The Scale Series — Part IV: Localized Luxury

This is Part IV of The Scale Series, which explores how brands scale—successfully and unsuccessfully—in the fashion industry. Read Part I, Part II and Part III if you haven't yet.

The early 2000s were full of brands launching adjacencies, some of which we looked at in Part II and Part III. Michael Kors, Marc Jacobs, Burberry and many others created endless diffusion lines and offshoots that tried to take the spirit and cache of the mother brand and infuse it into sister brands that sold lower priced products. While some of this worked, many brands also struggled as they scaled past their brand promise, which resulted in a litany of offshoot brands that were all diluting the main brand.

In the past few years, many of these brands have started to reverse this trend. In 2011, D&G stopped producing a stand-alone collection. In 2015, Marc Jacobs consolidated Marc by Marc Jacobs under the mainline and LVMH discontinued Donna Karan to focus on DKNY. Burberry also combined Burberry Prorsum, Burberry London and Burberry Brit into a single collection. This past summer, Ralph Lauren announced he would focus on three lines, down from more than double that amount, while Paul Smith and Vivienne Westwood followed in a similar path. This consolidation is a good step in the right direction, since it decreases the chances for confusing consumers with an amalgamation of brands with slightly different names and wildly different products.

But it's not enough. The brands that scaled past their promise have a common thread: they were trying to scale a single brand with the same products everywhere. This includes both scaling vertically (upmarket and downmarket) and horizontally (North America to Asia). Consolidating diffusion lines is a step in the right direction, but non-commodity—and especially luxury—brands have a ceiling on their growth rate when scaling the brand as a single entity with homogenous products. Breaking past this ceiling often results in a brand defaulting on its promise and decommissioning the stature that made it successful.

Scaling a single brand both horizontally and vertically has its constraints. There is, however, another way to scale a brand that extends the ceiling at which it can operate before defaulting on its promise. I call this Localized Luxury, which is the emergence of new levels of scarcity driven by, built for—and only available—in a specific market. This might be both the solution to overscaling a brand and an opportunity to build new brands around.

What is localization?

Localization, at its core, is the process of adapting a given thing for a specific market or audience. A simple version of localization is translating a website into the native language of the viewer. A website in English is now in Spanish, so a viewer in Madrid can browse the website natively. In the fashion industry, localization currently manifests itself along a relatively simple spectrum. Pricing localization is one of the most common occurrences, where a product in one country costs more or less in another market due to currency discrepancies and fluctuations. Another example is a brand that is producing a winter collection sending a different collection to South America since the North American winter is the South American summer. The brand wouldn't send winter coats when it's 80 degrees out, and instead sends shorts and tee shirts. A third example is a brand offering smaller sizes of a product in Asia compared to large sizes in the US, where the populations are physically different.

These current manifestations of localization in the fashion industry share one thing in common: they add very little value for the customer beyond adhering to table stakes. Localized pricing does not add any value for the customer; often, it subtracts value. Shipping the right product for the right local season and offering the right size for the right population are both table stakes that need to exist in order for the brand to function in the market. But they don't provide any inherent value beyond that.

Localized Luxury

Localized Luxury builds on this concept of localization but it meets one crucial standard: it primarily adds value for the customer well beyond table stakes. It's best to understand Localized Luxury by example and luckily one brand in particular has been messing with this concept under the radar for quite a while.

Le Labo, founded in 2006, is one of the emergent players in the fragrance industry. The product is excellent, priced accordingly, and the brand has a loyal following. But the most interesting part of Le Labo, which aptly means "the lab" in french, is a program it rolled out in 2007 called City Exclusives. The premise is as simple as it is genius: every city Le Labo has a store in has an exclusive fragrance inspired by the home city that isn't available anywhere else. The only way for the customer to get the fragrance is to be in the city and go to the store. There is no way to order these exclusive fragrances online or ship them anywhere. (At most once a year, the brand offers all of the exclusive fragrances in all of the stores.)

As of last year, there are nine City Exclusive fragrances: Gaiac 10 (Tokyo), Vanille 44 (Paris), Tubereuse 40 (New York), Poivre 23 (London), Musc 25 (Los Angeles), Limette 37 (San Francisco), Baie Rose 26 (Chicago), Cuir 28 (Dubai), and Benjoin 19 (Moscow). The fragrances are named by the main ingredient and capped off with the number of ingredients in its composition.

Listen to Le Labo co-founder Eddie Roschi describe two of the fragrances.

On Baie Rose 26 (Chicago):

The main story behind this fragrance refers to music – jazz music, in particular. There is a direct correlation between the sharp pepper and some of the more upbeat sounds of jazz; the soft back representing the simpler, soothing side of the music. Either way, the uplifting effect of the music seems to carry you away; the same way the music of the spices (aldehyde and musk playing along with the pink pepper) bring your spirit away.

On Benjoin 19 (Moscow):

Benjoin 19 is about a moment: a moment depicted by one of the most important writers of all time, Leo Tolstoy, in the eternal Anna Karenina, when Anna meets Count Vronsky in a Moscow train station. Benjoin 19 the moment when everything changes, when your life topples over, when nothing will ever be the same. In Tolstoy's masterpiece, this happens in Moscow yet what makes Anna Karenina a work of art is its universality: it could have happened anywhere. This is what Benjoin 19 is – a universal tribute to passionate spirits, to those determined to live their lives on their own terms. Like the novel, Benjoin 19 is a mosaic of intertwined stories centered around Benjoin (olibanum, amber, cedar, musks, ...) that transmits a deep and powerful experience of sensuality and rebelliousness.

These City Exclusives are fascinating for two reasons: 1. Le Labo has created products that only exist in a specific place and are built specifically with this place in mind. 2. People have been flying all over the world to collect all the fragrances, triggering the ultimate luxury scavenger hunt.

This second point is quite interesting because in a time where young people are apparently prioritizing experiences over buying things, Le Labo has figured out a way to integrate the experiential along with the transactional.

Le Labo used its brand to create a new layer of scarcity that is entirely localized. Beyond this being really cool and leading customers on a world-wide scavenger hunt, the brand has greatly extended its brand ceiling by localizing its scarcity. This leads to each market acting as its own mini brand and each of those brands can now scale in its own market without diluting the overarching brand.

Le Labo has enabled a new level of discovery, which in turn drives scarcity and prevents saturation. Most importantly, City Exclusives add value for the customer first, not the brand. This, of course, adds value for the brand financially because it makes money when customers buy more of its stuff. City Exclusives likely increase the lifetime value of a customer substantially as well as the purchase frequency, especially if she is flying around the world collecting all the fragrances. Short term financial gain was not the first priority. This also proves that focusing on the customer is better for both the business and the customer over the long term.

The potential of Localized Luxury

While Le Labo is probably the best example I can find of Localized Luxury, it still exists on a product level. The brand has many other products that are available everywhere. To push this further, the interesting opportunity seems to be building a brand that operates entirely on this premise, beyond a product level. The real test will be how a brand like this looks like at scale, where the stores, products and experiences are vastly different in Asia compared to America compared to Eastern Europe. A brand could take this premise as far as it wants, even having different aesthetics, service levels and much more. Think Le Labo's localization mixed with the ecosystem approach of Comme des Garçons.

The obvious critique of Localized Luxury is that it challenges the idea of creating a formula and then scaling that formula everywhere. To put Localized Luxury into action, a brand has to have a somewhat different formula for each market. While this is definitely more expensive and complex than replicating the same thing everywhere, taking the time to get each market right and make it sustainable for the long term—a century, not a decade—is arguably more important than trying to extract as much cash as possible in the short term. Thinking short term limits the longterm prospects of a market and makes it much easier for a brand to default on its promise.

If we come back to the definition of Localized Luxury— the emergence of new levels of scarcity driven by, built for—and only available in—a specific market, it's worth noting that Localized Luxury can exist beyond the luxury market. It's simply the existence of something new and exclusive to a given location. This can work for a bag with only one hundred available in the world or a sweater with 20,000 units only available in Japan. Luxury, in this sense, is the creation of a new level of scarcity relative to what existed before. This broadens the definition of what luxury is, beyond any specific pricing tier or brand. (Snap's Spectacles rollout is a fantastic example of the power of Localized Luxury, which I wrote about recently, even though the glasses only cost $130.)

Localization is more possible today than it has ever been, thanks to a range of tools. The internet and smartphones, especially, allow brands to tap into niches in many different markets, unlocking this scale while preserving the brand's core. This creates the best conditions to explore and build brands with Localized Luxury as the backbone. The internet specifically allows businesses to find target customers easier than ever before.

Even so, Localized Luxury is not an online-only endeavor. Le Labo uses its stores to make City Exclusives a highly unique experience. City Exclusives draw people into the store, where Le Labo can best cultivate its customers with highly attentive service and the always enthralling sight of your fragrance being made, personalized and packaged right before your eyes. When used correctly, real estate is an asset, not a liability, and it allows brands to solidify strong relationships with local and international customers. This is further proof that the entire debate about online versus offline retail was meaningless. All that matters is building the right experience for the right product. For Le Labo, and Localized Luxury more generally, the in-person experience remains a major differentiator.

With this premise, a brand can now reach new levels of scale globally without diluting what made it successful in the first place. Localized Luxury allows early and loyal customers to continue enjoying a brand's uniqueness even as it grows. This also empowers smaller brands to either stay small—small-scale entrepreneurship is both personally fulfilling and worthwhile—or get bigger while still feeling intimate. Scale and scarcity are all relative. Localized Luxury puts this relativity to use, keeping consumers on their toes and always creating new opportunities for discovery, ensuring brand saturation is a thing of the past.

In Part V, we'll offer some closing thoughts about scale and the power of small businesses.