Why do Luxury goods providers have a moat around their business? How do Luxury goods providers maintain their market position and their social position with consumers? They’re just selling a product, albeit; a high-quality and expensive product. In theory, a start-up luxury goods company could create a better product, ramp up its marketing, and knock off the incumbent.
But it doesn’t happen.
Jean-Jacques Guinoy, the CEO of LVMH, in a podcast interview with Nicolai Tangen, said LVMH has developed new brands over the years, but these brands remain small. There’s a barrier to entry that existing luxury brands create.
Social Signals
According to Jean-Jacques, luxury brands are a dialog between you and the product. How the product makes you feel about yourself. But it is also a dialog between you and the rest of the world. You’re signaling to others how you want them to perceive you. It could be wealth, or that you’re a person of quality, or something else you want to signal. The existing dominant luxury brands are more well-known than newer trendier names and therefore other people are more likely to understand your signal.
Brand Durability & History
Existing luxury brands also have a connection to the past. They have durability. If you’re buying a high-end luxury item to signal to others, then you want that signal to be timeless. A luxury brand that has been around for 30, 50, or 100 years is likely to be around for the next 30-100 years, and the social signal will be the same. You don’t know if the newer trendier luxury brand will have the same staying power.
LVMH goes to great lengths to tie itself to historical moments and historical people. You’re drinking the same champagne as Winston Churchill. You’re wearing Berluti shoes as Great Garbo did. You can’t associate yourself with these people and events when you buy the newer trendier brand.
High-end luxury products inherently lack a built-in barrier to entry. It’s just a product. But companies like LVMH have built a cultural and psychological barrier to entry that is hard to overcome.
