Luxury Institute News

November 25, 2015

Nordstrom, Bergdorf Goodman lead retailers in overall satisfaction: report

Luxury Daily
November 25, 2015
By: Forrest Cardamenis

Department store chain Nordstrom is the top-rated luxury retailer, according to findings detailed in The Luxury Institute’s third annual Luxury Multi-Channel Engagement Index.

Consumers evaluated six luxury fashion retailers both in-store and online across a total of 31 attributes – 15 online and 16 in-store. Because the findings come from consumers, they can help each retailer determine which areas it needs to improve on and what specialties will help distinguish it from competitors.

“[We wanted] to get the voice of the client, not to have a panel of experts, not to have one individual,” said Milton Pedraza, CEO of The Luxury Institute. “This is the wealthy consumer rating their own experiences, these are all clients of the brands.”

Ahead of the pack
Barneys New York, Bergdorf Goodman, Bloomingdale’s, Neiman Marcus, Nordstrom and Saks Fifth Avenue were evaluated on the ease of 14 common criteria both online and in-store. In addition, there was one additional criterion for online shopping and two for in-store.

The common traits are: finding desired products, the perception consumers had of the retailer, product selection, customizability, customer service, policy on returns and exchanges, product displays, exclusive or limited products.

Traits also included whether selections were relevant to the consumer’s lifestyle, the availability of proper sizes, pricing, loyalty programs, confidence that the retailer would meet the consumer’s needs and how often products from that retailer receive compliments.

SAKS 5th Ave
Dior beauty counter at Saks Fifth Avenue

Respondents had a median age of 52, minimum household income of $150,000 and an average of $289,000 and $2.9 million in net worth, numbers that align with luxury retailers at large. Among the findings about consumers is that twice as much spending takes place in-store, with women and consumers under 45 years of age being more likely to spend online.

Bergdorf Goodman beat out Nordstrom in some notable categories. It is best perceived as a luxury retailer, as having the best prices and having the best personalized shopping experience.

However, Bergdorf Goodman has only two stores, one for men and the larger for women, both on Fifth Avenue in New York, whereas Nordstrom has 118, which will play into perceptions of luxury. Nevertheless, Bergdorf Goodman’s relative aversion to discounting did not stop consumers from highlighting its prices.

Nordstrom topped the rankings of more categories than any other retailer. Among them: its convenient refund/return policy, carrying relevant products and styles, having a navigable Web site, including helpful ratings and reviews and good shipping policies online, convenient locations and in carrying products that are complimented by others. It also beat out national retailers in prices and having good personalized shopping.

Fittingly, Nordstrom is the most popular retailer online and leads in market-share on both channels.

Tough times

Mobile transactions do not comprise a large share of the revenue for any of the retailers. While mobile is an important part of the transaction journey for many consumers, who use it to research and in-store to compare prices and selection, it has not yet become a major source of transactions.

Retailers are missing out on significant revenue opportunities by failing to personalize consumers’ shopping experiences, thanks to the lack of adaptive pages, product recommendations and search functionalities on their mobile sites, according to a Retail Systems Research report.

In its “Personalization Across Digital Channels” report, sponsored by predictive analytics platform Reflektion, Retail Systems Research highlights the major faux paus that brands commit when it comes to mobile commerce. As consumers’ expectations for retailers’ digital offerings grow higher, marketers must deliver optimized experiences, including saved search histories, suggestions on previous purchases and responsive pages tailored to each device (see story).

neiman.hudson yards rendering
Neiman Marcus Hudson Yards rendering

Nevertheless, online shares have grown and retailers have proven themselves adaptable to new technology.

“I think what [the data] tells you is that, even though we thought that the luxury multi brand chains were going to be overrun with the likes of Amazon and others, that just hasn’t happened,” Mr. Pedraza said. “They have become very nimble and very agile at online and ecommerce. Don’t underestimate these omnichannel chains. They definitely will rise to the occasion.”

One of the major obstacles in both ecommerce and in being perceived as luxury is in discounting. Discounting is a surefire way to lure in new consumers short-term but represents longer-term risks for the brand.

As a result, many retailers have opened up discount stores, which, despite also risking perception, could become a venue to funnel discounted merchandise and leave the main store full-price.

Although this change could not be implemented suddenly without alienating some consumers, there are already signs that it is taking place and may become more visible as holiday shopping is amped up.

Bloomingdale's Ala Moana exterior
Bloomingdale’s Ala Moana exterior

Consumers should expect a reduction in holiday promotions from retailers, according to a recent report by Upstream Commerce.

Based on the past two years of holiday promotions, the report predicts that 2015 will see a decrease in both the number of products discounted and in the discount rate. Fewer sales incentives and lower discounts could indicate a new strategy based on the “right” offering rather than simply presenting more promotions (see story).

“There is a lot of discounting out there, but full-price will remain relevant,” Mr. Pedraza said. “Unfortunately I suspect there will be a lot of discounting in the fourth quarter because when you enter their store they are flushed with inventory, all of them, so I think there’s going to be a big reduction.

“Traffic is down dramatically in all of these stores — some insider estimates, people on the inside of these companies, place traffic down anywhere from 20 to 30 percent,” he said. “It’s going to be a very tough fourth quarter, at least on market.

“We may see the top line improvement because of the discounting and you’re going to sell more, but we may see that the margins erode and by the way we may see comps that are not that good. Luxury right is in a very tough place, nowhere near what it was in 2008, everybody is suffering.”



October 26, 2015

Some brands fail to reach women

October 26, 2015

NEW YORK: When it comes to marketing to affluent women, some brand categories are notably more successful than others and have even improved the perception of their marketing efforts over the past three years, a new survey has shown.

Luxury Institute, a New York-based specialist research firm, ranked industries based on their success marketing to women with a minimum annual household income of $150,000 and then compared the results with a similar survey it conducted in 2012.

It found the top industries considered to be doing a good job marketing to women are clothing (75%), shampoos and conditioners (74%), fragrances and cosmetics (72%) and shoes (72%).

Compared to 2012, each of these categories achieved a wider share of women who view their marketing efforts favourably, but the jewellery and watch sector saw the biggest improvement, rising to 62% positivity from 53% in 2012.

However, the survey – which did not include a sample size – also identified industries that continue to lag in their marketing to affluent American women.

Among industries that these women say are faring badly in their marketing efforts are insurance, liquor, electronics and banks, each of them gaining approval ratings of less than 5%.

In addition, just 6% of respondents view the car industry favourably and other poor-performing sectors include real estate (7%), home improvement (8%), credit cards (13%) and pharmaceuticals (15%).

“Women maintain huge economic power and it is a necessity for companies to step up marketing and how they connect with affluent women regardless of industry,” said Milton Pedraza, CEO of the Luxury Institute.

“Research that includes speaking directly with these women about what appeals to them and what turns them off removes much of the guesswork in making marketing decisions,” he added.

Part of that research could involve marketers taking account of the age profiles of their target audience as the survey also revealed that older women are more receptive to marketing activity.

Affluent women aged 45 to 64 generally feel that brands across industries are doing well when marketing to them, the report found, but this positive response drops among younger generations.


October 22, 2015

She Who Controls the Purse Strings

October 22, 2015
By: Danielle Max

There’s good news from a recent survey released by the Luxury Institute, which revealed that watch and jewelry companies are more successfully marketing to affluent women these days. In fact, 62 percent of respondents said that these companies do a good job of marketing to them; up from 53 percent in 2012.

The research from the New York-based Luxury Institute ranks industries and specific brands based on their success marketing to women with a minimum household income of $150,000 per year. Respondents reported average household income of $289,000, and a $2.9 million average net worth, so these are exactly the sort of households that the diamond and jewelry industries need to be targeting.

Overall, the watch and jewelry category ranks fifth among industries trying to sell their goods to women – and, given that high-ticket items such as watches and jewelry are not exactly a spur of the moment purchase – that seems pretty good to me.

The top four industries most frequently viewed as doing a good job marketing to women from high-income households through advertising and social media are clothing (75%), shampoos and conditioners (74%), fragrances and cosmetics (72%) and shoes (72%).

And it seems that marketeers overall are doing a better job of selling to what is clearly a key demographic. The Luxury Institute says that compared to 2012, each of these categories enjoys a wider share of women who view their marketing efforts favorably.

However, lest you think the gender gap is a thing of the past, among the industries that affluent women say are doing the poorest jobs of marketing to them are insurance, liquor, electronics, banks, brokerages and private jets, each of which earns an approval rating of less than 5 percent and has fallen in approval since 2012.

In addition, the automobile industry also needs to stop thinking (and acting as if) men hold the purse strings. Apparently, only 6 percent of women are impressed by the efforts of car companies to market to them.

Of course, it’s not just money that comes into play in such issues. According to the research, affluent women in the 45-64 age bracket are much more likely than women under the age of 45 to say that companies are doing well in marketing specifically to them.

Part of the problem seems to be that companies just don’t seem to realize who they should be targeting. The Luxury Institute specifically singles out married women who, according to its research, make two-thirds of all household purchasing decisions.

“Women maintain huge economic power and it is a necessity for companies to step up marketing and how they connect with affluent women regardless of industry,” says Luxury Institute CEO Milton Pedraza. “Research that includes speaking directly with these women about what appeals to them and what turns them off removes much of the guesswork in making marketing decisions.”

We couldn’t agree more.

Have a fabulous weekend.


Women neglected by marketers despite making two-thirds of household purchases

Luxury Daily
October 22, 2015
By: Staff Reports

Brands in the apparel, personal care and footwear sectors are among the best at marketing to affluent women, according to research by Luxury Institute.

The best industries targeting affluent women through advertising and social media do not come as a surprise, but it does shine a light on the sectors that are not doing well at focusing their attentions on this demographic of wealthy consumers. Survey respondents felt that the industries doing the least to target affluent women include insurance, liquor, consumer electronics, banks and brokerages and transportation including automobiles and private jets.

Luxury Institute surveyed women ranging in age from 21-years-old to more than 65-years-old with a household income minimum of $150,000 per year. The respondent pool’s had a reported average household income of $289,000, and a $2.9 million average net worth.

A battle of the affluent sexes
When it comes to marketing to a female demographic, brands in apparel (75 percent), shampoos and conditioners (74 percent), fragrances and cosmetics (72 percent) and footwear (72 percent) unsurprisingly fared the best.

In regard to the industries that are failing at capitalizing on the purchasing power of affluent women, each had an approval rating of less than 5 percent. This approval rating has continued to fall since 2012.

Efforts put forth by automotive brands, for instance, have only impressed 6 percent of the female respondents. Although traditionally associated with a masculine culture, the auto industry should expand its marketing efforts to cater to the sentiments of its female consumers, especially those with families, by touting the safety of high-end vehicles.

On the corporate side, automakers have made strides in being more inclusive of females in general. For instance, British automaker Aston Martin looked to close the gender gap in engineering by teaming up the Royal Air Force to introduce female students to various career routes (see story).

Sectors improving outreach to female consumers include the jewelry and watch sector, which has seen the largest improvement over the past three years. Sixty-two percent of respondents felt that these brands do a good job marketing to their demographic, a 53 percent increase from 2012.

In addition, department stores are listed sixth, with 60 percent of affluent women appreciating the efforts put forth by retailers.

Lux institute.womens marketing graph
Graph provided by Luxury Institute 

Across the board, older affluent women aged 45-64 felt that brands across industries are doing well when marketing to their demographic. This response was much more likely from the older age group than it was for women 45-years-old and under.

But, 25 percent of women 21- to 44-years-old felt that the wine industry is not doing enough, or not marketing to them well enough. This propensity decreases with age, with 21 percent of 45- to 54-year-olds, 16 percent of those between the ages of 55 and 64 and 12 percent ages 65 or older approve of the wine category’s marketing efforts.

In a statement, Luxury Institute CEO Milton Pedraza said, “Married women tell us that they make two-thirds of all household purchasing decisions. Women maintain huge economic power and it is a necessity for companies to step up marketing and how they connect with affluent women regardless of industry. Research that includes speaking directly with these women about what appeals to them and what turns them off removes much of the guesswork in making marketing decisions.”


October 15, 2015

Selling and service as terminology is dead: Luxury Institute CEO

Luxury Daily
October 15, 2015
By: Staff reports

NEW YORK – While luxury brands typically know the best practices in client building, most are not practicing these strategies for their own customers, according to the CEO of the Luxury Institute at Luxury Interactive 2015 Oct. 14.

The traditional training program for sales associates is out of date, as the focus should be on education that can be applied in a creative way rather than a rote set of rules and checklists that take the human element out of interactions. Additionally, these important members of a brand’s team should be rewarded more for their actions than their results, putting the emphasis on client retention and engagement, which will lead to sales over time.

Consumer behavior
In a survey of wealthy consumers, 68 percent of men and 64 percent of women say that their spending on luxury or premium products revolves around bricks-and-mortar. The frequent conception today is that consumers have conducted such detailed research prior to their store visit that they cannot be swayed or influenced by an associate, but Luxury Institute found 45 percent of women and 30 percent of men do not do any searching before they head to the store.

With 37 percent of men and 49 percent of women noting that they find browsing without the help of a salesperson to be most effective for finding new merchandise, brands may want to rethink their store strategies. Displays with product information or signage that assists with navigation or points out new items can help aid this independent exploration.

This eschewing of a sales associate’s assistance is even more prevalent online, where only 8 percent of men and 3 percent of women say they find new products best with the help of an associate via live chat or other online communication.

The sales associate does still have a place, but ensuring that the interaction is relevant and effective now comes down to technology. Retailers should be ensuring they are giving their salespeople the best tools since associates may think of taking their talents elsewhere if technology proves a deal-breaker.

According to a new study by Yes Lifecycle Marketing, many retailers are still unwilling or unequipped to tailor customer service to the individual.

The study looks at retailers in a variety of different sectors and finds that many have not sufficiently tracked clientele and are thus unable to provide sales associates with the personalized data that will help initiate and close a transaction. With consumers navigating freely between mobile, Web and in-store shopping, and brands therefore able to gather more information than ever before about frequent shoppers, properly cataloguing clientele has emerged as a way to provide the best possible customer service and showcase a great branded experience (see story).

Other trends shaping the luxury industry are the spending power of women, who will control the majority of assets. Seventy percent of women who inherit from their spouses change their financial advisor within a year, wanting to move on from someone who has mistreated them.

The only sectors that are successfully marketing to women are beauty and skincare.

“Beyond leaning in, you have to jump into the deep end of the pool,” said Milton Pedraza, CEO of Luxury Institute.


October 3, 2015

Can a fast fashion vet steer Ralph Lauren’s ship?

Retail Wire
By: Tom Ryan
October 2, 2015

Shocking many fashion insiders, Ralph Lauren Corp. hired Stefan Larsson, a former H&M executive and president of Old Navy, to replace Ralph Lauren as CEO.

Mr. Lauren, 75, will remain active as executive chairman and chief creative officer and is expected to continue to oversee the luxury side. Mr. Larsson will report to Mr. Lauren in what’s described as a “partnership.”

Mr. Larsson, 41, is credited with reviving Old Navy after taking over in 2012 with a focus on upgrading design and bringing over some quick-turnaround supply chain tricks he learned in his 15 years at H&M. He takes over as CEO of Ralph Lauren Corp. in November.

Ralph Lauren Corp.’s revenues slid 5.3 percent in the second quarter due to a strengthening dollar that affected both overseas profits and tourist traffic at its stores in the U.S. The company has also faced heightened competition in the luxury channel this year. Shares are down around 40 percent this year.

The recruitment of Mr. Larsson was the latest example of the insular luxury industry looking outside for talent. LVMH recently hired an Apple executive as chief digital officer, Chanel SA’s CEO spent 15 years at Gap, and Grita Loebsack, a former VP at Unilever Plc, was recently hired as CEO of Kering’s emerging brands, which include Stella McCartney and Gucci.

Stefan Larsson
Stefan Larsson – Photo: Gap, Inc.

“You see a lot of luxury brands now recruiting from other industries,” Milton Pedraza, the CEO of the Luxury Institute, a research firm, told The Wall Street Journal. “They need executives with skills the luxury industry doesn’t necessarily have such as an expertise in global distribution or digital marketing.”

Mr. Larsson, who is Swedish, is expected to be useful in expanding Ralph Lauren’s business overseas. An outside CEO may also make aggressive calls to reduce expenses and bring more sophistication to an organization.

Odeon Capital analyst Rick Snyder told Reuters the company had grown to a size where it needed more “systems and controls.”

The New York Times said that for the legendary designer, the hiring “indicates that he, at least, feels it is still important to separate the roles and have a professional manager running the brand and reassuring Wall Street.”

Still others felt the business model may be due for a more radical change, with department store growth slowing and fast-fashion retailers like H&M, Uniqlo and Zara leading fashion’s growth.

“Larsson has a track record of expanding very well,” longtime industry analyst Walter F. Loeb told the Daily News. “His contribution to Ralph Lauren will be global expansion and, more importantly, discipline within the company.”


September 14, 2015

Battle of the Bling: Nordstrom heats up Vancouver’s retail war

The Province
By: Paul Luke
September 13, 2015

Upscale merchants are going to war to push Metro Vancouver deeper into the lap of luxury.

When Nordstrom’s flagship outlet in downtown Vancouver opens its doors this Friday, it will intensify a battle of the bling between high-end department stores keen to tap the high-income spending power pulsing across the region.

The region’s surging shopping wealth has been fuelled by growth in affluent tourists, deep-pocketed immigrants from Asia and “aspirational consumers” who selectively splurge on luxury goods. The global luxury goods market will expand two to four per cent this year, according to U.S. consulting firm Bain & Co.

Metro Vancouver has been getting more than its share of that increase, says retail analyst Craig Patterson.

Toronto has more wealthy consumers than Vancouver but Vancouver’s luxury retail merchants often out-perform their Ontario counterparts. One Vancouver luxury boutique insider told Patterson that his Vancouver store routinely out-sells the same brand’s larger Toronto location.

“That holds true for a lot of luxury brands in Vancouver,” says Patterson, editor-in-chief of online publication Retail Insider.

“It is a fact of retail that Vancouver punches far above its weight. The Vancouver retail luxury pie will grow in both the number of shoppers as well as stores.”

A desire for retail luxury is about more than just an appetite for Saint Laurent Paris jeans that cost $1,070 at Nordstrom, observers say. Retail analyst David Ian Gray, founder of DIG360 Consulting, says the world of retail has been polarizing into a desire for “utility or delight.”

Utility means cheap prices and easy shopping at dollar stores or online retail sites.

At the “delightful” end of the spectrum is careful service in an attractive retail environment, he says. Gray’s argument is supported by findings from research firm Luxury Institute, which reported that 47 per cent of luxury consumers say customer services defines an upscale brand.

Few affluent shoppers do online research before going out to make on-the-spot purchases, according to the institute. But they also want informed guidance from staff before deciding to buy.

One of Nordstrom’s strengths is the money it invests in ensuring that customers of all incomes are well cared for, Gray says.

“All of the processes Nordstrom has built converge on creating the ability for their people to offer great service,” he says. “Their product knowledge is outstanding.”

Battle-hardened retailers in the U.S. and Europe are used to scrapping for upscale consumers but the intensity of the retail fight will be new to Vancouver, Gray says.

Nordstrom co-president Erik Nordstrom says Nordstrom’s product range will overlap with those of Hudson’s Bay and Holt Renfrew. But Nordstrom’s range of prices is greater than any of its competitors, according to Nordstrom.

Jolt Jeans at Nordstrom cost a modest $58. Watches start at $26 and range up to $5,000 for a Montblanc time piece.

The Vancouver store that bears his family name should by no means be called a luxury retailer, Nordstrom insists.

“Luxury implies exclusivity,” Nordstrom says. “We want to be an inclusive store.”

Nordstrom’s arrival in Vancouver has prompted rivals Holt Renfrew and Hudson’s Bay to expand their stores, renovate and introduce new lines of merchandise, experts say.

Hudson’s Bay already offers Nordstrom-like service in its luxury womenswear department “The Room,” which is located on the second floor of its downtown store, Patterson says. But there’s room for improvement in the store as a whole, he says.

“If Hudson’s Bay wants to keep up with Nordstrom and an expanded Holt Renfrew, it will need to hire more staff and ensure they are motivated enough to provide customer service comparable to the competition,” Patterson says.

Despite local consumers’ robust appetite for luxury, the number of glitz merchants washing into Metro may bring too many high-end stores, making the retail dogfight even more ferocious, observers say.

“We will be a little over-supplied and that means people will be slugging it out,” Gray says.

“There are only so many dollars to go around. Nordstrom, by definition, will have to take from the others. It’s not like there’s unmet demand with money sitting there waiting to be spent.”

But Nordstrom isn’t the only new luxury kid on the block. Several high-end brands opened their doors in July at the McArthurGlen designer outlet centre in Richmond.

Hudson’s Bay-owned luxury merchant Saks is expected to land in Vancouver in the near future — and Saks will compete nose to nose with Holt Renfrew, analysts say.

Not to be overlooked is the swelling high-end retail parade centred on Vancouver’s Alberni Street — what Patterson calls “the luxury zone.” Among the brands Patterson says are coming to the luxury zone over the next few months are Brunello Cucinelli, Moncler, Versace, Stefano Ricci, Prada, Jaeger-LeCoultre, Lao Feng Xiang and Strellson.

“It’s not just the department stores. It’s all the boutiques, the chains, the global luxury brands with their own stores ­— you’ve got to throw it all into mix,” says Gray of the luxury retail onslaught.

“There is a sense that Vancouver is a location where you want to have your luxury brand, whether or not it’s a rational economic decision. You don’t want to be seen as the one who has been left behind. Vancouver has become a focal point of luxury.”

And in the case of luxuries, retailers don’t need to sell many of their highest end products to have a good year, Gray says.

Darren Dahl, a marketing professor at University of B.C., says department stores and boutiques can’t afford to rely just on purely affluent shoppers.

They also need aspirational consumers, the mid-tier or mainstream shoppers who sacrifice and scrimp so they can enjoy the perceived status of owning a certain luxury good.

These opulence aspirants, however, may not immediately know how much luxury they can afford — and that’s where good service comes in. “There is a luxury pyramid and a store will give you an opportunity to figure out where you fit,” he says.

The democratizing of retail means these occasional luxury buyers may shop in Holt Renfrew one day and Wal-Mart or Costco the next, Dahl says.

There is another a group of affluent B.C. residents who will never set foot in a Nordstrom or a Holt Renfrew. These are the folks who prefer quiet wealth, rejecting the notion of flaunted affluence, Dahl says.

Unlike Target, whose Canadian venture burned out when it opened too many stores too quickly, Nordstrom is carefully opening one store at a time in Canada. But it won’t be a slam dunk for Nordstrom, analysts say.

If Nordstrom disappoints or is unable to create manageable expectations, “the buzz” among consumers could quickly turn against it, Gray says.

Even in bling-hungry Vancouver, luxury will not guarantee success, whether it’s a department store or a boutique.

“Vancouver has a history of luxury brand openings and closures, though these stores were typically franchised,” Patterson says.

“I’m referring to Nina Ricci, Istante, Versus, Furla, Goldpfeil, Valentino Boutique, Celine, Alfred Dunhill, Hugo Boss Woman and a few others which have opened and closed in downtown Vancouver over the years.

“It will be interesting to see if incoming brands survive.”


Luxury department stores and boutiques can be dangerously attractive places for people who can’t afford them.

“There will be people who really should not be in there and they know they should not be there,” says Scott Hannah, CEO of the non-profit Credit Counselling Society.

“They should not be allocating funds for that purpose and they know it. Yet they’ll still make a purchase and some will worry afterwards about how they’re going to make ends meet.”

High-end stores are good at appealing to “those who are up and coming in their own minds, especially young professionals,” Hannah says.

Over the years, the counselling society has helped many people in debt who have maintained a lifestyle beyond their means because they acquire things to look successful, Hannah says.

“We have difficulty saying, ‘Look, I’m not prepared to go into debt to look a certain way and impress people.’”

Millennials, the generation born between the early 1980s and the early 2000s, often think of short-term wants rather than long-term needs, he says.

“They have a perspective that ‘I’ll never own a home but, darn it, I’m going to look nice,’” Hannah says.

Hannah worries that some of those who flock to Nordstrom when it opens won’t find the discipline to keep their credit cards in their wallet. People who go with friends who buy high-end items may feel pressured to do so themselves, he says.


September 9, 2015

LVMH swipes Apple exec for head of digital role in a bid to boost online presence

Cosmetics Design USA
By: Lucy Whitehouse
September 9, 2015

The announcement of the hiring of former Apple executive, Ian Rogers, as LVMH’s new head of digital confirms the luxury goods multinational is rising to meet the promise of e-retailing in the luxury sector.

August 28, 2015

A Place to Lay Your Bread

The Way That the Rich Travel is Changing
The Economist
August 29, 2015 (Print Edition)

At the Burj Al Arab hotel in Dubai, one of the world’s most luxurious (pictured), guests can avail themselves of 24-carat gold iPads and caviar facials. The cheapest rooms cost $1,000 a night; those interested in the royal suite can expect to pay nearer $25,000. Such ostentation is not to everyone’s taste. But it illustrates a trend: the way that the rich spend their money is changing.

Once, the well-heeled bought fancy stuff. Nowadays they spend more on things to do and see. A report last year by the Boston Consulting Group (BCG) found that of the $1.8 trillion spent on luxury goods and services worldwide in 2012, nearly $1 trillion went on “luxury experiences”. Travel and hotels accounted for around half that figure.

This partly reflects the growing weight of rich folk from developing countries. Wealthy Chinese spend 20 days a year travelling for leisure, according to ILMT, a travel agency. The most popular destination was Australia, and nearly half made it as far as Europe. On average, affluent Americans went on holiday 3.9 times in 2014, says Resonance, a consultancy, up from 3 times in 2012. Around half travelled more than 1,000 miles (1,600km) for their most recent trip. They favoured Europe, especially Italy, Britain and France.

Antonio Achille of BCG says luxury consumers have distinct spending styles, depending on how old they are and whether they were born rich or became so later. The young and the recently affluent tend to buy visibly costly items that will impress their peers. Soft Living Places, an Italian luxury hotelier, recently filmed an advert to educate newly rich Russian tourists. It offered such advice as “don’t show off by ordering the most expensive bottle of wine on the list.” By contrast, the longer someone has been rich, the more likely he is to value quality over ostentation.

When they travel, rich 20-somethings are drawn toward gregarious pleasures that can be shared on social media to make their friends jealous. But plenty also view holidays as a time to learn something and broaden their cultural horizons, says Chris Fair of Resonance. Though older travellers to India still frequent the Taj or Oberoi hotels, younger ones are more likely to plump for a homeshare—albeit a posh one. The established wealthy spend relatively more on travelling to five-star hotels.

Tapping into this more traditional market is not easy: in some respects, the luxury-hotel business has become commoditised. As the standard at the best establishments has risen, high-paying guests have come to expect a level of service that is ever harder to exceed. “There is only so much caviar and champagne you can throw at them,” says Milton Pedraza of the Luxury Institute, a consultancy. Opulent bathrooms, world-renowned chefs and state-of-the-art technology are now the norm at the poshest hotels.

So differentiation must come from more personalised service. Value is added by “being generous in small ways”, says Frank Marrenbach, the chief executive of the Oetker Collection, a luxury-hotel group. Attentive service means remembering customers’ every preference, either because they have visited before or because the hotel has gathered data from previous trips elsewhere. Equally important is knowing when to step back, says Mr Marrenbach, because for rich guests downtime is also a luxury. At Villa Stephanie, a spa the group runs in Germany, guests can flick a switch in their rooms that blocks all wireless signals to their phones and computers. (Fortunately for paupers who stay in cheaper joints, many of these devices already come with a handy off-switch.)

The established rich, because they own so much stuff, place a high value on doing or feeling something new. According to BCG, they claim to gain three times the emotional reward from an experience, compared with owning something with the same price tag. For luxury-travel retailers, this means that selling fancy add-ons to trips is one of the most lucrative parts of the trade.

Abercrombie & Kent, an upmarket travel agency, for example, arranged for its guests in Egypt to view Queen Nefertari’s tomb, even though its doors had been sealed to the public for decades. In Moscow its clients can attend a private opening of the Kremlin grounds and have lunch with an ex-KGB agent who worked as a spy in London during the cold war. Even when shopping, the experience can matter as much as the acquisition. For some it is important not just to own a Burberry raincoat but also to have bought it from the brand’s flagship London store.

The biggest concern of rich travellers, according to Resonance, is safety. As crime levels have fallen in cities such as London and New York, they have become more appealing to affluent visitors. Metropolitan travel is now as popular as traditional “drop-and-flop” resorts with well-off Americans, says Resonance. Hotels and tour operators catering to the rich must be able to prove their security credentials. Abercrombie & Kent owns its own “destination management companies” in many African and Asian countries, which can respond quickly to problems, including by evacuating guests caught up in Nepal’s recent earthquake.

For the very richest travellers, there is another consideration. Many will go to extraordinary lengths to make far-flung destinations feel like home. Kevin Johnson has worked as a chief-of-staff and palace manager for several billionaires. Some of his employers would even take their favourite bed on their travels, he says. When arranging a holiday on a remote island, his bosses also insisted on their own IT infrastructure, often sending someone ahead to install it. This was partly to ensure security, he says, but also to be sure they could watch their favourite television channels. For the traveller who has everything, the familiar can be the biggest luxury of all.


August 24, 2015

Affluent Millennials Setting Their Own Pace

U.S. News and World Report
By: Mallory Hughes
August 20, 2015

Chris Beauregard, 25, recently found himself at a chic rooftop pool party in Washington. With the Capitol dome in the background, young professionals watched an exclusive Dar Be Dar by Tala Raassi summer fashion show while sipping complimentary DeLeón Tequila cocktails.

“I brought seven other friends with me,” says Beauregard. “Everybody had a blast.”

It’s a setting that is becoming common for a subset of the Millennial generation known as the “affluent Millennials.”

The 6.2 million 18- to 34-year-olds who report annual household incomes of more than $100,000 are acting out the aspirational lifestyle of their cohort because they have the financial means to do so, said Leah Swartz, a content specialist at FutureCast, a marketing firm focused on Generation Y.

“It’s not that they’re so different from Millennials,” says Swartz. “It’s that they’re acting on these aspirational trends that we see take shape in the general population.”

Many among the 80 million Millennials say that they eat organically and travel frequently, but a majority still live on a limited budget, hitting up big retailers for bargain prices.

Rather than focusing solely on what they can buy, Millennials create experiences and “shareable moments with friends,” Swartz says.

It’s a generation that was the first to embrace trends like going digital and using social, but it is the affluent among it that have more impact because they’re the ones commenting on review sites and engaging with brands on social media.

“We’re seeing them take on the influential role among the Millennial population,” she says, adding that affluent Millennials are 10 percent more likely to participate in online rating sites than their non-affluent peers.

“It’s likely because they can do more and because their budgets allow for it,” Swartz said.

Business and finance are the most common career paths for these people, but affluent Millennials are shifting post-graduate educational trends.

The research found that 44 percent of the 6.2 million affluent Millennials did not graduate from college. Of those that completed college and went on to graduate school, nearly 4 percent didn’t complete that education. While these numbers are high, affluent Millennials still graduate from college and grad programs at higher rates than their non-affluent counterparts.

“When you think of Boomers or even a little bit Gen-X,” Swartz says, “money was very much linked to degrees and higher education.”

But these Millennials don’t necessarily see the connection. FutureCast researchers in Kansas City found that young adults in the affluent subset are more interested in quickly putting the knowledge gained in their undergraduate programs to use in the workforce.

“They’re seeing more value in entrepreneurialism rather than continuing education,” Swartz says.

Billy McFarland, a 23-year-old tech entrepreneur, began his undergraduate education at Bucknell University planning on studying computer engineering. He dropped out after a year.

“I never really focused on school the way I should,” McFarland said in a phone interview. “But I finally went to college, I was living alone, and realized I could start companies full-time and not worry about school. It was an easy decision.”

Most recently, McFarland founded two companies: Spling, a tech-driven advertising platform, and Magnises, a mobile concierge app geared toward Millennials.

Magnises, McFarland says, has nearly 7,000 members stemming from 25,000 applicants. Approximately 90 percent of members using the app are 21 to 35 years old, with self-reported annual incomes of $50,000 to $250,000.

The $250 per year membership comes with a black metal membership card, a community hangout out and the concierge app with recommendations on what to do with one’s free time and the ability to make a reservation at a suggested place.

This generation travels more and values events, services and experiences over goods, says Milton Pedraza, CEO of the Luxury Institute, a global research firm focusing on luxury goods.

One example is SoulCycle, the trendy New York City-based fitness company hosting 45-minute spin classes that feel more like being on a dance floor than in a cycling studio. Millennials aren’t buying the expensive bike so they can go cycle the hillsides outdoors; they’re buying the experience.

Pedraza says he thinks Millennials are drawn to events they can share with “people who are their peers, who share their values, who share their standards of living and who share their tastes.”

But if Millennials are trendsetters, don’t they want to find the best places to go — and be first ones on the scene? Isn’t an app, such as Magnises, that suggests the hottest hangouts in some of America’s biggest cities and sends 20-somethings flocking in that direction kind of, well, mainstream?

“I think there’s recognition that that’s going to inevitably happen,” Pedraza says. “If something’s really good it’s going to be swarmed—Millennials swarmed.”


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