It's the most wonderful time of the year, unless, perhaps, you're an executive of a luxury brand.

That's because out of all categories, luxury labels and retailers were responsible for the highest volume of discounts on Black Friday this year in the U.S.

According to research firm Edited, more than a quarter of luxury items were discounted by 26% to 50%. For comparison, items sold by premium and mass-market brands saw discount volumes of 24% and 20%, respectively.

As Bloomberg's Lisa Wolfson and Stephanie Hoi-Nga Wong noted, “Though heavy promotions and specials are a hallmark of the holiday season, the data from Edited suggests that the labels still have a way to go before getting customers to shell out top dollar.”

Could an EU court ruling help luxury brands?

While luxury brands have turned to hefty discounting this year to drive sales, a court ruling could help them better control digital distribution of their products, and thus potentially reduce their reliance on discounting, at least in the EU. 

Coty, which owns brands including Calvin Klein, Marc Jacobs and Covergirl, had sued its authorized German distributor, Parfumerie Akzente, for selling Coty brand products through Amazon and other online retailers. The company argued that such sales hurt the image of its luxury brands.

While Parfumerie Akzente countered that its use of platforms like Amazon adhered to requirements intended to “[preserve] the luxury image” of the brands, the European Court of Justice sided with Coty and wrote in its decision that a prohibition on sales through certain online channels “is appropriate and does not, in principle, go beyond what is necessary to preserve the luxury image of the goods.”

The Court elaborated:

The Court notes in this context that the quality of luxury goods is not simply the result of their material characteristics, but also of the allure and prestigious image which bestows on them an aura of luxury. Therefore, any impairment to that aura of luxury is likely to affect the actual quality of those goods.

The Computer & Communications Industry Association, which represents companies like Amazon, eBay and Rakuten, obviously alarmed and issued a statement that read in part, “This judgment is bad news for consumers, who will face fewer choices and also less competition when they want to shop online.”

Luxury brands, of course, will hope that this court ruling will help them strengthen the pricing power their holiday shopping discounts make clear they are struggling to retain. But they would be wise to consider the possibility that limiting sales on popular platforms will only do so much because other factors are likely contributing to luxury brands' hefty discounts.

Other factors contributing to luxury brand discounts

Lack of product differentiation. As luxury consultant Milton Pedraza told Bloomberg, “There are too many luxury and premium brands selling very similar products.” To the extent that luxury brands aren't producing products that potential customers view as unique if not trendsetting, they are obviously going to struggle to maintain pricing. Unfortunately, the proliferation of fast fashion, fashion startups offering made-to-order products, and counterfeits makes life much more difficult for luxury brands.

Digital experience challenges. Luxury customer experience is one of the reasons luxury customers are willing to pay top dollar for luxury products. Of course, replicating the in-store luxury customer experience online is tough and an inability to do so could in some cases make it harder for luxury brands to convince online shoppers – especially those who haven't experienced the in-store hand-holding – to pay full price.

The mainstreaming of luxury. Luxury isn't what it used to be. Thanks in large part to social media, luxury brands are more mainstream than ever. On one hand, that's a good thing. On the other, it can contribute to the perception that luxury brands' products are less exclusive. In fact, this is one of the biggest challenges luxury brands have faced in adopting influencer marketing.

For these reasons, luxury brands should recognize the need to double down on customer experience and specifically, how they craft online experiences that convince consumers their products are indeed worth top dollar. 

Patricio Robles

Published 19 December, 2017 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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Comments (1)

Pete Austin

Pete Austin, Founder and Author at Fresh Relevance

Coty was a surprise to me, because (at least in the UK) the general rule regarding restraint of trade clauses is that they are unenforceable at common law. See here:
https://www.inbrief.co.uk/regulations/restraint-of-trade-clauses/

Here is some good commentary (about the opinion, which has just been confirmed):.
https://chillingcompetition.com/2017/07/26/ag-wahl-in-case-c-23016-coty-four-lessons-in-common-sense-by-pablo/

IMHO this is one of the few legal areas likely to change significantly post-Brexit.

7 months ago

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