The economy may be stuck in a slump, but luxury brands are still shining.
Interbrand released its 12th annual ranking of the best global brands on Tuesday, and while Apple’s ascension into the top 10 may have been the biggest headline to emerge from it, the strong performance of luxury brands is also worth noting.
All seven luxury brands that appeared on last year’s list saw their brand values rise this year, with Burberry posting a whopping 20% gain – the fifth biggest gain in all of the 100 brands on the list. Louis Vuitton came in at No. 18 with a brand value of $23.2 billion, followed by Gucci (No. 39, $8.8 billion), Hermes (No. 66, $5.4 billion), Cartier (No. 70, $4.8 billion), Tiffany (No. 73, $4.5 billion), Armani (No. 93, $3.8 billion) and Burberry (No. 95, $3.7 billion).
Interbrand derives its results each year using three key components: financial performance, role of brand and brand strength. Without getting into the nitty-gritty details, “financial performance” is determined by analyzing how much of a company’s earnings a brand generates, “role of brand” is a measure of how important a brand is in customer purchasing decisions (i.e. – if a customer buys a BMW, how much of his decision was based on the fact that the car is a BMW) and “brand strength” refers to a measure of 10 internal and external factors that range from how protected a brand is in legal terms to its reputation amongst customers in both traditional and social media. At the end of the day, the final dollar figure that determines the ranking represents how valuable a brand is as an asset within an organization.
If your head’s spinning, don’t worry – the report is intended mainly for the CEOs, CFOs and CMOs of the world, though consumers generally take interest because it involves the brands they buy everyday, says Jez Frampton, Interbrand’s global chief executive officer.
Frampton says luxury’s strength this year is the result of a number of factors, not the least of which was a conscious effort by the brands to leverage themselves as trusted names amid the global economic turmoil. Frampton explains that luxury brands have fared well during the recession because consumers have grown increasingly drawn to authenticity – and for companies in the luxury arena, authenticity is in their DNA.
“If you have a very distinctive offering…people are still prepared to pay for it, even if you might be in a downturn,” he says.
Frampton says luxury brands have put a lot of emphasis on differentiating themselves and engaging customers. He says Burberry has devoted particular attention to its digital presence, creating a unique user experience on its website and also introducing a service for customers who want to create their own customized Burberry wear. He notes that this sort of differentiation is especially important in the luxury world, where “brand” tends to represent a heavier role in consumers’ purchasing decisions.
Of course, the main reason luxury brands have seen such strong performance this year is demand from China. China’s appetite for luxury goods has been insatiable, and businesses across the whole spectrum of luxury have benefited.
However, concerns emerging in the last few months that China’s economic growth is slowing has worried retailers. Just last week, shares of Coach, Tiffany and Ralph Lauren plummeted as fresh data on China’s manufacturing activity fanned worries that its growth won’t be sustained.
But Frampton isn’t worried, arguing that even if China’s overall gross domestic product does sputter, the percentage of luxury consumers is very small relative to the rest of population and it’s unlikely those customers aren’t just going to stop spending.
“If the luxury sector constituted all of Chinese GDP spend, then I think these luxury companies would have something to worry about,” he said.