|

Crisis forces rethink: What makes name brands valuable?

by Jochen Legewie

Forbes recently published its annual list of the world’s billionaires for 2008. The list has shrunk considerably since 2007, when 1,125 people were deemed to have a net worth above $1 billion. This time only around 793 made the cut.

Bill Gates returned to the top of the list, with $40 billion in assets. Gates lost about $18 billion last year but still managed to overtake Warren Buffett, who lost $25 billion. These are colossal sums of money by any standard, more than what 1,000 average earners would make in their entire lifetimes together.

Forbes also published a list of Japan’s billionaires (or rather, the 40 wealthiest people or families in Japan). But they haven’t quite reached the level of their international peers. The wealthiest is Fast Retailing President Tadashi Yanai, who has a net worth of over $6 billion, a far cry from the likes of Buffett, Gates, et al.

What is interesting to note in both of these lists is not just how much money is in the hands of such few people, but the regional and global forces behind these concentrations of cash.

Take Yanai for instance. He is the owner of Uniqlo, the apparel retailer that caters to the average working family’s needs. Sales increased recently and were up again by more than 4 percent in February. Another brand he runs is called g.u., which is priced even lower. Its latest product is ¥990 jeans.

Although the economic upheavals are certainly one factor driving people to buy Uniqlo and g.u., a recent Nikkei survey suggests perhaps other factors are at work.

In 2004, when asked whether they were attracted to high-end foreign brands, 51 percent of Japanese surveyed said yes. That number fell to 32 percent at the end of 2008, indicating that the glory days for luxury brands may soon be coming to an end — even in Japan.

Indeed, in the same survey, although Britain’s Burberry was selected as the favorite brand, the runnerup was none other than Uniqlo. In fourth place was Muji, a brandless Japanese brand whose plain and simple products sell for considerably less than the likes of Gucci, Dior and the others.

This sea change in Japanese tastes was reflected in the decision of fashion giant Louis Vuitton to cancel the opening of its flagship store in Tokyo’s Ginza district last December. Instead, down-market U.S. retailer Gap stepped in to fill the space.

One conclusion that has been drawn is that Japanese consumers are gaining confidence and feel less of a compulsion to rely on big-name brands to make a fashion statement.

In a similar vein, when examining Forbes’ list, the top names in Europe stand out for their somewhat humble origins.

The richest European is Sweden’s Ingvar Kamprad, who is worth an estimated $22 billion. He is the creator of Ikea, a global brand based entirely on the premise of being affordable and stylish. It is quite easy to imagine someone buying Ikea furniture while dressed a Uniqlo ensemble.

Going down the list we find Germany’s Albrecht brothers, who started the Aldi supermarket chain. Aldis, for those who don’t know, are run much in the mold of discount shops, where goods are displayed in the cardboard boxes they were shipped in and customer service is rock bottom.

It is said that 90 percent of German households do some of their shopping in one of Aldi’s 4,000 stores. One of the reasons behind Aldi’s success is that even wealthy families shop there because they are attracted by its high-quality goods.

The company is on an aggressive expansion campaign in the United States, where it plans to open 75 new stores in 2009. There have been doubts about whether they can compete with the likes of Wal-Mart, but others say upscale U.S. shoppers will take well to Aldi’s rather basic take on service.

A similar story is making the rounds in France, where food discounter E.Leclerc recently claimed the highest market share among “hypermarches” (hypermarkets), successfully eating into the classical domain of Carrefour.

Perhaps the sea change in brand preference we are seeing in Japan is not just a local phenomenon, but part of a broader global shift away from the high end and back to the basics.

If this premise is correct, the Forbes list could make for interesting reading in predicting future business and consumer trends that could take hold in Japan and elsewhere around the globe.

Jochen Legewie is president of German communications consultancy CNC Japan K.K.