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The age of excess has had its day

Before the recession and the Baugur debacle the press ran weekly stories about private equity firms buying luxury and fashion brands - from Permira snapping up Hugo Boss and Valentino to 3i acquiring Agent Provocateur.

Before the recession and the Baugur debacle the press ran weekly stories about private equity firms buying luxury and fashion brands

As early as May last year the recurring question among private equity was, can luxury withstand a recession? Private equity firms may have to hold on to the companies they have acquired for much longer than the usual four to five-year period. The key for investors and brands is to go back to basics and focus on PC. Not the politically correct stuff, but products and consumer.

There is no hiding the fact that customers have less cash and will probably continue to spend less as the downturn deepens. The market is contracting and competition is tougher. The challenge is to get the right balance between creativity, perceived value, price, quality and coherence with each brand’s positioning.
A new consumer is emerging who will decide the future of luxury. They will examine every offer and think: “Is this hard-earned pound material or not?” The era of conspicuous consumption of luxury goods is over. We are entering times where consumers are either looking for bargains or for investment pieces.

US industry experts say that the aspirant consumer of old, the now cash-strapped 30-something generation, is turning into a thrifty consumer.

Record transactions with their huge leverages which seduced many private equity firms to invest in this sector are now mere memories of an age of excess.

Muriel Zingraff is senior adviser for retail, luxury goods and fashion at investment firm Oaktree Capital Management

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