The Death of Luxury Brands? A Reponse To Channel's 200 Job Cuts

Luxury brands have been considered immune to recessionary effects; however, Chanel’s surprising announcement of 200 job cuts in Paris this year suggests otherwise. In addition to downsizing, Chanel has chosen to cut back on certain events that have been the cornerstones of their past marketing campaigns. Since its inception, Chanel has been unanimous with luxury, known for its retail value proposition of providing its customers with the ultimate shopping experience. But, what will happen to Channel’s stable RVP in light of the recession? Will it be forced to alter its focus on experience in to specialize in price or selection?

In my opinion, Channel must alter its focus to thrive through these though economic times; however, slashing its prices could be a risky decision as focusing on another other area of the RVP will downgrade Channel’s luxurious credibility. Furthermore, choosing more than one area of the RVP to specialize in can confuse the customer’s perceptions of the company, especially for luxury brand retailers. Department stores have struggled with the concept of a one stop shop as it is extremely difficult to manage so many decisions simultaneously. Low priced retailers have struggled to find the ideal price point in a marketplace driven by competitive margin slashing. What makes this recession unique and different from those of the past is that today, no retailer is left unscathed.

Does this mean the death of luxury retailers is inevitable in light of the current economic situation? “Karl Lagerfeld, the designer for Chanel, said in an interview… ‘Bling is over. Red carpety covered with rhinestones is out. I call it ‘the new modesty.’ ” This could present a promising opportunity for luxury brands to reposition themselves in the marketplace while allowing citizens all over the world to re-evaluate their core values, and possibly shift back towards a more primitive way of life, where material items are second-rate to family, or happiness.

According to a Luxury Goods Study conducted by Bain last semester, luxury retailers have been able to thrive, despite the general economic downturn. But how have some brands been able to flourish while others have drowned? I believe it is all a matter of retail strategy. In 2008, Bain reported that although the local consumption within mature markets is slowing, consumption of jewelry and shoes has continued to drive growth. It appears that there may be an ulterior method for luxury good retailers to survive by altering their strategies rather than their price points. New opportunities may come from changing values and consumption habits, which may motivate the consumer to select wardrobe staples such as belts and beauty products and disregard trendy, overpriced apparel. Luxury brands have the potential to bypass a negative fate by focusing on their retail assortment as opposed to their value propositions. Right now more than ever it is all a matter of truly understanding the customer and being able to adapt the retail assortment and product offering accordingly. The variety, breadth and depth of the retail assortment should be based on the customers wants, not simply statistics or historical data.

So which retail categories have mastered this craft? Makeup retailing giants, such as Sephora.[1] Sephora, although its products are often associated with luxury has been reporting steady profits despite the market conditions. Beauty products continue to be purchased while sales of other luxury items are dwindling because makeup is forever, eternally on a woman’s shopping list. Cosmetics can conceal the damages of lack of sleep, or an unhelathy diet but most importantly the stress caused by the current recession. So how can retailers capitalize on a negative situation? Rather than drastically slashing margins, luxury retailers can survive by centering on consumer’s insecurities and core values. Luxury retailers have the ability to use their brand to their advantage. They are able to differentiate themselves from competitors as well as avoid the “low price shopping” so readily done with manufactured brands. Brands draw consumers into stores but gaining a concrete grasp on the consumers’ mindset will allow luxury retailers to adapt their retail assortment to cater to what their customer wants right now. Retailers should narrow their focus; broaden their offering of durables and timeless pieces while decreasing their offering of trendy apparel items. The wave of materialism is over; make room for the “new modesty.”
SOURCES:

“Ominous Cutbacks at Chanel”
http://www.nytimes.com/2009/01/01/fashion/01ROW.html?ref=fashion
“In the Lap of Luxury, Paris Squirms” Top of Form
http://www.nytimes.com/2009/01/15/fashion/15paris.html?pagewanted=2&ref=fashion
“All’s Fair in Beauty and War”
http://www.nytimes.com/2009/01/15/fashion/15CRITIC.html?ref=fashion
Bain & Company Luxury Goods Worldwide Market Study: Key Findings
7th Edition, October 27, 2008
[1] http://www.nytimes.com/2009/01/15/fashion/15CRITIC.html?ref=fashion