The Brand Man Speaks

Ralph Lauren brands and stores struggling in recession economy

Ralph Lauren brands and its retail stores including well-known Polo by Ralph Lauren are continuing to struggle in this deep recessionary economy not unlike other luxury retailers.

Many analysts have used Ralph Lauren as a barometer of how affluent consumers react to changes in economic climates. Historically, Ralph Lauren has weathered recessions fairly well but this time even the very rich are pulling back their spending along side the middle class "aspirational" consumer.

One notable issue facing Ralph Lauren and virtually all luxury goods companies and retailers is the impact this economic downturn has had on the aspirational consumer this time around. Whether you call it greed or business development strategies, most luxury companies encouraged middle class consumers to "reach" for entry level luxury products when the economy was robust. Lauren, Vuitton, Prada, Gucci and their like created and sold lower priced entry level goods to these aspirational consumers who longed to live like the rich and famous.

This strategy worked well for the past decade enriching these luxury goods companies. To keep the ball rolling these companies added more and more entry level products to entice middle and upper middle class consumers to stay loyal. The hope was that once they "tasted" the entry level fine wares they would trade up and buy the more expensive (and more profitable) products.

By depending on these consumers for strong revenue gains, luxury goods companies were creating a high risk situation for themselves...albeit few thought the economy would drop off this greatly. Today, they are all suffering enormously from the loss of revenue from the aspirational consumer who is not likely to return to spending on unnecessary high priced status goods for some time to come.

As reported in a previous post, few companies followed the path of French luxury goods company Hermes who chose not to introduce lower priced entry level goods to reach a lower income customer. They did not benefit from the boom times and are weathering the recession quite well. Possibly a lesson to be learned by luxury goods companies for the future.

Watching out for you everyday.

Eli

Toys R Us acquires venerable FAO Schwarz toy retailer

Since the late 1880's FAO Schwarz has been the toy store to the rich and famous. However, as toys were heavily discounted by retailers like Toys R Us and WalMart, FAO struggled to stay alive. The retailer went through various reorganizations and bankruptcies over the past few decades rarely making money.

Toys R Us has announced it is acquiring the venerable toy retailer and pledges to build the brand back to its historic glory. The retailer has two stores; It's flagship in New York City and one in Las Vegas.

FAO built its brand based on offering unique often quirky toys few of which were inexpensive. Given how frequently kids go through toys, most parents couldn't imagine spending lots of money for one toy and found the discount chains allowed them to shower their kids with toy choices at a fraction of the price.

FAO Schwarz last hurrah occurred when the movie "Big" with Tom Hanks featured the store and its over sized walk-on piano keyboard.

There should be room for a unique high end toy store as long as Toys R Us management finds a way to offer experiences that are both meaningful and valuable to parents and their kids. However, given this economy in which there has been a cultural shift towards less consumption and reusing what you already have, it may be a long time before a store like FAO Schwarz can re-establish itself.

When the economy was robust, I could see a Toys R Us operating FAO at break even or even a loss like Corning Glass did with Steuben Crystal. Not so today.

It will be interesting to follow the re-brand building effort.

Watching out for you everyday.

Eli

Woody Allen protecting his image and brand successfully sues American Apparel

American Apparel the LA based clothing chain that is known more for lawsuits against its founder Dov Charney that its apparel settled a lawsuit for $5 Million with Woody Allen.

Woody Allen one of the most well-known movie personalities over the past several decades...he has directed, written and starred in many films....sued American Apparel for using an image of him as a Rabbi from the classic movie "Annie Hall" which earned Allen an Oscar as best movie. The image was used to suggest that Mr. Allen endorsed Mr. Charney's clothing line in an off-beat way. Mr. Allen objected to the use of his image and the association with American Apparel which was used in billboards in LA and NY without Mr. Allen's permission (or any payment for his likeness).

Charney is known for using very racy ads with good looking but not model perfect people. He is also been sued frequently (vs. other apparel manufacturer's for sure) for sexual harassment among other questionable behaviors. He just "moves" to a different vibe than most.

This is an important victory for people brands against the unlawful and uncompensated use of their images for commercial gain. The settlement occurred just before the lawsuit was to go to trial.

Mr. Allen originally was seeking $10 Million. Mr. Charney says he wishes it had not settled ....an action taken by his insurance company...so he says.

Watching out for you everyday.

Eli

Cheerios under fire from FDA; fair or unfair?

Good old American cereal brand Cheerios is under fire from the FDA for posting drug like claims on the boxes of one of the country's favorite morning foods.

For several years now General Mills has promoted heart health by encouraging consumers to eat its Cheerios brand which contains whole grains which have been determined to assist in lowering one's cholesterol.

Out of the blue, under the new O'bama administration, the FDA has decided to crack down on what it believes to be questionable marketing practices and benefit claims.

The FDA says Cheerios' claims are "serious violations" of federal law as the words "clinically proven to help lower cholesterol" indicate the product is a drug without drug claim approval. The FDA doesn't dispute the claim just insists General Mills needs to apply for FDA approval to use those words.

The cereal has used this language for over two years with no prior complaints that I am aware of.

In a time when world food protection issues are not being handled by the FDA anywhere near as well as they should, this bold PR move against a honorable brand seems gratuitous and overblown. I suspect as do many experts that in the coming weeks, General Mills and the FDA will come to a compromise over the language given it is important for consumers to know what kinds of inexpensive basic foods they can consume that are good for them in a country where obesity impacts over 60% of the population.

Watching out for you everyday.

Eli

Retailer H&M expands exclusive guest designer offerings to more stores

As the world wide recession continues to take a huge bite out of retail sales, several companies are honing their branding skills to gain as much market-share as possible.

Swedish retailer H&M which has expanded in the US dramatically in the past few years is taking its fashion forward super chic for cheap brand to another level.

In the past short runs of collaborations with high end designers and celebrities like Stella McCartney and Madonna have brought excitement and credibility to the retailer. However, these offerings were available in just a few stores and not the whole chain. The financial impact was limited by the limited availabilities. Loyalists complained they could not get the short term fashion offerings and were disappointed.

H&M will now place their guest designer apparel in nearly all their stores to meet consumer interest and demand.

This move helps further cement the brand's credibility as a leader in value priced high fashion in what is an increasingly difficult and competitive market. Many retailers have strictly gone the price discounting route and have forgotten to strengthen their brand value along the way as well. These missteps will be costly once the economy revives. H&M seems to realize that they can develop business strategies that deal with the recessionary climate and also simultaneously bolster the brand story to consumers distinguishing it from stores like Forever 21.

One analyst called it a drive to meet young fashion-oriented American's thirst for "designer gear at Main Street prices".  I think that is a good summary of H&M's goals.

Watching out for you everyday.

Eli

Luxury brand Hermes defies recession generated down turn suffered by competitors

French luxury brand Hermes is doing pretty well considering the depth and breath of the recession world wide. Despite double digit declines experienced by Gucci, Prada, Louis Vuitton and others, Hermes' brand strategy from which they have not deviated is proving very effective and a smart business tactic.

It is also quite simple.

Hermes has never chased after the aspirational consumer. The consumer whose wealth grew from middle class to upper middle class over the past decades. They didn't introduce lower priced goods to attract a younger, hipper, "yuppie" client. They didn't try fancy advertising campaigns designed to create envy or desire.

What they did was stay the course. Produce limited amount of goods and not over-expand or overreach. They did not make the brand accessible beyond the truly rich. For example their handbags in many cases require consumers to go on a waitlist for several years to buy them and can cost from $7000 to over $100,000 each.

In robust times their fortunes were not as good as the other European lux brands but in weaker times they are virtually immune to the downturn. They simply do not depend on that aspirational buyer whose income ebbs and flows with the economy.

Hermes does have many celebrity loyalists who wait patiently for their hand-made products, however, they don't flaunt those names to the public to attract trend-watching, celebrity influenced consumers.

Hermes remains a true luxury brand in a time when the word luxury has been well over-used and has lost most of its real meaning.

Bravo to Hermes.

Watching out for you everyday.

Eli

Estee Lauder reduces brand intimidation; posts pricing

Luxury goods used price intimidation for years as one of the barriers to entry for consumers creating strong snob appeal. One of the areas in which this was most evident was department store high end cosmetics where facial creams could cost in the hundreds versus drug store brands under $10.

This recession is not like any of its recent predecessors. So many marketing truisms have been questioned. Brands have had to rethink their core strategies to survive and stay meaningful to consumers.

Estee Lauder has announced what I believe is a fairly radical brand strategy change for most of their higher end cosmetic brands which includes the Estee Lauder brand, Clinique, Bobbie Brown, Mac among others.

Lauder will now post prices for cosmetics sold in department stores and actively have its personnel push a "value" story. The veil of price intimidation is being dropped by Lauder in an effort to stem the tide of double digit sales and profit declines. The thinking is if you do NOT have to ask the price....it's right there for you to evaluate...you might more likely buy a higher end brand thinking, well it isn't as expensive as I thought...and "I'm worth it" to quote L'Oreal.

I think this is an important shift and one that would benefit many higher end brands. Without discounting or reducing prices periodically to attract buyers, taking away the price intimidation factor and have pricing information as readily available for a $200 product as a $3.99 product takes some of the pricing sting out of the equation. Does eliminating snobbery reduce luxury goods appeal? In the past this would be true, but I believe this cultural behavior is changing for good. It forces high end brands to put forth a meaningful story to merit high pricing...it puts greater emphasis on the brand's reason for being and deliverables than just being expensive. Consumers in the end might find more product information from the shift in emphasis away from pricing beneficial. This might also likely create stronger brand loyalty based on product performance and life changing impact than luxo-fluff.

It might also mean the end for some brands that cannot defend their high price positioning posture. I also do not think that is a bad thing either.

Watching out for you everyday.

Eli

Fed Ex sues rival UPS over superiority ad claim

Shipping competitors UPS and Fed Ex were in court this week over a new national ad campaign in which the UPS brand asserted reliability superiority over Fed Ex.

The claim which was not substantiated was an outgrowth of a research company's report deemed not reliable in itself. The research was reported by Morgan Stanley.

The UPS ad claimed Brown, as the brand is known, was ranked "most reliable" by the research. UPS has agreed to drop the ad immediately.

The recession has made this industry like virtually all others far more competitive than in past financially robust years.

In my personal and professional experience, I have found Fed Ex to be consistently more reliable and dependable than UPS. Fed Ex ground seems to me to be less expensive as well for shipping regular stuff from here to there. What's your experience?

Watching out for you everyday.

Eli