III. How did luxury goods companies respond to the
crisis?
In the face of such a turmoil, the luxury sector had to react
and adapt to the context in order to pass through the crisis. It succeeded in
limiting the damage because this market is multiform: by the variety of its
products and also geographically since it is global. Here again, there was a
`two-speed' luxury. For leading groups, the reduction in margins was real but
gross profits remained very satisfactory and profitability attractive for most
brands. At the contrary, some groups that were heavily in debt were weakened
substantially.
To understand how companies managed the crisis and survived to
it, we will first show that they had to adapt to consumers' tastes and changes
in preferences. Secondly, we will analyze the marketing strategy they adopted
to boost their activity. Finally, we will focus on restructuring programmes
they implemented to deal with the crisis.
1. Adapting to the demand
As seen in the previous part, consumers' tastes change when a
crisis occurs. The only segment that did well is leathercraft because these
products are fashion accessories, must-haves, the most affordable access to
luxury brands and at the same time the most visible. It is one of the most
important category of products sold in the luxury sector. For that reason, big
groups such as Hermès, Vuitton or Gucci focused on this type of products
in order to maintain their profits. Their worldwide fame as well as their
presence in various countries of the globe (through an integrated distribution
network made of self-owned stores) enabled them to resist to the crisis.
Thanks to this kind of network, companies can understand
cultural aspects in different countries and adjust their business accordingly.
This was of crucial importance during the crisis that rocketed the sector. For
smaller companies at the contrary, it was more
difficult to adapt to local customers' tastes as they did not
possess this kind of network and international brand image.
Companies must focus on customer comprehension and indentify
their needs, expectations, desires... The price is also a major factor. These
actions are of great importance and must be carried out carefully because they
enable companies to adapt the range of products they offer in specific market
segments. In the context of the crisis, middle-income consumers cut their
`extra' spending sharply. The very rich saw their net worth dramatically
reduced by the fall in stock markets and property values, decimating demand for
super-luxuries like yachts, cars and property-related purchases. To respond to
this threat, luxury goods companies decreased their prices and tried to exhaust
stocks. Nevertheless, this measure had to be taken carefully since an excessive
decrease could undermine luxury products and especially the brand's image.
2. New marketing strategies to revise market
positioning
In line with their adaptation to customers, luxury companies
had to think about repositioning since policies that worked well before the
crisis no longer made sense. Luxury companies decided to cut their marketing
spend (massive and expensive promotion, stores openings, advertising
campaigns...) while maintaining strategic investments: Chanel gave up its
Mobile Art Tour, a worldwide campaign, Louis Vuitton had to abandon the idea of
opening one of its biggest stores in Tokyo...
Companies carried on investing but in a more strategic way.
They invested more in quality, retail network development and intellectual
property. Furthermore, big groups which were not in debt and had investment
capacities understood that market needs are changing and tried to act
accordingly by reducing their product portfolio and concentrating on markets
that are growing such as China and Brazil. Efficient repositioning means that
instead of relying just on brand power, companies refocused on those markets or
segments that were most likely to sustain revenues.
Luxury goods companies must implement new strategies in order
to manage successfully the gap between offer widening and preservation of
excellence. There is a risk of democratization. The issue is complex: diversify
production but maintaining rarity and know-how so as not to break the code of
traditional luxury. Maintaining dearness and difficulty of access, which are
the bases of luxury, while keeping making profits. There is a real risk of
popularization.
A lot of luxury brands use a strategy copied on LVMH:
diversification and portfolio management. It consists in possessing a brand
portfolio (in that case for LVMH: Louis Vuitton, Kenzo, Fendi, Henessy...) led
by one big, heavily-promoted brand (here Louis Vuitton). Profits made from this
flagship brand help to emerge new growth through the group's smaller brands.
For instance, PPR Group (Gucci, Balenciaga, Yves Saint Laurent...) uses this
model and is able to maintain all its brands thanks to this strategy: 20,6% of
Gucci's margins make up for Yves Saint Laurent's losses.
Finally, luxury brands recentred their advertising and
promotion strategy even if less investments were dedicated to this field.
Marketing was made for customers, with a view to satisfying them perfectly, on
the basis of questions such as: is our product or service suitable for
customers in the market segment? How should we promote it? How should we sell
and distribute it? Implementing a new marketing strategy is no easy task and
this must be done very carefully in order not to lose the `country of origin'
effect (the `made in France' or `made in Italy' are best selling assets).
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