Global Luxury Brands and Recession Essay

The consumption of luxury goods in China is mounting sharply. Not only those born to elite families, but also many common people are greedy for luxury brands (China, a Booming

in 2011, and their spending jumped by 13 percent. Compare this to single women, whose spending grew less than 2 percent, and the average Japanese consumer, whose spending dropped.5 Young men, it seems, saw the March 11 disaster as a good reason to live for the moment, and Japan’s luxury goods market appears to be a beneficiary. Finally, when we look at segmentation by income, Japanese who spend more than a million yen (about $12,000) a year on luxury goods are more than three times as likely to say they are switching to high-end brands than to low-end brands (Exhibit 3). Those who spend less than half as much are reporting the opposite.

Economic: Being a non-necessity, luxury brand, companies took a hit during the economic downturn. Between 2006 and 2010, poor economic conditions created a .6% decline in industry sales. When customers have less discretionary income to spend, they are less likely to spend money on luxury products.

Luxury fashion items can be acquired via several different avenues, as well as at several different price points in today’s market. Previously, the only options consumers had for the acquisition of luxury fashion goods was to purchase directly from the retail store; however, now there are an enormous amount of resources for consumers to opt for a used product at a much lower price by shopping on websites like eBay, or by purchasing from the growing amount of high-end consignment stores. Another option that luxury fashion consumers can easily utilize is to buy the item new and at a cheaper price by shopping at outlet stores or discount department stores like Nordstrom Rack and T.J. Maxx. Finally, these consumers have the option to borrow. Websites like BagBorrowOrSteal.com have created hugely profitable businesses by making the latest luxury accessory available to be rented at a cost that is a fraction of what the item would cost if purchased new from the retailer. These options have granted a much larger array of people the opportunity to experience aspects of the luxury lifestyle and the luxury image than ever before.

Today, people consume for necessity and pleasure. The act of consuming goods may allow one to fit in, feel confident, or participate socially in shopping culture. Consumerism has become a universal behavior amongst most people and

From consumer’s perspective, the motivation of their purchasing high-end products is complicated. According to the report of Mintel (Academic.mintel.com, 2013), which showed that the reason why a large number of customs have purchased luxury merchandise in UK. There were 44 percent of female interviewees and 48 percent of male interviewees bought high-end goods due to the good quality. In addition, 31 percent of men and 18 percent of women consider the sophisticated technique

The author who inspired the topic of this thesis is Dana Thomas. As a fashion writer, Dana Thomas, has analyzed the changes in luxury fashion business. Thomas has been writing about fashion for the past twenty-five years in various journals such as Newsweek, The New York Times Magazine, New Yorker, Harper’s Bazaar, Vogue, Financial Times, and more. Dana Thomas’ two books, Deluxe and Gods and Kings, are the inspiration for this thesis. Deluxe: How Luxury Lost Its Lustre goes into great detail the secrets of the leading luxury industry brands, namely Prada, Gucci and Burberry, to showcase the “New Luxury” of today and how “luxury lost its luster” by featuring the manufacturing and logistical processes. Thomas exposes that many luxury brands use the same Asian factories that mass-market retailers employ, which raises questions concerning quality and craftsmanship for luxury brands.

Conspicuous consumption refers to the pattern of spending money on purchasing expensive products or services based on the assumption that they are better simply because they cost more. This kind of purchasing is aimed at ‘keeping up appearances’ and ensuring that a high status is maintained by showing off how much money one has. Veblen coined the term ‘conspicuous consumption’ in the 19th century in his book ‘The Theory of the Leisure Class’ (1899) where he discusses the role of consumption in maintaining social status.

This behavior brings competitive advantages to the European luxury brands. Moreover, customers in different countries have different purchase behaviors. For instance, some countries’ customers are willing to move away from common recognized brand, because they want to purchase more exclusive products. Furthermore, because of the increasing speed of globalization, people are more likely willing to travel between different countries. These travelers will buy luxury good during their trips. In fact, Chinese tourists contributed over one third of sales in Europe. The luxury goods industry should notice to adjust the actual demand between local people and tourists in Europe

We are all University Students that currently live in Halifax Nova Scotia, but have all grown up in various places. Two of our members are from Ontario and the remaining members from various parts of China. Given this geographical separation, our group has some obvious diversity in our individual consumer profiles. This is partly due to our different cultures and values. Our families also greatly influence our contrasting consumer profile - with our differing ethnical backgrounds, different social classes and varying religions. Conversely, we all fit into the age bracket of 18-25 so share some similar purchasing behaviour as millennial consumers (Kardes et la., 2011, pg 38). We have all been apart of many of the same world changes, such as 911 and global warming. This greatly sways our prespective on which products we can identify with and our preferences. Likewise, we all are at the same life stage (Kardes et la., 2011, pg 8). We are all young adults, finishing up university and starting our independent lives with limited disposible incomes. We tend to make most of our purchases online, allowing us to find the best deals in the least amount of time. Most of us find that food is our number one expense and value the bonds people make while sharing a meal. Many of us find it difficult balancing our busy lifestyles and school, but work to covercome these challenges. All of these inflencers guide our purchasing habits.

It is hard to imagine that after the financial crisis swept across Europe, many great transitional enterprises had to face collapse and bankrupt while the luxury goods industry become more prosperous. Recently, the French luxury goods group LVMH announced their recent business condition. The volume of the first week in October had incredibly increased by 12% the previous week. The Hermes Corporation also said that in order to meet the increasing number of market demand, it would open 15 branch stores in the latter half of the year. These aroused some fierce debates, the public held a skeptical opinion towards the questions: How can the luxury companies maintain their positions? Why didn’t they strike down by financial crisis?

This expansion demonstrates how the luxury industry is now run by massive corporations whose focus is only on growth, visibility, brand awareness, advertising, and most importantly, PROFITS! With growth and expansion, has come a decrease in quality and rarity. The luxury garments produced are mostly not handmade but are even outsourced to large factories in places such as China and Turkey. Also, to meet quarterly turnover projections, “designers churn(ed) out increasingly trendy collections of clothes, handbags, and shoes.” (Thomas, Pg. 246) With hundreds of new stores around the globe the surplus of designer labeled merchandise is immense hence, the proliferation of outlet malls.

Key managers that can run each business independently but with a group vision are also part of the equation. Additionally the luxury industry is strongly dependent on tourism which is influenced by economy trends. The 9-11 events and the global economy slowdown have had a great impact on the industry. Finally huge investments were done to win strategic position, having an important impact on revenues. Appendix 5 is an example of the proportion of cost and impact on revenues and the stock performance.

The overall sales of luxury goods in the year 2009 is expected to be more than US$150 billion and Asia contributes 10% to it. The concept of luxury is now not confined to only to Europe and US, the Asian subcontinent contributes majorly to it, with India and China as the newly emerging markets. Professor James Twitchell (2002) comments on the democratization of luxury and the changing consumer psychology These new customers for luxury are younger than clients of the old luxe used to be, they are far more numerous, they make their money far sooner, and they are far more flexible in financing and fickle in choice. They do not

Today, normal middle class people will buy expensive name brand items to raise their social status even if they can’t afford it. There are a variety of factors driving this extravagant spending. The desire to show off our success, the need to have what other people have, prolific advertising and product placements, and a society that favors instant gratification over hard work are a few reasons. (Investopedia) According to a Federal Reserve Board study, 43% of American families spend more than they earn and approximately 2,039,214 consumer bankruptcies were filed in 2005. Many people wonder why there has been such a jump in spending over the last decade. This spending could be due to an increase in sales in recent years. Department stores and other companies are trying to get people into their stores and buying their products. These companies know that once they can get a consumer into the store the consumer will most likely be walking out with some product. Many companies, like Kohl’s and JCPenny, do this by sending coupons to people’s homes and holding sales almost every other weekend. This makes the consumer think that they are receiving a deal and that in the long run they are saving money on these products. However, what consumers don’t realize is that they end up buying products that they wouldn’t have purchased otherwise. Also,