Remember Famous Amos the cookie guy? He’s known for the now way-overused phrase "when life hands you lemons, make lemonade." It’s his mantra for entrepreneurs to take charge of their lives when things get tough. Well, if you plan to cater to the luxury market with your new business, you may have bought a lemon and will have to figure out how to make lemonade in this weak economy.
According to the Wall Street Journal, the luxury market–accessories, champagne, high-end cars, and luxury real estate–is experiencing a brutal decline in demand, and the companies that sell these items are seeing seriously declining profits. It is expected that the luxury market will decline by 10 percent in 2009, the first serious decline since 1995. Even those consumers with a lot of disposable income have lost 40-60 percent of their assets and are now rethinking how they spend their money. Take the champagne industry, for example. In 2007, companies like Veuve Clicquot, Dom Perignon, and Krug were living high off sales of bottles of champagne that went for hundreds and even thousands of dollars per bottle. No longer. The restaurants that were the main outlet for these premium champagnes are seeing their customers opt for less pricey bottles and, as a consequence, the producers are suffering from warehouses of bottles gathering dust.
The story is the same in other luxury areas such as real estate, accessories like handbags, shoes, and sunglasses, and in high-end automobiles. Consumers today are asking themselves if their self esteem really requires that ultra-luxury item. So what are companies that produce these luxury goods doing to respond to a weak market that will probably be with us for some time to come? Many of them are reconsidering their product mix, design, and marketing strategy and looking to offer more economical versions of their higher-priced items. This strategy is not without problems because these companies have to be careful that they don’t jeopardize the integrity of their luxury brand. They’re also making small improvements in their current lines rather than introducing brand new products that cost more to develop and therefore must be priced higher.
So what does this mean to you, the entrepreneur whose new venture is designed around serving the luxury market? You might want to reassess that market. You need to be providing something that can weather the downsizing that many wealthy consumers are undertaking. We may be heading into a period of less ostentatious behavior on the part of consumers. Make sure that your business is living in the new reality, not the old.