Towards True Luxury?


Hanne Melin | July 16, 2009

Hanne Melin, an associate in the Brussels office of Sidley Austin LLP reflects on how precedents in trademark law may help shape the very definition of luxury.

Hanne Melin, an associate in the Brussels office of Sidley Austin LLP reflects on how precedents in trademark law may help shape the very definition of luxury.

What is luxury? Up till now, the answer seemed obvious and perhaps slightly covered in logos. But these uncertain economic times have made consumers more circumspect and demanding. And with falling luxury consumption, the industry is forced to look harder to come up with credible responses. Surprisingly, the European Court of Justice recently weighed in offering some basic guidance on the question of defining luxury.

The case before the ECJ came from France and involved Christian Dior Couture. Dior had concluded a trademark licence agreement with a company for the manufacture and distribution of its Dior corsetry products. Faced with economic difficulties, the company sold the corsetry products to a discount store even though it was prohibited by the licence agreement. Dior sued both the company and the discount store. And several appeals and cross-appeals later the French Court of Cassation referred questions to the ECJ on whether Dior’s trademark rights were infringed through these discount store sales. The ECJ said in principle yes, because of the special case of luxury products. The ECJ explained that luxury products have two inherent parts: material characteristics and a luxury aura. Both form part of the products overall quality, and in particular the latter – the allure and prestige – can be damaged through discount store sales.

The case is now back in France where it will be for Dior to convince the Court of Cassation that the corsetry products’ luxury aura is indeed damaged by selling at the discount store. The French court should make its assessment from the point of view of the consumer. As the ECJ explained, the luxury aura “enables consumers to distinguish [luxury goods] from similar goods”. But sorting out the consumer view might not be that easy a task. We are currently seeing important changes to luxury consumer behaviour, such as a noticeable pursuit for exceptional quality and certain values.

With a dwindling interest in ostentatious luxury, big logos cannot cover up for inferior fabric, handicraft or design. Vogue editor Anna Wintour explains what consumers of today want: “I do feel an emphasis on quality and longevity and things that really last” (WSJ, 20.02.2009). And here Hermes is a telling example. You would think that handbags starting around €5,000 would be the first thing consumers cut back on in uncertain times. It turns out it is exactly what consumers go for in strained times. Hermes’ sales of leather goods rose 21,7 percent the first quarter of 2009.

In addition to outstanding quality, it appears luxury consumers are also looking for something beyond empty logos – as evidenced by recent industry activity. This can be through a rewarding feeling of contributing to the society by making sustainable choices – by purchasing a product which is built to last. In addition, luxury companies are starting to position themselves more explicitly as as environmentally conscious, such as LVMH with its acquisition of Edun and PPR with its movie “Home”. It can be a cultural contribution, such as art in luxury fashion, luxury fashion in ballet, skirts as art, museums on luxury, etc. Moreover, it can be a feeling of partaking and gaining access to information and people, for instance through social networks, blogs and twitter connected to a product or a luxury company. Or it can be the thrill of experiencing the use of cutting-edge technology in presenting luxury products, such as elaborated advertising movies, online fashion shows or, most fascinating, 3D virtual reality applications allowing users to “try on” products in front of the computer screen.

This shift in consumer perception and behaviour arguably affects the notion of luxury, i.e. the distinction between luxury goods and merely branded goods. And this in turn risks eating into any special legal protection the luxury industry is or might be granted. The aim must be for legal protection to correspond with consumer recognition. Legislation, policy and legal precedents influence the incentives and direction of the luxury industry and must therefore be rightly balanced. The Dior case lays down a framework. Still this framework needs to be interpreted in a market context from the point of view of the (luxury) consumer. As we are seeing, that view is not static. Economic turbulence affects our inner-compass – including our shopping priorities.

Arguably, an assessment of whether the luxury auras damaged by discount store sales, in the eyes of the consumer, will therefore look different today compared to a year ago. Luxury consumers are comfortable with shopping at outlets, used to heavy discounts as a marketing tool also for luxury products, and equally relaxed surfing for luxury online as they are walking down Rue du Faubourg Saint-Honoré. Do luxury consumers of today still make a strong connection between the place of sale as such and the luxury nature of a product? There is potentially a move here, with two likely consequences.

First, luxury companies need to be more creative and innovative in order to differentiate themselves from branded, non-luxury goods as the rules are less clear now as to what is or is not good enough for the marketing of luxury products. Second, the actual product – design, fabric and the values it encompasses – will increasingly be the main decisive factor for consumers when spending hard-earned money on luxury. Consumers want to explain – or perhaps justify – luxury consumption in a less materialistic and more intelligent way.

At the end of the day, the luxury industry must earn the recognition of luxury consumers by marketing products of unparalleled quality that also offer a non-materialistic value. This need not always be presented in a traditional luxury boutique. From the point of view of demanding consumers, luxury does not necessarily emanate from a particular sales environment. Luxury consumers will expect something original, unique and extraordinary to fill that “luxury aura”. This can come in the form of pioneering technology coupled with a social and cultural dimension. And where the consumer recognises something as luxury, so should policymakers and courts and they should then accordingly grant the appropriate legal protection.

The question the French court now faces is the same the luxury industry should be looking at when pondering what is luxury: Consumers today have greater expectations on the luxury product in their shopping bag (or arriving by DHL), but will they actually think less of a luxury product because it is sold in a discount store? Whatever the court’s answer to this question, the luxury industry should not rush to answer it with a simple yes. That would be underestimating the challenges of positioning the industry as truly luxurious – in the eyes of increasingly savvy consumers.

Hanne Melin