Strategic Transformation of Luxury Companies during Economic Downturns

The average age of the “Global 10 luxury brands in 2008” selected by Interbrand was 125 years. Global luxury brands enjoying longevity have not only successfully survived the economic and social environmental crises but also acquired iconic value and established authentic personalities throughout the periods. Based on the investigation of the movements of these companies, this research proposes a framework for understanding global luxury companies’ strategic transformations as they respond to economic circumstances. This paper comprises an historical review of luxury companies’ adaptations during past recessions in the 20th century including Great Depression and World War. Also the author investigated movements of consumption patterns and marketing strategies of global luxury companies in the recent economic crisis to conceptualize the character of strategic adjustments. Two major managerial decision principles of luxury firms, ‘Expand & Downward’ versus ‘Narrow & Upward’, were proposed. With the rise of middle-income consumers in advanced markets and new wealthy in emerging countries, global luxury companies adopted ‘Expand & Downward’ strategies, such as launching second brands and affordably priced product lines, to secure new opportunities. However, facing economic downturns, other luxury companies have changed the direction of their marketing strategies to ‘Narrow&Upward’, focusing on the traditional luxury goods customers. Luxury companies today play significant roles in terms of both sales and influence as many companies in various industries benchmark their strategic decisions. Our research is a first attempt to introduce principles of luxury brands’ strategic shifts during recessions; hence it should help luxury marketers adopt the most effective solutions for addressing changing consumer needs influenced by future economic circumstances.