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Summit News

Lowering luxury prices can be costly

PARIS (Reuters) - Many European luxury groups have widened their entry-level offering to lure more shoppers but if the strategy brings short-term gains, it risks causing the brand long-term pain, luxury executives and experts said this week.

Isabelle Ardon, head of SG Gestion's $31.5 million luxury fund, speaks May 31, 2010 at the Reuters Global Luxury Summit in Paris. REUTERS/John Schults

Italian fashion brand Valentino, who previously never sold an evening gown for less than 2,000 euros, now offers cocktail dresses for half that price and even T-shirts, jeans and other casual wares to boost its sales.

But some luxury experts say Valentino’s “Couture T-shirt,” even with a price tag of “only” 300 euros ($365.6) is an oxymoron.

“The problem with luxury brands is that they are associated with exclusivity,” Isabelle Ardon, luxury fund manager at SG Gestion told the Reuters Global Luxury Summit this week.

Valentino “is seen as very couture,” Ardon said, and faces a common dilemma: how can a fashion brand offer more accessibly priced products to boost volumes without losing its luxury appeal?

Dior introduced a T-shirt called “J’adore Dior” about 10 years ago and rapidly took it off the market after deciding to pursue a more upmarket strategy.

But Valentino firmly believes the move is right.

“Being more affordable means you are trying to get new customers on board,” Valentino Chief Executive Stefano Sassi told Reuters. “We are not stretching down the brand. We are trying to say that you can be both couture and contemporary.”

Sassi said Valentino was “too exclusive” previously and expanding its product offering would help the brand catch up with larger peers such as Dior, Gucci and Prada.

Valentino aims to lift annual sales to 400 million euros by 2014 from 240 million in 2009.

Sassi said the strategy, which he started implementing last year, was starting to pay off as customers were “buying lots and lots of T-shirts.”

Valentino is controlled by the private equity firm Permira which is looking to build up the business sufficiently to sell it off at a profit after buying the brand at the top of the market in 2007.

The brand is part of the Valentino Fashion Group, controlled by Permira, which also owns a majority stake in the parent holding of German fashion brand Hugo Boss.

SECOND LINE

Aside from broadening their portfolios of lower-priced products, many fashion brands, including Valentino, have invested in “second lines,” collections supervised by the same designers but manufactured at lower costs.

Valentino’s second line is called “Red,” while Versace has introduced “Versus” and Sonia Rykiel “Sonia by Sonia Rykiel” for which it is a opening a dedicated shop in Paris this month.

“Marc by Marc Jacobs,” the designer for Louis Vuitton, is often cited one of the fashion industry’s most successful second lines.

Many fashion brands make the bulk of profits from second lines and perfumes, experts say.

“It is pretty clear that big luxury companies have reinforced their entry-level offering to increase traffic in stores and make customers less afraid of entering,” said Claudia D’Arpizio, a luxury consultant at Bain & Co.

“It creates the opportunity to have a relationship with the customer... And they hope they will move up the ladder price.”

Instead of offering more accessibly priced products, some fashion brands such as Cerruti have trimmed the starting price of their premium line products.

For example, Cerruti cut the first price of its suits to 900 euros from 1,200 euros “to answer the market’s needs,” Chief Executive Florent Perrichon told the summit this week.

“We are not going to make Cerruti T-shirts because it would risk damaging the brand,” Perrichon said.

He said it could be dangerous to venture outside a brand’s heritage as Cerruti’s tradition was based more on suits than casual ready-to-wear.

Some experts argue it is less damaging for a jewelry brand to widen its entry-level offering than it is for a fashion brand because jewelers can make smaller items with less precious metals that do not put into question quality or image.

Buccellati, the fine Italian jeweler favored by princesses and actresses, just launched a silver collection for younger buyers, with earrings or necklaces starting at 300-400 euros.

“What is important is to preserve quality, whatever the product,” said Buccellati Vice-President Andrea Buccellati.

But he said the silver collection also enabled it to avoid using gold whose price has soared, driven by investors fleeing risky assets.

France’s luxury company ST Dupont said it had invested in lower-priced pens and lighters to boost traffic in stores. “If you offer good value for money, it will not affect your image,” said ST Dupont Chief Executive Alain Crevet.

Editing by Sitaraman Shankar

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