The Business of Fashion

Luxury Outlook | Coping with the downturn

Now that we know that the Luxury industry is not as insulated from the economic downturn as much as many luxury and fashion CEOs would like, what's a brand to do?

Milton Pedraza, CEO of the Luxury Institute, is thinking two steps ahead. Yesterday he shared with The Business of Fashion a 7 point plan for coping with the economic malaise that is quickly sweeping across the world. We thought it was compelling and have excerpted the key points here.

1. Eliminate the Hobbies: Renew your focus on what you do best and innovate within those categories.

Many luxury brands have entered into categories where they have no expertise because they want to be "lifestyle" brands. Some categoriesare logical extensions for a luxury brand but most are not a good fit and will be marginally profitable.

Luxury Outlook 2008: How much padding does that luxury cushion have?

Conventional wisdom is that the luxury sector is cushioned from the ups and downs of the overall economy because its customers are amongst the "happy few" who aren't affected by such trivial matters as making mortgage payments and paying off credit card bills in the midst of a darkening macro-economic environment. But exactly how much padding does that luxury cushion have?

According to Luca Solca of BernsteinResearch, not a lot.

In his report "PPR: Worsening Macroeconomic Outlook points to slower Luxury Market Growth in 2008," published today, Solca asserts that there is a strong correlation  between the general economy and the luxury sector (R-squared = 66%).

Therefore, any problems in the general economy are certain to spill over into the luxury sector, especially for companies who have tapped into the aspirational luxury market like Coach and Gucci.