Beyond The Balance Sheet: Platinum Brands
Christina Settimi and Kurt Badenhausen
The most valuable luxury brands will shine in a recovery.
In Pictures: Platinum Brands
To some, BMW seemed a bit out of touch with hard times when it rolled out an exuberant ad campaign called “Joy” this year. Turns out, the ad campaign is in tune with the opportunities BMW and other luxury brand makers anticipate as the recession fades.
Last year was the worst year ever for global luxury goods, with worldwide sales falling 8%. But in a look at the world’s most valuable luxury brands, Forbes identifies 10 that are poised to thrive in better economic times. These brands, including BMW and Louis Vuitton, share some qualities that help keep them strong even when wealthy consumers are curtailing spending.
The companies behind these brands emphasize their products’ quality, longevity and pleasure-giving features through marketing efforts that make it likely these brands will continue to do well, especially if luxury sales around the world grow by 4% to $210 billion this year, as predicted by Bain & Co., the Boston-based consulting firm.
Feng Li/Getty Images
No. 10: Porsche
Parent Company: Porsche
Brand Value: $4.8 billion
Brand Sales: $8.7 billion
Statia Photography/Getty Images for Cartier
No. 9: Cartier
Parent Company: Richemont
Brand Value: $5.4 billion
Brand Sales: $3.3 billion
Currently with 32 boutiques in 18 cities across China, Cartier CEO Bernard Foras has said he aims to make China its No. 1 market in three years with at least 55 boutiques.
FABRICE COFFRINI/AFP/Getty Images
No. 8: Rolex
Parent Company: Rolex
Brand Value: $5.5 billion
Brand Sales: $3.4 billion
Rolex is the most profitable brand in watches. Sales are expected to be up 15% this year, fueled by sales in emerging markets led by China according to analyst Jon Cox of Kepler Capital Markets.
PHILIPPE LOPEZ/AFP/Getty Images
No. 7: Chanel
Parent Company: Chanel
Brand Value: $5.6 billion
Brand Sales: $3.3 billion
Coco Chanel’s mantra: “Fashion fades, only style remains the same” is still the guiding force behind her brand. But what is equally important to Chanel’s appeal is its creative director, Karl Lagerfeld, one of the most recognizable men in fashion with his silver ponytail, dark sunglasses and black suit.
LIU JIN/AFP/Getty Images
No. 6: Hermes
Parent Company: Hermes
Brand Value: $5.7 billion
Brand Sales: $2.5 billion
The infamous waiting list for the Birkin bag, which retails between $6,000 and $100,000, is history for the 173-year old company. The company now aims to grow by expanding its customer base. It opened its first men’s only store in New York in February with a made-to-measure program aimed at providing custom apparel.
AP Photo/Jeff Chiu
No. 5: Coach
Parent Company: Coach
Brand Value: $7.4 billion
Brand Sales: $3.2 billion
Coach’s strategy to cut prices last year–a move that resulted in it offering more than half of its products for under $300–paid off. Sales volume jumped and profits surged. The company is now focusing on middle-price-range products, and expanding its new pricing strategy in Europe.
CHRISTOPHE SIMON/AFP/Getty Images
No. 4: Gucci
Parent Company: PPR
Brand Value: $8.2 billion
Brand Sales: $3.0 billion
With a new CEO at the helm last year, Gucci unveiled a brand strategy that included cutting production and multiple variations of the same style. It launched a new ad campaign promoting the brand’s heritage that featured Guccio Gucci describing his dream as an artist in Florence in 1921.
AP Photo/Joerg Sarbach
No. 3: Mercedes-Benz
Parent Company: Daimler AG
Brand Value: $18.8 billion
Brand Sales: $63.2 billion
While many automakers advertise price cuts, Mercedes emphasizes its company’s heritage: Its cars are the result of 100 years of German engineering. It is currently vying with BMW to be the biggest luxury auto brand in China and says it plans on outselling its German nemesis by 2011 with a number of cars designed exclusively for Chinese consumers.
AP Photo/Christophe Ena
No. 2: Louis Vuitton
Parent Company: LVMH
Brand Value: $19.0 billion
Brand Sales: $6.3 billion
In its 156 years, Louis Vuitton has held steadfast to a policy of zero discounting–a practice it says enriches the value of the brand. To remind its customers what they are paying for, the new brand campaign features artisans hand-finishing goods at a workshop table.
AP Photo/Grace Kassab
No. 1: BMW
Parent Company: BMW
Brand Value: $19.9 billion
Brand Sales: $56.6 billion
BMW is gaining market share in China, the largest auto market in the world, by designing custom cars to meet the demands of Chinese consumers and tailoring its advertising to align with Chinese culture.
Forbes’ Beyond the Balance Sheet department looks at the numbers behind the numbers–or ways of analyzing companies that are different from the usual metrics, such as book value and earnings. To identify the Platinum Brands among luxury goods, we looked at more than 30 leading brands in autos, retail, fashion and accessories to determine the world’s most valuable. We leaned on Jeffrey Parkhurst, managing director of business strategy at WPP ( WPPGY – news – people )-owned media agency Mindshare, to help value these brands.
The first step was to determine earnings before interest and taxes for each brand. Forbes averaged those earnings over the past three years and subtracted from earnings a charge of 8% of the brand’s capital employed, figuring a generic brand should be able to earn at least 8% on the capital employed.
Forbes applied the maximum corporate tax rate to that net earnings figure. Next, it allocated a percentage of those earnings to the brand based on the role that brands play in that industry. Brands are crucial when it comes to apparel and perfumes, but not so much, say, with airlines. Pricing and location are more important for them. To this net brand earning number, we applied the average price-to-earnings multiple over the past three years to arrive at the final brand value. For privately held outfits we applied an earnings multiple for a comparable company.
The companies that came out on top on our list of most valuable luxury brands fared reasonably well last year, one that was disastrous for many companies. Sales of Louis Vuitton, the marquee label of parent company LVMH, rose more than 10% in 2009 to $6.3 billion, despite the recession. Brand sales, which represent 75% of the fashion and leather goods segment of the company, had double-digit growth in the first quarter as well.
What helps set some of these brands apart? The makers of the world’s top luxury brands don’t apologize for the sky-high price tags attached to their products. LVMH’s Louis Vuitton, for one, has never discounted a single item, citing customer loyalty and product value as its reasons. That makes sense: Why would a customer pay full price for an item if they knew that in three months it might be had for 25% less?
Even when the top luxury companies introduce less expensive offerings, they often don’t advertise the price. When Mercedes-Benz introduced its C-Class, its most affordable sedan, it emphasized that it is a product of 100 years of German engineering, a key brand message. And most of the most valuable brands kept advertising during the recession: Louis Vuitton, for one, rolled out a celebrity-flecked campaign. In one print ad, dancer Mikhail Baryshnikov stands on a platform barefoot while photographer Annie Leibovitz watches him from the floor.
The makers of the world’s most valuable luxury brands know that a good portion of their future sales will come from emerging markets, especially China, where sales in the luxury goods market expected to increase 15% there this year, says Bain.
“With Asia being the growth market for luxury players, brands will tailor their product offerings to meet the needs of more diverse customer segments,” says Claudia D’Arpizio, Milan-based partner at Bain.
Research by Ritika Sinha