Summary
Over expansion of uber-luxury brands and falling demand for others means a slower growth and higher operating costs for this industry segment. Here's why.
Analysis
The future of custom fashion is very good. There has always been a strong market for top quality products and custom design too. Some of the smaller high-end luxury manufacturers may have a difficult time in this economy because they over distributed their products and are undercapitalized. Larger brands and large companies that control uber- brands may contract, but the top 10% to 15% of the luxury manufacturers should continue to prosper.
But that's only one definition of luxury in today's highly segmented market. Another is the smoke and mirrors segment consisting of products that are marketed as luxury brands without the distinguishing characteristics of either rarity or superior quality. The future of these products is problematic at best.
The fact is that there is way too many nascent apparel, gift, watch, perfume, gift, and accessory brands in the market. Just about every celebrity and European cottage trade name tried to capitalize on easy money bubble during the last decade. The current recession should cull out most of them either because of shrinking demand.
Discounting will also destroy what little image of luxury many of these aspiring luxury brands had acquired over the last several years. Discounting is tantamount to oversupply which shouts ordinary, not exclusivity and ordinary is a brand killer.
Even true luxury brands were victims of off-price thinking last fall, principally because of over distribution. The early thinking was to get position in emerging markets like China with manufacturer owned stores. That may have been a mistake. Now with demand crashing, brands are faced with two bad choices, dump more money into retail stores losing money or close the stores. A lose-lose proposition for the brands image and investor alike. May be there is something to be said about cobblers sticking to their last.
