When Luxury Brands Delve Into Other Categories, Does It Fail Or Thrive?

When Ferrari held a runway show to unveil its first ready-to-wear collection in June, it marked the automotive brand’s first entrance into the world of luxury fashion, with a no-expenses spared production full of bright colours, motoring references and the high hopes of transforming itself into a lifestyle brand.

And while the leap may seem a little far-fetched, it represents the much sought-after transition that many brands seek to achieve, particularly at a time when the luxury market is experiencing a sharp rebound from the effects of the global COVID-19 pandemic.

Done right, a move into a different category can mean expanding a company’s business into a lifestyle brand that diversifies its portfolio, whilst also generating new areas of income that could significantly boost its overall profits. However, done poorly, it can means risking the equity built up over time and diluting the essence of the brand resulting in a loss of investment, time and customers.

For certain, barely a week in luxury goes by where announcements of brand collaborations and extensions are not revealed.

Over the past few months, Valentino announced it was launching its first ever make-up collection, comprised of lipsticks, foundations and blushes. Gucci also ventured into homeware with Gucci Décor, featuring plates, silverware and teapots, yet another extension of its world that now encompasses a Michelin-starred restaurant and museum. And Ferrari? Well, Ferrari held a fashion show.

But when does a move into a different category make sense for a brand and when doesn’t it? The luxury landscape is filled to the brim full of collaborations and extensions into areas like beauty, cosmetics, eyewear, homeware, restaurants, hotels and more recently even into virtual items like non-fungible tokens. But does it make sense to venture into a host of new categories for the sake of expanding your brand’s universe?

“Luxury brand extensions are really about expanding the brand's identity, and building a lifestyle around the ideology of a brand,” said Nina Marston, Senior Research Analyst, Fashion and Luxury, at Euromonitor International. “When you buy luxury, you buy an ideology. That's what brand extensions are basically about, they’re trying to reach their consumers in all sorts of different ways and successfully build this entire brand universe.”

But knowing exactly which categories to move into, when the options are seemingly limitless, can be tricky minefield for many. And what may seem like a natural extension of a brand, may not resonate with its customers. Likewise, what may appear to be quite experimental and off-kilter, could turn out to be an incredibly strategic move for a company.

“Collaborations and extensions can be incredibly positive, or they can be negative, depending if they make sense to the consumer, or they seem as if they are just a commercial move to make money. That's always been the case,” said Robert Burke, CEO and Chairman of consultancy Robert Burke Associates. “It really means touching the consumer in the way in which they live beyond just the core product.”

“If it's done properly and if the extension complements the brand’s codes and there’s storytelling of the brand at its core, then the extension can work really well,” said Marston, citing Ralph Lauren as an example, which initially sold clothing, but has expanded into homeware and restaurants.

“At its core, Ralph Lauren is about this sort of refined, American lifestyle. It's really worked well for the brand to go into these different categories because the Ralph brand has always been a lifestyle brand,” she said. “Again, you buy into this idea that, ‘I am a Ralph Lauren consumer’ therefore I subscribe to the philosophy that I summer in the Hamptons. I wear pastel polo shirts, and I play polo. So, a brand extension that complements this vision, i.e. homeware or cuisine can work really well.”

Indeed, the move from one category into another is a tale as old as time in the luxury world. Two of the most successful and recognisable luxury brands in the world Louis Vuitton and Hermés first began respectively as a luggage maker and supplier of equestrian leather goods. However, where many have succeeded, there have also been many that have failed. One example Marston highlights is when luxury players attempted to move into smartphones.

“For many of them, it didn't really convey anything in terms of what it meant for the brand identity or what qualities of the brand these items were trying to promote. It had nothing to do with the brand codes, or the savoir-faire so it just didn't make sense and consumers didn't respond to that,” said Marston.

“For the customer, when they believe in the authenticity and the value of a brand that they trust, then its great but if the brand shakes the trust of the consumer by doing something odd or strange or off-strategy. Then they can quickly turn on the brand,” said Burke.

“Generally, really far out collaborations that are for the runway have been challenging, because the runway is the runway,” added Burke, speaking on brands like Ferrari expanding into fashion. “And it's one thing to do two or three or four local pieces it's another to take it as a serious editorial collection. Only time will tell.”

Whether or not Ferrari’s efforts to target younger consumers with its designs are successful, it remains to be seen, but as a review from independent fashion critic Angelo Flaccavento noted, Ferrari’s debut collection was on the right track, meaning it could potentially represent significant potential for the luxury automobile brand.

“I do think that brand extensions will continue to be something that is explored in the future,” said Marston. “For it to work, brands need to be very selective about how they do it. We're seeing that consumers are getting more selective about which collaborations they want to buy into and why, but going forward brands should probably focus on not just the flex aspect, but also focus on what is authentic to their brand to create value for their consumers.”

“We absolutely will not see brands retract on extensions and when they have the confidence of the customer in their brand, it means a huge amount,” said Burke. “The onus is on the brand not to do something off-brand, because the risk is losing that confidence.”

Whatever the case, when a brand does decide to embark on a new venture, failure may not be as bad as they might think when it comes to consumers.

“For today's consumers, especially for young consumers, what they're looking for from brands is authenticity and transparency,” said Marston. “They prefer brands to say honestly ‘okay, look, this didn't work. We're going back to the drawing board we're going back to our core values, and we're going to try something else'."

“They look for that authenticity and honesty from the brands and that's also where they get the sense of respect for brands that they feel an affinity with,” she added. “Because authenticity is much more important than the idea of needing to be the best at everything always and never admitting any sort of frailty, or lack of success.”