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Luxury brands weathering the storm in a turbulent economic climate

by Maria Onyango October 14, 2011

​In mid 2008, as the cloud of shrinking economies settled over the world's centres of business and trade, it looked as though all that would be left after the recession would be a few hunted-looking HR Managers and Primark. However in the midst of all this panic, the reassuring voice of Bain and Company noted in it's 2008 report that "absolute" luxury brands would be protected from the economic fallout. On the other hand it would be "accessible" brands that would be adversely affected by the recession. The conclusion was that consumers would now be more discerning about their purchases and that brands relying solely on their 'image' would quickly be found out.

Now, as we near the end of 2011, it would seem that Bain were correct. The Luxury Institute's recent White Paper on luxury in 2011 and beyond notes that "ultra-luxury" brands are those that have remained strong during this recession. These brands are not don’t sit on a foundation of marketing gimmicks and they do not cut corners, charging a premium for a "sub-optimal" product. The ultimate in luxury retail offerings, they display pedigree, heritage, quality and innovation that creates enduring value, despite an economic downturn. They are the companies that have earned their "luxury legitimacy", focusing on brand values, product values and customer services to ensure they remain in the hears - and purses - of their customer base.

The iconic British brand has seen a revenue surge of 30% (to £830m) in the six months to September 30 2011. These bumper sales ride on the back of Burberry's iconic trench coats, leather goods and perfumes, as well as an exceptional digital strategy. The coats are still manufactured in Castleford and Burberry's strong colour scheme and heritage dating back to 1856 give them an identity and value in the market. Stacey Cartwright, CFO of Burberry, noted that “There is no evidence of any slowdown. What we have seen is consistent strong brand momentum and business growth.”

According to the market researchers Ledbury, the UK luxury market should increase in value by 57% over the next five years, from £6bn at the close of 2010 to £9.4bn in 2015. Globally the outlook is also brighter than one might expect. The growth of emerging markets - China being rolled out as the major example - provides an entirely new revenue point for luxury, which is ripe for the picking. McKinsey's research found that in China  "only 8 percent of them had changed their luxury shopping behaviour in 2009 (compared to 46 percent of Americans and 51 percent of Europeans) and 44 percent actually bought more (compared to 6 percent of Americans and 3 percent of Europeans).

As well as looking at fresh geographies, new product mixes are being put together, for example widening "entry-level" products to pull in those aspirational buyers who want a piece of their design, quality and craftsmanship, on smaller budgets. Luxury brands are also increasingly partnering with high street stores, bringing their top-end presence to the middle markets. To offset this, the rise of ‘hyperluxury’ - bespoke and extremely limited edition items at top prices – have evolved as a legitimate revenue stream. In addition, The Luxury Institute has spoken to luxury executives who are restructuring their entire ways of working to become more commercial, manage customer data, analytics and "other CRM projects". Traditionally not a major focus for top-tier brands, customer segmentation, competitor analysis and retention/recovery campaigns are now becoming part of the marketing mix, as well as increased use of social media.

Now that luxury brands have proven that the world's money - or lack of it - is not an insurmountable problem, they will need to focus on much more complex issues. To continue to grow in this difficult economy they must play on their heritage, their aura of the exceptional, their capacity for flawless customer service and increasingly on being as commercially viable as possible. Strategy, analysis and insightful use of data will become much more important, whether outsourced or - as we have noticed more often - through the creation of specialised teams in-house. As a recruitment consultancy specialising in exceptionally bright, commercial candidates, Freshminds Talent increasingly seeing requests from the luxury industry for Business Analysts, Project Managers and Senior Consultants to go into these top-tier brands and lend their expertise, helping to drive those brands into 2012 and beyond.

If luxury as a concept can continue to diversify (yet remain on-message), innovate (yet retain that essential whiff of history and heritage) and expand their product lines (yet still appear exclusive), they might just continue to grow through the recession and emerge on the other side. It's a tall order, but judging by Burberry's achievements in the last years, I don't doubt that it is possible.

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