It became clear that the days of logo splashing are finally over when that bastion of the signature monogram, Louis Vuitton (NASDAQOTH:LVMUY), ran an ad campaign in China last year that carried no brand information. What is going on in the luxury world and why is Louis Vuitton dropping logos that shout?
What happened to luxury?
Luxury is by definition excessive. It's not something we need, it's something we purely desire. But, as our values change depending on our experiences, so do our desires.
The improving economic climate up until the outbreak of the Great Recession, laid the groundwork for the democratization of access to luxury. More purchasing power trickled down to social classes, turning otherwise budget-conscious consumers into devotees of all things gaudy.
Suddenly, affordable-luxury players, which offered a delusion of "true luxury" through lower-priced alternatives to erstwhile exclusive, super-expensive goods, became a "must-shop" destination.
Later on, when the recession hit, flaunting one's luxurious lifestyle got vulgar. The press had even coined a phrase for it: "luxury shame." The ultra-rich adopted a lower profile and embraced a new frugality, "showing off newfound contrition," according to Newsweek.
Today, the Great Recession's imprints on consumers are still evident with more conscious spending habits largely defining their buying behavior. Affordable luxury providers, such as Michael Kors (NYSE:CPRI), continue to steal true luxury's thunder.
To protect itself, the "true luxury" world created new sensibilities by promoting a new kind of luxury -- one that's focused on the intangible and moves toward more discreet and unique experiences. Slowly but surely, the luxury territory is abandoning previous ideals and many new and different views are emerging.
The growing trend for discreet labeling
One such view is that brandishing signature motifs no longer equals prestige and exclusivity. Today's affluent consumer cares more for the story behind the label and authenticity.
While the logo-loving shopper has not disappeared, research has shown that ultra-rich consumers' purchasing drivers have shifted, favoring discreet makers.
A study released earlier this year by Bain & Co in collaboration with broker Redburn Partners and research firm Millward Brown identified seven key segments that describe today's luxury consumers worldwide.
Out of these seven segments, the "conservative" consumer was the largest, followed by the "opinionated" consumer. Conservatives made up 20% of all "true luxury" shoppers while the opinionated ones accounted for 15%. For both of these consumer types, quality and durability came first when deciding what to purchase, not a visible logo.
Discreet labeling is evolving into a more reliable means of communicating with consumers. But, does it bear fruit sales-wise?
Designer houses pin their hopes on the 'sans-logo' strategy
After experiencing sluggish growth rates for some time, Louis Vuitton decided to turn over a new leaf and focus on marketing more subtle luxury offerings. Last year's fall runway show made quite a splash as the house's Damier canvas and monogram were nowhere to be found on the catwalk.
Louis Vuitton's new strategy aims at finding a balance between exclusivity and popularity. This translates into opening fewer stores and promoting high-value, sans-logo creations that communicate exclusivity not through signature motifs, but through craftsmanship.
"Of course it would be easier for Louis Vuitton to boost its revenue, all it would take would be to launch 10 new products with the monogram, but down the road it's not a good strategy," CEO Bernard Arnault explained to Bloomberg. "There is no real change, just an adjustment to the strategy, but Louis Vuitton wishes to focus on the long term."
Designer houses like Kering-owned Bottega Veneta and Gucci have also placed their emphasis more on design elements that resonate with the modern affluent customer and less on visible logos.
Bottega Veneta, which accounts for 16% of Kering's revenue, has been pursuing a "no logo" strategy, using its "intrecciato" leather weave technique as its hallmark.
The brand ended 2013 with a 7.5% increase in revenue on a reported basis and nearly 14% at comparable exchange rates. Between 2011 and 2013, Bottega Veneta's revenue skyrocketed almost 50% on comparable data. Its leather goods division, which includes its iconic "intrecciato" bags, was the brand's money-spinner, representing 86% of total sales.
Responding to consumers' logo fatigue, Gucci has sought to enhance its higher-end offerings with leather bags that are unrecognizable to the casual observer but identifiable to those "in the know". Over the past year, the share of less expensive, "entry-items" offerings, such as canvas totes, has been cut by as much as 30%.
It's true that over-expansion and store repositioning in China has taken its toll on Gucci. Even so, leather goods was the fastest growing category between 2012 and 2013 for Kering, posting a 5% growth rate. And Kering operates in this category primarily through the Gucci brand.
"The strategy is working and helps us protect the desirability of the brand for the years to come," the group's Chief Executive Francois-Henri Pinault told Reuters earlier this year.
If old luxury was defined by ostentation and exhibitionism, the new luxury is more about being "in the know" and not so much about being "in the show." Key players need to take the challenge up and deliver sophistication through refined and discreet details. Going forward, this is how they're going to keep their clientele loyal.