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The spoils of luxury brands

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Whitey reports on a scary paper just released by the New York-based Luxury Institute – scary because of Australia’s presumptuous pricing of many expensive wines which aren’t quite true luxuries – among other things.

“All around the globe, the luxury industry has navigated against strong headwinds,” the analysis starts. “Growth in China has slowed due to government crackdowns and macroeconomic forces, Russian clients are buying far less for obvious reasons, and key European countries dependent on streams of wealthy tourists and aspirational buyers have also stalled.

“The situation is comparatively better in the United States and in Japan but both nations are growing far below their long-term economic potential. To these cyclical challenges, add in the secular change of online buying cannibalizing stores and it has been a tough year for most luxury goods and services providers.”

This is the latest message from Milton Pedraza, CEO of the New York-based thinktank and marketing advisor, the Luxury Institute. Forgive my cut-and-paste, but I should quote him at length. This outfit services all those brands you can’t afford, from Lamborgini to Louboutin. While it rarely explores luxury wine in much detail, I find the institute’s advice very handy for predicting the Old World market for luxury-priced wines. It’s got the spendiest spenders nailed.

And just between you and me, it’s time we began regarding China as the biggest bit of the Old World. India’s just as old, and it’s next.

Pedraza’s new report is titled ‘Seven Trends Shaping Luxury in 2015’.

Number One on his list? “There Are Too Many Luxury Brands For A Slow-Growth Environment.”

Take time to digest that one, I say to winemakers who presume their wines to suddenly be worth much more than they, er, used to be worth. The ones who have a brand, like, say Eleven Shadows, which used to be worth, say $25, who suddenly come up with new line which, as far as heavy respect and provenance per millilitre goes, presumes to be up there the greats. Like where? If I have to name them, you might just as well cease reading here. They are very few.

Let the man roll: “… too many hotel chains, too many handbags and apparel producers, too many automotive providers, too many wealth managers, too many watch and jewelry makers and too many private jet charter companies. Name an industry and you’ll likely find a staggering number of brands purporting to be premium.”

Ouch! That’s Ultra-Vi: Clockwork Orange savagery to the pretenders as much as a direct threat to those they attempt to copy.

“There are too many ‘luxury’ brands, but not enough great ones,” Pedraza continues. “Most are pure copycats. This does not even take into account all the fearless start-ups trying to disrupt the industry … look for many more large, medium and start-up brands to stall, or fail, at a faster rate than over the last few years.

“Affluent consumers, chased to exhaustion, are swamped by too many me-too options in every category. It will be time for true luxury brands to stop benchmarking the mundane players, understand their own brand identity, values and standards, and get back to delivering differentiated, fully-priced value in 2015.”

Copycats. Australia has always copied wine styles from the Old World. Sometimes we copy this, other times we copy that. We copy. Our early winemakers copied Germany and Switzerland, Bordeaux and Hermitage. We copied Champagne from the earliest days. More recently, we copied Burgundy. Lately we’re copying Spain and Italy. Now that Greece has some admirable new vinous achievements using very old varieties, we’ll soon be copying them.

Apart from the abject laziness involved in such artful contrivance, there’s a bigger sin in our presumption that we can all copy the pricing of the greatest vinous achievements of these Old World vignobles. If Mr Pedraza is as reliable as his Institute usually seems to be with such predictions, quite a few of these Australian copyists should pull over for a bit of a think.

Of the internet’s influence on store retail, Pedraza says “Foot traffic into stores is down 20% to 30% year-over-year for many luxury brands. E-commerce has scarcely made up the difference … Look for luxury brands in 2015 to stop opening stores completely, even close some, and focus surgically on pinpointing true opportunities to open profitable new stores.” He recommends “profitable retention of all high potential clients, not just the VIPs.

“In the coming year, look for more brands to finally begin building deeper relationships with large percentages of online and multi-channel customers. Although resources are scarce, brands should build intimate relationships with, at a minimum, their top 20% to 40% of clients … We believe that the concept of a luxury brand having a relationship with its customers without continuous human to human engagement is highly overrated, if not an outright mirage.”

This follows the Institute’s advice last year that luxury goods manufacturers should be much more clever in their use of the internet’s constantly-changing suite of social interfaces. The warning was that many buyers of true luxury items may take a look at your products on the web, but if you manage to attract them to actually click to your website and they can’t get straight through to a human they can trust you’ve lost them.

“Let’s face it,” Pedraza says, “in its current format, Facebook is of marginal value for luxury brands. Gathering millions of likes and online fans has not been a formula for rapid sales growth in luxury. Success stories have been few and far between despite the lemming-like response from unenlightened digital executives and their agency partners. True luxury buyers are far more discerning. Engagement in luxury requires a one-to-one conversation, not a megaphone.”

So. This overcrowded luxury market combined with Australia’s tendency to overprice presumptuous wines which are copies of true Old World luxury wines of mighty provenance is one dangerous threatening glint. Add the inept awkwardness most wineries show with their out-of-date and clunky websites while they instead play Facebook, and you begin to see amber and red lights multiplying exponentially.

Which leads us to your actual management. The clumsy goings-on at the top tables of the biggest companies is one thing, but any weirdness there is occurring at a time when I fear most bodies purporting to represent the wine industry, from national to regional, have rarely endured such an atmosphere of mistrust. Hit any wine region bar and it’ll take only minutes to hear allegations of ineptitude, if not outright crookedness.

Pedraza could be suspected of speaking only about the Australian wine business when he says “In times of change, [true] luxury brands look for more skilled and effective leaders. Enlightened boards of directors at major conglomerates and private equity firms are looking for a new breed of highly collaborative and effective team builders.

“Luxury today is full of highly experienced marketing, sales, e-commerce, operations and human resources executives who know exactly how to execute best practices. Unfortunately, many of these leaders show up at the office daily and fail to inspire, empower, measure and reinforce these best practices. In 2015, look for boards of directors to require measurable results from their teams as the hyper-competitive environment requires going from experienced to expert, from delusion to execution.

“No one is immune to market forces,” he concludes. “Luxury will always be cyclical, but the real danger for brands that we see comes from self-inflicted wounds caused by the inability to accept new realities and failure to execute. Doing either of these far too slowly is also dangerous.”

And we haven’t even mentioned climate change.

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