The global luxury bubble has burst and high-end retailers must offer consumers value and reasonable prices, says Gucci's chief executive of watches and jewellery.
Now that the era of overpriced luxury goods has ended, retailers need to adjust to the new value-conscious mindset of the wealthy consumer, according to Michele Sofisti, who oversees the Italian brand's watches and jewellery.
"There is no space and no room for something that is half-good or half-authentic, which has been happening in the past in many cases. It has been like a gigantic bubble for many years and everybody has played inside that … Now, I think it is finally time for more authentic values and real products," Mr Sofisti said yesterday during a visit to Dubai.
Since the economic downturn, Gucci has lowered the prices of its watches collection by between 25 and 30 per cent, from an average price of €1,000-plus (Dh5,113) to an average of €750, by offering designs with simpler and fewer elements, he said.
"At Gucci in past years, the price positioning was a little bit too high because we were offering a collection with a lot of gold and diamonds and so on," Mr Sofisti said. "There was nothing incorrect from a perception point of view but maybe the position of our brand was a little too high."
His comments are indicative of a global shift in the luxury goods industry that took place last year, as consumers the world over became more cautious with their cash.
But a recent survey by the Luxury Institute in the New York found fewer high-net worth consumers planned to cut spending on luxury goods and services than last year. This year, 36 per cent said they would reduce spending on big-ticket purchases compared with 45 per cent of wealthy consumers who said they would cut back last year.
"Everyone in the luxury industry has really done a certain analysis inside to come back to the roots of the company and to also offer products with a correct price and not the prices that were basically inflated by the extra money that was around the globe," said Mr Sofisti. He pointed out that many brands were offering expensive goods that did not necessarily have the appropriate quality.
"In general, in the luxury industry, the price positioning was out of reality," Mr Sofisti said.
"It could work in a certain region, it could work for a certain period of time because the overall economy allows a lot of clients to buy a lot of products that are very high-positioned. But, sooner or later, if there is not all the other elements together - design, production, manufacturing, value, history and so on - it all falls down."
The shift in price positioning is working for Gucci, Mr Sofisti said. Sales of the Italian brand's watches and jewellery have risen 35 per cent in the third quarter of this year compared with the same period last year, growing in the "double digits" in the Middle East.
This was driven by more attractive average prices and the new watch models Gucci has introduced.
Regional sales are strongest in Saudi Arabia, while sales in the UAE are so far slightly above those of the first nine months of last year.
Mr Sofisti expects this to improve, as some of the new watch collection has yet to arrive in the region.
"Saudi for us is really a very strong market," he said.
"We hope to be stronger here in Dubai. As everybody else in any other field, we have realised the difficulties that Dubai has faced in the past 20 months. But … there is a clear sign of economic recovery."
Even in the Gulf, sales have shifted more towards the simpler timepieces that cost less, he said. But there remains something of an appetite for elaborate designs in the Middle East.
"There is a certain taste for, I wouldn't call it flashy, but [watches] with a lot of design elements. That's why we are thinking of creating special editions or some different designs that could be really appealing for clients in the region."