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Since modern luxury companies are killing LVMH’s cash cow, they’ve set up a fund to invest in them.

In February, when the world’s largest luxury conglomerate, LVMH, announced LVMH Luxury Ventures — a new fund specifically for emerging brand investments — it confirmed what Lean Luxe readers already knew. First, that MLCs (modern luxury companies), as the standard bearers of the current consumer-centric luxury economy, have within the last five years grown in stature, importance, and influence. And second, that given the stakes it would be utterly foolish for LVMH to continue to ignore them.

But here’s the real reason why they’ve set up the fund: As a category, MLCs are directly threatening legacy groups’ current cash cow — mass market luxury.

What’s the problem with mass market luxury? Seen by industry insiders as a ‘commercialized’ form of true luxury, mass market luxury aims to make luxury products and brands available to everyone. In a vacuum, this is a noble goal. But in practice, it strips luxury of its power and erodes differentiation. To paraphrase luxury expert and author Jean-Noël Kapferer, mass luxury turns the extraordinary into the ordinary, and makes the ordinary extraordinary. It’s this very type of smoke-and-mirrors approach that young affluent shoppers have been told to expect for the last two decades. But it’s being impacted — in a big way — by the rise of MLCs.

What to consider here when comparing MLCs to mass market players:

  • MLCs goods are just as good (or better) than mass market goods. In terms of absolute quality, emerging brands won’t win in a face-off against an Hermes or a Goyard. But in a head-to-head against mass market firms like Coach, Kors, and even Louis Vuitton, they do provide a better value proposition than mass market luxury firms. In fact, the main issue with Louis Vuitton et al. is not necessarily the quality of their goods, but the way they price them. MLCs often match (or surpass) the quality of mass luxury brands, but they also best them by including an overall better package: a stronger customer experience, and a significantly lower price point.
  • MLCs take a much more consumer-centric approach. MLCs have identified the importance of the shopping experience — be it online or in-store — and have invested heavily in those areas to offer customers a seamless, convenient purchasing process. Companies like Bonobos and Jack Erwin make it easy to try on items at the store, and have your order shipped to your home in just a few days — no bags to carry out, no hassle. We can also look at firms like Net-a-Porter, Farfetch, and Matches Fashion which have invested heavily in speedy delivery times in key cities like New York or London: if you’re in a pinch, an order can arrives at your doorstep in 90 minutes or less.
  • A better informed shopper has prompted the rise of transparency — and MLCs have taken full advantage of this. As we know, shoppers are savvier and more informed than ever. And in an open market like this, the lack of transparency with mass market luxury supply chains are, frankly, untenable. MLCs, on the other hand, from the very start, been entirely forthcoming and open about their materials and sourcing methods. Plus they show — and take pride in the fact — that they don’t inflate their margins as much as existing luxury firms often do.

There’s a paradox for existing luxury groups, however:

You could argue that they’re diluting their ‘best-in-class’ perception. A legacy luxury conglomerate like LVMH, which owns plenty of mass luxury brands, also owns so-called ‘true’ luxury labels too. Brands in this particular category are characterized by high exclusivity, very high price points, little brand or product exposure, and prioritizing absolute product quality above all else. These are all positives — yet the multi-tiered approach taken by an LVMH might erode the consumer perception of the group’s best-in-class luxury brands, due to the association with lesser brands.

So, how to combat this? One fix would be for best-in-class luxury brands to regain control of their communication efforts. One of the biggest challenges they’ll face in the coming years will be in educating customers on the superiority of their value proposition. But they’ll need to do that at a time when MLCs will ostensibly have a larger hold on the market.

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