motivation behind retailer pricing strategies.

Upstream Commerce noted in a holiday report last year that high-end retailers were trying to cut back on promotions, but the industry at large puts pressure on them to follow trends. For instance, a brand may be sold at both a promotion-heavy chain such as Macy’s and a luxury department store, requiring the upscale retailer to match Macy’s or be passed over (see story).

“I think the problem is that luxury brands, like so many others, remain fixed on the old 4Ps model of marketing – product, price, promotion, placement – when where they need to focus is on the 4Es – experience, exchange, everyplace and evangelism,” said Pam Danziger, president of Unity Marketing, Stephens, PA.

“Luxury brands shouldn’t and shouldn’t need to rely upon discounting to sell their stuff,” she said. “The fact that they do only testifies how out of touch they are with the consumers and how badly they have failed at marketing in new luxury style.”

Source: https://www.luxurydaily.com/should-luxury-retail-move-away-from-discounting/

 

 

Handbag makers cut back on new designs to reduce discounting

RetailDive
Daphne Howard
January 11, 2017

Dive Brief:

  • Several high-end handbag retailers are cutting back on the number of styles they’re introducing in an effort to reduce discounting, but experts told Bloomberg that could hurt some brands’ ability to spark sales.
  • Michael Kors Holdings cut back on the number of styles it introduced last quarter by 24%, Prada by 35%, LVMH’s Louis Vuitton by 35% and Burberry Group by 8%, according to data from fashion market research firm Edited cited by Bloomberg.
  • It’s a defensive position reflecting a “feeling of doom,” luxury consultant Milton Pedraza, a New York-based luxury consultant who runs the Luxury Institute, told Bloomberg. “What you’re seeing is a tremendous amount of copying, less innovation and less creativity, at a time when exactly what you need is to be bold.”

Dive Insight:

New styles are few and far between among the highest priced handbag makers, which are able to maintain full prices more consistently and see lower price cuts when they are discounted, according to a November analysis from Edited. “[T]hese brands introduce a few new styles every year and are able to replenish without discounting, Edited noted in a blog post. “To fully understand the marketplace it’s important to spend equal time looking at what’s coming into stores and what never stops being sold.”

While department stores are indeed using discounts to move handbags, the right timing for the introduction of new bags could help vendors avoid that, according to Edited. The highest number of discounts come in November and June, and discounted products sell out in the highest numbers in December, followed by January and July. That means that a month after reductions are applied, stock clears. Meanwhile, Edited found, full-priced sell outs are at their highest in December, followed — somewhat surprisingly — by January and February. But it’s March and October that are the big months for new product arriving into department stores.

Still, Bloomberg’s experts argue that the dearth of new styles could be due to personnel changes in the space. PVH Corp.’s Calvin Klein and Yves Saint Laurent replaced their creative directors, and Ralph Lauren CEO Stefan Larsson has shaken up management: Ralph Lauren’s son David Lauren came on as chief innovation officer in October, Coach CFO Jane Hamilton Nielsen arrived as CFO in June, and Bill Campbell, who most recently worked with Amazon in distribution, inventory and logistics roles for the past 11 years, was named corporate senior vice president of global supply chain and inventory management.

Younger consumers are helping push the “see now, wear now” trend into luxury and seem less enamored with the concept of an “it” bag. But that’s not necessarily pushing down prices of luxe bags, according to Edited. “Contrary to recent rumors, high end bags aren’t getting cheaper,” according to a blog post. “Instead, market data shows that retailers are upping the ante at the top end of the category’s price architecture. In the [the third quarter], 23% of all new arrivals at U.S. department stores were priced $1,800 or more. The same period in 2015 saw just 15.5% of all new arrivals priced accordingly.”

Source: http://www.retaildive.com/news/handbag-makers-cut-back-on-new-designs-to-reduce-discounting/433817/

January 3, 2017

What luxury marketers should expect in 2017

Luxury Daily
January 3, 2017
By: Brielle Jaekel

Affluent consumers leveraging digital 

In 2016, luxury brands had a less-than-stellar year with many sectors seeing stagnant sales and decrease in growth.

Research among the luxury sectors and affluent consumer behavior is leading experts to believe that while next year may still remain slow, there is still growth to be had by appealing to millennials. Experiences and focus on digital will make or break brands next year.

Here are the outlook views of some researchers featured in Luxury Daily last year, in alphabetical order.

Leave.EU played a key role in the British public’s historic vote on June 23, 2016 to leave the European Union. Image courtesy of Leave. EULeave.EU played a key role in the British public’s historic vote on June 23, 2016 to leave the European Union. Image courtesy of Leave. EU

Euromonitor International

“An important trend in 2017 is the increased political uncertainty the world is facing,” said Sarah Boumphrey, global lead of economies and consumers at Euromonitor International. “Consumers enter 2017 to a backdrop of uncertainty – especially in advanced economies with the arrival of Donald Trump in the White House and the United Kingdom government moving to trigger Article 50 to begin negotiations to leave the European Union.

“Over the course of the year, we are expecting consumer expenditure to rise by 2.3 percent with every household saving $3,609 on average,” she said. “With the United States still accounting for almost one-in-three dollars spent globally, consumer behavior in the Trump era matters to the world.

“Despite its slowing economy, Chinese consumers will continue to see amongst the largest increase in spending, and spending in emerging and developing economies overall will grow by more than twice that of developed markets. Authenticity, convenience and experience will continue to be watch words for the 2017 consumer. The New Consumerism, with consumers reassessing their priorities and values, will continue to permeate consumer behavior.”

Travel & Leisure May 2015

 

Euromonitor International Travel

“2017 promises to be the year of automation and personalization in travel,” said Wouter Geerts, travel analyst at Euromonitor International. “Travelers will interact more with robots and artificial intelligence through virtual assistance and chat boxes as the first point of contact with travel brands.

“Striking the balance between tech and life will become more important to consumers, so simplifying booking processes through automation is becoming more important though we are not expecting to see robots in airplanes any time soon.”

Image courtesy of Neiman MarcusImage courtesy of Neiman Marcus

The Luxury Institute
“I think we’ll definitely have single digit growth in the coming year because we’ve had such a bad year,” said said Milton Pedraza, CEO of the Luxury Institute. “Some categories such as watches will continue to suffer but jewelry and apparel might have a better chance.

“Sectors that have experiences such as hospitality, wine, food and tech are all very experiential will likely see growth,” he said. “Retail will continue to be good, we’ve seen numbers slow down, but likely will increase in the next year under the trump economy.”

“We will likely see a lot of government spending, which will help luxury recover in the United States but also have a positive impact on the global market as well.”

Donald Trump's economic and trade policies may create challenges for luxury activitiesDonald Trump’s economic and trade policies may create challenges for luxury activities

 

Unity Marketing

“I believe 2017 will be a good year for the luxury market, after struggling so over the last several years,” said Pam Danziger author, speaker, consultant of Unity Marketing. “In the recent past environment, the affluent consumers went undercover, withholding their spending on high-end products that looked too showy and conspicuous in order not to be identified as one of the demonized one percenters.

“But the Trump presidency looks to be very good for economy in general, and the affluent consumers in particular,” she said. “The luxury market has faced many headwinds in the recent past — luxury goods brands, in particular.

“But for the luxury industry in 2017, what is best for the top 20 percent income earners – the rich and wealthy – will also be best for the industry. And it looks like that the top earners will grow wealth (recent stock market boom) and feel more prosperous in 2017, resulting in a renewed confidence toward spending on personal indulgences. Like the Reagan presidency before, with the Trump’s in the White House, luxury may look cool again.”

“That said, however, the luxury consumer continues to prefer indulging in experiences, rather than goods. And the luxury goods market, in particular, is chock a block full of product, so much so that the luxury goods sector of the luxury industry is going to have to continue to focus on how to deliver true, meaningful and memorable experiences to their customers, both in the things they sell and the way they sell them. That is, the customer service experience is going to become even more important in 2017 and the years ahead.”

Source: https://www.luxurydaily.com/what-luxury-marketers-should-expect-in-2017/

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