I saw the phenomenon for the first time just outside Atlanta. A couple of months later, I witnessed it again in Madrid. Then I started seeing it everywhere: Zurich, New York even Minnesota. Girls as young as 12 sporting Louis Vuitton wallets, bags and backpacks. Not the fake versions—the genuine items. Accessories that you would pay $1,000 and more for.

Louis Vuitton is apparently not alone as a brand favored by the excessively young. Kids queue up outside the Copenhagen Gucci store in Denmark. At peak hours, the store has a bouncer to manage the underage traffic. Inside, kids are examining belts, key rings and hats, just like they've seen their mothers doing. And they're forking out for fashion gear that starts at $800.

Let's ignore the moral concerns that this sub-teenage excess suggests. What's the motivation? It's definitely for show. These young fashionistas (and fashionistos) make sure to display their expensive accessories to the world. Belts are never hidden by shirts; fashion underpants peak above the jeans that hang, just, on the hips.

I saw one guy "wearing" a large Louis Vuitton bag around his neck—open—and containing a nice collection of Gucci stuff. He was ordering two Big Macs and a Coke at the time, and he was barely 15 years of age.

Back in the Gucci store, wealthy ladies examine the same items as kids young enough to be their children. Matrons and 15-year-olds pass each other on the up-and-down escalators. I wonder what they're thinking, the ladies who once inhabited an exclusive domain. Are they as happy with their couture labels as they once were, now that every second 12-year-old seems to be wearing the same gear? Are they thinking that their choice must be the hottest brand in town? Or are they perhaps feeling awkward and thinking that this might be the last time they ever buy the this brand. Even school girls are wearing it. Probably the latter.

With a desperate ambition to achieve two-digit growth every year, brands like Louis Vuitton are now the territory of nearly every Japanese girl. Rolex no longer belongs to James Bond and a couple of very wealthy connoisseurs. Most business people, wannabes and youths choose Rolex. With its sports line, Prada lost its exclusivity years ago. In some countries, the price fell, demanding prices for Prada just fractionally higher than Diesel clothing.

I'm sure the shareholders have been happy about the growth of their luxury brand stocks. But is the short term gain worth the possible long-term diminution of the once great brands? Have these iconic names diluted their exclusivity to a point at which they can no longer retain the cachet of being luxury brands?

The young people's market is a volatile and fickle one. Sure—there's brand loyalty. But what happens when it's suddenly no longer fashionable to wear those "luxury" brands. They'll move on, if they haven't already, having had their affections snared by another nice shiny thing, which will become the next "luxury" must-have brand.

In the wake of this juvenile exodus, older and experienced brands will begin to fade away. Already some are showing signs of this trend. Over the past year, Gucci and Prada have undergone drops in revenues. And despite a steady stream of new products hitting the market, the wealthy elite has lost its appetite for those brands and has moved on.

The risk is that this might be a sign of an unwanted disruption in the luxury industry. The more people buying the brand, the less exclusive it becomes. It's "luxury" identity is diluted along with its growing ubiquity in the community. This is the luxury brand's catch-22.

What's the solution? Well, my suggestion won't please everyone.

The fact is, luxury brands need to be artificially maintained if they are to maintain their luxury status. Take Hermes, a luxury brand that typically sells its bags for around $10,000. So far, the teenagers are only at the display windows. Inside, the stores remain the stronghold of the world's wealthy. A Hermes store may not sell bags in their hundreds every day, but perhaps the revenue per item is double that of the luxury brands that are on the slippery slope to "popularism."

In the luxury brand business, stretching brands too thinly across market segments may gain short-term revenue increases, but it also almost guarantees long-term loss to the shareholders, brand owners, and, well, consumers.

So, set your limits for how much you really want to stretch your brand before you open your doors to the public. Luxury means for the few, and no matter how good you are at making few into many, by doing so you risk losing the very essence of your brand.

As a clever man once said, it's better to hold two birds in your hands than have 10 birds on the roof.

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Martin Lindstrom (www.martinlindstrom.com) is the author of Brand Child, BRAND sense, and Buyology (October 2008).