What do the luxury house of Chanel and bridge-level brand BCBG Max Azria have in common? A week ago, despite BCBG's attempt to approximate a chic French style, the answer would have been: not much. Chanel's announcement on Dec. 28 of the upcoming elimination of 200 jobs, however, cast the company in the uncharacteristic role of playing catch-up with a trend that BCBG caught onto a month earlier, when it laid off 125 employees. Despite the luxury industry's confidence in the demand for premium goods, the market is beginning to level off. The recession, apparently, doesn't distinguish between world-class and wannabe brands.
This might seem like common sense to most people—in fact, luxury might logically seem like the first retail tier that would be hit hard, given its foundation in high-priced fantasy—but the reaction in the world of luxury goods has been one of shock, and muted horror, as if Chanel committed an egregious faux-pas. More chilling than using the wrong fork for your salad, the layoffs have set off waves of panic as companies that have built their success by projecting an image of perfection, impervious to plebian concerns about the economy, begin to realize that they, too, are in trouble.
Until now the most dramatic developments had been LVMH's cancellation of a planned Tokyo flagship store and, equally shocking to those in the strange bubble that is fashion, Prada's posters advertising price cuts in their Milan store. (Talking about sales simply isn't done, you know.) But with the disappearance of actual jobs, the situation is more dire than the delayed growth and smaller sales forecasts that have been part of the luxury world's reality for the past year. Alain Nemarq, the chairman of the French fine jewelry firm, Mauboussin, opined in Le Figaro that the days of over-the-top luxury are over and that "the pursuit of exclusive trophies … is finished. We will now return to reason, decency and discretion." Given that the company just opened their first New York store on Madison Avenue, where baubles can fetch up to $15 million, Nemarq's statement seems like more of a public-relations pitch than an accurate prediction. Luxury is built on the pursuit of the unattainable. Given that logo-emblazoned Louis Vuitton handbags are more ubiquitous than low-key Hermes satchels, it's safe to say that discretion isn't the effect most luxury consumers are aiming for. Even if they were, Hermes bags are hardly the everyman's carryall of choice, stretching into the tens of thousands of dollars. Nemarq's pronouncement of a shift in the industry's guiding philosophy is interesting, however, because it reveals how fashionable (for lack of a better word) it has become to strike a modest pose.
After a $750 billion bailout plan and Bernard Madoff's alleged $50 billion Ponzi scheme, the public cry for accountability has become deafening. Coupled with the president-elect's winning rhetoric about positive change, it's clear that, from a perception standpoint, troubled companies wish to use the crisis as an opportunity to stand out as socially conscious and fiscally responsible, staking out a position on the right side of history. The problem is that their efforts are so palpably transparent, and their sentiments, while grabbing space in the headlines, ring insincere. In the case of luxury companies, their success is predicated on convincing people to spend jaw-dropping sums of money on goods that no one needs. Their success in emerging markets like China, Russia and India is built on the backs of their flashiest products, popular status symbols for newly minted money seeking a lifestyle pedigree. Their ad campaigns are replete with private jets, million-dollar diamonds, and stony-faced supermodels, which express a distance from, and a disdain for, the everyday concerns of common people. So a healthy measure of skepticism is in order when Nemarq announces a new set of values that run counter to the reality of the kind of behavior that drives his company's bottom line.
There is no doubt that, in the coming years, the luxury industry and its cousins in the financial services sector are going to reassess how they do business. In the case of financial firms, if Obama is able to tighten regulation, it might bring long-term behavioral change in which stability and sustainability are valued more than short-term gain. With luxury companies, however, no such standard could possibly be imposed, and its doubtful whether conglomerates facing perpetual shareholder pressure, are going to err on the side of 'decency and discretion'. What is more likely is that the most indulgent ends of the market—perhaps Mr. Nemarq's $15 million dollar pieces of jewelry among them—will take a temporary backseat to more affordable categories, such as Vuitton's 'Neverfull' bags. Premium brands will try to reinvent themselves via strategy that plays up subtlety, a technique that has been serving Gucci Group star brand Bottega Veneta well since its inception. And more and more premium retailers will resort to (gasp!) well-publicized sales in efforts to move stagnant merchandise off store shelves. In the long-term, however, it's ridiculous to believe that an entire industry is going to rediscover itself and abandon the identity and approach that has, until now, resulted in historic levels of growth and profit.
As unpleasant as it might be to accept, greed, avarice and unrestrained lust are built-in elements of the human psyche. When people have enormous amounts of disposable wealth, these darker qualities tend to surface, manifesting themselves in diamond-and-ruby encrusted cellphones (Vertu, over $300,000), and 1200-horsepower, color-shifting sportscars (Natalia SLS, $2,000,000). As deep as this recession is going to be, it isn't going to change human nature, despite the chorus of voices extolling the transformative potential of the crisis—not unless this cheerleading is accompanied by a sincere self-examination by the principal players who brought us to this point in the first place. Private bankers and mortgage lenders bear the lion's share of responsibility, but the culture of greed extends across industries, and it finds physical form in the luxury world. No matter how much the less-fortunate evolve their attitudes toward finance, there will not be much practical effect unless the wealthy and those that cater to them also reassess their values. Until then, the richest segments of society, who played a major role in ruining things for everyone else, are simply paying lip service to a public notion of what is expected of them.
Captains of the luxury industry, when considering their plan of action, would do well to take to heart this quote from Coco Chanel: "I love luxury. And luxury lies not in richness and ornateness but in the absence of vulgarity. Vulgarity is the ugliest word in our language. I stay in the game to fight it." Perhaps it's time for them to reconsider why they're in the game.