Luxury Outlook | Coping with the downturn

Now that we know that the Luxury industry is not as insulated from the economic downturn as much as many luxury and fashion CEOs would like, what's a brand to do?

Milton Pedraza, CEO of the Luxury Institute, is thinking two steps ahead. Yesterday he shared with The Business of Fashion a 7 point plan for coping with the economic malaise that is quickly sweeping across the world. We thought it was compelling and have excerpted the key points here.

1. Eliminate the Hobbies: Renew your focus on what you do best and innovate within those categories.

Many luxury brands have entered into categories where they have no expertise because they want to be "lifestyle" brands. Some categoriesare logical extensions for a luxury brand but most are not a good fit and will be marginally profitable.

Wealthy consumers are highly discerning, educated buyers. Several years of Luxury Institute empirical research shows that wealthy consumers prefer, and are willing to pay a significant price premium for, brands that are specialists. Leiber in handbags, Harry Winston in jewelry, Christian Louboutin in women's shoes, and Berluti in men's shoes are brands that wealthy consumers rate highest as category specialists. Conduct a rigorous assessment of your brand's category portfolio and unflinchingly eliminate marginal "hobby" categories.

2. Go Up-Market Right Now: Focus on going up-market with bespoke, one-of-a-kind, custom-made, made-to-order, limited edition product and deliver service to match.

One of the great ways to kill a luxury brand, albeit slowly, is to move down-market. Gucci was a great comeback story because someone had decimated it before Tom Ford saved it. It is the "boiled frog" syndrome. The warm water feels so good that the frog doesn't know it's being made into soup till the water starts to boil. By then, it is too late to bail.

If you aspire to be a top-rated luxury brand, then Luxury Institute research says that you must serve high net-worth consumers, be unique and exclusive, limit your distribution, and maintain impeccable service. Great quality is not enough.

3. Innovate and Dare to Be Different For a Change: If luxury has any claim to fame, it is in innovation and novelty. Demand innovation and you will get it.

Luxury firms have commoditized luxury - 63% of wealthy consumers feel luxury is being commoditized. Walk down most high streets, such as Fifth Avenue, Avenue Montaigne, and Bond Street, and you see the same look and feel in store designs and products to the point that you can take away the signs and logos and wealthy consumers would probably not be able to identify who is who. Same is true for services.

It is time to stop emulating your competition and begin to innovate such that you are creating never-before-seen products and categories that are relevant and that revolutionize your industry.

4. Leverage your PR, not your Advertising: Public relations is a far more effective and credible vehicle for persuasion of key constituents than is advertising.

Especially in challenging economic times, every communication dollar counts. Give your agency the opportunity to communicate the authenticity, the rich history of your brand, your brand icon, your brand integrity, your brand's corporate citizenship, your knowledge of the category via your internal data, and most importantly, your breakthrough innovations.

5. Deliver Extraordinary Experiences: Extraordinary customer experiences are delivered not with gimmicks and props, but by talented, caring people who connect with customers one-to-one

How much extra does it cost you to staff your company with people who are expert in your products, and even your competitors' products? Who are trustworthy? Whose interests are aligned with your clients? Who are genuinely interested in helping people with a smile? And it is not the bricks and mortar that are delivering that.

6. Innovate Online: Now is the time to use this rich channel to reach global wealthy consumers no matter where on earth you happen to be located.

Luxury brands have been in perpetual debate as to whether to be present,and sell, online or not, and if, and how, to advertise online. Thankfully, the Internet debate is over for most luxury brands. If a luxury brand asks whether they should spend scarce funds on opening another store, launching a print advertising campaign, or investing in agreat website and online advertising, the Internet wins every time as the fastest, cheapest, and most effective way to leverage a luxury brand in today's world.

7. Let the Voice of Your Customer be Your Guide: Inject the voice of the wealthy consumer into your strategy sessions.

Strategy meetings are great, but you will find yourself in circular groupthink in economic downturns. Everyone will want to play defense, when you need to have a great offense. Use internal and external quantitative research, create an online community, mine your transactional database, engage customers one-on-one at point of purchase, etc.... In effect, do whatever it takes to understand what consumers are thinking right now and why they are behaving the way they are.

7 point plan courtesy of the Luxury Institute.