Luxury Companies, Amid Gloom, Lure Clients

Consumer confidence is back.

In a sampling of 5,000 households in May, the Consumer Confidence Conference Index rose to 54.9 from 40.8 in April. As a result, a growing number of businesses are beginning to see a silver lining amid doom and gloom. Even luxury brands like Italian linen and home decor company Frette are seeing better results than last year. "We've seen some market improvement within the past 45 to 60 days," Chief Executive Officer Paul Raffin says.

Luxury companies such as Gucci, famous for its handbags, are having to work harder to attract customers.

But that doesn't mean luxury brands will see a return to boom times anytime soon, he warns. Companies including LVMH ( LVMUY), Saks ( SKS), Nordstrom ( JWN) and Gucci ( GUC) will have to do more to lure customers.

Consumers may be loosening their hold on their purse strings but Frette continues woo and push to get people to consider its brand. "Innovate, not hibernate," Raffin says. "Another thing I like to say is plan conservatively but act aggressively."

Here are seven strategies Frette and other luxury brands are using to weather tough times:

Be true to yourself: Don't apologize for being a luxury brand, says Stephen Kraus, co-author of "The New Elite: Inside the Minds of the Truly Wealthy" (Amacom). Companies that came out of past recessions knew who they were and did a good job communicating that to clients. Hermes, for example, fared well this past holiday season because, rather than cutting prices, it remained true to its company history of craftsmanship and exclusivity. "Hermes' implicit message was this is what we are and we're worth it, and it worked," Kraus says. "They have a waiting list for their bags because they are made by hand. It is authentic."

It helps that those qualities are prized by the wealthy, Kraus says. "It's more stealth wealth than conspicuous consumption" among today's wealthy because many come from middle-class backgrounds and have a middle-class mindset. "On top of that, middle-class humility is the sense that they are concerned about how other people judge them when buying something expensive or flashy right now," he adds. "So the best way luxury brands can sell themselves is selling quality, craftsmanship and sublime details."

Having a reputation can be a good thing: Your reputation is not only your saving grace; it can be your ticket to survival. Joan Hornig, who founded the philanthropy-based jewelry line Joan Hornig Jewelry, says there has been an uptick in sales, in part, because she has been talking up the philanthropic aspect of the business. Not only do 100% of the proceeds go to charity, customers also get a choice of charities to support.

In addition to publicizing the unusual business model through interviews and store appearances, Hornig says the six-year-old company started a newsletter, documents its charitable works, and produces episodes for its "Philanthropy Is Beautiful" documentary. She has also tried to do more tie-ins with charities like the American Heart Association's "Go Red for Women" campaign to drive home the message that it's a different kind of jewelry company.

Go lean before cutting prices: Once you cut prices, it may be hard to convince clients to return to a higher price point when the economy improves. So cut where you can first. Lynda Stern of Bond Street Chocolates continues to make all her sweets herself so production is tightly controlled. She also tests and retests new products on a core group of customers before rolling them out. Frette's Raffin says his organizational structure is "flat," with many staffers wearing two to three hats.

And don't hesitate to draft your employees to help make tough calls. Celebrity restaurateur Donatella Arpaia says that at one point, her company had to consider laying off staff or slashing salaries. Rather than make the decision, she involved her employees, and they decided to take pay cuts rather than lose colleagues.

Think outside the box: It's hard to be creative when you're facing mounting costs and dropping sales, but now is the time to figure out new revenue streams. Arpaia transformed the upstairs private dining room of her classy restaurant, Anthos, into a more casual space. To prevent the dilution of Anthos' brand, however, the upstairs space has a less expensive menu.

Focus -- by expanding: It sounds counterintuitive but sometimes launching a new product or service can boost sales and your profile. During Valentine's and Mother's Day, Joan Hornig Jewelry introduced silver items for the first time. Frette is launching a lower-priced line called Edmond Frette in the fall.

To celebrate its 10 years of crafting hand-customized denim, Melbourne-based fashion company Nobody launched the "Australian Heritage" collection, which retails for $250 to $400. "We wanted to showcase the utmost of what we do with the most amazing fits and washes," creative director Wesley Hartwell says. "I firmly believe that if you stick to what you do well, and what your label is known for and do an amazing job at it, it's always a recipe for success, no matter what the economy."

Never forget the customer: One of the biggest mistakes small businesses make is to cut back on marketing and advertising. Frankly, out of sight, out of mind. That's what Frette learned when it decided to pull back on direct mailing to clients. "We found we lost a bit of voice," Raffin says. "Not only did the store business suffer, e-commerce did too."

Sales are the last resort: If you must clear inventory, trim prices. But make sure customers understand that this is a rare deal or promotion. Otherwise you run the risk of harming your company's reputation as a luxury brand.

Lan Nguyen is a freelance writer based in New York City. She has written for the New York Daily News, The Wall Street Journal, Worth magazine and Star magazine.

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