Being a luxury brand isn't what it's cracked up to be, at least according to the The Wall Street Journal's Justin Lahart. The success that companies selling goods to affluent Americans have enjoyed, he argues, has its limits.
Lower- and middle-class Americans' household income has been plummeting in recent years, according to data from the Census Bureau cited by the Journal. As a result, brands like JC Penney and Wal-Mart that cater to less privileged demographics have seen their stocks languish. Companies such as Whole Foods and Michael Kors Holdings selling higher-end goods are faring much better, but Lahart makes the case that "there is only so much affordable luxury to go around."
"Unless they are focused on the uber-rich, companies selling to higher-income U.S. households have been engaged in a zero-sum game," Lahart writes.
I find it hard to believe that only selling to the super-rich is a viable retail strategy. There simply aren't enough people in that demographic to keep these luxury brands in business.
To use an example, Burberry didn't double its sales or boost its stock in 2012 with only the help of the uber-rich. It did so thanks to Generation Y. Former CEO Angela Ahrendts, who went on to become Apple's senior vice president of retail and online stores, has attributed Burberry's success to the company's ability to capture the attention of twenty- and thirtysomethings.
After joining the company in 2006, Ahrendts turned Burberry's website into a multimedia experience, dubbed Burberry World, and added the "Acoustic" channel featuring musicians prancing around in its clothes. The result was a brand that Gen Y could align with, even though a record 21.6 million of them were living at home in 2012, as Pew Research found, or saddled with student loan debt. The brand reflected their values, and they were willing to pay for it, as evidenced by the surge in Burberry's stock price.
Other factors were at play as well. The recession spurred consumers to stop being so loyal to brands and actually question what they were buying, says Kit Yarrow, a consumer psychologist and the author of Decoding the New Consumer Mind. That value-based mentality stuck and now consumers are "much more opportunitistic" about scoring a deal.
To that end, luxury retailers have gone out of their way to make their brands feel accessible, rolling out cheaper products while playing up their heritage. High-end fashion designers like Joseph Altuzarra have turned out popular lines for Target, while Tiffany & Company found massive success among the teen segment with its "Return to Tiffany" jewelry.
Of course, the real issue is knowing the difference between "cheap" and "cheaper," and not every luxury brand gets it. Apple designer Jony Ive's "unapologetically plastic" iPhone 5C was a flop last year, partly because the pastel dot design fell flat but mostly because consumers felt they could get a better value from the more expensive phones.
"Even the wealthy still want to make sure that they're being smart about how they're spending money," Yarrow says. "What people really want is value."