Tuesday, December 9, 2008

Discounts and Luxury - Are They Mutually Exclusive and Do They Hurt The Consumer?

Over the past week...and especially the past three weeks...we all have seen something none of us have ever experienced and, worse, we do not really know where it all will be going.

Today someone pointed out an article in the New York Times which was a very interesting read:  http://www.nytimes.com/2008/12/04/fashion/04SHOPPING.html?_r=1&emc=eta1.  Basically, it is about Saks Fifth Avenue transforming itself into a discount marketer with deals on designer goods up to 70% off and what effect it has had, and may have in the future, on the luxury fashion market.  As the author discusses it, no matter how hard a luxury fashion retailer tries to keep its market-share and its "ineffable luster", the "slash-and-burn" pricing may, in the end, both cause the loss of luxury to have its "mystique" and cause consumers to balk at paying the premiums for a luxury wallet or gown.

By this point you are probably thinking, "Yeah, and that also applies to the luxury cruise market, too."  Well, I admit that was my first thought or, better, it is what I perceive will be in the minds of many travelers.  Actually, however, that concept is wrong...very wrong.  Let me explain.

In the New York Times article there is an example of a Valentino gown retailing at $2,950 marked down 70%.  Using that example, I first consider that the gown will be worn once (and only once) by a single woman who must be a particular size/height/measurements.  It is, to be sure, the ultimate in decadent purchases and, to be sure, is not going to create a life experience for the purchaser (as the event the dress will be worn at will, in the end, make more of an impression as to the overall experience).  I then consider the fact that while the dress may be stunning, most of the women that can and would actually wear that dress can probably make a pair of jeans and a T-shirt also look stunning, so they have many, many fashion options (at far lesser costs) available to them as extremely viable alternatives.

On the cruise side of things, Seabourn has a few, limited in number, seven day cruises selling for $2,840; a very relevant comparison.  Forgetting the market is not nearly as limited as to possible purchasers, this commodity is also perishable, if not by season, by time so there is pressure to sell it (rather than keep in on the shelf in inventory as one might a blender).  However, the consumer knows that a luxury cruise is not something she/he will use for a matter of a few hours or that it must be supplemented by other events to be truly enjoyed and appreciated.  This seven day luxury cruise lasts, well, seven days (not hours) and is the event.

On a Seabourn cruise (or it could be Silversea or Regent Seven Seas, for that matter), your transportation, housing, food, drink and entertainment is included.  The cost of strolling the superyacht docks of Monte Carlo, visiting Las Rambla and the markets in Barcelona, or cycling in Porquerolles, France in minimal.  And, how many of you cruise on Seabourn to...yes that's right...have a Seabourn Experience onboard the ship?  Admit it:  Many of you have opted to stay onboard the ship, just to enjoy it, when it arrives in port.

Now that you see one is an object with limited appeal and the other is an experience with much broader appeal, let's look at the mark ups.  I don't care how much time is spent hand stitching some exotic fabric, the mark up on designer clothes is absolutely shocking.  A shirt may cost $5.00 to produce in China, but will sell (would have sold?) for over $250.00 in the U.S.  A $35.00 pair of pants in the U.S. may sell for $150 Euros in France.  While all of that mark up is not enjoyed by the retailer, you can be sure that mark ups of 100% and more by them are not unusual.

On the other hand, the markup on cruises is not nearly at those levels.  (You may recall my concern when Silversea announced a 25% commission rate and I saw it as a sign of desperation because it wasn't economically viable).  Without repeating all that is included in a cruise you must add to it, the cost of the crew, staff, fuel, maintenance, etc., etc. 

One other factor is the holy grail of most cruise lines:  Onboard Revenue.  While on the mentioned lines you drinks and gratuities are included, on the mainstream lines they are extra. Chatting at the Sky Bar costs nothing, while Bingo (talk about profit!) is a hefty extra.  You get the idea:  Paying for a luxury experience net may not be that much more than if you sail on a mainstream line, but you get a seamless and more polished (i.e. enjoyable) experience.

So if you are feeling ripped off by Saks Fifth Avenue being able to sell designer fashions at 70% off, don't transfer that over to the luxury cruise lines.  Not all luxury is created equal and, alas, some luxury actually not only had great value, it remains a great value.