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Branding the luxury business
Written by: Tim Gosling
Photo by: Tomáš Kubeš
In a market where luxury brands
are a relative novelty, and the average income still falls well
below that of western Europe, how do retailers of the world's
most prestigious names fare? Reactions are mixed, but optimism
seems to prevail.
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Barbora Bergová
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WHILE THEY CLAIM a steady rise in sales, the retailers of genuine
luxury brand products are still finding progress sluggish since they
arrived in Prague over the last decade. It's perhaps not surprising
then that relatively few of their peers have joined them in recent
years, and that it remains a question whether the luxury retail sector
in the Czech Republic's capital will ever rival that of cities like
Paris, London or Milan.
There are driving forces for the sector in Prague that retailers
can observe and readily agree upon. Buying power is the most obvious
factor, and retailers depend heavily on the income levels of wealthy
locals and tourists. Indeed most of the outlets say they are dependent
to a significant degree on the higher income of tourists and foreigners.
However, they also say they are seeing more Czechs with greater spending
power, which can only help the market.
On a related note, the importance of "location" in the
luxury sector is particularly high. If one considers the significance
of foreign spending power, then those locales most heavily trafficked
by tourists are logically the most sought-after. Dior, the one
new name to have arrived in the city in the last year, waited for
about
two years for the right space, according to Jana Maříková, manager
of the Dior and Louis Vuitton outlets in Prague.
Yet retailers are quick to point out that store front locations
and buyer income are not the sole issues; that there are deeper,
subtler
dynamics at play. Alison Pollitt, managing partner of Fision Group,
who has worked in fashion and beauty retail in London and Prague,
claims that, "the psychology of customers here is different
from more established markets". Retailers and experts across
the sector claim that this factor is as central to the development
of the luxury brand market as any other. "It's about accurately
understanding what luxury is, which depends on experience and knowledge," continues
Pollitt. "It's about the confidence of the customer, based
on having choice and exposure via the shops, the fashion press
and traveling."
Given that just 15 years ago there was "no sense in thinking
about brands here," according to Tomáš Drtina, managing partner
of Incoma market research, it's little surprise that the market is
relatively immature. Lucie Blažková, manager of design boutique Tatiana
agrees that local consumers have pursued a steep learning curve since
1990. "At first they just needed to see and wear some of these
styles because they were so different," she says. "Then
they started to look at the quality." Which may make life tough
for the brands right now, but at the same time gives merchants hope
for the future, as they note changes in the appreciation of quality
amongst their customers. Jitka Kocingerová of Lancôme joins the others
in striking an upbeat note, saying that many wealthier people are
becoming "more aware of luxury brands, more educated through
the travel and access to more information".
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Alison Pollitt
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Jana Bloundová owns 5th Avenue, a chain that offers designer clothes
(Armani, Versace, Chanel, etc.) imported from the US, where she
ran boutiques for several years before returning to her home country.
She says that she was motivated to come back after observing an
evolution
of the Czech market. "Five years ago I saw a big change," she
recalls. "People were making more money, traveling a lot and
becoming more interested [in brand names]". Still, more than
one retailer notes that there is a big difference between the Czech
and established markets in terms of perception regarding luxury
and quality.
Mojmír Ranný, owner of Ranný Architects interior design, claims
that some brands regarded as "luxury" in the domestic
front are seen very differently elsewhere. Pollitt suggests that
these
are natural steps in any market, and points out that it is financially
and psychologically impossible to leap directly from what is essentially
a developing middle market to the most exclusive designer brands.
In short, streets like Na Příkopě, for instance, with its array
of high street brands, don't just emerge overnight.
In many ways, the exclusivity of the brands holds back this development.
A key factor in the education of customers, suggests Pollitt, is
in the variety of products in the stores. However, she says that
the exclusive brands in Prague tend to stock the smaller, lower cost
items rather than the full ranges, because these are what locals
with lower purchasing power and tourists with suitcases to lug to
the airport tend to buy.
Advertising and the fashion press also play an important part on
the market's development. Tomáš Kozák, planning manager for OMD media
buying agency explains that because the target audience for luxury
brands is so small in the Czech Republic, the most effective way
for these brands to market themselves is to bypass the mass media
and communicate directly through high-profile events or personal
contact. Anastasia Tejnorová and Jana Semerádová, managers of Escada's
Sport and Classic outlets respectively, confirm that after trying
many different methods of advertising throughout the years they now
mostly depend on just such tactics. The issue here is that this removes
luxury branding from the mainstream to some extent, thus possibly
overlooking those that are not so active in following trends.
Drtina's opinion is that "the generation that has been fully
hit by advertising since 1990 recognise the brands." Indeed,
most retailers assert that they are seeing more independently wealthy
young career women in their stores, and that this could be good news
for luxury brands in the future. For now however, high-end retailers
may have to wait for the trend to become more pervasive. Barbora
Bergová, manager of Malo and Francesco Biasa, notes that the local
consumer segment with the most purchasing power is "the generation
of Czechs over 40," and adds that these potential customers "tend
to have different priorities and values in what they spend their
money on."
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Location rules
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Jana Maříková
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For the second year running, the rental prices on Na Příkopě
are 18th highest in the world according to Cushman & Wakefield
Healey & Baker's (C&W H&B) "Main Streets Across the
World 2004" report. Retailers pay through the nose for the sheer
amount of feet walking through Prague's "mass-market shopping
destination".
The luxury brand "destination" however is Pařížská, in the
city's center, where rental fees go for around half of those found on
nearby Na Příkopě. "If someone wants to go for exclusive shopping
in Prague then they immediately think of Pařížská: it's the destination," says
Martin Žížala of C&W H&B. And this makes it a popular spot. "Any
developer would [love to] get their hands on a property on Pařížská," continues
the retail agent. The street offers an exclusive experience for shoppers: "The
space in itself is a luxury," suggests Alison Pollitt. The elegant,
portly, tree-lined avenue offers parking outside the parade of generously
proportioned brand name stores who cluster there to share the customers.
The difficulty of finding an appropriate unit along this street delayed
the entry of Dior's new outlet, claims manager Jana Maříková. "The
decision is always based on the real estate situation," she states. "I
think this is one of the reasons that we don't have many brands here
- there is only one good location." However, Dior's eventual arrival
bears out Žížala's opinion that the real estate issue would not stop
anyone determined to come to the market. He adds that "the requirements
are not nearly as active as for the mainstream and that's why the rents
on certain streets have risen so much whilst on Pařížská they've been
fairly stable."
Another victim of the location-price paradox in Escada Sport, a high-end retailer
that first opened in Slovanský dům but, according to manager Anastasia Tejnorová,
found the rent unsustainable. The store has since joined their peers to the north
of Staroměstské náměstí.
The one set of luxury brand retailers that are able to escape the center's clutches
are those offering bigger products, such as interior design. Needing bigger spaces
they could not locate in the center and according to Žížala have created a "destination" around
Vinohradská. The size of purchases from these retailers allow this. A new kitchen
costs a lot more than even a designer dress and customers are more willing to
travel when making such a large investment.
Tim Gosling |
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The tourist paradox
Prague's historic atmosphere makes it an attractive backdrop
for high-class shopping. It would seem that luxury retailers
would have the ideal opportunity to take advantage of custom
from overseas visitors, but the reality is more complex.
Tourism undoubtedly plays its part in the turnover of luxury
goods in Prague, and part of this is simply because visitors'
spending habits are different from those when they are at home. "When
people go on holiday they are less conservative in their spending," says
Tomáš Drtina of Incoma market research.
Tourist spending is focused particularly on smaller items,
and according to Barbora Bergová, manager of Malo and Francesco
Biasa, an Italian producer of leather goods and accessories,
tourism makes up 50% of the firm's sales. Jana Maříková, who
manages the Louis Vuitton and Dior outlets in the city, expresses
a similar opinion. "Over 50% of our customers are Czech.
The rest are tourists of all nationalities," she notes.
Where these tourists will stay has been an important issue
especially over the last few years, with a number of upscale
hotels opening in the centre. "Now that we are in the
EU I think we will see more tourists with more purchasing power
coming in," predicts Maříková.
Despite these trends, tourism's impact should not be exaggerated.
Prague may have a range of luxury shops, but it does not have
the status of London or New York as a prime shopping city and
probably never will. Especially from a fashion point of view,
it is definitely still not a priority destination. "Prague
is a beautiful city, but people don't have a reason to come
back here," says Bergová. A key reason for this is simply
that there are more obvious fashion centers. "European
tourists are not returning to Prague for fashion buying because
the places to buy are Paris, Rome and Milan, where there is
a better choice," she adds. LV's Maříková sums up the
situation: "Tourists are very important for us - but I
still think we would be here without the tourist market."
Even if tourism became more important to the luxury goods sector
in Prague, the profile of the typical tourist coming here is
changing. Prague has now become a favorite destination for
low-cost airlines, and as a result it is becoming perceived
as a less "elitist" place to visit. "Over the
last three years, the tourists who have been coming here definitely
do not belong among rich 'big spenders'," Bergová points
out. "Prague has slowly become a place for low-price excursions."
David Creighton |
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Spending decisions
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Jitka Kocingerová
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Czech purchasing power stands at around 60% of that
in western Europe, according to Tomáš Drtina of Incoma market
research agency. Figures for 2003 from the Czech Statistical
Office show that disposable income continues to rise (+5.6%),
and that the rise in consumer expenditure matches (+5.5%).
However, this is not all good news for luxury retailers. The number of people with very high incomes remains low. Without
comprehensive figures, most commentators estimate between two
to five percent of the population earns enough to shop at luxury
brand stores. Jitka Kocingerová of Lancôme agrees: "The
amount of people who can afford [luxury brands] is [still low]".
Jana Maříková of Louis Vuitton and Dior admits that she's in "a
risky business, because it's luxury items that are cut from
people's budget when there [are problems]."
Limited disposable income appears to have helped Jana Bloundová
at her 5th Avenue stores. Sourcing available pieces from collections
in the US, she says she is able to offer designer brands at
around 50% of their overseas market price. Bloundová notes
that Czechs who can afford it are very keen on luxury brands
- if one considers her discounted goods as belonging in the
luxury segment. "Income has risen a lot in the last two
years, and especially for women. They're doing well in business
and are starting to enjoy more independent earnings".
She goes on to note that in her shops "the most expensive
pieces sell the most quickly".
Drtina notes that the incomes of the brand-conscious younger
generation are also increasing rapidly. "These are the
future customers of these stores," he says, "although
it depends whether they are more interested in their basic
living standards or in buying luxury goods."
Tim Gosling |
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