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Prospects for Luxury Brands in the Global Era

Junji Tsuchiya
Professor, Faculty of Letters, Arts and Sciences, Waseda University (Sociology), Director of Institute of Italian Studies

The Luxury Crisis

It has been possible to talk of the destruction of the brand myth for quite some time. This is despite of the fact that sale channels have been developed and expanded with affluent consumers in emerging countries where brand consumption is overheating, rather than the scale of luxury brand markets contracting. Although some point out the poor state of the economy, that is not the only problem.

Following the 1980s, small-to-medium size luxury brand houses that had mainly been family-owned rapidly became incorporated, and global capital became actively involved in the market through management participation in the brand houses that became investment targets. The polarization of businesses into winners (brands that acquire others) and losers (brands that become acquired) in global competition was accelerated by a trend of industry realignment triggered by financial investments centered around acquisitions and business alliances among brand companies, and the thorough streamlining of management that occurred during the business downturn that followed.

Continual cost reductions in development, production, distribution, and sales have had an enormous impact on the operating environment in the luxury sector. The business strategies for the global market adopted by the companies in this sector have resulted in drastic changes for the industry.

The transfer of production bases overseas to reduce costs in pursuit of highly profitable business models has resulted in the destruction of traditional domestic production centers and the hollowing out of the industry. The low-cost competition stemming from the injection of large volumes of low-cost labor-intensive products in cost-competitive markets has caused financial ruin to small and medium enterprises and crafts workshops that produce high quality products through traditional domestic production. Since the 1990s, the luxury brand industry has aggressively shifted production to countries with low labor costs, and while the scale of corporate earnings did improve, the luxury sector has been forced to pay a large indemnity due to this business strategy.

There is a trade-off between production cost reductions and high quality maintenance, and products are the results of concessions and compromises made between the two. It is easily conceivable what many global luxury brand companies have had to sacrifice is in pursuit of low costs and high earnings.

High quality is essential for a brand's competitive advantage, and also serves as the driver for brand power that combines product value and corporate value. High quality is a precondition that guarantee a brand's cost advantage and high loyalty, as well as expandability enabling to retain its strong competitive strength in different markets. Material quality, manufacturing technologies, design performance, and product service know-how are high-cost intellectual properties that affect quality, and business expansions that lead to quality degradation risks are fatal for the luxury brand industry.

The Democratization of Luxury

Now, units of luxury brand products are being produced in the tens of thousands and at times in the millions in the global market, supported by a brand buying boom among affluent consumers in emerging countries. As brand logos have penetrated the world as a type of global standard language, luxury is becoming more and more democratized. However, this presents a large contradiction.

The irony in high-value, mass-produced products is that the more popular luxury becomes, the more that the exclusivity emanating from luxury products fades, and the more that the prestige associated with luxury is undermined. The sense of elitism associated with luxury is irreconcilable with democratization, as luxury has been flaunt its own sphere with the aristocratic exclusivity nature. Products that are readily obtainable by anyone cannot necessarily be considered luxuries even if they are high-quality and high-cost.

Global luxury brands have become "McDonaldlized" through production, distribution, and quality control systems that have been thoroughly improved and streamlined through cutting-edge technologies. Brand companies have become overly attentive to achieving quarterly sales targets and caught up in product plans appealing to fashionableness by trying to minimize the product life cycle. Companies have to strive to make available a large lineup of low-cost, highly-profitable entry products such as leather accessories, perfumes, and scarfs; secure high profitability through volume sales; and maintain customer repeat rates through the acceleration of merchandise turnover.

Stakeholders are focused on corporate earnings, not brand aesthetics. Now only a few high-quality premium products among entire product lines emanate a faint sense of exclusivity in stubborn defense of the prestige associated with luxury.

Due to the democratization (market expansion) of luxury brands, the line between fast fashion is becoming more and more ambiguous with the mass market product lines produced in high volumes at a low cost. Even fast fashion as a low-cost brand is a threat to luxury brand companies, as design quality is high and these brands have extremely efficient production and sales systems capable of promptly supporting the diversity of their customers and functional product requirements. Recently, there have been more and more proposals of collaborative products between a fast fashion brand focused on casual style product development and a luxury product designer. However, in a sense this represents that erosion of the brand value fostered by luxury brands through high fashion traditions by fast fashion brands.

Restoring Luxury

While the brand myth continues to crumble down, luxury brands with a sense of an impending crisis are taking urgent measures to defend and create brand value, through steps such as expanding their flagship stores, strengthening direct sales systems, developing artist and celebrity collaborative products, and conducting publicity strategies. To avoid the loss and dilution of brand value, it is necessary to enact various strategies based on the risks faced (see Table 1).

Countermeasures in response to risks in the luxury sector contain many elements that are antithetical to globalization and the democratization of luxury, and accordingly it is necessary to pay attention to the transformation of the awareness consumers have toward brands. From a trend of conspicuous consumption following the war typified by the idea that "more is better," society has moved to the ideas of "small is beautiful" and "simple living," and recently there has been an increasing number of people in society questioning the way we consume things.

The paradigms of "thinking globally, acting locally" and moving "from fast to slow" are being promoted by both consumers and companies in ethical consumption and corporate social responsibility trends, presenting more opportunities for the co-creation of new brand value (see Chart 1).

In order to reinstate luxury brand value, it may be a good time for companies to fundamentally review the current situation.

Table 1: Risks and countermeasures in the luxury sector

Chart 1: Ethical consumption (EC) and corporate social responsibility (CSR)

Junji Tsuchiya
Professor, Faculty of Letters, Arts and Sciences, Waseda University (Sociology), Director of Institute of Italian Studies

[Career Summary]
The author served as an assistant, full-time lecturer, assistant professor, and professor at the Faculty of Letters, Waseda University before his current position. The author received a Doctor of Literature degree from Waseda University. The author served as a visiting lecturer at universities including University of Rome, University of Bologna, University of Padua, University of Naples, University of Florence, University of Turin, University of Venice, University of Genoa, and Catholic University of Milan. The author specializes in sociology and international brand marketing. Fashion-related publications by the author include: Sociology of Mode (Volume One and Two) (Gakubunsha) and Fashion and Culture in Contemporary Italy (Gakubunsha).