Auction Watch: A Bellwether For The Luxury Industry?

The current economic turmoil and impending recession has everyone trying to guess what the fallout will be for the luxury industry. While most will agree that luxury conglomerates such as LVMH, Groupe Richemont and  PPR, the three industry leaders, have done better than expected to date, the sad reality is that the general economy has not quite caught up to financial markets yet and so we've only really begun to feel the impact of the current financial crisis. It's therefore anyone's guess what the ultimate damage will be to the sector.  While the only real certitude may be that there is more pain  to come, recent anecdotal evidence from the auction houses may provide hints of emerging trends.

Photo: Zagliani python clutch, image courtesy of Porfolio.com.

Recent auction results  at Sotheby's, Bonhams and Christie's  indicate that while art collectors are still willing to spend, they are far more circumspect in their buying habits than they were even six months ago. While the best, most rare pieces have sold at the upper end of pre-sale estimates, lesser pieces have failed to meet reserve prices and have been pulled from the sale.  As pointed out by the International Herald Tribune's Souren Melikian, the message is clear - well-heeled collectors will continue to spend but won't settle for just anything. Also, the practice of systematically increasing the pre-sale estimates each quarter with unrealistic reserve prices dictated by sellers with a rapacious appetite for profit are over.  Given the parallels between the art and luxury goods markets, it's not unreasonable to expect to see the same kind of selective restraint to emerge in the lucrative jewelry and accessories market as well.  There is some evidence that this trend is already under way.  For instance, in the upper end of the fashion accessories market, sale of handbags made of exotic skins are currently defying the downturn.

Given the massive expansion of the luxury industry which began in the mid-90's and continued virtually unabated until as recently as last year, conventional wisdom dictates that the lower end of the industry commonly referred to as 'aspirational luxury' or 'masstige' (arguably not luxury at all) will be severely curtailed. Instead, luxury brands will be pushed to focus their energy and resources on the very top end of the market.  For too long now, many luxury brands have been flooding us with products that do not always measure up to their venerable reputations.  Until recently, they could always bank on the less knowledgeable or less discriminating clients to snap up whatever wares they saw fit to send their way merely because it was the "new" offering of the season and therefore "desirable". Those days are over.  Luxury brands will now be forced to adjust their strategies and focus their energy on seducing the hard-core luxury clients who are not content merely with purchasing a branded product but want everything that comes with it: uncompromising quality, craftsmanship and timelessness.

While continued spending in the art and luxury markets is no doubt comforting, the question on everyone's mind of course is 'for how long?'. The question is especially relevant should the worst case scenarios turn out to be accurate and we enter a prolonged period of recession that is both deep and far-reaching affecting not only mature markets such as Europe and the U.S. but emerging markets as well where the luxury industry is hoping to find a life-buoy. Ever since the first real signs of trouble emerged in 2007 with the failure of Bear Stearns, many in the luxury industry have been keen to talk up the so-called 'recession proof' individual and the belief that luxury would do just fine thanks to the spending habits and tastes of all those elusive ultra-high-net worth individuals everyone is chasing.  I was skeptical of this theory then and still am.  Even if these so-called 'recession-proof' individuals do in fact exist and remain relatively impervious to the precipitous drop in the value of their stock portfolios, real-estate holdings and oil prices, I've always been suspicious of any theory that fails to take into account the psychology of spending.  The purchase of a luxury item, unlike household commodities for instance, owes much to elusive variables such as personal pleasure, aspirations, social standing, etc.  In other words, even if money is no object for this very elite clientele, I fail to see how anyone can derive pleasure from purchasing a cashmere sweater or a fine timepiece when there is misery on display all around you.  Unless luxury brands successfully address this reality and adapt their strategies accordingly, I fail to see how the 'ultra-high net worth individual' or any other target customer will indeed materialize.

To a certain extent, you might say that luxury will be forced to return to its roots after straying too far away from them. Survival strategies in the midst of the doom and gloom will most likely translate into more limited edition items, items made of the rarest and most precious materials and one-of-a-kind products and services. But don't expect to ogle these products on the sales floor of your local Hermes or Bottega Veneta stores. Rather, they will be reserved for the brands' most elite clients who rarely walk off the street but prefer the discretion of personal shoppers.  Indeed, in times of economic hardship, luxury tends to go 'under the radar' so-to-speak.  Also, I would not be surprised to see luxury brands increasingly associating their products with charitable causes in an attempt to provide target customers with a valid reason to spend.  Whatever the strategy, whatever the market, it will be the luxury brands best able to tap into those elusive triggers that prompt luxury consumers to spend notwithstanding the gloom and doom that will ultimately prevail. In other words, luxury will have to start acting like luxury again.

Sincerely,

The Luxe Chronicles

Comments

[Make Do Style]

Yep they are all stuffed but not until Q4 next year!