New markets don’t change the old realities of luxury. By Misha Pinkhasov

“Luxury customers,” the old saying goes, “are immune to financial crises.” It is an old saying in need of revision given the recent sell-off of luxury brand shares.

At the time of writing, LVMH shares were down 16% from their early August high. That is after having recovered ground from a few weeks ago. Kering’s fell 22% in the same period (even further since March). Even reliable, old Hermès topped out in June and has since sunk by some 14%. It is the same story at Richemont, Ralph Lauren, Burberry, Prada and Tiffany & Co.

Eight years after the global banking crisis, a global social crisis is still lingering. And China, luxury’s one bright spot this whole time, is in long-awaited decline. So investors across the board (and don’t miss the general overlap between investors and luxury customers) are betting that the stress test for luxury is yet to come. And they’re not optimistic.

That is because neither luxury brands nor luxury customers are quite what they once were. In the past, money was only a part of access. One also had to be “in the know”. Put questions of justice aside for a moment. This kind of closed-circle exclusivity meant that brands could survive at relatively small size with a reliably stable base of customers. But after two decades of fueling double-digit growth, luxury brands no longer have that luxury. They rely on clients who rely on a paycheck and a healthy economy to make ends meet. And they are exposed to the same pressures of scale and speed as other sectors.

Rich or poor, luxury is only luxury when it stands out from our usual experience. Otherwise it is just ordinary. There is nothing unusual about a global brand. There is no element of surprise. There is only, at best, delivering what is expected.

One media executive in Paris put it in perspective for me. “When our parents were our age,” he said, “some people had an Hermès bag, some people didn’t. And that was ok. Most people didn’t expect to be able to have one, and they certainly didn’t spend years saving up or go into debt to get one.”

But compare that to Jacques Séguéla, the French king of advertising, who came to fame as the founder of RSCG and infamously declared that, “If you don’t have a Rolex by age 50, you have failed at life.”

The ever-present communications that brands now require to keep feeding the beast mean that they are no longer some distant, aspirational star towards which to navigate. They are here, on earth, tantalizingly close. They make us expect that we all should have one, yet for most, they remain out of reach. They tease, and teasing leads to frustration, and frustration is not a good colour for a brand.

One could argue that the frustrated masses are not luxury brands’ target customers. But they do turn luxury brands’ customers into targets. We know how this plays out: The Chinese government has clamped down on luxury brand advertisements and set limits on official gifts. Protesters from the Occupy movement and other, more specific groups worldwide have sought the attention of the leadership class by demonstrating where they shop, on Spring Street, Jermyn Street and Canton Road. Eventually, shoppers started toning down their conspicuous consumption. A salesperson at Louis Vuitton in Athens noted that customers have been asking for unmarked packaging in which to take home their purchases. Stories of similar unease have come from Paris and New York.

But teasing has another impact on luxury shoppers. Even the lucky suitor becomes aware of the inauthenticity. So it’s not just sociopolitical self-consciousness, but meaninglessness that drives them from highly visible logos towards more subdued, bespoke and artisanal goods. Or, even better, to completely invisible experiences, a word that has had luxury marketers obsessed for the last five years.

Unfortunately few luxury brands understand what they mean by “experience”. They think experience is the on-site interaction. They think engagement happens on social media. They think creativity is an endless stream of artist collaborations. They think innovation is parroting whatever new technology comes out of Cupertino.

So Alexander Wang designs a bottle for Evian, as did Karl Lagerfeld for Coca-Cola and Jean Paul Gaultier for Piper-Heidsieck. Hermès, which everyone loves, makes a strap for the Apple Watch, which nobody likes. Gucci announces a smart-watch project with (Remember the Prada mobile phone? Exactly.) Chanel and Dior make movies about themselves. And Louis Vuitton joins the long-established ranks of Cartier and Prada with a contemporary art museum.

But these are all marketing tactics, whereas creativity and innovation, engagement and experience are all part of luxury’s core job to lead by being best in its category and out of our ordinary experience. Meanwhile, new brands are born of a contemporary sensibility that status is based on what we do, not just what we own. As futurist and philosopher Jason Luis Silva declared: “New Definition Of Billionaire: Someone who positively affects the lives of a billion people!”

So Fonderie 47 makes astonishing watches and jewelry that help remove weapons from Africa. Norlha and Maiyet empower communities by helping connect their unique and rare artisanal skills with a global market of luxury customers. 1.618 and Positive Luxury are creating platforms where such small initiatives can come together to achieve critical mass.

Entrepreneurs who would once have been content to buy luxury are now creating what is increasingly called “the new luxury”. To think that the position of big, established brands is protected by heritage alone is a fool’s argument.  Louis Vuitton, Tiffany & Co., Chanel, Dior, Saint Laurent and the others were all innovative newcomers at one point in time.

Luxury brands can march into new markets like sub-Saharan Africa, Cuba and Iran. But as long as they do so with the same techniques, nothing will change, and they will eventually run out of territories to conquer. If the China experience has taught us anything, it is (1) the folly of hanging growth solely on territorial expansion and (2) that newly emerged luxury customers graduate beyond bling ever faster than before and are quick to turn on brands that pander instead of leading.

Whether gold is a commodity or a luxury depends on what you do with it.  When markets bet on luxury brand futures the way they do on gold, oil and corn, it is time to admit that those brands are luxury no more.

Nair-Safir, founded by Misha Pinkhasov and Rachna Joshi Nair, is a strategy, branding and communications consultancy whose mission is putting people in business.