When Ahrendts left, Burberry was a thriving luxury house. Further, Bailey needed to consider the impact that digital technology had on the luxury market, and how Burberry’s competition was approaching a digital environment.
CHARACTERISTICS AND TRENDS IN THE LUXURY INDUSTRY
Luxury Customer Segments
These customers were defined as ultra-high-net-worth individuals. To these customers, money was not an issue. The high purchasing power per customer in conjunction with the group’s higher requirements in terms of customer service and quality goods meant that their needs could not be overlooked. These customers expected an extremely high-quality experience, along with perfect goods and services.
At the same time, the aspirational group was still aspiring to be recognized by others and become associated with luxury. The third group of luxury shoppers was the accessible segment.
This group was made up of middle-class and upper-middle-class customers. The emergence of this group proved that «luxury is no longer the embrace of the kings and queens of France but the mass marketing phenomenon of everyday life. Accessible segment members sought to differentiate themselves through the status of the brands they wore, although their income level limited their accessibility to the luxury goods they could purchase. The social aspect was important to this group because a luxury good symbolized a membership badge and the ability to show status and wealth by association with the affluent class.
This became an especially important factor as the prices of personal luxury goods went on a rising trend. This change in overall market demand affected how luxury brands needed to market their goods in order to secure sales while simultaneously protecting their brand image. « He needed to consider how industry changes would influence the best approach for each group.
Challenge to Tradition: Fast Fashion
As it became apparent that the fast fashion organizations were here to stay, many luxury brands took a strategic «if you can’t beat them, join them» approach. Luxury brands, including Lanvin, Sonia Rykiel, Jimmy Choo, Karl Lagerfeld, Stella McCartney, and Viktor & Rolf, each collaborated with H&M to create a limited-edition collection. This collaboration offered advantages to both H&M and the luxury brands.
Luxury fashion houses were also influenced by the entry of fast fashion to rethink and make changes to certain aspects of their strategy. In response to fast fashion, luxury houses increased the number of collections they produced as well as the speed with which the collections moved from the fashion runways to the shop floor.
Fashion Shows
By 1991, Gianni Versace was presenting elaborate shows that included fairground-style lighting arrangements to attract customers, retail buyers, and newspaper and magazine editors. Since about 2014, some large brands, including Burberry, experimented with live streaming of their runway shows to the public. Some discussion and experimentation with a digital version of fashion shows took place, but many fashion purists still relied on, and had a strong connection to, the live show.
Bailey needed to take this into account when planning his strategic investments.
The Role of Department Stores
The internal business model of traditional department stores hindered turnaround speed and flexibility, compared to luxury department stores.
Experiential Luxury
To co-create the value, marketers influence customers to derive subjective intangible benefits from these goods beyond their functional utility. Building a vertical configuration within the store and positioning the coffee shop and gallery on higher levels of the store allowed the brand to drive traffic through the store, exposing potential customers first-hand to the latest product offerings.
Digital/Social
Bailey needed to consider all these changes in the customer decision-making process when evaluating resource allocation in marketing and communication, and when considering what Burberry needed to do to remain relevant to its customers.
LVMH
The concept of recognizing the importance of the impact of digital technology on the luxury business operations was at the forefront for LVMH.
Hermès
With revenues of €4.1 billion, Hermès was a significant player within the luxury fashion market.
Prada
Although it was known for its luxury leather goods and bags, the Prada brand dated back to 1913, when Mario Prada opened a luxury store in the Galleria Vittorio Emanuele II in Milan, selling leather handbags, travelling trunks, beauty cases, refined luxury accessories, jewels, and articles of value.
Question:
What actions should Burberry take with regard to the industry-wide challenges it faces? Should Burberry take first-mover approach or wait-and-see approach?