Page 14 - Griffenomics

GRIFFENOMICS

ISSUE 1

14

LUXURY BRANDS

FACT:

IF APPLE INC. WAS A COUNTRY, ITS CASH RESERVES WOULD MAKE IT THE 58TH LARGEST ECONOMY IN THE WORLD

O

ne may be under the impression

that the recession, beginning

in 2008, affected everyone.

That is, everyone had to cut back on their

spending as they were under financial

pressure. The spotlight of the UK news,

in relation to the eects of the recession,

was on the type of British middle class

that shop at Sainsbury’s and Marks and

Spencer. However, this is far from the ac-

tual truth.

The two main areas of consumption

can be separated into utilitarian needs:

shelter, food and water. The second area

covers hedonistic needs: pleasure and

entertainment. Luxury goods are clearly

listed under hedonistic needs. Although

themiddle class consumers, whowere af-

fected by the recession, may occasionally

dip into the odd Louis Vuitton handbag

or a pair of Chanel heels once a year, the

major contributors to revenue for luxu-

ry retailers are the ‘super-rich’: people

who may have forgotten what tap water

tastes like. This group of people were

barely aected by the recession and may

even have benefited from it. They could

often exploit their workers more, due

to the large number of people searching

for work, through methods such as ze-

ro-hour contracts, which allow the em-

ployer to only pay for the hours that they

need their sta to work; thus, not paying

employees when there is a lack of de-

mand for labour during the recession. To

elaborate, salaries can be dropped due to

the excess supply of labour.

Although one might expect demand

for luxury goods to fall during recession,

the appeal of luxury goods and availabil-

ity has increased massively over recent

years. This is due to a mixture of factors,

includingmore aggressivemarketing and

advertising. For example, there has been

an increase in the hours of TV that peo-

ple watch and the eects of easier access

(online) for advertisers can be shown

by the higher number of stores around

the country and the development of re-

tail parks, such as Bicester Village near

Oxford. It is mainly the internet that

has revolutionised the access to luxury

goods. No longer is there a need to trav-

el hundreds of miles to pick up a pair of

socks from Versace. Even food from high

end food stores, such as Waitrose, can

now be bought fromyour couch and driv-

en to you. This is compounded by high-

er standards of living - £2,068 average a

month for a full-time employee before

tax in the UK in 2013, compared to an in-

flation-adjusted equivalent of £1,583 in

1980. One could also argue that the rise

in counterfeit luxury goods, whilst losing

retailers’ money, can raise the awareness

of their brand globally. In a way, it is al-

most free advertising if one assumes that

some people will be drawn to purchase

genuine items.

The relative impact of the recession

on luxury compared with other brands

was exemplified this winter, in the UK,

as Debenhams experienced a 25% drop

in expected profit and, as a result, their

chief financial o¢cer resigned over the

festive period. In comparison to this,

House of Fraser, a high-end version of the

store Debenhams, achieved their ‘high-

est ever gross profit of £403.8 million, up

£4.7 million’ for the 52 weeks leading up

to the January 26, 2013. Furthermore,

John Lewis reinforces this trend as on-

line sales are rising by almost 23 per cent

annually.

However, the main contributing fac-

tor to the success of luxury brands during

the recession has arguably been China.

China is the second largest luxury goods

consumer, behind Japan, and in 2010 ac-

counted for around 25% of the world’s

luxury sales. From 2008 to 2011, Chi-

na experienced an astonishing average

growth rate of 9.525%, compared to most

of Europe’s negative growth rates, such

as the UK’s record low of -6.80%, in the

first quarter of 2009. Without the rise in

China’s appetite for luxury due to their

economic prosperity, many brands such

as Louis Vuitton, Tiany’s and Burberry

wouldn’t have achieved such high prof-

its, such as Burberry’s £206.3 million in

2011.

In conclusion, luxury brands benefit

from the recession, since the richest sec-

tor of society is able to weather the eco-

nomic slump best, by exploiting workers