Sunday, February 1, 2009
The future of luxury...not so luxurious
Talk about the democratization of luxury! Here is a very interesting article featured in the Wall Street Journal on January 29. It's kind of along the lines of Dana Thomas' book, Deluxe (with a dash of "economic crisis" sprinkled on top)
The party is over for the fancy labels that once scored big on $600 stilettos and $1,500 "It" handbags. This year, world-wide sales of luxury goods are expected to fall between 3% and 7% from a year earlier, according to a Bain & Co. study.
Ungaro lowered the prices on the jacket and skirt for its pre-fall collection.
Moreover, many fashion-industry veterans believe last fall's steep discounting of European designer goods by 70% or more did lasting damage to the perception of luxury. People now feel like they were ripped off by high prices all along -- and they are vowing never to pay full price again. If you can buy a Michael Kors wool dress for $230 on sale, as I did, you may wonder if its original $2,400 price wasn't a bit high to begin with.
The discounts follow other moves that have blurred the distinctiveness of luxury. When hip designers like Proenza Schouler, Roberto Cavalli and Viktor & Rolf can create nifty pieces that sell for under $100 at H&M and Target, it raises the question: Why can't they keep the prices in their signature collections from creeping over $1,000?
"It will take at least a year or more for people not to become nervous, thinking that if they had waited a couple of months longer, they could have bought something at 50% off. People don't want to be made a fool of," says John Idol, chief executive at the Michael Kors fashion house.
Now, luxury designers and retailers are responding to the new environment by altering the way they make, price and sell their goods. We surveyed some of the smartest people in the luxury business in Europe and the U.S. to find out what luxury shopping might look like in coming years. Permanent price cuts. The weak U.S. dollar boosted the prices of euro-denominated Italian and French luxury goods by a third or more in the past few years. Shoes that once cost $550 shot up to $700 or $800 -- giving even the most rabid fashionistas sticker shock.
"Designer clothes are way overpriced; there's no way that a blouse that a woman paid, say, $1,500 for three years ago is now worth $4,000," says Allen Questrom, a former chief executive at Barneys New York and the former Federated Department Stores. His prediction: Prices will fall to better reflect the "price-value relationship of the merchandise."
"We have to lower our prices," agrees Alber Elbaz, the designer for Lanvin in Paris, where prices for cocktail and evening attire range from $2,600 to $8,000. "For the past month I have personally been on the phone asking our manufacturers, our fabric makers, all our suppliers to give us a better price," Mr. Elbaz says. "It's the subject of the day."
Michael Kors boutiques are featuring high-end, midrange and moderately priced shoes (above: $150) in the same store.
Emanuel Ungaro, another French fashion house, has already cut prices on 18 items for early fall delivery, dropping the price of one jacket, for instance, by 20% to $1,800. Prices for high fashion have become "way too expensive, and it's time to lower them," Ungaro CEO Mounir Moufarrige said through a spokeswoman.
More high-end bargains. Upscale chains such as Saks Fifth Avenue and Neiman Marcus are stocking far less merchandise this year, in hopes that they won't have to mark it down. But savvy shoppers won't be starved for bargains. For one thing, consumers may keep refusing to pay full price, despite fashion labels' efforts to make clothes more affordable. But also, there's a glut of fancy merchandise still in the pipeline.
The Web sites that peddle excess designer inventories at a discount are here to stay. Gilt Group Inc., a members-only discount Web site, has about 25 sample sales a week, featuring labels such as Missoni, Vera Wang and Valentino. AnotherShopittome.com, sends alerts to its members as soon as retailers start marking down their favorite designers by 40%.
No matter where the economy goes, a new generation of consumers "are spending differently and shopping online," says Alexis Maybank, co-founder of Gilt. Apparel makers have adapted to the presence of discounters, accepting smaller margins in order to sell more -- and sometimes even making goods expressly for the outlets.
More luxury goods made outside of Europe. With growing pressure for lower prices, more luxury makers will have no choice but to shift more production from Italy and France to China and other places.
"You can't tell me that you can't get the same quality in China that you can in Europe," says Mr. Questrom of Barneys and Federated.
Three years ago, womenswear label Lafayette 148 hired Barbara Gast, a production veteran of Italian luxury maker Ermenegildo Zegna, to move to China and teach 120 Chinese workers how to produce and finish fine-gauge knitwear, which sells for an average price of $350 a sweater for cashmere and $228 for merino wool.
"Our suppliers have told us that our product is on the same level with those made in Italy," says Deirdre Quinn, president and co-owner of Lafayette 148. Last year, the $100 million-a-year brand moved all production to its newly built factory in Shantou, China.
Of course, many labels won't broadcast such moves; don't be surprised if you see more labels that read: "Styled in Italy."
Upscale labels mix it up with more inexpensive items.
The Marc by Marc Jacobs label plans to add more "exclusives" -- items found only at its own stores, says Robert Duffy, president of Marc Jacobs. Those exclusives will include more inexpensive items, he says. "We have always believed in having a broad mix of prices, like our $11 flip flops ... and our $28 rain boots," he says.
Michael Kors boutiques -- which sell handbags and shoes at various price levels, ranging from $150 platform sandals to a $3,200 python handbag -- are employing a similar strategy, showcasing high and low-priced options alike. "Customers already cross-shop between designer shops and Zara, so we're just allowing them to do it in our own stores," says Mr. Idol.
Lord & Taylor is taking market share from higher-end merchants by offering designer looks for less, says Richard Baker, CEO of NRDC Equity Partners, which owns Lord & Taylor. He cites $89-to-$350 shoes with "the look of Gucci and Prada -- styles that can cost $700."
Burberry Group, a brand whose outerwear runs from $400 to $5,000, is launching its first jeans line, priced from $150 to $250. Says Angela Ahrendts, Burberry chief executive: "Our luxury positioning is more democratic than any of our peers."