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.

Barbora Bergová

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”.

Alison Pollitt

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.”

Location rules Jana Maříková 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

Spending decisions Jitka Kocingerová 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