One of the
interesting topics I had an opportunity to explore at the FT’s Business of
Luxury Summit was around potential competition from the mass market.
Will the
likes of mass market players like H&M, Topshop and Gap (with their GAP,
Banana Republic and Old Navy properties) be able to encroach on the high-margin
market occupied by the leading luxury industry players. As I see it there are
two risks here; the one everyone is talking about and the one I’d be really
worried about if I was a high margin player. The former has to do with the risk
of the players with well oiled supply chain machinery, high volume/low cost
buying and massive retail power moving up-market with sub-brands. The latter
risk (the real tricky one) is that the mass market players may become so
sophisticated at micro segmenting the market that they are able to bring mass
market products/services with mass market prizing out to hundreds of small,
narrowly targeted customer segments, who each will perceive their offering to
be so well targeted that they perceive it to have the same value as a luxury
product: exclusive and personal. It is worth noting here that luxury customers
don’t equate luxury with “expensive” but rather with “personal, targeted,
unique and exclusive”.
Interestingly,
my bottom line take-away impression from the FT Business of Luxury Summit was
that luxury goods companies don’t consider this type of competition a real
risk. is now, according to a recent study, the most exclusive
brand that exclusive brand in the US. Their CEO Patrizio di Marco believes that
the mere fact that mass market products have mass market audiences render them
unable to compete with the very definition luxury brands use to define
themselves: Rarity and Exclusivity.
I think
this underestimates the potential risk from the bottom. While I believe the mass market players will never fully close the gap between them and the luxury players, I believe they can put pressure on the luxury companies' margins through intelligent use of sub-brands that leverage their buying power and supply chain prowess.
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