A plain paper bag seems an unlikely symbol of luxury, but this understated wrapping, being offered in recent months by the likes of Hermès and Tiffany, exemplifies how public sentiment about wealth has shifted.
“Luxury is now a dirty word,” says Gregory J. Furman, founder and chairman of the Luxury Marketing Council, a New York-based organisation representing 700 marques. “The idea of luxury shame is emerging, and this is significant.” Wealth has become associated with greed, and flaunting its trappings simply unfashionable.

However, for the marketers of luxury brands, the recession provides an opportunity to reclaim the high ground that mass affluence had been chipping away at. Even the moderately wealthy, who are still earning what they were a year ago feel less well off, and high-end luxury is becoming exclusive again. However, creating demand for luxury goods at a time like this means walking a fine line. 


“The dilemma luxury brands’ agencies will have is how to emphasise exclusivity without a hint of bling,” says Guy Lambert, managing director of Ogilvy Advertising in London, which has Louis Vuitton as a client. “You’ll have to say, ‘Buy this product not because you’re rich, but because you value quality’.” 


Diamond company De Beers Group claims it is benefiting from a shift in the rationale of big spenders. “We are seeing a move away from immediate gratification, and, in tough times, luxury consumers return to basics — to investment pieces that represent genuine value because they deliver on a promise and last,” said group chief executive Stephen Lussier in Luxury: Considered, a report on the sector by Ledbury Research and De Beers. 


“If you talk to tailors, say, they’re generally doing fairly well, because if people are going to buy a £300 suit off the peg, they are deciding it’s worth spending £600 for a bespoke suit that looks great and lasts longer,” explains Guy Hughes-Wilson, business director at media agency Mindshare Worldwide, which counts Rolex and De Beers among its clients. “The flight to quality is real,” he insists.


Emphasis on quality, craftsmanship and durability is increasingly the focus of luxury brands’ marketing efforts; a purchase is more easily justified — both to the buyer and those they pass in the street — if it can be seen as sensible, not self-indulgent.


“Nobody wants to seem over the top,” says Furman. “Success now will lie in the ability to tell the story of why the price-value equation makes sense.” A unique experience may be part of that, as may craftsmanship and tradition. Brands that emphasise wellness — a passion among boomer-generation luxury buyers — will find a receptive audience, he says, as will those that bring families together and feed the urge to nest brought on by harsh times.


“Perhaps we’ll see a return to tastefully shot press ads with longer copy that explains the benefits of the product or service,” says Lambert. “A Leica camera, a Hermès bag, a Patek watch, a Naim hi-fi or a Louis Vuitton suitcase are all expensive, but each of these items represents extremely good value. Used properly, they will last for years, they are well made, perform to very high standards and often represent very good investments.”


Celebrity endorsements will come increasingly from those who’ve achieved something noteworthy — Olympians, explorers or talented artists — and who are discreet with their wealth. Footballers and pop stars are falling out of favour, says Lambert. Brand endorsers will be “the kind of person we look up to, rather than just coveting their wealth and lifestyle,” he adds. 


Alexander Duckworth, president of communications consultancy Point One Percent, which focuses on brands targeting the wealthiest 0.1% of the population, says we’ll see less of the “in-your-face, party-girl attitude in advertising. The brands that stubbornly stick with that will look so out of place”.


As well as rethinking their messaging, luxury brands are also adjusting the way they reach their target audience. Glossy magazines have long been their first port of call, but ad pages in high-end titles have dropped — down 22% year-on-year in in the US in December according to Media Industry Newsletter. 


Hughes-Wilson says there is no exodus from the glossies, but rather an unwillingness to make long-term commitments when the future is so uncertain. They’re also driving a hard bargain, and walking away if they don’t get a good deal. “They, like everybody, are trying to squeeze all the value they can out of every single media investment.” 


A Luxury Marketing Council survey of members at the end of 2008 found they were adjusting their marketing mix by focusing on existing customers, paying extra attention to service and creating intimate events. Glitzy events are making way for opportunities to meet the designers and craftsmen who work on a product. “The smartest brands are focusing on the best customers, telling them the brand story and then leaving them to pass on that story,” says Furman. Duckworth says “like-minded” brands in different but complementary categories are teaming up for events and other marketing activity.


Luxury brands are also, somewhat belatedly in many cases, embracing the internet as both a communications and a sales channel. “In a time where individuals are feeling guilty for splurging, online shopping could be the discreet alternative,” said a recent issue of High Net Worth, Ledbury Research’s monthly report on the luxury market. Google research shows that, among US millionaire households, 94% had made an online luxury purchase in the past six months. “Online marketing can be very cost-effective, as well as timely and fluid in its messaging,” Duckworth says. 


Research company The Luxury Institute predicts dramatic acceleration in luxury brands’ use of the internet in 2009, spurred by the success of innovators such as Gilt.com, an invitation-only fashion and luxury shopping site. Other pioneers include A Small World, an exclusive online community, Ideeli, a members-only shopping area for women, and Farfetch.com, a portal for many of Europe’s top fashion boutiques, which boasts 400,000 visitors a month and plans to soon launch a similar venture in the US. 


The Luxury Institute also urges a shift into m-commerce (transactions via mobile phone), having found that 22% of luxury consumers have bought something in this way.


Creating desire in an age of austerity means, for luxury brands, moving with the times, both in how they communicate and what they say about themselves. “Align with the current sentiment,” Duckworth says. “Luxury does not have to mean decadence.”

Flagships at sea? Department stores are going upmarket, and they are going global too, but it’s risky, says John Ryan

As the world gets wealthier so the department store has taken off as luxury emporium. The outcome is not just a necklace of luxury outposts — such as London’s Selfridges, New York’s Bloomingdales or Berlin’s KaDeWe — but a diamond-studded group of super-luxury brands such as London’s Harrods and New York’s grande dame, Bergdorf Goodman. They all rely on the international jet-set and were thought to be immune to the vagaries of local economic woes, until a global recession hit.


Says Alberto Alessi, managing director of the eponymous company whose designer gadgets are sold in many of these temples. “At first thinking, luxury is something very close to ‘superfluous’, meaning something having to do with our daily activities, which is not strictly necessary,” he muses.


And there’s the rub. Sales at upscale US upmarket store group Neiman Marcus — owner of Bergdorf Goodman — were down 24.4% in January against the same month in 2008, suggesting that the economic chill has suddenly engulfed this rarefied world. 


Europe might be following in the same direction, except for one major difference, according to Paolo de Cesare, chief executive of French group Printemps — the average Frenchman and German is not drowning in debt to the extent that Americans and Britons are.


Arcandor, owner of German mid-market store group Karstadt, has just promoted Munich’s m Oberpollinger, to its “Premium Group” after a four-year, €75m makeover. Arcandor’s move would seem to indicate that luxury stores are well placed to weather the downturn. Indeed, in February, Arcandor chief executive Thomas Middelhof said that in spite of the economic gloom, Karstadt is mid-way through a “radical repositioning” that will see the group becoming 
a high-end chain. 


Arcandor’s logic is to try and avoid getting caught in the margin-squeezed mid-market, where branded goods look expensive to value-seekers and cheap to the aspirational brigade. Fraught with risk as this strategy is in Germany — a nation besotted with low-cost, high-value retailing— it’s not as risky as trying to export a local brand to foreign soil. 


By this reckoning, the global spread of UK’s Harvey Nichols, which opened a Jakarta branch in December and has stores in Dubai, Istanbul, Riyadh and Hong Kong, looks much riskier. The draw of Harvey Nichols as a quintessentially British institution does not guarantee its success in Istanbul, while Dubai, for instance, depends upon very large numbers of cash-rich visitors. The effect of a fall in tourist numbers this year may spell disaster for retailers, and particularly for luxury purveyors. Robert Clark, senior partner at Retail Knowledge Bank, notes “It may be that high-rolling customers are pulling in their horns for the first time. In the short term this is a problem. Longer term, luxury stores will still thrive because the general trend of rising affluence will continue.”