Desirability Is the Asset. Everything Else Is Accounting.

Every luxury and premium business I have worked in tracked sales, margin, sell-through and inventory with real discipline. Weekly trading meetings took those numbers apart to the decimal point. Yet very few had a line on the dashboard for the thing that made those numbers possible in the first place: desirability, meaning how much people want what you make before they need it, and often before they can justify it.

After many years in this industry, across Apple, Ralph Lauren, Gucci, LVMH, DFS, Marc Jacobs and most recently Prada in Japan, I have come to see desirability as the true asset of a high-end brand. Revenue is what you collect when you draw on it. The discipline of luxury management is making sure you deposit more than you withdraw.

The balance sheet nobody is allowed to publish

The phrase "brand equity" is used so loosely that it has almost stopped meaning anything. I find it more useful to take the word "equity" literally. Think of the brand as an account on the balance sheet. It has an opening balance, it receives deposits, it absorbs withdrawals, and over time it either compounds or erodes.

There is an irony here that most executives never notice. Under international accounting standards, a company may not recognize the value of a brand it built itself. A brand appears on a balance sheet only when somebody buys it. When LVMH completed its acquisition of Tiffany & Co. in 2021 for roughly US$15.8 billion, much of that price appeared on LVMH's books as the value of the brand and goodwill. The day before, on Tiffany's own books, that value did not exist. The most valuable asset in luxury is, by rule, invisible to the people who run it.

The second irony is worse. The income statement treats the two kinds of transaction in opposite ways. Most deposits into brand equity are booked as costs: the craftsperson's extra hours, the flagship that will never pay back on a store-level P&L, the wholesale account you turned down, the inventory you chose not to make. Most withdrawals are booked as revenue: the markdown that clears the warehouse, the licensing fee, the extra doors, the outlet expansion. A business that reads only its P&L is therefore rewarded for drawing down its most important asset, and penalized for building it.

That is why the bill always seems to arrive late, and usually on someone else's watch. A brand can post record sales for two or three years while its equity account runs quietly toward zero.

How the account behaves

A few properties of this account matter more than the metaphor itself.

Deposits are slow; withdrawals are instant. Equity is built one experience, one product and one season at a time. It can be drawn down in a single promotional weekend. That asymmetry means a leader has to be far more cautious about withdrawals than the size of any one decision suggests.

Withdrawals feel like income. This is what makes them dangerous. A markdown event shows up as a strong week. A new license shows up as high-margin royalty revenue. The cost arrives later, in a different line: weaker full-price sell-through, a slower response to the next launch, a client who now waits for the sale.

The account compounds in both directions. A brand with a healthy balance earns interest. Customers pay full price, forgive an imperfect season, travel to find the product and tell other people about it. A brand in overdraft pays interest instead. Every launch needs heavier marketing support, every price increase meets resistance, and every promotion buys less than the last one did.

It can be overdrawn while it still looks rich. Several of the most admired turnarounds of the past two decades ended in a period of overexposure that gave back much of the gain. Success is precisely when withdrawals become most tempting, because the balance appears inexhaustible.

The withdrawals

In my experience, desirability rarely collapses because of one dramatic mistake. It erodes through a series of reasonable-looking decisions, each defensible on its own, each a withdrawal that looks like income.

Discounting

A markdown solves an inventory problem and creates a trust problem. Every time a client buys at full price and later sees the same piece reduced, they learn that the price was negotiable and that patience pays. The clients you most want, the ones who buy early and buy often, feel this most. Once a brand trains its customers to wait, untraining them is slow and expensive.

The American accessible-luxury market of the 2010s is the clearest case study. Michael Kors and Coach both grew rapidly through department stores, outlets and promotional events, and both later had to make large deposits to repair the account. In 2016 Coach announced that it would withdraw from around 250 North American department-store locations, roughly a quarter of its wholesale doors, specifically to escape the promotional environment. The following year Michael Kors, which had already begun to reduce its reliance on promotion-driven department stores, announced that it would close 100 to 125 full-price stores. In each case the company accepted lower revenue to rebuild what customers believed the product was worth.

Contrast that with the houses that simply do not discount. Hermès does not hold public sales of its leather goods, and Louis Vuitton does not mark down. Their pricing discipline is less a policy than a continuous deposit: every season in which a client buys at full price and finds that the value held, the account grows.

Private sales, outlet expansion and "friends and family" events that quietly become public all send the same signal. So, in Japan, does joining the department-store bargain calendar. The question is not whether a business needs a clearance mechanism; every business with inventory does. It is whether the client you care about most can see it.

Overexposure

Visibility is a deposit. Ubiquity is a withdrawal. When a logo is everywhere, on every product type, in every channel, worn by everyone, it stops saying anything about the person wearing it.

Burberry is the textbook example, and Japan sat at the center of it. For decades, Burberry's Japanese business ran through a license with Sanyo Shokai, which built it into a large department-store brand with its own diffusion lines. By the mid-2000s the house had more than twenty licenses around the world, its check appeared on a bewildering range of products, and in its home market it had acquired associations no luxury brand would choose. The licensing income was real. So was the withdrawal.

The repair took the better part of a decade. Under Angela Ahrendts and Christopher Bailey, Burberry bought back licenses, put the trench coat back at the heart of the brand and rebuilt its presence around its own stores. In Japan, it let the Sanyo Shokai license expire in 2015 and took the business direct. Sanyo's revenues fell sharply, and its former Burberry lines continued under new names. For Burberry, it meant giving up an established revenue stream to regain control of what the brand meant in one of the world's most important luxury markets. It also shows the true price of a withdrawal made decades earlier: when the bill finally came, it came all at once.

Licensing into categories that do not fit, chasing every collaboration and flooding social channels with content all raise awareness in the short term. But awareness without desire is only recognition, and recognition alone does not sell at full price. Pierre Cardin, once one of the most inventive names in fashion, signed roughly 800 licenses at its peak, many in categories far from the runway. Everyone knew the name. Very few wanted to pay a premium for it.

Distribution

Where you are sold says as much about you as what you sell. Too many doors, the wrong wholesale partners, gray-market leakage and loosely controlled travel retail can each put the product in an environment that contradicts the brand.

My years at DFS taught me how powerful travel retail can be when it is managed with the same care as a flagship, and how quickly it can undermine a brand when it is treated as a clearance route. Japan has seen a version of the second scenario more than once. When the yen weakens, Tokyo becomes one of the cheapest places in the world to buy many luxury goods, and resellers arrive to arbitrage the gap. Brands that respond with purchase limits, closer attention at the till and price adjustments that narrow the gap with other markets are making deposits, even though each of those measures costs sales in the short term. Brands that look the other way are, in effect, letting a third party make withdrawals from their account.

The question is never only "can we sell more here?" It is "what does being here say about us, and who gets to decide?"

The withdrawal disguised as a deposit

Protecting the account can itself become a withdrawal if the customer finds the method offensive. In 2018 Burberry disclosed that it had destroyed around £28.6 million of unsold stock in a single year, a long-standing industry practice intended to keep product out of discount channels. The intent was a deposit in price integrity. The public reaction turned it into a withdrawal from reputation, and within months the company said it would stop. The lesson is that the account is held in the customer's mind, not in the company's logic. A decision is a deposit only if the customer experiences it as one.

The deposits

The good news is that desirability can be built deliberately. I think of four levers, and the strongest brands pull all of them at once.

Scarcity

Not artificial shortage for its own sake, but real discipline about how much you make, where you place it and who receives it first. Hermès grows its leather-goods capacity only as fast as it can train artisans, and its most sought-after bags are still made from start to finish by a single craftsperson. Demand for those pieces exceeds supply every year, by design. That gap is not lost revenue. It is the balance in the account.

Rolex offers a more recent example. For years the brand watched a gray market resell its most popular models above retail price. In late 2022, rather than ignore that market, Rolex launched its own Certified Pre-Owned program, sold through its authorized retailers and backed by the brand itself. It was a deposit in two senses: it brought part of the secondary market back under the brand's own standards, and it told every buyer that a Rolex holds its value because Rolex stands behind it.

Saying no to a door, a category or a volume target is among the most valuable things a luxury leader can do. Scarcity applies to attention, too: a brand that speaks less often, but with more meaning, is easier to want.

Story

People do not fall in love with a product specification. They fall in love with a point of view. The story might be a founder's obsession, a craft tradition, a place or a way of seeing the world. What matters is that it is true, specific and told consistently enough that customers can repeat it in their own words.

Bottega Veneta captured an entire philosophy in a single line: "When your own initials are enough." In a market crowded with logos, the brand made the absence of one its signature, and every piece of woven intrecciato leather became a reminder of that position. A customer could explain the brand to a friend in one sentence. That is what a story deposit looks like: an idea simple enough to travel without you.

Experience

The moment of purchase is where desirability either becomes real or falls apart. The store, the client advisor, the wrapping, the follow-up note, the repair three years later: each either confirms what the customer hoped the brand would be or quietly contradicts it.

Tokyo has hosted some of the most significant experience deposits in the industry. When Apple opened its Ginza store in 2003, its first anywhere outside the United States, it told Japanese customers that the brand took them seriously. The same year Prada opened its Aoyama Epicenter, designed by Herzog & de Meuron, a building that was itself a statement of the brand's intellectual ambition. Neither was justified on store-level economics alone. Both were deposits whose return showed up everywhere else in the business.

This is also why I put so much weight on the people in the boutiques. A building can make a promise. Only a client advisor can keep it. They are the brand, in the only form most clients will ever meet it.

Consistency

This is the least glamorous lever and probably the most important. Desirability builds slowly, through hundreds of decisions that point the same way across product, pricing, communication, store design and service, in every market.

In 2015 Chanel made one of the boldest consistency deposits in recent memory. It harmonized the prices of its classic handbags around the world, cutting them in China by roughly a fifth and raising several in Europe by a similar amount, so that the same bag cost broadly the same wherever a client bought it. The move gave up revenue in some markets and margin in others. In return it removed much of the arbitrage feeding gray-market resellers, and it told every client, everywhere, that they were paying the same fair price.

A brand that is exclusive in Tokyo and discounted in another market, or elegant in its campaigns and careless in its service, is asking customers to believe two things at once. Most will believe the worse one.

Reading the account

If brand equity cannot appear on the balance sheet, leadership needs its own statement. No single number captures it, but a handful of measures, reviewed together and over time, give an honest picture of whether the account is growing:

• Full-price sell-through, and the share of revenue sold at full price, by channel and by market.
• Average selling price, and whether it rises without promotional support.
• Waiting lists, pre-orders and how quickly new launches sell through.
• Secondary-market prices relative to retail, where a resale market exists.
• Client retention, purchase frequency and the share of revenue from repeat clients.
• Sentiment and Net Promoter Score among top clients, not only among all customers.
• The gap between awareness and consideration: the distance between being known and being wanted.

None of these is perfect on its own. Tracked together, with the same seriousness as sales, they reveal the trend the P&L hides. As a starting point, the ledger below is the kind of page I would want every leadership team to keep.

Questions for the leadership table

If I were sitting with a leadership team today, I would ask:

• Do we measure brand equity in any form, with the same seriousness as sales? Who owns that number?
• Which of this year's revenue lines are really withdrawals? If we stripped them out, what would underlying growth look like?
• Which of this year's costs are really deposits, and are we cutting them only because the P&L cannot see their return?
• Where are we present today that we would not choose to be if we were starting fresh?
• Would our best client recognize the same brand, at the same price, in every market and every channel?
• If the account were audited today, would the last three years show more deposits than withdrawals?

None of these questions has a comfortable answer in every case. That is the point. The brands that last are the ones whose leaders are willing to forgo some short-term revenue to protect the asset that produces revenue over the long term.

The long view

Desirability is patient capital. It takes years to accumulate and can be spent in a season. The leaders I admire most treat it the way a good steward treats an inheritance: something to grow and hand on, not something to draw down to hit a number.

So the question I leave you with is a practical one. If your brand published a statement of its equity account alongside its annual results, what would this year's entries show?

Sources

• IAS 38 Intangible Assets: internally generated brands may not be recognized, IAS Plus
• LVMH completes the acquisition of Tiffany & Co., LVMH, January 7, 2021
• Coach to exit about 25% of department-store doors, CNBC, August 9, 2016
• Michael Kors fiscal 2017 annual report: store closures, SEC filing
• Burberry's Japan license with Sanyo Shokai ends in 2015, The Shashi
• Angela Ahrendts buys back Burberry's licenses, Management Today
• Pierre Cardin's roughly 800 licenses, Premium Beauty News
• Burberry pledges to stop destroying unsold stock, Campaign, September 2018
• Rolex Certified Pre-Owned launches, Bucherer, December 2022
• Bottega Veneta's "When your own initials are enough", Interview Magazine
• Apple Store Ginza to open November 30, Apple Newsroom, November 2003
• Prada Aoyama by Herzog & de Meuron opens, BauNetz, June 2003
• Chanel harmonizes handbag prices, WGBH, March 20, 2015