Luxury Brands

April 2008

Consumers and Designer Brands a global Nielsen report

INSIDE: Consumers lap up luxury brands Global consensus that luxury is overpriced One in two consumers believe the purpose of luxury goods is to project social status Imitation designer wares fail to impress American brands most popular among world’s consumers But if we won the lottery, it’d be Gucci all the way What’s on the Horizon for Designer Brands?

Consumers lap up luxury brands In the face of a rapidly shifting retail landscape, the luxury brands sector continued to climb to new starry heights in the past few years. The latest Nielsen survey on designer brands reveals that consumers remain enraptured by the allure of luxury, and there are generous payoffs for designer brands that dare to diversify.

Nielsen’s global designer brands survey, the largest of its kind, gauges the current and aspirational purchasing habits of online consumers across the globe. This year’s survey reveals that one sixth (16%) of the world’s consumers claim to buy designer brands, while one-third (31%) claim to know a designer label buyer. “In the last few years, the luxury sector has really opened up. We have seen many design houses beginning to diversify their offerings to ensure they are catering for consumers of all ages – from babywear to pet accessories! It’s not unusual for designer brands to offer two or three diffusion lines to cater for different consumer segments as well as expanding into accessories, luggage, jewellery, homewares and interiors and even the technology sector with branded mobile phones - and consumers are responding positively,” remarked Karen Watson, Chief Communications Officer, The Nielsen Company.

To what extent do you agree with the following statements?

I buy designer brands Global average Neutral

Agree

100

1%

2%

4%

43%

38%

42%

38%

43%

15%

17%

15%

15%

EEMEA

North America

4%

3%

3%

90 80

39%

28% 41%

46%

70 60 50 40 30

50% 41%

38%

20 10 0

Asia Pacific Europe

19%

Latam

15%

Global average

To what extent do you agree with the following statements?

Many people I know buy designer brands Global average Neutral

Agree

100 90 80 70

10%

Don’t know

Disagree

7%

8%

7%

28%

27%

30%

6%

9%

15% 28%

31% 25%

60 50 40

33%

36%

30%

54%

20 10 0

32%

34%

30

1

Don’t know

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32%

29%

33%

31%

25%

Asia Pacific Europe

EEMEA

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The world’s biggest luxury shoppers The world’s biggest designer fans hail from Greece, where almost India comes in third place in the designer brand ranking, with half of consumers (46%) claim to buy designer brands themselves, 35 percent claiming to buy designer wares. The economic boom in and almost three-quarters (73%) claim to know a label-chaser.

India is churning out a new breed of consumers who seek out The Greeks have proven to be voracious apparel consumers. designer brands to advertise their newly found status. “Indian According to Nielsen’s latest Consumer Confidence survey, designer shoppers prefer well-known brands such as Louis Vuitton two-fifths (42%) of Greek consumers spend their spare cash on and Gucci which have an international, high-profile image – and new clothes, and almost half (47%) spend it paying off their also because both these brands have opened up large stores in well-worn credit cards! Another Nielsen India in the past few years, making their consumer brands survey that is products more visible and accessible to conducted in Greece twice a year buyers”, said Partha Rakshit, Managing revealed that 55 percent of Greeks Director, Nielsen South Asia. claim the presence of branded products Hungarian consumers clock in at number four For many Hong Kongers, is the key driver for store selection. on the designer label ranking. Italian designer owning luxury goods has Nearly one in two Greeks (51%) buy streetwear label Diesel is the brand of choice evolved from an occasional new clothes once a month with 47% for almost a quarter (23%) of Hungarians, indulgence to a regular ritual. saying they buy apparel whenever they with 13 percent claiming to buy Calvin Klein. see something they like.

Mitch Barns, President, Nielsen Other well-known designer labels have very Greater China Shopaholic Hong Kongers are hot on low response rates in this market. Diesel and their Hellenic heels, with 38 percent Calvin Klein are well-known in Hungary, claiming to buy designer brands. Hong especially Diesel, and many of their products Kong has long been regarded as a are in a price bracket which makes them shopper’s paradise and Hong Kongers have a reputation to be accessible to a wide variety of Hungarians. early adopters of new and emerging fashion labels and trends.

The oil-rich UAE, the Middle East’s ‘bling’ capital, takes fifth place.

Luxury brands are accessible to young Hong Kongers as they enjoy The booming UAE is brimming with a growing segment of newly a high disposable income because it’s traditionally accepted to live minted locals as well as a high percentage of expatriate consumers at home until your late twenties and thirties or until you get who are attracted by the country’s favourable tax system and married. The money that brand-obsessed and fashionable locals possess a high level of disposable income. Designer outlets save on living expenses is happily spent on designer shopping dominate Emirati shopping centres, and 95 percent of the world’s sprees. premier brands have a presence in the Emirates.

Hong Kong is the only country in the Asia Pacific region with a The extreme weather conditions often force consumers indoors to chain store – aptly named “Milan Station”, devoted to selling air-conditioned shopping malls, increasing their awareness of secondhand luxury and branded goods. Not only does this designer brands and influencing buying behaviour. In addition, the showcase Hong Kongers’ love for luxury goods, it also exemplifies UAE attracts wealthy residents from neighbouring Saudi Arabia their desire to stay on trend. The success of this secondhand retail who arrive in Dubai with one priority – to shop. chain in Hong Kong supports the local insatiable obsession and appetite for cutting-edge luxury, allowing fashion addicts to sell their out-of-season wares for cash to buy the latest design.

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To what extent do you agree with the following statements?

I buy designer brands Top 10 agree 100 90 80 70 60 50

46% 38%

40

35%

32%

31%

30

27%

27%

26%

23%

20

22%

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To what extent do you agree with the following statements?

Many people I know buy designer brands Top 10 agree 100 90 80

73%

70

63%

62%

60

60%

57%

53%

53%

52%

50

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47%

40 30 20 10

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Global consensus that luxury is overpriced Once upon a time, many global design houses claimed their point of difference as superior quality. Nowadays it’s all about brand and values – the “image” the label represents. The overwhelming majority of consumers (71%) believe that designer brands are overpriced for what they are, but only a quarter (25%) believe that designer brands are of significantly higher quality than standard brands.

Unsurprisingly, in markets such as Ireland, Argentina and Australia, where high-street fashion provides an affordable and fashionable alternative to expensive designer brands, consumers tend overwhelmingly to believe that designer products are overpriced. In Australia, high import duties mean that for the large majority of consumers, designer labels can be very expensive, and the local fashion industry is burgeoning as a result.

The quality of designer fashion has been a contentious issue in recent years. The world’s most historic fashion houses have evolved their offerings to complement changing market dynamics, trading perceived quality for directionality and leading-edge design. The world’s most sartorially sceptical consumers come from Japan, where there is a proliferation of quality goods, and frosty Sweden and Austria, where functional fashion is the norm. In contrast, in the oil-rich UAE, which in recent years has morphed into one of the biggest designer shopping centres in the world, 43 percent of consumers consider designer products to be of higher quality than their standard counterparts.

To what extent do you agree with the following statements?

Designer brands are usually overpriced for what they are Neutral

Agree

100

3% 9%

4% 7%

20%

22%

68%

67%

Asia Pacific

Europe

90 80

Don’t know

Disagree 2% 4%

2% 7%

3% 7%

17%

14%

19%

75%

77%

77%

EEMEA

North America

Latam

5% 4% 16%

70 60 50 40

71%

30 20 10 0 Global average

To what extent do you agree with the following statements?

Designer brands are of significantly higher quality than standard brands Neutral

Agree

100

4%

4%

90

24%

80

8%

35%

Don’t know

Disagree

21%

3%

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70 60 44%

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41%

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34% 41%

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25%

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10 0

To what extent do you agree with the following statements?

People who wear designer brands are trying to project social status Neutral

Agree 100 90

4% 18%

5%

6%

5%

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9%

8%

10%

28%

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32%

57%

57%

55%

Europe

EEMEA

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80

5% 13%

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Don’t know

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30%

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67% 52%

44%

10 0 Asia Pacific

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Interestingly, in Asian countries such as Singapore, Malaysia and the Philippines where black markets for contraband designer products thrive, designer goods are perceived to be of higher quality by over two-fifths of the population.

To what extent do you agree with the following statements?

Designer brands are usually overpiced for what they are Top 10 Disagree Top 10 Agree 100

100 90

90

86%

83%

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80

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79%

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To what extent do you agree with the following statements?

Designer brands are of significantly higher quality than standard brands Top 10 Disagree

Top 10 Agree 100

100

90

90

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43%

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In fact, more than half (52%) of online consumers believe that people buy designer brands in a bid to project their social status.

This association between designer brands and social status has made newly monied emerging markets such as UAE, China and India the new fashion meccas for luxury design houses. For the nouveaux riche in emerging markets, wearing top-to-toe designer brands is the easiest way for them to declare their social position. And new money shouts - understated fashion does not exist for these new wealthy. These consumers want ‘Bling, bling and more bling’ – and the more logos the better please! The most successful luxury design houses are responding to this need with bespoke lines for specific emerging market tastes.

Top 10 Agree 100 90 80

72%

72%

70%

70

67%

67%

64%

63%

63%

63%

62%

60 50 40 30 20 10 an y rm

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So if it’s overpriced and the quality isn’t up to scratch, why are consumers tripping over their Louboutins to cloak themselves in labels?

Only one third (34%) of consumers believe designer brands are for fashionistas, so perhaps it’s the ‘bling factor’. As the global economic pendulum shifts towards developing markets in Asia, the Middle East and Latin America, consumers in these markets are experiencing unprecedented wealth and previously rigid class boundaries are beginning to crumble. Concurrently, many luxury brands, previously the singular privilege of hereditary wealth, are casting off the shackles of stolid exclusivity and embracing the “new wealthy” with vigour. The savviest luxury brands are injecting their historic brand values with sexiness and verve. These brands have come to be worn as a badge of affluence – to project one’s social status.

To what extent do you agree with the following statements?

People who wear designer brands are trying to project social status

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The ‘bling factor’: One in two consumers believe the purpose of designer goods is to project social status

To succeed in the changing marketplace, a designer brand needs to sell its core brand values; the “image” reflected in the design and the lifestyle it represents is what consumers pay a premium to buy into.

Karen Watson, Chief Communications Officer, The Nielsen Company

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Imitation designer wares fail to impress Imitation designer products continue to incite controversy – only 15 percent of consumers surveyed were willing to claim that imitation designer brands were just as good as the real deal. Aversion to imitation products is highest in Asia, where black market trade in false designer wear is prevalent – and where savvy shoppers are trained to pick out a “fake” at a glance. In Japan, where ersatz designer bags and wallets sit side by side with weapons and explosives in airport contraband displays, a miniscule one percent of consumers think imitation designer goods match their pricey counterparts. A mere three percent of Taiwanese and six percent of Chinese consumers agree.

It’s a different story in the Anglo-Saxon world, where “dress to impress” means substantially less. For 27 percent of Canadians and 26 percent of United States consumers, real and faux designer goods may as well be cut from the same cloth.

British and Australian consumers are similarly unfazed by authenticity, with 22 percent claiming that there is no substantial quality difference between the bona fide and the bogus.

To what extent do you agree with the following statements?

Imitation designer brands are just as good as the real ones Global average Neutral

Agree

100

7%

6%

7%

12%

90

Don’t know

Disagree

7%

6%

21%

80 70

40%

54%

38%

42%

50%

60 50

46%

40 37%

36%

16%

14%

Europe

EEMEA

30 20 10 8%

0

Asia Pacific

36%

29%

32% 26%

North America

15%

15%

Latam

Global average

To what extent do you agree with the following statements?

Imitation designer brands are just as good as the real ones Top 10 agree 100 90 80 70 60 50 40 30

27%

26%

22%

22%

21%

20

20%

20%

19%

18%

18%

10

7

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Global average Calvin Klein Ralph Lauren Diesel Chanel Christian Dior Gucci DKNY Valentino Yves Saint Laurent Giorgio Armani Louis Vuitton Burberry Versace Prada Givenchy Emporio Armani Hermes Fendi Max Mara Celine Ferragamo Chloe Marc Jacobs Local designers from my country None of these

21% 14% 11% 11% 10% 10% 8% 8% 8% 7% 7% 6% 5% 4% 4% 4% 3% 2% 2% 2% 1% 1% 1% 23% 42%

Which of the following brands’ products do you buy?

Top 10 Local designers from my country 100 90 80 70

62%

60 47%

50

46%

46%

42%

40

40%

39% 34%

34%

33%

30 20 10

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Calvin Klein’s phenomenal success in the fashion world may well be attributed to its ability to please the entire spectrum of fashion consumers – from red-carpet Oscar nominees down to underwear-clad teenagers the world over. For the price of underwear, consumers from all walks of life can experience a share in the Calvin Klein brand. Calvin Klein underwear is a modern fashion legend, fusing mass appeal with cult cachet. In 2004 the label expanded on this legacy to form the White Label offering, encompassing sportwear, jeanswear, fragrance and underwear, and representing over $3 billion in global sales volume. The label continues to build its brand equity with five White Label ‘lifestyle’ concept stores opening in late 2007 across the United States. “Calvin Klein is going from strength to strength by creating successful ‘diffusion lines’ which extend and support, rather than compromise, the equity of the parent brand,” commented Karen Watson, Chief Communications Officer, The Nielsen Company.

Which of the following brands’ products do you buy?

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According to the Nielsen survey, American designer Calvin Klein’s products are the most frequently bought, with 21 percent of global consumers claiming to buy this label.

Interestingly, only 23 percent of United States consumers claim to buy Calvin Klein, compared with 52 percent of Mexicans and 41 percent of Chileans. Ralph Lauren, another popular American design brand, comes in a reasonably distant second at 14 percent, followed by Italian urban label Diesel (11%) and French giant Chanel (11%).

23 percent of consumers claim to buy local designer labels from their own country, with an impressive 62 percent of Filipinos claiming to support their local fashion industry.

Advertising, too, plays a massive role. Nielsen Global AdView figures reveal that between 2005 and 2006, Calvin Klein bolstered their adspend by 50 percent , with 2006 to 2007 growing by almost the same amount. This investment has certainly paid off for Calvin Klein, and showcases the continued importance of advertising in the marketing mix for luxury brands.

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American labels currently most popular among world’s consumers

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But if we won the lottery, it’d be Gucci all the way Gucci, the flagship brand of French luxury group PPR, continues to be the world’s most coveted brand. When asked which brand they’d buy if money were no object, one quarter (25%) of global consumers chose the Italian luxury brand. Gucci has gained three percentage points since the survey was conducted two years ago to become the most coveted and aspirational luxury brand in the world, edging out Chanel, Calvin Klein and Louis Vuitton.

Two years ago in the same survey, Gucci shared top honours in the survey with Giorgio Armani– which has since slipped to fifth place in current global rankings. “It’s an incredible achievement for Gucci to remain at the top of the most coveted league table for luxury brands,” said Watson. “In the past two years, Gucci has managed to maintain and even increase its brand equity in a very competitive and fickle industry. They have achieved this by consistently embedding their core brand values in all their branded products, which range from perfume and sunglasses to accessories, jewellery, handbags and ready-to-wear fashion,” Watson noted.

Advertising and media spend has clearly played a role in Gucci’s continued success.

Adspend figures released by Nielsen Media Research reveal that Gucci is investing incrementally in advertising, especially in developing markets, helping to bolster its brand presence and reinforce its strong values. Gucci is now the top advertiser in the luxury fashion sector, with 2007 adspend figures totalling US$96.5 million in Germany, Italy, UK and the USA alone .

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Which of the following brands’ products would you prefer to buy in the future if money was no object?

Global average Gucci Chanel Calvin Klein Louis Vuitton Giorgio Armani Versace Christian Dior Ralph Lauren Prada Diesel Yves Saint Laurent Valentino Burberry DKNY Hermes Emporio Armani Givenchy Ferragamo Fendi Marc Jacobs Max Mara Chloe Celine Bottega Veneta Local designers from my country None of these

25% 22% 21% 20% 19% 19% 18% 17% 16% 12% 12% 12% 10% 8% 8% 8% 7% 5% 5% 4% 3% 3% 3% 2% 17% 21%

Overall, magazines are by far the most used vehicles for fashion advertising. Key luxury labels Armani, Calvin Klein, Chanel, Gucci, Louis Vuitton and Versace combined invest approximately 76 percent of their total adspend in magazines, with newspapers a distant second at 22 percent. Other media barely register at around two percent of total combined spend. “Top movers and shakers Calvin Klein, Gucci, Chanel and Louis Vuitton have chosen to invest almost all of their advertising activity in press. Magazine advertising is clearly a fundamental contributor to a luxury brand’s success, both in terms of sales and aspirations,” said Michele Strazzera, Nielsen Global AdView.

Gucci’s top coveters hail from developing markets – two-fifths of Indian (41%) and Filipino (39%) consumers would choose Gucci if money were no object.

Which of the following brands’ products would you prefer to buy in the future if money was no object?

Top 10 Gucci 100 90 80 70 60 50 40

41%

39%

39%

37%

37%

36%

34%

34%

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30

32%

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We have seen a consistent upwards trend in Gucci’s brand perception which is congruent with their adspend figures.

Thanks to strong, well-targeted campaigns and media strategy, Gucci is enjoying unparalleled brand health, and we should see this trend continue into the future.

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Alberto Dal Sasso, Managing Director, Nielsen Media Research Italy

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Which of the following brands’ products would you prefer to buy in the future if money was no object?

Top 10 None of these 100 90 80 70 60 50

43% 37%

40

36%

35%

34%

32%

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“Louis Vuitton has consistently brought out sought-after, ready-to-wear designs under Marc Jacobs and new product ranges that meet the diverse appetites of their global target market, especially in Asia where the brand is most coveted,” said Watson. “Asia is considered by many international brands as a major sales region, with the improving personal financial status of Asian consumers and with the opening up of various developing markets, there is huge room for growth in the luxury sector.”

At the other end of the scale, almost half (43%) of Dutch consumers and two-fifths of Norwegian (37%) and US (36%) consumers claim they wouldn’t be interested in buying any designer labels if money were no object. The majority of consumers who claimed not to be lured by the big brands hailed form Northern Europe, where sartorial decisions are often dictated by inclement weather and dressing for comfort and practicality is a bigger concern than staying on the cutting-edge of style.

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Another big mover this year was French giant Louis Vuitton, who rose three places (from seventh to fourth) in the two-year period. Vuitton’s biggest fans continue to hail from Asia, with 42 percent of Filipinos and 40 percent of Hong Kongers and Singaporeans aspiring to own a Vuitton piece. The brand recorded a gross adspend of US$88.5 million in Germany, Italy, UK and the USA in 2007, making it the second biggest luxury fashion advertiser in these markets.

Both Gucci and Louis Vuitton are enjoying a successful balance between classicism and dynamism, maintaining their hard-won brand values so as not to alienate the label-chasers, whilst providing innovative and cuttingedge products for the fashionistas. “Gucci and Louis Vuitton both produce a wide range of monogrammed accessories, products that are classic, consistent and never go out of style. These values inform, rather than stymie, the development of new lines. Even the most ‘out there’ designs have an embedded notion of quality and endurance,” remarked Karen Watson, Chief Communications Officer, The Nielsen Company.

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Iconic French label Chanel tied with Calvin Klein for second place as the preferred brand if money were no object, up two spots from 2005. In recent years, with the visionary Karl Lagerfeld at the helm, Chanel has expanded its accessories, jewellery and fragrance lines, and supercharged its advertising spend across the board, from creative to media. At US$42 million, 2004’s Chanel no. 5 spot starring Nicole Kidman remains the most expensive television commercial ever made. These efforts have paid strong dividends to Chanel’s brand positioning and will continue to strengthen the brand in both developed and developing markets.

What’s on the Horizon for Designer Brands?

According to the Nielsen survey, 35 percent of global consumers said they would buy a mobile phone if it was co-branded with a luxury brand – a sector that fashion giants such as Prada and Armani have already taken advantage of.

One in three global consumers (29%) said they would buy a co-branded luxury designer laptop, and one in four said they would buy a “designer” flat screen TV. “There seems to be huge market potential for luxury brands to invade every corner of the home and office,” said Watson. One in six global consumers even said they would buy designer branded MP3 players and kitchen appliances.

Asian consumers from the Philippines, Indonesia and China were most enthusiastic about a luxury-branded mobile phones, laptops, and flat screen TV’s – however, it’s clear that consumers from developing markets are again driving demand for these products.

Seventy four percent of China consumers said they would buy a designer- branded laptop while 74 percent of Filipinos said they would buy a luxury-branded mobile phone.

Would you buy any of the following products if it was branded in association with a luxury fashion brand?

Global average Mobile phone

34%

Laptop

29%

Flat screen TV

MP3

Kitchen appliances

None of these

22%

16%

15%

49%

Innovation is a critical factor in the luxury industry, which prides itself on trendsetting. It is crucial that luxury brands innovate effectively to capture their increasingly diverse and sophisticated consumers, without tarnishing their hard-earned brand values.

Karen Watson, Chief Communications Officer, The Nielsen Company

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About The Nielsen Global Online Survey The Nielsen Global Online Survey is the largest half-yearly survey of its kind, aimed at gauging current confidence levels, spending habits/intentions and current major concerns of consumers across the globe. The latest survey, conducted in November 2007, polled 26,312 internet users in 48 markets from Europe, Asia Pacific, the Americas and the Middle East.

About The Nielsen Company The Nielsen Company is a global information and media company with leading market positions in marketing information (ACNielsen), media information (Nielsen Media Research), online intelligence (NetRatings and BuzzMetrics), mobile measurement (Nielsen Mobile), trade shows and business publications (Billboard, The Hollywood Reporter, Adweek). The privately held company is active in more than 100 countries, with headquarters in Haarlem, the Netherlands, and New York, USA. For more information, please visit, www.nielsen.com

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