• by Jack Loechner , Staff Writer @mp_research, December 23, 2008

According to a panel at the recent Wharton Marketing Conference, 2009 shapes up to be the most challenging year in more than a generation for luxury items such as high-end apparel and fragrances. According to Randy Kabat, executive vice president of marketing and advertising for Prada USA, roughly 50% of the firm's sales come from just 5% of its customers,

Marketers' plans for targeting aspirational 16-year-olds spending a small fortune on the "it" handbag, and expanding rapidly into the new money hubs of Russia or the United Arab Emirates, are "out," while pampering the wealthiest and most loyal customers with everything from monogrammed shirts to personal in-home visits is "in."

Cori Galpern, worldwide marketing and advertising director for Tom Ford International, says "... the foundation of luxury is customer service ... (and) the core for a luxury brand is a customer with very considerable wealth."

Alexandra Gillespie flatly predicted that "2009 will be the worst year on record for the luxury sector." The parent of her former employer, Gucci, just reported its worst third quarter since 2005 because of the slowdown.

Trend analyst Faith Popcorn recently said. "... women are shopping in their own closets... " Conspicuous consumption seems practically un-American in these troubled times, according to some observers.

L'Oréal's Farrell suggested that one obvious step would be to sell fragrances in smaller containers, as long as the actual product is not diluted. "You can still maintain your brand integrity, but you're selling at a price point that's more accessible for the consumer in today's market."

The panelists agreed, though, that it is a bad strategy to chase customers too far down the economic ladder. Brad Farrell, skincare brand manager for L'Oréal Paris, said "We don't want to see huge price cuts that will create a lower-priced brand..." The key is not to make any move that will diminish the value of a brand with a well-established name for luxury, concluded the panel.

Another strategy, Farrell added, is to ensure that some version of key products are more available in mid-market retailers like Target or CVS because during a recession even upscale Americans are likely to do more shopping in such stores.

Kabat had words of praise for a trend she described as "Targetization," in which the coast-to-coast mass retailer Target offers something of a higher design aesthetic to customers who are slightly more upscale than those of rival chains. Still, she noted that the United States can develop its appreciation for good design much further. "In Europe, fashion and design [are the] fabric of the culture, but [they are] not a part of the fabric of our domestic culture."

For luxury goods, they noted, the business plan places trust in the artistic vision of a designer in hopes of luring customers. "With high end fashion, you're buying into a lifestyle," said Prada's Kabat. "You're buying into someone's point of view..."

Luxury marketers believe that their success in establishing an aura of desirability is what will ultimately get them through the financial crisis. It may be counter-intuitive, but Abouchalache said that demand for a consumer product like Cheerios cereal is finite, in a way that the need for a luxury item is not. "When it's a tough day and you're on the way home and you have to buy that handbag ... it's just a different factor driving that purchase... "

To boost the bottom line, fashion firms are likely to focus now on pampering their best and most loyal consumers, using computer technology to increasingly customize upscale products that will be designed or tailored especially to their needs. The success of individualized luxury goods is a development that could keep a customer repeatedly coming back for more, according to the panelists.

Regardless of where the global economy winds up, luxury marketers say their principle mission will remain the same: Selling a more glamorous way of life to aspiring consumers. "You're buying into that dream," Kabat said.

For more information on the complete Conference, please visit here.