Even in the depths of a dark recession, luxury isn't such a bad place to be.
While not entirely immune, the industry's biggest names, including Louis Vuitton, Hermes and Chanel -- continue to succeed.
This is according to the annual Millward Brown BrandZ ranking of the Top 100 Most Powerful Brands, a list that covers 50,000 brands worldwide, released April 29.
In the luxury category, Louis Vuitton came out on top, with a brand value of $19.4 billion, followed by Hermes at $7.86 billion, Gucci at $7.47 billion, Chanel at $5.53 billion.
Behind the Numbers
To rank the brands, market research company Millward Brown used the BrandZ database of its parent company, WPP, which owns several marketing, advertising and public relations firms, among others. Some brands on the list are clients of WPP's companies, but the database is the world's largest repository of brand equity data, according to WPP, and includes interviews with more than 1 million consumers globally.
Consumers were asked about their loyalty to each brand and also about their attitudes toward the future of the brand (for example, whether or not its stock will increase in value or its sales will increase). The BrandZ ranking also considers the dollar values of the company. In 2009, Google topped the complete list with a brand value of $100 billion.
While the top three brands held their 2008 positions, high-fashion Chanel crept up one spot, while fine jeweler dropped from fourth place to seventh with a 2009 value of $4.91 billion.
Cartier's somewhat dramatic fall has a lot to do with the fact that, while luxury handbags and shoes still seem to be selling, ultra-expensive investment items -- such as $1 million, diamond-encrusted Cartier watches--aren't faring so well.
"Brands that offer luxury treats -- glasses, belts, handbags, etc.--are less vulnerable," says Nikhil Gharekhan, senior vice president at Millward Brown.
Although the dollar value of most of these brands has decreased -- Louis Vuitton's, for instance, dropped by $6.34 billion from $25.74 billion in 2008 -- their standing on the overall list remains solid because luxury brands have weathered the financial storm better than their mid-market counterparts.
It has a lot to do with branding positioning. In other words, right now, consumers want to shop, but not as much--even if they can afford to do so. That means that they're buying one luxury handbag for $1,500 rather than five less-expensive handbags at $300 each.
Leather retailer Coach, for example, is suffering as a result. The mid-market retailer, positioned between Liz Claiborne and Kate Spade on the price spectrum, did not wield the brand power to make the list. In its most recent quarter, the company's year-over-year sales decreased by 6.7% to $740 million. Earnings were down 24% to $123 million.
The top two luxury brands -- Louis Vuitton and Hermes -- show resilience, says Milton Pedraza, chief executive of the Luxury Institute, a New York-based market research company focusing on the ultra-affluent, not just because of brand positioning, but careful business considerations.
"[The executives behind] Louis Vuitton and Hermes absolutely control every single component of their business model, from retail distribution to discounting," he says.
Indeed, even when Saks Fifth Avenue went on a markdown rampage last fall, offering 70 per cent reductions on several high-end brands, including shoemaker Manolo Blahnik and Prada, items at the Louis Vuitton shop within the luxury department store remained at full price. The only place shoppers can find discounted Hermès is in outlet stores, which carry stock from seasons past. Current-season goods are not marked down--no exceptions.
The policy is reflected in both companies' sales results. At luxury conglomerate Moët Hennessy Louis Vuitton, year-over-year sales in the fashion and leather goods sector -- of which Louis Vuitton is a part--increased by 11 per cent to 1.6 billion euros ($2.1 billion) in the first quarter of 2009.
LVMH said that both Louis Vuitton's new Damier Graphite and Stephen Sprouse collections sold particularly well. And while reports of LVMH selling off its wine and spirits brands to British drink maker Diageo for 12 billion euros ($15.5 billion) may have been vehemently denied, even the whispers prove the company is willing to shed extra weight.
Not So Precious
While luxury fashion and accessory brands seem to be irrepressible right now, jewelry has taken a major hit. Cartier is still the most valued jewelry brand in the world, though its luster dulled a bit in 2009. Not only did its status slip in this particular ranking, but the brand's parent company, Richemont, said year-over-year jewelry sales decreased by 12 per cent to 800 million euros ($1.1 billion) in the fourth quarter of 2008.
Other high-end jewelers have suffered worse, though: Fortunoff, Doris Panos Designs and Fred Leighton have all filed for bankruptcy protection in recent months.
One brand that fell out of the top 10 in 2009 is Giorgio Armani, which ranked eighth last year, with a value of $5.12 billion. Today, that value has dropped by $2.02 billion to $3.1 billion. While Armani the man is still a billionaire--with a net worth valued at $2.8 billion, Pedrazza says the company's multiple brand extensions, including Armani Casa, Armani Hotels and AX Armani Exchange, have stretched it a bit too thin.
Says Pedrazza, "It's not unique and exclusive anymore." Which seems to be the key to prospering -- in good times and bad alike.