What will it mean to be considered a luxury brand in 2019?
There are a number of spaces that are bubbling with insight about how the definition of luxury is changing with the success of modern luxury brands like “Warby Parker”, and “Glossier”. These brands seemingly market themselves using anti-luxury semantics and subscribe to a neue age business model. Read about it here, here, here, and here. But what’s happening with heritage brands— those classic luxury houses and consumer goods? What can we observe from them in order to gain perspective for the future?
Written by: Ashley Stewart
This article was intended to back up a post that I slapped on Instagram (now removed) about luxury brands and their earned media value (as calculated by Tribe Dynamics). At the last minute, as I began typing this, I turned an about-face. Sort of.
I ran the numbers from the reported Earned Media Value over the last 6 months (January- June 2018) on TD’s top four luxury brands: Gucci, Dior, Chanel, and YSL (note: I know it’s Saint Laurent but they will forever be YSL to me, carry on). After compiling a spreadsheet of formulas, I researched all the profit data available from the earnings reports of the companies that own those brands. Here’s what we got in a nutshell:
- While the Earned Media Value YOY from 2017 to 2018 is in the negative for these luxury houses (at most -20%), these brands seemingly are still generating positive profit margins YOY, despite increasing operating expenses (as reported by yearly and quarterly profit loss statements from Kering, LVMH, and the like).
So, What Does This Mean?
Everything is relative and we really can’t speculate diddly about profit looking solely to social media, earned media or in layman’s term ‘popularity’. Earned media is a tool to increase market share and audience buy-in to usher people into, or deeper into, a marketing funnel. It is not the ‘end all be all’ of tangible revenue generation.
Heritage brands like Gucci, Dior, Chanel, YSL and the like are still reporting positive profit margins YOY. But what about mind share in the market? Modern luxury brands and fast fashion is popping up every where, gaining more and more brand equity in the minds of audiences. Are heritage brands in trouble? Not for now . Namely because at this point in our consumerism evolution, heritage houses have the capital to invest in remaining relevant and injecting themselves into people lives (cc: ad placements, every Gucci’d down celebrity and the recent Dapper Dan collab)
For masstiege and bootstrapping “luxury” branded startups going into 2019, it’s going to take more than just appearing to be luxurious to compete and gain market share against the ranks of heritage and contemporary behemoths. My educated guess (which is resounding in the commerce/marketing community) is, it’s going to take less marketing “for and to all”, and more marketing to something, someone extremely specific. In fact it may be more profitable to not even use the luxury terminology marketing tag at all.
For the bootstrapping beauty segment (the one I wrestle with daily), it’s now an entirely new ball game. Strategic thinking in R&D, and marketing departments should be on future-foward mode. Meaning, they should be thinking 2 years from now, versus 2 months. My predictions are that the beauty bottom is going to drop out and those brands that are left at the bottom will become obsolete if they don’t transform soon.