Mass luxury is just another takeout.

Earlier this year DIFFUSION (DIFFUSIONblog 7 May Status Abandonment) wrote about how the democratization of luxury brands seems to be destroying those aspects of a luxury brand (exclusivity, price, access, aesthetic) that denote them.

Now Newsweek fashion writer Dana Thomas's new book Deluxe:How Luxury Lost Its Luster serves to reinforce our belief that the pursuit of massive profit by the world's corpratised luxury goods conglomerates is truely blurring the distinction between luxury items and soap powder.

The gist of Thomas' book is that this pursuit of profit has only served to rob luxury brands of their essence. This is very much reflected in a recent report on the mass luxury market which told how LVMH's Bernard Arnault's decision in 1996 to take the company into the mass luxury market was really a question of both survival and growth.

Arnault argued that like haute couture, which has been static or in decline since the 50s, many of LVMH's luxury brands would eventually go the same way unless it embraced a form of market democratisation.

Thomas' book seems to confirm this, arguing that luxury brand owners like LVMH are well aware that their products have been so conflicted by this change that the drive for both profit and growth will mean it is going to be virtually impossible for them to turn around their vast behemoths and return to what is for many, a somewhat richer past.

Prada at Kmart: luxury brands and status abandonment.

It's only a small thing. But as we all know small things can lead to big things.

But the release of a new Prada fragrance, Tendre (selling for $79.00) in the Sydney Mother's Day catalogue for Kmart Australia, certainly signals to DIFFUSION that Prada seems to be heading down the same road of luxury brand dilution that destroyed the once great Pierre Cardin, nearly brought down the house of Calvin Klein and which threatens so many brands in this market.

Sure you might argue that it's only perfume and for this brand a cheaply priced one at that, but the democratization of luxury brands seems to be destroying those aspects of a luxury brand (exclusivity, price, access, aeesthetic) that denote these brands.

It's fact we noted in our blog The Defining Essence 20 October 2005 and one that seems to have escaped Prada's owners as they take the brand into the mass luxury market.

Perhaps the Prada licensees haven't read the definition of luxury that in 2000 the European Commission used to review Prada's role in the market as part of a ruling on it and LVMH's acquisition of Fendi. What's important about this ruling is that it is one of the few non-academic reviews of the operation of luxury goods.

The Commission described "luxury products" as "high quality articles with a relatively high price, marketed under a prestige trademark". As such luxury goods were considered to operate in a single product market because of two factors "substitutability from the demand side: the idea of acquiring a luxury good is linked to prestige rather than consumption of a precise item" and "substitutability from the supply side" or where most of the producers of luxury goods manufacture a broad range of products such as ready to wear, leather goods, fashion or, in this case, perfume.

This definition fits in comfortably with our understanding of both the pricing and accessibility attributes of luxury brands. More importantly, the definition attaches the generally accepted idea that prestige is also linked to acquisition and not the actual consumption of the item. Which is probably to say that a lot of women will see the Kmart catalogue and think "I have to have this Prada perfume because it is a such a luxe brand".

What's also interesting from this ruling is the Commission also connects both the transactive distance of luxury brands and the aesthetic of their environmental setting to their definition, noting that Prada itself indicated that "the common denominator is the importance of qualitative requirements designed to maintain the image of prestige, exclusivity and the high quality of the brand (e.g. location, the nature of the external appearance of neighbouring shops, decoration and fittings of the outlet which should reflect the prestige of the brand)."

This hardly sits well with my knowledge of my local Kmart located in a suburban shopping mall which hosts a Baker's' Delight, Go-lo and a Wendys and where Prada perfume is likely to sit alongside the latest offering from Paris Hilton in aisle six.

So, by their own definition Prada not only seem to be falling out of the luxury goods market in their attempts to market mass luxury but also are defying some of the basic principles of luxury brand management. These are:

1. creating distance, a no-mix area or barriers to entry for those who are not invited and by necessity of protecting clients from non-clients;

2. selective pricing and and exclusive distribution as well as the aesthetic dimension of the products; and,

3. the recognition and acknowledgement of its luxury status by all.

By all three counts Prada is failing. First, by not maintaining and enforcing these barriers to entry and allowing their licensee to flout it. Second, by using a selective pricing model more recognisable as that of a democratic, basic brand model (other brands of perfume can sell at Kmart at similar prices) and finally, there appears to be both an acknowledgement of its luxury status by very inclusion on the front page of the catalogue, and also an argument for a case of status abandonment by Prada's Australian licensee and, I suspect, its international license holders, for this latest distribution deal. I'm sure it won't be first such breach.

Replacing place, the specificity of luxury brands.

Many luxury brand customers have developed an almost arcane adherence to the brand values of uniqueness and authenticity derived from place. It is the ostensible idea of an historic solidity, a departure from the more peripatetic attention to fashion and seasonal remodelling of consumer brands, that serves to distinguish the specific identity of luxury brands. Many luxury brands rely on the fact that they do not look externally for inspiration, that they only need look to their place of origin, of manufacture. Place, whether it is Tuscany or London, is what DIFFUSION argues contributes to the soul or essence of a brand and delineates it. So what happens when a luxury brand decides that place is no longer such a source of inspiration?

While consumer brands everywhere continue to seek to manage ever diminishing margins as they ride the wave of affordable affluence, luxury brands across all categories have, or are considering, moving manufacturing to global factories like China for much the same reason as their lesser counterparts.

Interestingly the move to “Made in China” seems to be coming from the franchisees of many of these luxury brand owners, rather than brand owners themselves. While many luxury brand owners such as JPTodd have avowedly rejected outsourcing manufacturing, others have embraced it. This new place label “Made in China” is already being borne by a swath of companies in Europe and the US, including Steiff, Coach, Kate Spade, Paul Smith and Armani, who have already shifted some of their manufacturing to mainland China. In Australia, much of the Oroton Group’s stable of brands has already migrated to the far east. And according to Bear Sterns it’s a trend that is showing no sign of abating. For example, they estimate that by 2010, 50% of all US manufacturing could be outsourced and the new place of manufacturer is likely to the be the global factories in China and India.

Which begs some questions: Do companies confuse country of origin with country of manufacture and believe their consumers can’t tell the difference? How will consumers be able able to tell the difference between the output of brands all manufactured in the same country? What will the nuances be? What do they believe consumers are motivated by – product or price? Do they only see value displayed by logo and name rather than quality? How do they value their brands on the balance sheet? What risk assessment do firms make of the effects on the brand associated with outsourced manufacturing? What account do they make of the the risks inherent in sharing manufacturing techniques and skills with potential competitors? How can product delineation and quality be preserved in the global factory?

For luxury brands the idea of place is critical to the identity, authenticity and uniqueness (we call this the “specificity”) of a brand (otherwise why would counterfeiting exist?). Place provides an aesthetic counterpoint to the “generic” of the chain. The authenticity of a product, as Virginia Postrel notes in her book The Substance of Style, is determined by purity, tradition and the aura of history – all elements that are determined by place and which can define a luxury brand. Yet, these brand owners are willing to re/place and subsume identity, determine authenticity only by logo and destroy uniqueness with an authorised non-specificity (authorised counterfeit) - all because it preserves margins and retains profit.

We think the idea of specificity is being overlooked by many brand owners and demands a careful rethink of current brand strategies, built on strong customer recognition derived from place of origin and manufacture.

Photo copyright Amanda Tsui 2004 Pratt School of Art, New York City