Luxury Institute News

June 25, 2009

Luxury Institute Survey: High Net-Worth Consumers Rank Ruth’s Chris Steakhouse as “Best of the Best” Fine Dining National Restaurant Chain

(NEW YORK) June 25, 2009 – High net-worth Americans rate the food, service and overall dining experience at Ruth’s Chris Steakhouse “Best of the Best” among the 20 most popular fine dining national restaurant chains.  Furthermore, according to the latest Luxury Institute “WealthSurvey: Food and Dining Habits of Wealthy U.S. Consumers,” diners with an average annual income of $336,000 and an average household net-worth of $2.2 million say that the current economic climate hasn’t diminished the bi-weekly frequency of their out-of-home dining. The questions were developed in cooperation with Concrete Marketing Solutions.

While wealthy diners identify Ruth’s Chris Steakhouse as the priciest chain restaurant, the Florida-based steakhouse’s superior ratings for food quality and service secure it as the top overall restaurant.

Often, dining out is a matter of convenience for the wealthy, and when it is, they seek value. Olive Garden has been the most popular destination over the past year, and was visited by 36 percent of these elite diners. Other popular restaurants include: 

  • Applebee’s (30 %)
  • Outback Steakhouse (28 %)
  • Chili’s (27 %)
  • Red Lobster (27 %)
  • TGI Friday’s (25 %)

“The nature of what constitutes a fine dining experience – well-presented and delicious food that’s served flawlessly in an environment that pleases all the senses – does not change simply because of the business cycle,” said Milton Pedraza, CEO of the Luxury Institute.  “This comes directly from the types of diners who don’t mind spending $300 or $400 on a dinner for two with a bottle of nice wine and dessert.”

Two-thirds of the wealthy say that Italian food is their favorite restaurant fare, adding to the appeal of Maggiano’s Little Italy, the second most popular chain that also ranks in the top three for food quality, service and restaurant décor. Portland seafood chain McCormick & Schmick’s finishes first for décor, second for service and third for overall experience behind Ruth’s Chris and Maggiano’s. 

Moderately priced chain PF Chang’s China Bistro received high marks for food quality-finishing third behind Maggiano’s and Ruth’s Chris-and earned a fourth-place ranking for overall dining experience.

The study also shows that forty percent of wealthy diners read reviews on the Internet, with Zagat being the most popular online restaurant advisory and with one in six turning to Dine.com.  Popular magazine sources of reviews are:

  • Food and Wine (32 %)
  • Bon Appetit (30 %)
  • Gourmet (22 %)
  • Wine Spectator (15 %)

About the Luxury Institute (www.LuxuryInstitute.com)

The Luxury Institute is the uniquely independent and impartial ratings and research institution that is the trusted and respected voice of the high net-worth consumer. The Institute provides a portfolio of proprietary publications and research and consulting services that guides and educates high net-worth individuals and the companies that cater to them on leading edge trends, high net-worth consumer rankings and ratings of luxury brands, and best practices. The Luxury Institute also operates the LuxuryBoard.com (www.LuxuryBoard.com), the world’s first global, membership-based online community for luxury goods and services executives, professionals and entrepreneurs.

For Further Information, Please Contact:

The Luxury Institute, LLC
Martin Swanson
Business Development
Phone: (914) 909-6350
E-mail: mswanson@luxuryinstitute.com

June 17, 2009

Crisis gives high-end retail industry a makeover

By Martinne Geller

NEW YORK (Reuters) – Fashion and retail executives are adding new ingredients like extensive customer data and streamlined websites to their marketing mix to get consumers to buy in the recession.

Yet the tried and true remain in the recipe, with an emphasis on quality and strategies such as holding back supply, said executives at the Reuters Global Luxury and Retail Summits this week.

“We are able to invest any amount to be able to produce something that is outstanding, that is our strategy,” Hermes Chief Executive Patrick Thomas said, adding that the key to the crisis was to remain focused on the long term.

“My financial strategy is making sure my grandchildren are proud of me,” he said.

Swiss watchmaker Hublot said its secret was to under-supply distributors.

“Never deliver what people need,” said its chief executive, Jean-Claude Biver. “Only give them half. You have to keep them hungry.”

Yet in a shift from the old model of luxury goods makers being dominated by their creative genius founders, some are warming up to the moves used by their lower-tier peers, said Milton Pedraza, chief executive of the Luxury Institute, a research organization that studies the luxury industry.

“This severe downturn really has been a catalyst for opening luxury executives’ minds from the Victorian age now into the 21st century,” Pedraza said. “What we’re seeing is … using the collective wisdom of your team, using the collective wisdom of your customers to drive and to help the creative genius.”

Saks Inc has embraced this approach, and Pedraza said it is paying off by allowing the luxury department store operator to suggest a light blue shirt to a customer it knows just bought a navy blue suit, for example.

Saks Chief Executive Steve Sadove said the company is speaking to customers and found out they are looking for a wider array of price points and better customer service.

“We have actually interviewed over 3,000 of them in terms of their mindset right now and how they are feeling … and I think we have learned quite a lot that has implications for both the ’09 holiday season and beyond,” Sadove said.

Saks is working harder to share that data with vendors and to localize its marketing, he said. 

TINKERING AND TWEAKING

Aside from continuing to invest in its Nine West loyalty program, Jones Apparel Group Inc is broadening its array of casual shoes and enhancing its website.

Milton Pedraza said many high-end brands were now making their websites more streamlined and easy to navigate.

“They’re foregoing all the flash they used to put in front of their websites because it was like a 6-foot brick wall on the left lane of the Autobahn,” Pedraza said. “It took a while for the creative people to get that consumers want to get in and get out.”

Italian jewelry designer Roberto Coin launched a Capri Plus collection, offering pieces with identical designs but varying materials and price tags ranging from $2,500 to $50,000.

“We are saying, ‘put all five different price points (in the window) now … and let (customers) decide which price they feel comfortable with,” Coin said.

Liz Claiborne Inc is offering more lower-priced items at its Juicy Couture, Lucky Brand and Kate Spade brands and in some cases adding more basic designs to attract value-conscious consumers.

Yet for some, it is old-fashioned creativity that is guiding them through the retail storm.

“Over the last year or so I have just been feeling very inspired and creative,” said Jonathan Adler, who designs home decor pieces that are sold at Barneys New York and Neiman Marcus in addition to his own boutiques.

“Complacency is sort of the enemy of growth and a lot of businesses have grown complacent. So I think that this economic climate is a great climate to breed creativity.”

(For summit blog: blogs.reuters.com/summits/)

(Reporting by Martinne Geller; Additional reporting by Astrid Wendlandt in Paris and Marie-Louise Gumuchian in London; Editing by Richard Chang)

http://www.reuters.com/article/GlobalRetail09/idUSTRE55B5L020090612

June 12, 2009

Retailers see Web offsetting spending slump

The Luxury Institute has done several surveys with affluent consumers showing that they are using the web more and more and are also wanting more from luxury brands. This article picks up on this theme. Check our research on how the affluent use the internet plus how to drive traffic to your site using mobile phones.

By Alexandria Sage – Analysis

NEW YORK (Reuters) – Retailers who scoffed at the web during the flush days of consumer spending are now diving head first into online initiatives, lured by that channel’s resilience in the downturn.

More resources are pouring into retailers’ Web operations, and brands from Juicy Couture to Louis Vuitton are at the forefront of digital measures to drive sales, whether through Facebook pages, Twitter feeds announcing new merchandise or online communities, according to speakers at the Reuters Global Luxury and Retail Summits.

The once overlooked Web has shot to the top of worldwide retailers’ priority lists as the recession has eroded sales at traditional brick-and-mortar stores.

While retail sales — excluding food, gasoline and motor vehicles — dropped 8 percent in the first quarter of this year, e-commerce sales were flat, according to Internet research firm comScore.

“In the past (retailers) considered this channel a minor channel, nice to have,” said Claudia D’Arpizio, a partner in Bain & Co’s Milan office. “They were already aware of the potential but they were just postponing because they had other priorities. Now it’s becoming a No. 1 priority.”

Liz Claiborne Chief Executive William McComb agreed.

Online was an “underfunded and largely neglected component” of the apparel giant’s business before a recent restructure to become more brand-focused — a strategy marked by bigger investment in digital, McComb said.

The scale-back in store growth this year ups the ante for e-commerce, he said. “We’re going to increase the short-term goals of the productivity of those e-commerce sites.”

Juicy Couture, one of Liz’s fastest-growing units, sees a ramp-up in its site for this holiday season due to gifts. The trendy brand that is already on Facebook is developing iPhone applications, while its pink website includes blogs and allows fans to post photos of themselves in Juicy product.

Online, 8 percent of sales could grow to 10 percent this year and eventually make up 20 to 25 percent, said President Edgar Huber.

Online runway shows are helping boost JC Penney’s newly launched apparel brands, said Chief Executive Myron “Mike” Ullman, adding that the website also serves as a powerful means to communicate in-store sales promotions.

“It’s just not based on convenience alone. It’s also being able to see the whole assortment and browse,” Ullman said.

GOING BEYOND AMAZON.COM

Upscale retailers online must be more creative to counteract the website user’s inability to feel and appreciate the fine fabrics and materials that are the hallmarks of luxury.

A utilitarian site that may optimize volume but is short on image and user experience will fall flat with luxury shoppers, said Milton Pedraza, chief executive of the Luxury Institute.

“They recognize that having a standard of Amazon as your retailing experience is not going to cut it in the luxury industry. They need to go beyond that,” he said.

 

Those extra steps now include adding new media, said James Gardner, co-founder and chief executive of interactive agency Create the Group, whose clients include Dunhill, Calvin Klein, David Yurman and Burberry.

 

“They felt the squeeze more than other industries and that forced them to look at these strategies,” Gardner said, adding that a staid industry focus on traditional advertising — such as “selling the dream” within the glossy pages of Vogue magazine — was now shifting to digital.

 

“How can we still create that dream but bring it to life interactively?” is the question CEOs ask today, Gardner said.

 

The answer lies partly in excellent customer service.

 

Designer Jonathan Adler, who said his web sales were growing “significantly” to help his bottom line, said service had to be as flawless as that found in retail stores.

 

“The web is like anything else — it’s like another point of purchase and the people who shop are not just email addresses,” Adler said. “They are human beings and when they buy a sofa you need to communicate with them and be like, ‘You really need to buy some pillows with that.’”

 

Even as many brands are chasing online opportunities, some are questioning whether they should even be there. Close-out retailer Big Lots Inc, for example, will decide by the end of the year whether to continue or pull the plug on its nascent Internet business, said Chief Executive Steve Fishman.

 

Acknowledging that many companies are “much better than we are at it,” Fishman said the competitive online space is fierce, with razor-thin margins and no guarantee of success.

 

“If you think you’re in a competitive business when you’re in the four-wall retail business, you have no idea what a competitive business it is when you go online,” he said.

http://www.reuters.com/article/GlobalRetail09/idUSTRE55A2YD20090611?pageNumber=1

June 9, 2009

Luxury sales will grow in 2011

Posted in Luxury Market

Luxury Institute CEO, Milton Pedraza is speaking at the Reuters Global Luxury Summit (NY) June 9th. There are several articles emerging from the event – here is one that looks at sales trends.

Mon Jun 8, 2009 2:18pm EDT

LONDON (Reuters) – Global sales of luxury goods will likely fall again in 2010 but return to growth in 2011, an industry expert said on Monday.

“The worst thing that can happen is that we have another year of negative growth in 2010 … But I see it picking up definitely by 2011,” said Scilla Huang Sun, who runs a $30 million luxury fund for Julius Baer.

Speaking at the Reuters Global Luxury Summit in London, she forecast global sales of luxury goods would fall 5 percent to 10 percent this year but said suggestions the economic crisis meant the death of the luxury market were way off the mark.

“I don’t think it’s dead because I think human nature will always be attracted to nice product and nice brands,” she said. “The question is when will it be back to the level we saw in 2007.”

Market valuations for European luxury goods companies, which stood at 12 to 16 times earnings in 2007, have been languishing at multiples of eight to 11 for several months now.

Huang Sun reckons stocks are cheap on a long-term basis.

“If you look at the long-term charts, where we are even after the (recent) rally, we are still nowhere compared to where we were in 2006, 2007,” she said.

The winners that emerge from the economic crisis will be “the big and beautiful brands, strong brands and well managed brands and the classic brands,” she said, offering Burberry Group Plc (BRBY.L: Quote, Profile, Research, Stock Buzz) as an example.

(Reporting by James Davey; editing by John Wallace)

http://www.reuters.com/article/GlobalLuxury09/idUSTRE5574YT20090608

June 8, 2009

Leaders In Luxury-Interview with Milton Pedraza-Listen to your customers

Posted in Luxury Market

Elite Traveler has a great set of interviews entitled “Leaders in Luxury”.  You can view them all here. http://www.elitetraveler.com/leaders_list.html

Here is the article on Luxury Institute CEO, Milton Pedraza.

ET: Can you give us an overview of The Luxury Institute?

Milton Pedraza: The Luxury Institute is the uniquely objective and independent ratings and research organization that is the voice of the high net-worth consumer globally. We conduct more primary research globally with wealthy consumers and in the luxury space than any other entities combined.

ET: What was your background before starting The Institute?

Milton Pedraza: I spent most of my life in the corporate world. Prior to founding the Luxury Institute, I worked in finance, marketing, sales and senior management positions at Fortune 100 companies Altria, Pepsico, Colgate, Citigroup and Wyndham Worldwide. There, I learned the value of listening intensely to, and acting upon, customer feedback. I was fortunate to be able to conduct business in over 75 countries. Then I was blessed with discovering my entrepreneurial sweet spot in the luxury industry.

ET: What are some of the services you provide ?

Milton Pedraza: We deliver brand ratings research on approximately over 1,000 brands in dozens of luxury product and service categories such as fashion, hotels and wealth managers in the U.S., Japan, China and Europe. We also conduct research with the wealthy on topics as diverse as their social networking habits to food and dining habits. We want our luxury brand clients and members to get to know the wealthy 360 degrees. We also have a rapidly growing luxury marketing and branding consulting business through our Preferred Partners program where we partner with the best in class providers to deliver our services to top luxury brands.

ET: How has The Institute evolved since you launched it?

Milton Pedraza: We began doing primarily luxury brand ratings, but our top clients kept asking us for two things: First, how to join the Institute and get more research on wealthy consumer habits and practices across their lives; and second, to consult with them on how to improve their brand ratings. So, our evolution with membership programs such as LuxuryBoard.com and Preferred Partners consulting services are driven by the clients’ needs. Today we also do closed-door lunches and breakfasts with C-levels only. Thanks to our valued client referrals, we have developed the most expansive network of high-level luxury executives in the world.

ET: What are members telling you about how the economy is affecting the luxury industry?

Milton Pedraza: It has been painful across all levels of luxury and wealthy consumer segments. But some brands, such as Hermes and Vuitton, are doing much better while others are really hurting. Those that are truly unquestionable luxury and serve the ultra-wealthy are generally better off than those who serve the merely wealthy, although everyone has suffered. Those that served the aspirational masses with premium products and called themselves luxury have suffered the most.

ET: What advice are you giving on how to deal with the crisis?

Milton Pedraza: We have a long list of rules. Essentially though, we are saying, do some soul-searching and understand who you really are in luxury, who you serve and at what levels of wealth, and with what differentiated, unique and exclusive luxury value proposition you serve them. If you find that you are a me-too provider, you have to radically innovate and reinvent your design, your quality, your craftsmanship, and most importantly, your service experience. Or, just serve the masses and stop pretending. We are also telling them that if they are not good cash managers, it does not matter how great they are in this crisis.

ET: Why were so many companies surprised by the recession?

Milton Pedraza: We tend to extrapolate from the present, and the luxury industry was booming for a couple of years, so many luxury executives extrapolated a high level of growth domestically and globally for years to come. This economic crisis was so sudden and so severe that I think most brands were caught flat-footed and in high-growth investment mode. And I also think luxury executives with short memories believed the myth that luxury was either immune or super-resilient to downturns. Our analysis of the data said otherwise, and we did say it publicly, but few luxury leaders are focused on macro-economics or are willing to hear bad news.

ET: What are some of the mistakes you are seeing companies make as they come under cost pressure?

Milton Pedraza: Some companies are cutting service levels and that is a major mistake. I heard a story recently about a luxury resort where the room rate deals were great, but when VIP guests arrived, two of the three restaurants and the spa were closed. That is an extreme example, but the point is that many service level cuts can add up to memorable bad service. In other places, we see complacency and lack of motivation from the customer-facing personnel. That is a truly tragic mistake. When times are tough is when you proactively go out and acquire customers, ask for referrals and focus on retaining your good customers. We see many brands frozen in terms of initiatives and discounting heavily instead. Discounting is a short-term tactic that has long-term damaging effects in luxury.

ET: What are your goals for The Institute over the next three to five years?

Milton Pedraza: Our goals are to expand our services more globally. For example, we want to conduct research in India and the Middle East, if feasible. We are also continuously asking for candid client feedback and reviewing our existing products in order to innovate. We survey our clients to give us unfiltered feedback. Although sometimes it is painful to hear the feedback, we must do so in order to reinvent ourselves. That is one major recommendation we make to all our luxury brand clients. Listen to your customers and then test and learn your way into the future. Only those who are gearing up to compete in the 21st-century will survive and thrive.

ET: What do you consider luxury?

Milton Pedraza: High net-worth consumers tell us luxury has several characteristics. It’s comprised of unique and great artistic design created with the highest levels of quality and craftsmanship. All of it is wrapped in impeccable and personalized service. This should synergistically add up to an extraordinarily unique and exclusive experience. It helps if your wealthy peers, those whom you admire and respect, are also using the good or service. Luxury is about to reinvent itself and it will be wonderful to see what new innovations the true luxury brands bring forth.

http://www.elitetraveler.com/leaders_detail.html?lid=97&p=1&n=milton-pedraza

Hermes breeds own crocs to meet bag demand

Posted in Luxury Market

Mon Jun 8, 2009 1:57pm EDT

By David Jones

PARIS (Reuters) – French luxury goods group Hermes has resorted to breeding its own crocodiles on farms in Australia to try to meet demand for its leather bags, its chief executive said on Monday.

Customers sometimes have to wait several years for certain exotic-skin bags, which can fetch over 35,000 euros ($48,410).

“It can take three to four crocodiles to make one of our bags so we are now breeding our own crocodiles on our own farms, mainly in Australia,” Patrick Thomas told the Reuters Global Luxury Summit in Paris.

Hermes already faces a major challenge producing 3,000 crocodile bags a year, Thomas said, adding: “The world is not full of crocodiles, except the stock exchange!”

Crocodile farming can be expensive, with the reptiles having to be kept apart in separate rooms to protect their skins from bites, but even so allowances have to be made for natural losses that can amount to around a third of bred crocodiles.

Hermes’ leather goods, which account for 40 percent of its business, have been the most robust in the current downturn with the group taking on 50-100 leather workers this year to add to the 2,000 craftsmen it already employs at French sites.

Thomas admits the group has been pushing other areas of the business, such as fashion and textiles, so it is not so reliant on leather bags, but says this area continues to be its fastest-growing product line.

“We cannot face demand. We have massive over-demand. We are limited by our ability to train new craftsmen,” he added.   ($1=.7230 Euro)

http://www.reuters.com/article/GlobalLuxury09/idUSTRE5573QI20090608

June 4, 2009

Japanese High Net-Worth Consumers Rank the “Best of the Best” Luxury Brands in Six Categories

(NEW YORK) June 4, 2009 – The Luxury Institute reported today the results of the “Best of the Best” luxury brands in Japan based on the 2009 Luxury Brand Status Index (LBSI) survey, which identifies the top brands that deliver true luxury based solely on the unbiased ratings of wealthy Japanese consumers. The following six luxury categories were rated: Women’s Fashion (29 brands), Women’s Shoes (18 brands), Handbags (30 brands), Men’s Fashion (22 brands), Men’s Shoes (18 brands) and Automobiles (20 brands). 

The LBSI asks high net-worth consumers to rate luxury brands by category across four equally weighted components: Consistently Superior Quality, Uniqueness and Exclusivity, Making the Customer Feel Special Across the Entire Experience and Being Consumed by People Who Are Admired and Respected.

Which luxury providers deliver the best combination of quality, exclusivity, customer experience and peer prestige in Japan?

The “Best of the Best” are: (LBSI score out of 10)

  • Women’s Fashion
  • Hermes- 7.38
  • Chanel- 7.20
  • Louis Vuitton- 7.01
     
  • Women’s Shoes
  • Manolo Blahnik- 8.18
  • Jimmy Choo- 7.58
  • Hermes- 7.45
     
  • Handbags
  • Hermes- 7.76
  • Louis Vuitton- 7.24
  • Chanel- 7.20
  • Men’s Fashion
  • Ermenegildo Zegna- 7.08
  • Giorgio Armani- 6.97
  • Louis Vuitton- 6.71
  • Men’s Shoes
  • Salvatore Ferragamo- 6.82
  • Versace- 6.59
  • Giorgio Armani- 6.38
  • Automobiles
  • Mercedes-Benz- 7.47
  • Porsche- 7.21
  • Lexus- 6.99

 “Japan continues to be a critical market for luxury due to its highly discerning and still affluent consumers,” said Milton Pedraza, CEO of the Luxury Institute. “The Luxury Institute conducts more surveys globally with wealthy consumers than all other entities in the world combined, and we also clearly see that luxury is no longer ‘back to basics’ .While some are busy predicting the death of luxury around the developed world, we predict that luxury will regain its luster, and with a vengeance, when truly wealthy consumers fatten their wallets again and can focus on acquiring the best. It is a historical fact that luxury is cyclical and dramatically outperforms in up cycles and dramatically underperforms in down cycles. We predict that savvy Japanese wealthy consumers will not be fooled again by faux luxury brands.” 

The proprietary Luxury Brand Status Index (LBSI) survey is the only unbiased measure of the prestige of leading brands among wealthy Americans. A national sample of 600 wealthy Japanese consumers, with an average household income of ¥50,000,000 Japanese Yen (or $525,000 US Dollars) was surveyed online. 

About the Luxury Institute (www.LuxuryInstitute.com)

The Luxury Institute is the uniquely independent and impartial ratings and research institution that is the trusted and respected voice of the high net-worth consumer. The Institute provides a portfolio of proprietary publications and research and consulting services that guides and educates high net-worth individuals and the companies that cater to them on leading edge trends, high net-worth consumer rankings and ratings of luxury brands, and best practices. The Luxury Institute also operates the LuxuryBoard.com (www.LuxuryBoard.com), the world’s first global, membership-based online community for luxury goods and services executives, professionals and entrepreneurs.

For Further Information, Please Contact:

The Luxury Institute, LLC
Martin Swanson
Business Development
Phone: (914) 909-6350
E-mail: mswanson@luxuryinstitute.com

June 2, 2009

Glitz Factor – Wealthy Consumers Allocate Funds to Only The Best

by Cecily Hall with contributions from Sophia Chabbott
Posted Thursday May 28, 2009
From WWD Issue 05/28/2009

The Luxury Institute this month ranked the top luxury jewelry brands in its 2009 Luxury Brand Status Index (LBSI) survey. The LBSI asked over 1,000 high net worth consumers with minimum net investable assets of $2 million to rate luxury brands by category in four areas: consistently superior quality, uniqueness and exclusivity, making the customer feel special and if the brand is consumed by peers and people who are admired by respondents. Larger luxury retailers are taking a back seat among “consumers who are looking for more unique, exclusive pieces because they have fewer funds – so they will allocate those funds to only the best,” said Milton Pedraza, chief executive officer of the Luxury Institute. He added that some smaller jewelry brands might face shutdown by the end of the year, without refinancing or new investment.

#1 GRAFF – Luxury Brand Status Index score (out of 10) 7.88

Executives across the board agree diamonds 10 carats and above are still in high demand because of limited availability. “When you want something truly rare, you go to Graff,” said Pedraza of the Luxury Institute. “They’re not as well-known for having this flashy, Hollywood image, they just have a great reputation for the product. This is what stands out to luxury consumers.” He noted that respondents used phrases such as “unique,” “innovative,” “ultimate quality in design” and “known for their taste” to describe the brand and why they would recommend it to friends. In 2008, the company opened a Madison Avenue flagship in Manhattan, exhibiting its rare, large and colored diamond jewelry collection, as well as its exquisite pearl, sapphire and emerald parures.

To view a PDF of the top 10 click here

Source: http://www.wwd.com/markets-news/glitz-factor-2146799/print/

June 1, 2009

Dim Economy Puts Spotlight on Luxe Prices

by Marcie Young with contributions from Meghan Cass, Elisa Anniss
Posted Monday June 01, 2009
From Footwear News Issue 06/01/2009

NEW YORK - After years of sharp increases, with little consumer resistance, vendors and retailers are now being forced to take a hard look at prices amid a huge shakeup in the high-end sector.

While top industry players aren’t sure how the issue will play out long-term, every corner of the luxury market has taken a hit, and many execs said that pricing is the root of the problem.

According to an exclusive Footwear News survey conducted online last month, a large majority of respondents – 85 percent – said prices have spun out of control in recent years.

Of the 146 execs polled (64 percent work in the luxury segment), work in the luxury segment), more than half – 53 percent – said they have resorted to price cuts to battle the drooping economy. Of those, 78 percent said they have dropped prices between 5 percent and 20 percent.

“Prices have been driven through the roof, and consumers are pushing back,” said Pam Danziger, president of Unity Marketing, a luxury research firm based in Stevens, Pa., that analyzes the buying habits of the nation’s most affluent consumers. “The real luxury brands have got to get their heads around the new, value-conscious consumer.”

That’s a challenge that both retailers and vendors have been tackling with mixed approaches. Last fall a wave of intense promotional activity, led by the department stores, swept through the industry. But that strategy backfired for many, as sales and earnings continued to decline.

Now, both big retailers and independents are trying to appeal to cash-strapped high-end consumers by retooling their mix to offer a broader spectrum of prices.

“I can’t reinforce enough … that this isn’t about bringing in a lot of low-priced brands,” Saks Chairman and CEO Steve Sadove said in a recent conference call with analysts. “This is about, within the brands we sell, adjusting some of the buy to get to the mix of price points.”

Sadove said he doesn’t “anticipate the kind of aggressive markdowns we were seeing last fall,” and was careful to note he expects consumers will return to paying full price, albeit with a keener eye. “The luxury customer still likes to shop, values brands even more, has heightened service expectations and is searching for value [defined by price, quality and uniqueness] more than ever,” he said.

Independent retailers, too, have changed their strategies.

“Each season prices creep up even more,” said Todd Hanshaw, DMM of fashion at the Wynn Las Vegas, which has three shoe boutiques that carry luxe styles from Christian Louboutin, Manolo Blahnik, Nicholas Kirkwood, Behnaz Kanani and others. “We’ll always offer things on the higher end of the spectrum, but we are also looking for someone who can make a great shoe and do it for a lower price.”

The focal point of the Wynn stores, Hanshaw said, will always be unique items, such as the $2,000 crocodile and lizard shoes created by Kanani, but he stressed that the quality and value of the product must always match the price. “If I look at a shoe and say, ‘That’s a good shoe, but not worth $1,200,’ I’m not going to buy it,” Hanshaw said, noting that he has asked vendors to tweak styles if he doesn’t think the prices match the quality and design.

Jeffrey Kalinsky, owner of the Jeffrey boutiques in New York and Atlanta, has taken a similar stance. Basic high-end footwear, he explained, should fall between $495 and $750. “When you get above that, you have to know why,” said Kalinsky, who includes Jimmy Choo and Lanvin in his product mix. “It has to have that intrinsic value.”

Seventy-eight percent of respondents to FN’s industry poll agreed, saying the sweet spot for luxury footwear should be $400 to $600, while just 2 percent of respondents put that number at $800 or above.

Kalinsky added that he hasn’t changed his buying strategy for spring ’10, but has noticed that footwear has been the hardest hit category in his shops over the last year – even before the economy took a severe turn. He blames swelling prices for the slump. “Women want to come in and shop and have fun,” he said. “It’s not fun when every shoe they pick up is around the $1,000 price point.” Pressure on Design

Designers and brands have also found themselves adapting to pricing concerns, but most are determined not to drop prices across the board.

Instead, Jimmy Choo, led by President Tamara Mellon and CEO Joshua Schulman, has stretched the company’s footwear mix to include $395 espadrilles and $175 jelly sandals, alongside highly decorated heels priced at $1,395. “This is pretty much a new business for Jimmy Choo, with three distinct points of business,” Schulman said, noting that all the classifications have recently been selling at full price.

Schulman added that the plan had been in place before the economy took a dive last fall, but has been particularly helpful in recent months as shoppers change how they approach luxury purchases. “Every customer, whether they are high-net-worth or not, is looking at spending differently than a year ago, and that can manifest in different ways,” he said. “If we can offer more quality [items] across the classifications, it’s an opportunity to collect more wallet.”

Marc Jacobs, too, has found success with a broader consumer base by continuing to grow his Marc by Marc Jacobs diffusion line. At a recent The New York Times discussion, the designer said the Marc line has always been positioned to offer a lower-priced option for those wanting the Marc Jacobs name and has been particularly important in recent months.

“We are trying to be a little bit more responsible to make sure there is a variety of price,” Jacobs said. “It’s really a bit of a balancing act. This is all new for everyone out there, [dealing] with this crisis … and the reality of life today.”

Smaller designers are also looking for innovative solutions to the pricing conundrum.

Ruthie Davis, for one, unveiled a two-for-one collection of shoe combos for fall ’09 that include a Davis by Ruthie Davis pump and a takedown flat in the same colorway for $698 to $798.

Still, the designer said she’s made a conscious decision not to drop prices on her namesake line, which she debuted in 2006. “The meat-and-potatoes of my line has always been in the $600-to-$900 range,” she said. “You’ve got to stand by your game plan. Crumbling to that pressure [may be] a good short-term fix, but it’s not good for [your brand's value] in the long run.” Even so, Davis acknowledged that she felt some pushback from retailers to offer lower prices or discounts.

Other players aren’t focusing as much on price as they are on creating edgier designs that will stand out on the selling floor.

“We are seeing increased demand for extra-special pieces that have been fashioned from [luxury] materials like multicolored python and ring lizard,” said Andrew Stewart, sales director at Rupert Sanderson.

Nicholas Kirkwood agreed. “It actually tends to be the more unique pieces that are getting the highest sell-throughs at this point,” he said. The London-based designer – whose eponymous line is in its fifth year – said he hasn’t felt any pressure from his retailers to lower prices. But Kirkwood, whose shoes typically sell for $730 to $1,400 at shops including Capitol in Charlotte, N.C., and Nordstrom, said he takes less of a margin compared with larger brands.

But while he’s not changing his strategy, Kirkwood said luxe prices, on a whole, will have to level off. “You would think the economy would contribute to that,” he said. “It can’t keep going up the way it has. If it does, there’s going to be [smaller and smaller] margins.”

Experts, too, stressed that the pricing model will have to change if brands expect to make it through the economic turmoil. “If you want to survive and live to thrive, you may want to reduce your price on some products [by 20 percent] and maybe go back to the basics,” said Milton Pedraza, CEO of The Luxury Institute. “Yes, they’ll have a hard time raising prices [again], but that’s why it’s so important to constantly be reinventing yourself.”

http://www.wwd.com/footwear-news/economy-puts-spotlight-on-luxe-prices-2152392

Mini luxuries can mean big payoff

Posted in Luxury Market

Luxury brands are finding it profitable to think small for products ranging from cigars to perfume bottles. Jennifer Collins reviews some of last year’s successful launches and why they sold so well.

Bill Radke: Zale’s, the diamond retailer, reports quarterly earnings today. They’re expected to be lackluster, what with customers cutting back on the luxuries. Some makers of luxuries are cutting back too — quite literally, as Marketplace’s Jennifer Collins reports.


Jennifer Collins: If you’re looking for the latest in luxury, you could ask your butler. Or you could always turn on the Colbert Report:

Stephen Colbert: Times may be hard, but they’ve led to some exciting new products. Like the popular new smoke for the elite, Nubs. Which are shorter, cheaper versions of luxury cigars.

At four inches, Nubs are kind of like half cigars. And at $6.50 a piece, they cost about half as much as a typical cigar.

Sam Leccia created the small smokes. He says they’ve caught on:

Sam Leccia: I mean, it did close to $8 million in its first year. And those are really big numbers for a brand right out the gate.

Nubs are among several luxury products going small to make it big. The affluent aren’t spending like they used to, so high-end restaurants are expanding their appetizer menus. Tony hotels are promoting shorter stays. Even perfume is going petite.

Harajuku ad: Welcome to the world of Harajuku Lovers Fragrance.

Pop star Gwen Stefani launched the Harajuku Lovers Fragrance line in the fall. The bottle designs are inspired by the Harajuku fashion district of Tokyo.

Karen Grant is a health and beauty care analyst with NPD Group:

Karen Grant: These were about a third of an ounce and extremely successful. It was one of the best-selling launches that we had for 2008.

So successful — that a few companies — including the one behind Stefani’s line — are planning to launch other small bottles next year.

Milton Pedraza is the CEO of the Luxury Institute:

Milton Pedraza: I think it’s just adapting to what the consumer needs. It’s still a premium product, it’s still efficacious, it’s still beloved. It is still a very high price, but it is more affordable on a by-the-slice basis.

Pedraza says luxury consumers are loyal to their brands. And if more companies took a cue from cigars and cologne, they, too, may find that less is more in a shrinking economy.

I’m Jennifer Collins for Marketplace.

 http://marketplace.publicradio.org/display/web/2009/05/27/am_mini_luxuries/