Luxury Institute News

By PAUL SULLIVAN 
Published: July 23, 2010

EVERYONE needs a place to live, but no one needs a second home. So choosing which vacation home to buy and where should be enjoyable. Still, people routinely buy second homes that end up being less than they expected, or worse.

I speak from experience here. My wife and I own a condominium in Naples, Fla. One of our neighbors is as bad as neighbors come. In Florida real estate parlance, he is a “condo commando” – a busybody who questions other residents on what they are doing and then routinely complains to the condo’s board about them.

Bad neighbors abound everywhere, but they seem particularly bothersome when they are in places where you go to relax. Shouldn’t everyone just be grateful to be sitting in the sun or at fireside near the ski slopes?

The dynamics of second homeownership often conspire against this, said Milton F. Pedraza, chief executive of the Luxury Institute, an organization that does research on wealthy consumers. “People become slaves to their homes. They buy into the headlines and that makes them pretty miserable with their vacation homes.”

Mr. Pedraza said one common cause of second-home misery was that owners failed to factor in how much time and money were needed to maintain a place from hundreds, if not thousands, of miles away.

My colleague Ron Lieber recently wrote about answering the tough financial questions that children ask their parents. That made me think that adults buying second homes should ask equally tough questions – of themselves. Why, after all, do you want a second home? What are you going to use it for? Do you have any idea how much it is really going to cost?

While many parts of the country are still struggling with falling home prices, a survey from the National Association of Realtors said sales of second homes were up 7.9 percent last year, compared with a 7.1 percent increase for primary residences. And this is the time of year when people begin to look for the winter rentals that often turn into second homes.

Before you jump in, here’s a look at what you should know before buying a second home.

IT’S NOT AN INVESTMENT If the recession taught people anything, it is that the value of a home can go down. Vacation properties are certainly not immune.

Beyond the ups and downs of the real estate market, Mr. Pedraza said most buyers underestimated the maintenance costs of a second home.

“Think of the 20 to 25 suppliers who come to your house for air-conditioning, heating, landscaping, the pool man, the plumber – now you’ve got to procure those same suppliers for another property,” he said. “If you have the money and it doesn’t mean anything to you from an investment point of view and you can hire the staff, then fine.”

Deb Howard, a realtor in Lake Tahoe and chairwoman of the National Association of Realtors’ resort and second home committee, said many people looked at the properties as a place for the family to gather and as something to leave to the children. But they still need to consider the carrying costs of the property.

Ms. Howard says her first question to buyers is always what kind of lifestyle they expect to have. But her second is whether they need to rent the home to cover the costs. “Sometimes it’s not the right decision,” Ms. Howard said. “You’re not going to use it enough. Or it’s not going to meet your financial goals.”

IT’S LESS RELAXING What persuades people to buy a second home is usually a vacation. A second home, they think, will keep the party going with the added benefit of having a place of their own.

“They only see the benefits – sitting by the pool, having a piña colada, driving into the driveway and leaving the Rolls Royce there,” Mr. Pedraza said. “They never figure the gate is going to be broken and they will need an electrician.” (You will also be making your own piña coladas and cleaning out the blender.)

Enthusiasm for a place can also lead to a hasty purchase. Barry Peele, of Sotheby’s International Realty in Beverly Hills, said a client recently bought a waterfront home in Miami only to find out after the closing that the dock would not accommodate his yacht. Suddenly, the convenience of walking out to his boat – the original attraction – was gone.

And then there is the pressure to use the place. “People have high expectations of their usage,” said Brian Sharples, chief executive of HomeAway, which runs several vacation rental Web sites. “The industry average is 30 days of use per year.”

For full article see:

http://www.nytimes.com/2010/07/24/business/24wealth.html or A version of this article appeared in print on July 24, 2010, on page B6 of the New York edition.

Purveyors of luxury goods, services start to tiptoe down-market
MARINA STRAUSS
FEBRUARY 11, 2009
globeandmail.com

When Vancouver’s upscale Lumière restaurant reopened in December after months of renovations, it boasted a new look and new prices that reflect the changing realities of servicing the carriage trade.

A three-course tasting menu was offered for $98, compared with tasting menus previously in the $200 range, said general manager Paul Quinn. The restaurant is currently offering a regular $98 prix fixe meal for just $58.

“People are a little bit more aware,” Mr. Quinn said. “Before it wouldn’t have been a thought to have a $300 bottle of wine. Now they think, ‘Perhaps we’ll stick with this $100 bottle instead.’ “

It’s a sign of the new times: Many wealthy customers don’t want to flaunt what they have in an economic crisis. Coupled with this is the general slump in consumer spending, leaving many highend companies scrambling to cut back and trying to lure shoppers with discounts and special events.

Holt Renfrew, Canada’s premier upscale fashion chain, yesterday trimmed 131 employees, or 5 per cent of its work force, amid declining sales and customer traffic and no prospect of better times in 2009. And it’s not alone. Car maker Bentley is axing 220 jobs; It Holding of Italy, home to the Gianfranco Ferre label, is facing bankruptcy.

And holiday sales nosedived at Neiman Marcus, Tiffany & Co. and Saks Fifth Avenue. “People are looking for quality and quality experiences but they’re not looking for conspicuous consumption,” said Larry Rosen, chief executive of upscale men’s wear retailer Harry Rosen, whose sales fell about 4 per cent over the past six months, although it is not handing out pink slips.

Consumers are scaling back and trading down, and not only because of the money. They don’t want to wear luxury on their sleeve in this economic climate. Many are going out of their way to make themselves appear as if they’re like everyone else.

They’re asking for their purchases to be put in plain bags, or be shipped to their homes so that they’re not seen carrying a Louis Vuitton or Chanel bag.

For example, some are trading down to a $500 Coach purse rather from a $3,000 Prada handbag, said Milton Pedraza, chief executive of the Luxury Institute in New York, which monitors luxury spending. And Coach customers are moving to lower-priced brand.

“It’s in bad taste right now to be consuming luxury too conspicuously,” said Mr. Pedraza. “Consumers have cut back significantly. … “It’s not just for monetary reasons. Most of these wealthy people are self-made; they come from middle-class and low-income families. They know it’s in bad taste to show off too much. The majority are Main Street millionaires, not Wall Street millionaires.”

And the heavy discounting at high-end retailers is prompting many consumers to feel that they’re being duped into paying premium prices for overpriced products, Mr. Pedraza said.

“There’s a sense of there being a gaucheness in spending in excess and coming home with a Louis Vuitton or Chanel bag,” said Lucyann Barry, a personal shopper and stylist for New York’s wealthy.

For one self-conscious client, Ms. Barry recently delivered a $1,200 (U.S.) Gucci handbag disguised as a gift so the rest of the woman’s family wouldn’t know she had bought it herself.

In Canada, carriage-trade companies haven’t felt the pinch of the recession as acutely as their counterparts elsewhere, but they’re not immune, industry insiders say.

“We are seeing changes in our customers’ shopping habits,” said Caryn Lerner, chief executive of Holt Renfrew. “We’re seeing a shift in brand preferences and in price point preferences. People across all levels of spending have pulled back.”

She said consumers don’t want to be too overt in wearing pricey labels, and instead prefer understated outfits. To respond to the shifting tastes, Holt’s is stocking its shelves with fashions that are less flashy. And it’s trying to get shoppers in the spending mood with a complementary cappucino or bouquet of flowers.

The efforts are in response to sales that fell “in the single digits” over the past six months at the privately held retailer, Ms. Lerner said. She expects similar results this year.

“Canadian retail has held up reasonably well,” Mr. Rosen said.

“But we’ve not been immune, it is an international thing and we’re feeling some of the malaise.”

Changes in luxury purchases: Almost three out of four wealthy consumers have made recent changes in their purchase of luxury products or services. 

More practical in my purchases: 43%
More budget conscious: 43%
More what I need rather than what I want: 30%
Buying more luxury goods, due to available deals: 12%
Buying less luxury goods, due to negative image on downturn: 10%
Buying less luxury goods, due to discounts, less exclusiveness: 9%
Not made any significant changes: 27%

Data Source: LUXURY INSTITUTE

 http://www.theglobeandmail.com/servlet/story/LAC.20090211.RLUXURY11/TPStory/?query=luxury+goods