II. Relative impact on well-established luxury goods
companies
The luxury sector however suffered less from the crisis than
others and its margins, even if decreasing, remained very high: those of
Richemont and LVMH reached around 18% in 2010 against 21% in 2007, explained
the Japanese consulting firm Nomura. Furthermore, the crisis did not affect all
countries and all products in the same way. Certain market segments were hit
more violently and for instance, watch-making had harder times than leather
goods.
To demonstrate that the effects of the crisis have not always
been as considerable as believed, we will analyze its consequences on big
brands in the sector and then study this relative drop from the consumers
perspective.
1. Luxury armed against the crisis
2008 and 2009 marked a break as luxury also entered a
difficult period. But there was no need to panic, anyway, not as much as in the
motor car or real-estate sector. It is high end products (sports cars, haute
couture, fine wines) that might be expected to take the hardest and most
immediate hit. But many people in luxury goods are confident that the highest
echelons of wealth will always have disposable cash for type of products. Chief
vintner at Champagne house Moët & Chandon, B. Gouez, said: `We are
more than two centuries old and crisis and wars and problems, we have known
them all in the past and we are still here'. Brands with strong tradition and
worldwide fame will always do better than other more modest brands that will
stay in difficulty.
Undoubtedly, some signals of crisis appeared in the luxury sector
in the course of 2008 but overall if the world was taken as a complete market
place, the situation was still
good for the sector. Even as Wall Street imploded, LVMH bought
Dutch mega-yacht builder Royal van Lent in 2008 and Giorgio Armani was going
ahead with a fashion hotel in Milan.
Big luxury groups made huge efforts in order to control their
distribution network mainly through integrated, self-owned stores. This is a
considerable advantage. By means of this network, companies receive a bigger
part of the margin and they also gain fame compared with brands distributing
their products via independent distributors. This is a major asset in times of
crisis. As an example, Yves Saint Laurent carried out a complete distribution
reorganization by acquiring stores they are the only owner today.
In the same way, it is very profitable to own its own stores
in emerging countries. Due to their significant acquisition capacity compared
to little groups, only big luxury goods companies were able to enter these
markets. Today, about 30% of these companies' turnover comes from so-called
emerging regions.
2. Consumers need for luxury
According to the polling organization IPSOS, there was no
break in luxury goods consumption due to the crisis, the desire to buy luxury
products is still there. Despite the crisis, some 6,000 people expressed
interest in buying Ferrari's new California, which retails for around
€179,000 in Europe, even before Ferrari opened its book for orders. No
Lamborghini orders had been cancelled. The world has never before seen so many
people being able to afford so many luxury products. According to B. Gouez from
Moët & Chandon, `even if some people are hit by the crisis, there are
still more people drinking Champagne than 10 years ago'.
However, luxury goods customers ask for more authenticity and
historic know-how from now on. Quality or experience are the main reasons they
buy these products for. The crisis slightly altered luxury consumers'
behaviour: most people acknowledge buying products even if the price is very
high but today the crisis changed values consumers associate with luxury. High
quality raw materials, design, experience are more important
characteristics in the eyes of these `absolute consumers'.
People turn to luxury when times are hard and need or like to dream more.
Actually, luxury products are never more necessary as in though periods.
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