Within the Current Climate What Is the Future for Luxury Brand Retailers - Coursework Example

Within the current climate what is the future for luxury brand retailers? By Your Other relevant information Date Abstract This paper analyses the current economic and retail market conditions and studies the future of luxury brand retailers. It identifies the changing and modifying behaviors of customers, their purchasing patterns, habits and buying powers. It also analyses the promising prospects of retail market future and studies the strategies ought to be adopted by the brand owners to be stable in market. It analyses the studies including Quelch and Jocz(2009), Godey(2009) and Misonzhnik (2007) more specifically. Finally, it suggests managing brand effectively by understanding the psychology of recession stricken customers. The study also suggests keeping future in mind by devising strategies for the time after recession. Within the current climate what is the future for luxury brand retailers? Today’s changing economic environment has affected marketers, consumers and retailers equally. In this study we are going to analyze the future of luxury brand retailers in current economic downturn. Up until the mid 1990s,‘Democratisation’ of luxury items became evident when luxury goods companies embarked upon a distribution strategy that moved from exclusivity to selectivity resulting in an increasing number of retailers selling luxury goods (Godey et al., 2009). Global economy has never experienced such a massive crisis since 1930s.This phenomenon has pulled the breaks on consumer spending across various retail sectors. For instance, retail sales (excluding motor vehicles) in Singapore for the month of March 2009 exhibited to decline of 6.9% (compared to March 2008).In addition to that, gross savings ratio has gone up in most countries, rising to as high as 47% in Singapore and 50.3% in Malaysia.(Cheen, 2009) By 2007, a typical luxury consumer cut spending by 12 percent but simultaneously they increased expenses on experiences by 5.2 percent (Axelrad, 2008). According to Lucht (2009) a recent research by Verdict Research found that this global downturn will prove to be reversing for luxury goods sector.Current conditions of market, customer behavior and spending statistics stir up concerns for retail market. However, future is not that depressing for retailer as good time shows up by adopting the right strategies and managing the brands efficiently. Following statistics show that people are spending despite the economic slump. In fact, buyers are making choices more cautiously due to the diverse market (Cheen, 2009) Cheen states, for instance, Mulberry, a British maker and retailer for leather goods, recently reported an increase in sales of its handbags. In a similar vein, Prada reported that it saw a rise of sales that approximated to 5.6 % in all its directly operated stores. (2009). Cheen further states, this is despite the sharp downturn in sales experienced in the luxury goods market, similarly, in the mass market retail segment, Dairy Farm, that owns major brands such as Cold Storage, 7-Eleven, Guardian, has also experienced an increase of 13% in sales for its financial year that ended in December 2008. (2009) Companies that put customer needs under the microscope, take a scalpel rather than a cleaver to the marketing budget, and nimbly adjust strategies, tactics, and product offerings in response to shifting demand are more likely than others to flourish both during and after recession.(Quelch and Jocz,2009,p.54), According to Quelch and Jocz (2009), it is assumed to be right but unsystematically cutting cost is not advisable. Purchasing pattern depends on the disposable income, confidence level and demand for lifestyle and value. However, economic slump finishes consumer confidence and force them to change or restrict buying temporarily or permanently. Mismanaged and scandalous business also aided to recession(p.54).The dropping rank of Conference Board’s U.S. Consumer Confidence Index in January 2009 shows the lowest level of trust since the tracking started in 1967.( Quelch and Jocz,2009,p.54;Cheen,2009) In this scenario, the need is to understand that how consumers behave in recession. The initial move is to understand the market segment emerging in response to recession. Instead of considering just demographics, psychological segmentation and emotional response of customer should be considered. Consumers should be segmented according to their recession psychology, i.e. from fearful to carefree and the way they plan the purchasing from essential to expendables. Customer recession psychology can help to categorize them into four groups: the slam-on-the-brakes segment is hardly hit and highly susceptible, they eliminate, reduce or postpone purchases. Pained-but patient consumers, represent the largest segment. They have a tendency to be optimistic and confident about recovery. Therefore, they economize, but mildly. Comfortably well-off are secure and confident consumers who tend to be selective during recession. Live-for-today segment carries unconcerned and carefree that can extend major purchases as a result of recession. However, most consumers tend to be price sensitive and less loyal to the brand during recession and they look for alternatives or demand lesser price (Quelch and Jocz, 2009, p.54).Misonzhnik explains that a luxury brand, with an established market presence, for instance, Louis Vuitton, would consider opening an outlet in comparatively low income areas(2007,p.185). Quelch and Jocz explain, during recession, companies reduce prices and delay or cancel future investments. When recession starts, companies should wisely ‘alter a brand’s fundamental proposition or positioning.’ (Quelch and Jocz, 2009) Marketing costs can be safely reduced without letting customer go by taking advantage of already established brand among loyal customers. Recession provide a chance to cut the budget by trimming the cost of poor performers and less productive tactics. Instead of new investments, company can innovate and revise the existing lines and provide customers with superior quality. They should be connected to their core customers while eliminating ailing brands and accessing opportunities (2009, p.56-7). As Lucht (2009) states, ‘For luxury retailers the game now is almost exclusively about traditional core markets.’ Burberry chief executive Angela Ahrendts states, “Luxury retailers need to return to “core values”. Mootee (2008) states, brands should conduct a rigorous assessment of their portfolio and unflinchingly eliminate the marginal “brands” and put a renewed focus on what you do best and innovate within those categories. According to Economist, in 2005, when Maurizio Borletti, owner of several prominent department stores in Italy and France, was preparing for the opening of a refurbished La Rinascente department store in Milan, he recalls, the Vuitton people built a scale model of the building in their offices to understand customer flows and get the best positioning. (2009) The firms that understand consumer’s recession psychology and fine-tune marketing efforts and product portfolios accordingly are the most likely to prosper through-out the recession and afterward…stabilize core brands by maintain or increasing marketing investments, make strategic brand acquisitions, and launch new products with care. You will also need to balance the communications budget, shifting spending to ads with more-measurable results and higher ROI.For example, in the 2001 downturn, Smucker’s acquired the Jif and Crisco brands from Procter & Gamble. These brands were too small for P&G and not in a core category but proved to be a good strategic fit for Smucker’s. P&G, meanwhile, successfully launched the Swiffer WetJet to establish a new category. (Quelch and Jocz, 2009, p.55) Firms should adopt the strategy to push their advantage by taking up the stabilizing opportunities. Consumer goods companies past proves that by increasing or maintain advertising gave them edge over weak competitors. Firms with higher capitals should strengthen and diversify their portfolio. It is critical to continuously invest in market research. This investment enables companies to identify how their customers reallocate money, prioritize and opt for alternatives by redefining values and diversifying products (Quelch and Jocz, 2009, p.57). According to Economist, Vuitton’s ability to offset the steep falls in other divisions shows the value of the diversified conglomerate model in luxury goods and Richemont, the industry’s second largest company, has a less varied portfolio and greater exposure to watches and jewellery demand for which has been especially weak. According to a recent trading statement, its sales fell by 16% in the five months to the end of August. (2009) In recessions, marketers have to stay flexible, adjusting their strategies and tactics on the assumption of a long, difficult slump and yet be able to respond quickly to the upturn when it comes…companies that wait until the economy is in full recovery to ramp up will be at the mercy of better-prepared competitors. Even during recession, new products have an important place…new-product activity slows in recessions overall, launches can economically gain visibility. (Quelch and Jocz, 2009, p.57) Balancing on communication budget can involve minimizing the cost of broadcast media and switching to internet advertising which is highly targeted and cheap. Today’s consumer spends more time socializing and networking on internet than anything else. That is the reason; despite of recession market spent 14% more on online ads in 2008 as compared to the previous year in same time frame. Cleaning up the product line by reducing flavours and innovate core product which motivate and stimulate purchase. Advertising with different product catering the same market segment, adapting and innovating the existing campaign rather than developing a new one and cutting cost of media buying can effectively cut the cost without loss( Quelch and Jocz,2009,p.59). A luxury retailer be successful because of its diverse portfolio, LVMH has the ability to offset falls in some of its divisions. Whereas the group Richemont, the industry’s second-largest company, has a less varied portfolio (economist, 2009). According to Economist, amid this turmoil, LVMH is performing relatively well. It has benefited from an established pattern in the luxury industry: when people have less, they spend what they do have on the best quality… For this reason, says Yves Carcelle, chief executive of Louis Vuitton and president of fashion and leather goods for LVMH, “Vuitton always gains market share in crises.”(2009) An expert on GLG (2008) states, ‘one can be sure the luxury brands will continue to be extremely competitive during, and existing, this economic malaise.’ For retail market, economic downturn is not new, if handled strategically, it can prove to be productive in present and promise bright future in long term. References Axelrad, M., 2008.Cover story: Stepping up to the luxury market: appealing to the luxe clientele. [Internet] Available at http://www.visionmonday.com/ViewContent/tabid/211/content_id/9927/catId/183/Default.aspx [Assessed 24 October 2009]. Cheen, L.K., 2009. Managing Brands in the Retail Industry under Economic Uncertainty. [Internet]Malaysia: Temporal Branding Consulting. Available at: http://www.temporalbrand.com/publications/articles-20090730.shtml . [24 October 2009]. Economist, 2009.LVMH in the recession: the substance of style. Economist, [online] 17 September. Available at: http://www.economist.com/displaystory.cfm?story_id=14447276. [24 October 2009]. Gerson Lehrman Group, 2008.Price deflation on luxury brands like LVMH,Burberry and Gicci will likely pressure aspirational brands like Coach(COH).[internet]Available at: http://www.glgroup.com/News/Price-Deflation-On-Luxury-Brands-Like-LVMH-Burberry-And-Gucci-Will-Likely-Pressure-Aspirational-Brands-Like-Coach-%28COH-29286.html. [Assessed 23 October 2009]. Godey, B., Joëlle, L., & Daniels P., 2009.A measurement scale of “aesthetic style” applied to luxury goods stores International Journal of Retail & Distribution Management[online].37(6),pp.527-537.Available at Emerald Group Publishing Limited www.emeraldinsight.com/0959-0552.htm Lucht, D., 2009.Luxury retailers: Readjusting the business model in the midst of a global crisis. [internet] Available at http://www.indiaretailing.com/Expertview_details.aspx?Id=46 [Assesses 22October 2009] Mootee, I 2008.The next 24 months for luxury brands...Innovate or die. Accessed 24 October 2009, http://mootee.typepad.com/innovation_playground/2008/11/the-next-24-months-for-luxury-brands-innovate-or-die.html Misonzhnik, E. 2007. The Luxury Effect, Retail Traffic, 7 May. P.184-189. Quelch, J.A., & Jocz, K.E., 2009.How to market in a downturn. Harvard Business Review, pp.52-62. Read More