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Luxury

From the economy of luxury to the luxury of economy
By Manfredi Ricca

As the global outlook shifts back to sluggish growth in western markets and relatively slower growth in some fast developing countries, the challenge for luxury brands will be to prove that – having been the fastest to restart growth after the 2008–2009 meltdown – they can be resilient in relation to macroeconomic crashes and the swings of economic cycles.

Varying roles for western and fast developing markets
Strong concerns over the weakness and slow growth of the western markets means that those areas will have to be seen as origins rather than destinations in 2012. In other words, regions like Europe and the U.S. will play the role of mature markets that contribute to a luxury brand’s presence and relevance, rather than its outright financial success.

On the contrary, some fast developiong countries might be experiencing the first noticeable slowdown in momentum for the first time since their designation as the guiding lights of the global economy. Although it is highly unlikely that such speed reduction will affect the most affluent segments of the population in these markets, luxury brands will still need to prove themselves—and demonstrate the extent to which they have become truly indispensable threads in the fabric of these new societies. The stakes are particularly high in a market like China, which sustains the fortunes of many global luxury icons, and where all eyes turn when seeking an engine of growth.

Interestingly, this dual situation may lead global luxury brands to think of their geographies in very much the same way as they think of their own distribution channel structures. Europe might well be considered the flagship region for these brands, but not necessarily a moneymaking one in the short term. Fast developing countries, on the other hand, may provide access and availability to new customer segments, driving growth and performance. In extremely simplified terms, this duality of models amounts to a delicate balance between the creation of desire and the development of demand.

True luxury defies downturns
The sum of these models can place luxury brands in a unique position in today’s global economic landscape. At a point in history when uncertainty is the only certainty and variance is the only average, luxury brands can aspire to become nothing short of commercial securities by acting as powerful risk mitigators. In the wake of the recent crisis, brands that have chosen to reclaim their history and uniqueness have shored formidable assets against any future economic downturn. They have based their brand promises and performance upon drivers of choice that are, by definition, less sensitive to a dampening economic climate.

When we look at the financial landscape, stabilization is what everyone seems to be seeking. A true luxury brand—one whose offer is really about undying currencies such as heritage and excellence—may well be the treasury bond of tomorrow’s competitive world, yielding the financial multiples and business continuity that represent the real luxury of today’s economy.