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How Will Brexit Affect Luxury Brands?

Professor Qing Wang, co-founder of Warwick Luxury & Innovation Hub will present her latest research findings at the 2016 Global Marketing Conference in Hong Kong on the “influence of cultural experiences on consumers’ authenticity evaluation of luxury brands”, using British luxury brands as a case study.

Her findings are particularly poignant in the current Brexit climate.  The concept of luxury dates back to the ancient Greece, and Imperial Rome will forever be remembered for its refinement and luxury and for advocating elegance and sophistication. The renaissance and the “Age of Enlightenment” gave birth to the commercial exploration of luxury, namely luxury brands as we understand today. In other words, the value of luxury brands relies heavily on the brand’s European origin and heritage to communicate its authenticity in order for the consumers to appreciate the brand’s luxury value.

As we can see, the results of the EU referendum to leave has shocked the stock market worldwide and the European and British luxury brands have been hit badly. In one day, the stock price of Burberry dropped over 3% and nearly 6% for Mulberry, while the largest luxury brand group LVMH dropped 6%, Dior fell 7%, L'Oreal 7% and Prada 4%. The adverse effect on the luxury and fashion sector is partly due to the currency depreciation of sterling. For example, most of Burberry’s products are sourced and made in Italy. As a result, 65% of Burberry’s cost is calculated using the euro. Secondly, the luxury and fashion sector is affected by Brexit because of the greater barriers for the flow of creative and design talent between the EU and the UK. It is expected that many top designers may leave London and go to Paris or Milan seeking a more open atmosphere. However, Professor Wang believes that there is a deeper reason for the damage caused by Brexit, which is the breakdown of the symbolic link with Europe for luxury brands. This is because authenticity is pivotal to the value of luxury brands and is closely associated with three key elements, namely:

(1) heritage and pedigree

(2) relationship to place

(3) method of production.

Now with Brexit, although it is still possible to maintain this historical link, the legal, operating and financial costs have been inadvertently affected. Specifically, British luxury brands that rely most heavily on Europe for sourcing materials and design talents and for culturally more sophisticated European customers are worst affected. In other words, the more the luxury brands have a European identity rather than British or international identity, the more they are affected.

Going forward, the British luxury brands have to assess carefully amidst the economic and political uncertainty surrounding their businesses to decide whether it is feasible to maintain their current link with Europe or to shift their sourcing and marketing activities back to the UK or to other countries such as China and India. Sourcing locally from Britain would be a better strategy especially with the weak sterling, as sourcing internationally risks compromising their heritage and authentic image, which are key attributes for luxury brands. Selling to international markets is always a challenge for luxury brands since the concept of luxury is predominantly a European one, and its meaning may be “lost in translation” when communicating with luxury consumers from a different culture.

British luxury brands that are effected by Brexit are wide ranging and include designer labels such as Burberry, Vivian Westwood, Alexander McQueen, smaller independent luxury fashion brands such as luxury lingerie AW13, a London based Fashion label combining African heritage with French couture, and the luxury car brands such as JLR, as Europe represents 24pc of the total sales of 521,571 vehicles, making it the single biggest market for the company, ahead of the UK at 20pc. The company expects a £1bn hit to come from a 10pc levy on vehicles being exported to Europe and 4pc imports of components for the production of vehicles.

Finally, Brexit will have an adverse impact on the image of Britain being an open and welcoming place for tourists and businesses from emerging countries like China.
"Many Chinese businesses and investors have considered Britain the gateway into Europe and a country with political stability and a well established and transparent legal framework. This positive image of Britain’s 'soft power' has been extremely important for Britain trading with the emerging markets like China. However, in the aftermath of the EU referendum, Chinese businesses now have to reassess their international strategies against the significantly reduced influence of the UK on Europe and the increased uncertainty and risk in Britain itself.
 

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