In the movie "Tiffany's Breakfast", there is a very classic scene, Hepburn plays a girl, holding breakfast in front of the Tiffany window, just a back shadow is enough to move people's hearts.
This may be the fatal temptation from luxury, and she is obviously not obsessed with the window, but the luxury and elegance in the window.
Luxury always seems to carry a veil of mystery that is out of reach for most ordinary people. But beyond the consumer's perspective, if you look at it from a business perspective, what is the underlying logic of luxury?
Some argue that one of the world's most successful consumer goods brands is like Coca-Cola, where everyone can buy it, and the other that makes everyone want it, like LVMH.
Brands and consumers are accompanied by each other, and consumers show recognition by purchasing a certain brand of goods, which is a bond or an agreed relationship, and the relationship between luxury brands and consumers is the same.
With the rise of China's economy, we are becoming more and more familiar with luxury goods. According to a recent industry report, global personal luxury sales rose about 29% last year to 283 billion euros, or more than 2 trillion yuan, which even exceeded 2019 before the epidemic.
Moreover, in the current economic downturn, the price of luxury goods is still rising. Recently, the well-known luxury brand Louis Vuitton announced that the price of products has been raised globally, covering leather goods, fashion accessories and perfumes. According to the PureBop website, the growth rate of low-end products will be around 4%, while the average growth rate of high-end products will reach 15-18%.
Behind this is the role of culture and values behind luxury goods, as well as changes in consumer habits and psychology, and the upgrading of the relationship between luxury brands and users.
Next, this article will explore the following issues with lvmh, the world's largest luxury goods group:
The origin, history and four attributes of the luxury industry.
How does the luxury industry build a brand premium?
l What is the future evolution trend of the luxury industry?
LVMH Group, the world's largest luxury empire, what is it doing right?
Looking back at China, where will China's future luxury goods appear?
When the fallen aristocracy went towards civilianization
Many people may think that the luxury industry was born for only a few hundred years at most, and from the beginning of the impression, they were born to be on the top, but it is different from what many people imagine.
The luxury industry is an industry that was born with a golden spoon, but suffered historical changes and fell to the bottom, and after going to the common people, it once again looked at such a "peak circuit" industry.
Hedge fund manager Zhang Xiaoyu summarized the five stages of the luxury industry:
The birth of luxury goods, which can be traced back to the pyramid period of ancient Egypt, is a complex process that requires the mobilization of a lot of manpower to build it, and is exclusively for the pharaohs, his wives and concubines, and the high priests to enjoy after death.
In addition, Louis XIV of the French Bourbon dynasty also played an important role in the spread of luxury goods. During his reign, he invented fashion items such as "velvet tunics", "high heels", "crowns" and other fashion items that led the upper class.
During that period, luxury goods were mostly in the service of the elite and other high society. Therefore, if luxury goods want to be independent and autonomous, and go to a wider group of people, they must complete the turn of civilianization.
Two major events that broke out in the eighteenth and nineteenth centuries further contributed to this event.
In 1789, the French Revolution broke out, the old rule of nobility and religious privileges was overthrown, the bourgeoisie entered the stage of history, and the Declaration of the Rights of Man was adopted. From the perspective of the luxury industry, the most luxurious things created for the nobility have no value.
It just so happened that in the 18th century, Britain launched the first industrial revolution, and Watt invented the steam engine, which greatly improved production efficiency. And the first application field is the textile industry, which makes the process of those luxury goods simple, such as lace, which can be expanded and sold to more people.
Therefore, the luxury goods that had been smooth in the court have escaped from the court, hitched a ride on the industrial revolution, established their own luxury brands, and gone to a wider range of people. After the Industrial Revolution, a number of luxury brands sprung up, such as Hermès was founded in 1837, Cartier was founded in 1847, LV was founded in 1854...
At that time, the entire French society was developing capitalism on a large scale, and the people began to be keen on consumption. And the steam revolution brought the train, and the birth of the train brought a new wave of travel, but it also brought them a lot of trouble: the old-fashioned dome suitcase either crumpled the clothes or fell down again and again in the bumps of the train.
LV's founder, Louis Vuitton, keenly discovered this and used his craft to make the world's first flat-top box. Moreover, Louis Vuitton also saw the ostentatious needs and spending power of the princes and nobles, using fine wood and using a variety of decorative and waterproof materials. This is what LV is famous for, which laid the foundation of the company's history - flat-topped poplar suitcase, which is both strong and beautiful.
As soon as the suitcase was introduced, it spread to the European royal family, and later even the Crown Prince of Russia, the King of Spain, etc. ordered suitcases from him. LV's outstanding quality, outstanding creativity and exquisite craftsmanship have set a good start for its future growth into a world-renowned luxury brand.
Show off and taste consumption: the eternal pursuit of a better life
While the Old Money, which represented the aristocracy, disappeared, technological advances continued to push scarce things to the masses. But the emerging New Money is always looking to find something new to flaunt their identity and status.
This is an immutable humanity.
The new middle class created by the Industrial Revolution imitated the lifestyle of the nobility, went to various dance parties, and bought LV bags... In this way, an imagination of being in the same class as the nobility can be obtained.
Therefore, the luxury industry, based on this underlying logic, has gradually evolved into a conspicuous consumption.
For example, if I buy a car, if it is just for "transportation", in fact, I can buy a Volkswagen and Volvo, so why would anyone buy a Mercedes-Benz, Ferrari or a Maserati? Is it because of its rack and pinion steering, or the anti-lock braking system, or the safety performance? No. For these consumers, the use value of the car may only account for a small part, more is to show off the value, to show off their economic strength.
But luxury goods do not limit the consumer group, and after the transition from aristocracy to democratization, it is very open. Rich people can buy to show off and prove their wealth. At the same time, people living in the next class will try to climb up, accumulate more wealth, and allow themselves to "get on" luxury goods to gain satisfaction and pride.
So to sum up, what are the characteristics of luxury goods?
(1) Scarcity: The process is complex, and the materials are from entry-level cowhide to various precious leathers, such as lizard skin, ostrich skin, crocodile skin... Now with the implementation of animal protection laws, artificial fur has gradually become an alternative trend.
(2) Conspicuousness: Luxury goods are a class label, otherwise luxury goods cannot be called luxury goods, but can only be called more exquisite goods or items.
(3) Sociality: Having items of the same or similar species, naturally establishing a circle layer, and having social value in interpersonal relationships, analogous to Maotai.
(4) Imitatibility: People are very willing to imitate the way of life of people of a higher class than themselves, luxury goods must be this symbol, without the support of this humanity, luxury goods can not exist.
Based on conspicuous consumption, so luxury goods can not flood, the ideal state of luxury is: many people want, but only a few people can get it.
Vincent Bastien, former CEO of LV, mentioned in "Luxury Management" that luxury goods are a earned item, and the greater the resistance they get, the stronger people's desire to get.
Of course, with the development of the times and the improvement of cultural level, there is now a new trend in luxury goods: the attribute of showing off is also weakening, and some people are gradually beginning to really pay for the design and quality of luxury goods, as a highlight of taste.
Almost all consumers who have used LV leather goods know that LV leather goods can still be intact for more than ten years, and the skin color will also become a natural and elegant color because of long-term contact with the skin.
There is a story about the quality of LV that is still popular today - in 1911, the British luxury cruise ship "Titanic" sank to the bottom of the sea, and more than twenty years later, it was salvaged, and a LV box inside surprised everyone. After the corrosion of the seawater, the outside of the box has been deformed and worn, but the inside has not penetrated half a drop of seawater!
Putting aside "conspicuousness", buying luxury goods can also be a heartfelt appreciation. According to the grade of luxury goods, it can be divided into top luxury, high luxury, light luxury, according to their own consumption capacity and taste, consumers can choose themselves.
Generally we know GUCCI, LV, Armani, Chanel... The products of these luxury brands are tens of thousands at every turn. And luxury goods such as Patek Philippe, Vacheron Constantin, Rolex, etc. are hundreds of thousands or even millions, and few people can afford to buy them. And like light luxury brands, ordinary petty bourgeois people can consume, such as COACH, MK..... A few thousand pieces of clothing can be done, DUFOUR... A watch is only two or three thousand.
Spending money that is not so expensive can also enjoy design and quality higher than ordinary brands, which is also a pursuit of a better life for contemporary people.
What occupies the user's mind is the brand, and the others are just the brand
In the book "Managing Brand Equity", brand master David Acker exhorted: You must guard your brand equity, you must keep the people you serve yearn, only in this way can consumers recognize your products and support your brand from the bottom of their hearts.
l First-class consumer goods sell brands, earn brand money, and brands have a premium.
High prices alone cannot make a brand, because the key core of the brand is to make consumers feel "worth it" at a certain time. For example, when using a Dyson hair dryer, the unique temperature control function makes the hair blown out soft and smooth, and at that moment I feel that 3,000 yuan is "worth it".
This is especially true for the luxury industry, and logically, the reason why luxury goods are sold so expensive is because the people who use it feel that every moment feels "worth it", rather than spending so much money and buying a lonely. Therefore, luxury goods attach great importance to the creation of brands.
So, how does LVMH build a brand premium?
(1) Standing in the "first echelon" of the United States, leading the century-old fashion
Imagine buying a luxury bag and definitely hoping that the brand will be long-lasting and vital. If it goes bankrupt, goes out of business tomorrow, and becomes out of print, who else is there to show off?
Therefore, luxury brands must convey a message to consumers: Grandpa can live for five hundred years, borrow another five hundred years from the sky, I am confident, I am still here in a hundred years.
If you want to create a brand premium, you must stand in the "first echelon" of the United States. As a result, LVMH often hosts stunning couture exhibitions, fashion shows and leads the global fashion trend.
And, they will look for stars who match the tone of their brand to increase brand exposure. In "Roman Holiday", the princess played by Audrey Hepburn runs away with an LV suitcase; Elton Qiang, who feels that he is a music aristocrat, carries forty or fifty LV suitcases through customs every time he travels to show his personal taste.
At the same time, they vow to maintain the brand's image to the death, and there is an internal "unspoken rule" - like LV bags or clothes, at the end of each quarter, if they cannot be sold and cause inventory to accumulate, they will be sent to LV's factories in France for destruction. That is to say, consumers spend tens of thousands of dollars to buy bags, LV would rather burn than reduce the price of promotion.
(2) Attack the city on a global scale and seize the mind
In fact, luxury goods have really entered the management of modern enterprises, in fact, only thirty or forty years, and LVMH's brand influence is only an additional product of expansion.
From the very beginning of the brand in 1854 to 1977, LV had only two stores in the world for 120 years. If LV is content to be "small and beautiful" in Europe, the competitive landscape is not yet stable. With the development of high-end craftsmanship, LV may be replaced by an emerging brand at any time, and it is unlikely that there will be so many profits to form a world luxury giant.
By 1987, LV had ushered in a historic turning point, which was inseparable from a legendary figure - "the father of luxury goods in the world" Arnott. He merged the Moët Hennessy Group, which sells wine, and the Louis Vuitton Group, which sells bags, to form the LVMH Group, and began to continue to open stores around the world.
With a particular focus on the Asian market, the influence of the LV brand has now penetrated all over the world. Revenue in Asia has been as high as 38%, while revenue in Europe has been compressed to 14%.
China's luxury goods market has become the growth engine of the global luxury goods industry, and according to LVMH's chief financial officer, Jean-Jacques Guiony, China is the largest and most stable market in the luxury goods industry. Consultancy Bain & Company had expected China to become the world's largest luxury consumer market by 2025, and the outbreak of the epidemic has accelerated this process.
By opening stores around the world, you can not only expand brand influence and build brand moats, but also hedge single market risk and exchange rate risk by geographical diversification and currency diversification.
Couture is responsible for being beautiful as a flower, and perfume is responsible for making money to support the family
Do you think the luxury industry makes money from expensive things? Then you misunderstand.
I found an interesting phenomenon: the first luxury that many girls buy themselves in college is Dior's lipstick or Chanel's perfume. When I go to work, I will save a few months' salary to buy a Coach bag. Wait until you make a lot of money before you consider buying a GUCCI bag. And haute couture, which money may not be able to buy, is out of reach for many people.
You will find that almost all luxury goods have cheap products to start with. So next, let's take a closer look at the business model of luxury goods.
l Brand potential energy overflows and transforms into kinetic energy
Nowadays, well-known luxury brands such as Chanel, DIOR, GIVENCHY have multiple product lines, ready-to-wear, handbags, cosmetics, perfumes, everything. Why do all luxury goods go into complex categories?
The reason is very simple: at the top of the pyramid of the luxury industry, there is no doubt that haute couture, and the production of high-end is limited, and it must be expanded to be big.
So there was a bag business. But the problem is that the package is a consumable, and consumers cannot repeat the consumption in a short period of time.
Therefore, the category of luxury goods should gradually sink, so I began to do clothing business. But clothing is still too expensive, what to do? Entering perfumes, makeup, lipsticks... Always do something that ordinary people can afford.
The cheaper the category, the lower the cost for consumers to make decisions, and people will buy the category in order to connect with the brand.
Smart brands often set the tone with haute couture, establishing the image of the entire brand as extremely luxurious, thus driving the sales of perfumes and lipsticks.
In the language of physics, it is that potential energy becomes kinetic energy.
High-end luxury, like a stone placed on a high place, it has a potential energy. When this stone falls, the brand potential energy will become kinetic energy and you can make money.
An extremely luxurious haute couture show is a money-burning marketing time for all categories, defending the brand's top position, similar to a long-term investment. Just like a superpower must invest heavily in the field of aerospace science and technology, so as to pull the overall level of science and technology. [1]
Brand is potential energy, if it can be used well, it can be converted into kinetic energy. For a mature luxury group, each category is doing its part: gao booking is responsible for beauty, perfume is responsible for making money to support the family.
And a single haute couture business, it is very difficult to survive. The BBC has reported that the average cost of a haute couture evening dress is 50,000-300,000 US dollars, while a heavy handmade, heavily decorated DIOR haute couture wedding dress alone costs as much as 1 million euros. No matter how beautiful it is, it can only be applauded and not sold.
A very representative example is CHRISTIAN LACROIX, the designer who created the tear-jerk haute couture brand in 1987, but because it was too expensive, it had to file for bankruptcy protection in 2009 after accumulating a loss of $150 million. Nowadays, the brand is still there, but it is only an authorized business, selling perfumes and small accessories, and you can start with more than 1,000 yuan.
l "If you can't fight, join" - collectivization
Of course, from couture to perfume lipstick, so many categories are not all incubated by themselves.
In the luxury industry, brands often have a history of decades or even hundreds of years, and the craftsmanship is very deep. In such an environment, the incubated brands lack background and can often only be defined as trendy brands or high-end fashion brands, so they do not conform to the company's strategic direction.
In addition, in the personal luxury industry, independently operated brands are often subject to inventory pressures.
After the release of luxury brands in two seasons of the year (spring, summer, autumn and winter), if the sales results in the first quarter are not satisfactory, they cannot sell the tail goods at a very low price like low-end brands such as Zara, H&M and other brands, because this is detrimental to the brand image and is unacceptable to luxury brands.
Therefore, instead of struggling to support, it is better to be acquired, enjoy the resources of the group, and warm up the group.
Moreover, LVMH is not blindly acquiring, but has its own set of acquisition rules: lvmh will not hesitate to take everything when it comes to the brand in the core area of LVMH; if it is a brand involving the edge of the brand, LVMH will expand the circle outward.
Through LVMH's 30-year history of mergers and acquisitions, we can see that there are three peak periods of mergers and acquisitions. Although each stage has its own focus, it has always focused on the fashion leather goods department and successfully expanded its business scope.
In the book "The Future of New Brands", LVMH focused on the field of apparel and channel expansion in 1993-1997. Mergers and acquisitions from 1999 to 2001 and 2008 to 2013 focused on apparel and jewelry watches. Brand mergers and acquisitions have always revolved around the field of apparel in order to reduce the dependence on the Louis Vuitton brand. In addition to strengthening the fashion leather goods business, LVMH has also expanded from soft luxury categories to hard luxury categories through mergers and acquisitions. Around 2000, LVMH entered the field of jewelry and watches, and after the financial crisis, the sector was strengthened, and the layout of the expansion from soft luxury to hard luxury was realized. [2]
At the same time, the watch and jewelry industry has always been the short board of LVMH, the only brand before it was Bulgari, compared to Richemont's Cartier, Van Cleef & Arpels, Kerry's Qeelin, Boucheron and other brand matrix is very weak, so in recent years, the Tiffany, which is not in good operating condition, has been won by LVMH in one fell swoop.
Take a closer look, LVMH has acquired more than 50 luxury brands, covering almost all categories. From Dior and CELINE in the fashion category, Loewe and Fendi in the bag category, Bulgari and Tiffany in the jewelry category, to Make up forever and Guerlain in the makeup category...
These brands, pick one out at random, are big money ringers, no matter which brand you prefer, your wallet is always bought by LVMH.
In general, during each M&A period, LVMH expands into new businesses and tries to develop in new areas. LVMH's history of brand M&A and M&A strategies is a textbook for modern consumer goods groups.
Not only LVMH, but now other luxury giants Richemont and Kering are gradually growing up through mergers and acquisitions.
Fashion never sleeps, where will Luxury goods in China appear?
Presumably, every girl has seen "The Queen in PRADA" and "Breakfast at Tiffany's" and is yearning for these European luxury brands. Almost all luxury brands come from Paris, and there are many opinions about the legend of Parisian fashion:
Some people say that the original French meaning of Paris is called fashion, and some people say that Paris was the first to install street lights in the city, only when it illuminates everyone, there is fashion.
I think the subtlety of European luxury brands is that they package stories into the culture of their brands with a strong endorsement.
But as the world's largest luxury market, China has not produced influential luxury brands.
After China's integration into the world economy, the economy has developed unprecedentedly, but it seems to have lost something. Our business class, before it has produced its own luxury culture, is overwhelmed by foreign luxury culture.
When we say that a certain brand is a British royal family certification brand, we forget that we once had hundreds of emperors, and the royal history is about twice that of the United Kingdom; when we marvel at the exquisite beauty of many products, we do not know that since the Eastern Han Dynasty more than 1700 years ago, tea and porcelain have been the most popular Chinese luxury goods in Europe.
Therefore, China is not short of brand stories, but lack of enterprises that tell brand stories well. Many people are asking, will China have its own luxury brands?
It is undeniable that LVMH has embarked on a successful luxury development path, but it is impossible for mainland luxury brands to copy and copy, and in recent years, Chinese companies have also explored their own path.
In 2021, the Chinese handmade bag brand "Duanmu Liangjin" has sprung up and completed tens of millions of A round of financing, from which we may be able to glimpse the appearance of Chinese luxury brands in the future.
Since its establishment in 2011, Duanmu Liangjin's products take "wood" and "brocade" as classic elements, and the bags all adopt the theme pattern of Chinese elements, such as flower pattern, Dunhuang tuanhua, flying bird tangles, etc. The colorful patterns in each series of the brand are made by hand inlays by techniques originating in the Tang Dynasty, and the story and design of the brand are constructed with strong oriental characteristics. The pricing is concentrated in 20,000-40,000 yuan, and the price is comparable to that of international first-tier luxury brands, which some people call "China's Hermes".
However, the biggest difference between the luxury industry and the car company and the mobile phone industry is: a brand that competes on the cultural track.
Qi Tian, the founder of Duanmu Liangjin, once said: The success of technology brands is more like winning awards in the Olympic Games, no matter what cultural background you are, as long as you are higher, stronger and faster, you are a champion. But if a brand wants to be bigger and stronger, whether inside or outside the country, it needs cultural resonance.
If there is a brand that makes leather goods in China, it does not show any unique Chineseness, but the quality of the process can reach the same level as Hermès, and the price is lower, it is difficult to succeed. Therefore, in the past ten years since its establishment, Duanmu Liangjin has maintained its original intention and strived to adhere to and develop brands with national boundaries. [3]
It is true that the development of luxury brands in the mainland is still facing many difficulties: for example, Chinese consumers do not agree with local luxury brands, complex processes lead to immature industrial chains, and survival dilemmas such as many newly established luxury brands such as "SHANGXIA" have not yet made a profit...
But through national brands such as "Duanmu Liangjin" and "SHANGXIA", we have seen the "light" of the rise of China's local luxury brands, the rise of traditional Chinese aesthetic stories, and the continuous attention of capital, the future will be a sea of stars.
The root cause is the strength and prosperity of China's economy, and this pride and self-confidence in the economic field have brought about the revival of Chinese culture.
End
No matter how many years have passed, the story of old consumption is still timeless, and it is constantly creating more brilliance.
There are not a few companies that can live for 20 years, but there are very few companies that can live for 100 years. Their success is no accident, and this ability to cross cycles is worth learning from everyone and business.
They are good at seizing the opportunities of the times, rooted in the soil of national culture, willing to pay the cost to build brand mentality and assets, and achieve globalization in the mature period, after N times of integration, mergers, acquisitions, so it has endured for a long time.
We have witnessed the prosperity of European luxury brands and are also looking forward to writing our own luxury brand stories in the land of China.
Partial content reference self:
[1] Fashion Never Sleeps: Luxury Industry Observations – Lu Xi
[2] The Future of New Brands - Weng Yinuo
[3] What are the aesthetic roots of China's ability to give birth to luxury brands |? 2021 Fengrui Capital Investor Annual Summit
Author: Really Xiao Jie