Sheraton Resort Bali, Kuta Beach
Douglas Gollan of Elite Traveler explains why ‘true’ luxury brands should be cognisant of ‘luxury for less’ competitors as today’s high growth markets begin to mature
In a world of sophisticated consumer marketing, the fastest way to increase the top line in the near term is often a fabulous ad campaign, backed by sizzling public relations and well planned goosing of social media. But let me start 2014 by suggesting that ‘true’ luxury brands should be taking a quick glance in their collective rear mirror.
Several years ago I was amused when Tom Ford spoke at a conference about walking through a supermarket and perusing packages of ‘luxury’ frozen chicken. The clear message was the word ‘luxury’ was being so overused that simply slapping it on one’s offerings would no longer suffice.
Driven by increasing demand from the increasingly richer and growing population of global Ultra High Net Worth families, coupled with demand from the newly affluent from emerging markets in Russia/CIS, Latin America, Asia and Africa, and Mass Affluent stragglers from the pre-2008 bubble in the U.S. and Europe, the ‘true’ luxury industry has been enjoying halcyon days.
“ The word ‘luxury’ has been so overused that simply slapping it on an offering no longer suffices ”
Brand stories, heritage, craftsmanship, quality materials, design, innovation, experience and service are of course part of the mix that generates premium pricing for providers of true luxury products and services. That said, I am seeing more and more competition from a category we can call “Luxury for Less” or “Near Luxury.”
These players are in my opinion raising their game. They have taken inspiration from the top “True Luxury” players in their marketing, they have paralleled design and have used technology to enhance their service. An article in The New York Times noted how solidly solid four-star brands such as Marriott and Sheraton are upping their luxury quotient.
Starwood Hotels Chairman Fritz Van Passchen (operator of Sheraton, W, St. Regis, Luxury Collection, Westin, Aloft and other brands) aptly identified that what was a luxury a generation or two ago is now common place – think refrigerators, televisions, spa treatments, intercontinental travel by plane.
“ What was a luxury a generation or two ago is now common place – refrigerators, televisions, air travel ”
I remember when the first portable calculator came out in the Seventies and we gathered around my grandfather at the kitchen table viewing the device like it was out of a science fiction movie. The same Massification is taking place with luxury.
No longer does one have to buy a luxury car to have leather interiors, adjustable bucket seats and cool bells and whistles. No longer does one have to stay in a luxury hotel to enjoy a breakfast buffet with smoked salmon, made to order omelettes or have on-site spa facilities.
Over the holidays I stayed in two Sheraton hotels, both nice but certainly not what the luxury hotel industry would define as luxury. Interestingly, these hotels have many of the amenities less than a generation ago would have defined a luxury hotel. Both had very good concierges, 24-hour gyms, spas, 24-hour room service and good food and beverage outlets.
& Other Stories, H&M’s ‘Luxury for Less’ brand
The Singapore hotel was renovated by Hirsh Bedner and my bathroom had as much marble as the next luxury hotel, there were Daxima hand-held and rain showers, a stunning Club Lounge and rooms with Italian made furniture.
You more likely know Hirsh Bedner for its work at world-renowned hotels such as The Beverly Hills Hotel, The Alpina Gstaad and top luxury groups such as Jumeirah, Park Hyatt, Shangri-la, St. Regis and Ritz-Carlton. Then again you’re more likely to think about Jimmy Choo and Stella McCartney as namesake brands, rather than their collaborations with H&M.
In Bali, on its busy and congested Kuta Beach, closer to South Beach, Cancun or Las Vegas than the tranquil setting for many of the island’s finest resorts, is a new Sheraton as well. One opening press report noted, “If you’re looking for a 5-star experience that’s just a stone’s throw from the colorful Kuta beach life, this might be the place for you.”
“ Luxury for less brands are creating lower priced alternatives to that of ‘true luxury’ brands ”
Rooms feature deep soak tubs, spacious walk-in showers, there is an infinity pool with stunning ocean views, a 24-hour fitness center and a service minded staff. Asia is a shopper’s paradise, with local wares as well as global brands such as Zara, Top Shop and H&M. Everywhere one turns, there is the juxtaposition of “True Luxury” and “Luxury for Less.”
So let me get back to the Rear View Mirror. For aspirational consumers, we all know that like kids in a candy store they eventually get a stomachache. One simply needs to look at the 2008 economic crisis to see how the over-engorged Mass Affluent had their lives come to a screeching halt when they found out they couldn’t flip those condos in Miami or Vegas and the value of their primary residence was lower than their mortgage.
Stable companies were no longer stable and fast charging aspirationals – who hopped from six figure gig to six figure gig and never saw a credit card offer they could refuse – were suddenly happy to have a cubicle. With that in mind, the last half decade has seen the “Luxury for Less’ industry revving up its machine of creating lower priced alternatives to “true luxury” brands that charge premium prices.
“ Luxury for Less is taking products once reserved for the rich & bringing them to the masses ”
Like refrigerators, air-conditioners, smoked salmon, calculators, designer fashion, spa treatments and fancy hotels, the “Luxury for Less” segment is taking products and services once reserved for the rich and bringing them to the masses. Page through glossy Mass Affluent magazines from Conde Nast and Hearst and you will see countless ‘look for less’ items in editorial and advertising.
Boston Consulting Group’s Silverstein and Fisk proposed in their 2004 tome “Trading Up” that consumers would splurge on categories they were passionate about, spending more to accumulate in a category of favor and cutting back in other places to fund the splurge.
“Luxury for Less” means financially pressed consumers no longer have to spend big money they don’t have to have their own Top Model wardrobe or splash in infinity pools in famous resort destinations.
Coach has built a strong position at the ‘premium’ end of the ‘luxury’ spectrum
For True Luxury companies, fast growing economies have created new consumers who willingly pay for their prestige brands. These consumers filled the hole after the 2008 Meltdown. However, one thing that’s true about fast growing economies is that the cost of living over time becomes more expensive.
The need for luxury brands as a badge of having made it for the aspirational consumer is eventually replaced by more mundane needs such as paying for the cost of education, healthcare, retirement and maintaining the façade of the aspirational lifestyle, namely choking mortgages or ever increasing rents as well as well as personal technology (take a look how much money per year goes to mobile devices and networks).
For the True Luxury Industry, the Luxury for Less players are well positioned to take share by providing passable replacement products and experiences at highly discounted prices. For the True Luxury segment, this means they need to get more focused on enhancing their brand positioning and educating the segment that will have the money to continue to patronize their companies, namely the Ultra High Net Worth.
“ Like a firefly, Mass Affluent consumers come and go ”
Like a firefly, Mass Affluent consumers come and go. Today’s global Ultra High Net Worth population of some 200,000 families estimated to have over $50 trillion in wealth, and their head count and wealth is projected to increase by 50 percent in the next decade.
For luxury brands that have a deep story, the time is now to make sure this core segment knows why your handbag is 10 times the price of that one, or why your smoked salmon is better than their smoked salmon.
Without properly educating the UHNWs who have the deep pockets to buy even more and often provide the inspiration for aspirational consumers, luxury brands risk having the “Luxury for Less” segment chip away at its high heels while the UHNWs lose interest.
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Published on Jan. 16, 2014 under Analysis