Luxury Institute News

July 31, 2009

Coach rolls dice with Krakoff luxury clothing line

Tue Jul 28, 2009 7:05pm EDT

By Martinne Geller and Nicole Maestri – Analysis

NEW YORK/SAN FRANCISCO (Reuters) – The decision by Coach Inc  to launch a clothing line named for its creative director Reed Krakoff is a risky one, especially amid a global economic slowdown that may permanently alter consumers’ desires for designer duds and high price tags.

While Coach’s handbags became ubiquitous during the housing boom as consumers found themselves flush with cash and easy access to credit, the retailer is now introducing lower priced goods to appeal to newly frugal and budget conscious shoppers.

Chief Executive Lew Frankfort defended his company’s plan to launch a luxury clothing brand, telling Reuters it was “a perfect time” as consumers rethink where and how they shop.

Analysts praised Coach for its strong balance sheet, methodical approach to managing its business, and strong stable of talented designers. But they cautioned that success in selling a handbag does not necessarily translate into success selling clothes — even for a retailer as well regarded as Coach.

“Going into a totally new category, which is more challenging, less profitable and to do it in an environment like this, when there’s already too many brands, that is extremely challenging,” said Milton Pedraza, chief executive of the Luxury Institute. “It’s definitely a sport that is not for the faint of heart.”


On Tuesday, Coach reported a lower quarterly profit that matched Wall Street estimates, but its shares fell after same-store sales trends worsened and some investors worried over its increased investment.

Coach said it plans to introduce a stand-alone brand next year called Reed Krakoff after its executive creative director. Krakoff, along with Frankfort, oversaw Coach’s evolution from a utilitarian leather goods maker to a fashion brand whose products range from bags, jewelry and perfume to scarves, sunglasses and shoes.

“We believe the Reed Krakoff label will define new American luxury, which has a distinctive aesthetic at an attractive price point,” Frankfort said.

Coach is funding the brand, which will be sold in a small number of stand-alone stores, and a limited number of boutiques and specialty stores. It will not be sold in Coach stores.

Like other fashion brands, Coach has seen sales and profits tumble in the recession as consumers curb spending. In response, it has rolled out a line of lower-priced handbags that will help cut its average handbag price from $325 last year to under $300 this year.

The new Reed Krakoff line expands Coach’s reach into clothing, which will range in price from $495 to $1,195. The line also includes accessories, jewelry and handbags.

Coach sells a few limited-edition handbags that cost thousands of dollars, but the bulk of its higher-end bags still cost less than $900.

Pedraza said Coach has the skills and resources to execute a higher-end brand, just as Japanese car maker Toyota executed its Lexus brand.

But he cautioned that the market for designer clothing is “far more challenging and far more competitive” than handbags.


Coach said investments, including the Reed Krakoff line and its expansion in China, will reduce earnings by about 5 cents per share in fiscal 2010, or about the same amount as in fiscal 2009, which ended in June.

Independent retail analyst Jennifer Black said Krakoff, who joined Coach in late 1996, has been key to Coach’s creative evolution, and that the risks for Coach include not only the money it is investing, but also the potential to divert his attention away from the core brand.

“Does he plan to be as involved as he was in the Coach brand?” Black asked.

Krakoff, who has a degree in Fashion Design and a Bachelor of Arts in Economics and Art History, has worked for Anne Klein, Ralph Lauren and Tommy Hilfiger. He has published several books of photography and is involved with New York’s Cooper Hewitt Museum and Whitney Museum.

Coach executives, who are known in the industry for doing extensive data analysis and market research, said there are separate design teams for Coach and the Krakoff brand and that Krakoff has already been splitting his time for a year.

“We’re very pleased with his ability to handle both responsibilities,” said Frankfort, adding that Krakoff’s line will complement, rather than compete with, Coach merchandise.

Needham & Co analyst Christine Chen said most designers like to pursue personal ventures, and she dismissed concerns that the new line will drain creative energy from Coach.

“Great designers can multitrack. Look at what Marc Jacobs has done for both his own line as well as Louis Vuitton.”

She also cited Karl Lagerfeld having his own business while designing for Chanel, and how Prada and Gucci began as handbag makers but now have successful clothing businesses.

“I think this it’s going to be a very smart yet contained effort at pursuing additional profitability,” said Barclays Capital analyst Robert Drbul. He said Coach has successfully introduced more expensive — and more profitable — handbags over time.

By Martinne Geller and Nicole Maestri; additional reporting by Ben Klayman in Chicago; Editing by Matthew Lewis, Phil Berlowitz

July 21, 2009

Florentine Medici Palazzo Lures Investors With Papal Apartments

By Andrew Davis

July 21 (Bloomberg) — At a time of imploding real-estate markets and a deepening global recession, selling stakes in a glorified timeshare starting at 218,000 euros ($310,000) might seem like a folly, unless the property is Palazzo Tornabuoni, a Renaissance palace in central Florence.

The palazzo, once the power center of the city’s famed Medici family, has undergone a $150-million restoration and reopened as a private membership club, the most exclusive tranche of the fractional-ownership vacation market. The approach may prove well suited to the current environment when the wealthy are being more discerning in their luxury spending.

“Investors are looking for a balance between their ability to invest and the use they will get out of that investment,” said Jacopo Mazzei, chief executive officer of RDM, the real estate unit of Fingen Group, and whose family was once banished from Florence by the Medicis. “That favors this concept of club membership at a time when people are paying more attention to the way they spend.”

Unlike with timeshares, members own a stake in the club, not in one of the 38 unique apartments. A membership in a one- bedroom goes for 218,000 euros, with two-bedroom membership selling for 549,000 euros. Owners can stay whenever availability permits and keep any price appreciation if they sell their stake.

Villa Cost

To Italy lovers, the formula also offers a chance for that place under the Tuscan sun at a sliver of the cost of a villa.

“Especially because of this crisis, I didn’t have second thoughts,” Martin Englmeier, chairman of Ingolstadt, Germany- based Anylink Systems AG, an electronics-components maker, said about purchasing a one-bedroom stake. “I would definitely have had second thoughts if I’d spent 1.5 million euros on owning something.”

Private membership clubs have suffered less from the recession than the overall shared-ownership market, which also includes vacation clubs and less exclusive, fractionally owned properties, according to a report by Ragatz Associates. Last year, shared-ownership sales fell 34 percent to $1.53 billion in North America and the Caribbean. Private membership clubs declined 24 percent, also less than the 41 percent drop in vacation-home sales.

At Tornabuoni, luxury is assured by Four Seasons Hotels & Resorts, which manages the property. The concierge service can organize anything from a wild-boar hunt to private tours of the Uffizi Gallery. Owners can store their clothes and, with a phone call, arrive to find the closets filled and their kitchen stocked.

Bonan’s Designs

Twenty of the apartments by Italian designer Michele Bonan are now ready. He preserves the palazzo’s classical touches while adding modern comforts such as spacious kitchens with Boffi fittings, sound systems by Bang & Olufsen A/S and bathrooms of Carrara and Calacutta marble, some rivaling the size of my Rome apartment.

Residents can unwind under the 30-foot, wood-painted ceiling of the Club Lounge or curl up with a book in the library. There is a cigar bar and wine cellar with storage available so guests can build their own collections. Bulgari SpA and Cartier, a unit of Cie. Financiere Richemont SA, have opened stores and the Osteria Tornabuoni restaurant and Obika Mozzarella Bar debuted in May.

Despite the modern touches, Tornabuoni is about history. Renaissance frescoes, 18th-century stucco ceilings, hand-carved marble mantelpieces and terrazzo floors have been magnificently restored. The grand staircase is wide enough to drive a minivan up and wraps around a life-sized, 17th-century statue of Diana, goddess of hunting.

‘Lightning Pope’

One of the most impressive apartments, the Pope Leo XI Residence, opens under a carved-wood ceiling ringed by frescoes by Ciampelli. Alessandro Ottaviano de’ Medici greeted Florentine nobility here after taking over the palazzo in 1574. He eventually became pontiff, and known as the “lightning pope” for dying less than a month into his papacy.

“It’s more than just a destination; it’s a one-of-a-kind historical treasure,” said Milton Pedraza, chief executive officer of the Luxury Institute, a New York-based research company.

Marshall Geller, founder of St. Cloud Capital in Los Angeles, held his 70th birthday party at Tornabuoni in March in the Michelozzo Residence, the largest of the two-bedroom apartments at 245 square meters (2,637 square feet). The Four Seasons provided china and silverware and floral arrangements to match the hues of the apartment.

Tuscan Honey

Rolando Beramendi, co-owner of Bellavitea restaurant in New York and Tornabuoni consultant, whipped up a meal of warm ricotta timbal with wild chicory and Tuscan honey dressing, fresh pea and fava-bean soup and chianina beef braised in Chianti wine.

“The party was top notch; you couldn’t have that kind of party anywhere and get that kind of food and service and atmosphere,” Geller said.

Mazzei is confident Tornabuoni will weather the recession and reach its goal of as many as 304 members, though it will take until 2011, two years longer than initially planned. Still, no price cuts are in the offing. That number will be lower if some of the remaining units get sold to individual investors.

“We will raise our prices,” he said. “We are convinced that the price is below its true value.”

To contact the writer on the story: Andrew Davis in Rome at

Last Updated: July 20, 2009 19:00 EDT

July 17, 2009

Survey: Nordstrom Top of High-End Retailers

Posted in LCEI,Retail

by FN Staff
Posted Friday July 17, 2009
From Footwear News

The Luxury Institute reported Thursday that Nordstrom department stores ranked first in its annual report of top-rated high-end retailers.

According to the results of its annual Luxury Customer Experience Index, Neiman Marcus was rated second and Brooks Brothers rated third among wealthy consumers who were polled online about such areas as satisfaction, personnel and store environment. Respondents had an average weighted net worth of $3.2 million.

“Luxury retail clients tell us they look for expertise and trust, along with lasting value, when they shop luxury, and Nordstrom delivers that even in a down economy,” said Milton Pedraza, CEO of the Luxury Institute. “As the luxury retail industry finally sheds its ‘Industrial Age skin’ and adopts organic, customer-adaptive principles, we predict innovations from luxury leaders, such as independent customer advocates sitting on boards of directors, customer segment managers running the business and customer retention, customer referral and customer profitability … [becoming] the most critical metrics for the business.”

July 16, 2009

Luxury Institute Survey:High Net-Worth Consumers Rank “Best of the Best” Luxury Retailer Customer Experience

(NEW YORK) July 16, 2009 – The Luxury Institute reported the top-rated luxury retailer brands in the 2009 Luxury Customer Experience Index (LCEI) survey, which identifies the top brands that deliver true luxury customer experiences in numerous categories based solely on the independently verified ratings of wealthy and ultra-wealthy consumers. 

High net-worth consumers who have been customers of the brand during the past 12 months rated Nordstrom the “Best of the Best” among eight major luxury retailers. Those who recommend Nordstrom say: 

  • “I like Nordstrom because they have the best shoe collection I have ever seen. They are so well organized and fairly priced. If I could, I would buy everything from there.” 
  • “Everyone in the store is committed to helping you, even if it is not in their direct department. Selection is great and quality is never an issue. If you have a problem, they take it back, no question.”  
  • “Their salespeople are really helpful and knowledgeable. I am buying their expertise more than anything else when I shop there.”

The LCEI asks high net-worth customers to rate luxury brands by category across three equally weighted and detailed rating components: Complete Satisfaction, Brand Personnel and Store Environment. The survey also measures Problems and Resolutions, Worthiness of a Significant Price Premium and Willingness to Recommend on the Part of Wealthy Customers. 

The “Best of the Best” Luxury Retailers are: (LCEI score out of 10)

  • o Nordstrom- 8.31
  • o Neiman Marcus- 7.78
  • o Brooks Brothers- 7.76

“Perhaps it is no accident that Nordstrom sales continue to outperform its competition in a bruised economic climate, since the brand is an example of a customer-adaptive 21st Century Luxury Enterprise,” says Milton Pedraza, CEO of the Luxury Institute. “Luxury retail clients tell us they look for expertise and trust along with lasting value when they shop luxury, and Nordstrom delivers that even in a down economy. As the luxury retail industry finally sheds its Industrial Age skin and adopts organic, customer-adaptive principles, we predict innovations from luxury leaders such as Independent Customer Advocates sitting on Boards of Directors, Customer Segment Managers running the business, and Customer Retention, Customer Referral and Customer Profitability metrics taking their place as the most critical metrics for the business. ” 

The proprietary Luxury Customer Experience Index (LCEI) survey is the only unbiased measure of true customer experiences of leading brands among wealthy and ultra-wealthy Americans. A national sample of 1,505 wealthy consumers was surveyed online. Respondents have an average weighted gross annual household income of $325,000 and an average weighted net- worth of $3.2 million. Survey results are weighted to match demographic and net-worth profiles of the same audience according to the latest Survey of Consumer Finances from The Federal Reserve. 

About the Luxury Institute (

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 (, the world’s first global, membership-based online community for luxury goods and services executives, professionals and entrepreneurs.

July 14, 2009

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

(NEW YORK) July 14, 2009 – The Luxury Institute reported today results of the “Best of the Best” luxury brands in China 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 Chinese consumers. The following six luxury categories were rated: Women’s Fashion (29 brands), Women’s Shoes (18 brands), Handbags (27 brands), Men’s Fashion (25 brands), Men’s Shoes (25 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 China? 

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

  • Women’s Fashion
  • Prada- 8.77
  • Yves Saint Laurent- 8.75
  • Hermes, Gucci and Dolce & Gabbana (tied)- 8.68
  • Women’s Shoes
  • Ferragamo- 8.69
  • Gucci- 8.66
  • Hermes- 8.64
  • Handbags
  • Hermes- 8.93
  • Lulu Guinness- 8.77
  • Ferragamo- 8.76
  • Men’s Fashion
  • Giorgio Armani- 8.74
  • Louis Vuitton- 8.68
  • Dior Homme and Paul Smith (tied) – 8.54
  • Men’s Shoes
  • Louis Vuitton- 8.66
  • Versace- 8.51
  • Giorgio Armani, Brian Atwood and Gucci (tied) – 8.48
  • Automobiles
  • Porsche- 8.79
  • Mercedes-Benz- 8.72
  • BMW- 8.70
  •  China is now the most important luxury market for near-future growth for luxury brands,” said Milton Pedraza, CEO of the Luxury Institute. “In some ways, Chinese luxury consumers covet many of the same brands as the Japanese. In other ways, they tend to rate luxury brands much higher, yet differentiate far less between brands than their more experienced Japanese counterparts. Early movers who flawlessly execute on the new luxury fundamentals and ignore the ‘back to basics’ movement will have the advantage because the luxury game in China is still wide open, therefore luxury brands will have to go to a new, innovative level; making China a wonderful laboratory for global innovation.” 

    The proprietary Luxury Brand Status Index (LBSI) survey is the only unbiased measure of the prestige of leading brands among wealthy Chinese consumers. A national sample of 600 wealthy Chinese consumers, with a minimum household income 1 million Chinese Renminbi (or 147,000 U.S. Dollars) and an average household income of 381,000 U.S. Dollars was surveyed online. 

    About the Luxury Institute (

    The Luxury Institute is the uniquely independent and impartial ratings and research institution that is the trusted and respected voice of the global 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 (, 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

    July 13, 2009

    ‘Aspirational shopping’ endures

    July 11, 2009

    When To Pay Full Price
    Lauren Sherman, 07.10.09, 4:00 PM ET

    Despite widespread consumer frugality–the U.S. retail industry in June posted a 6.7% month over month sales decline, according to the Goldman Sachs Retail Composite Index–it seems some shoppers aren’t deterred from a quality buy.

    Take the well-heeled clients of New York, N.Y.-based personal shopper and stylist Jill Markiewicz, 38. She says the primarily female executives she works with still want what they want, when they want it. Even if that means paying full price.

    “The best shoes, handbags and clothes are the first to go,” says Markiewicz of the must-have seasonal merchandise she’s paid to track down. Now in demand: sparkly Balmain jackets and Current Elliot’s latest rendition of the boyfriend jean. And classics, such as a Chanel suit or an Hermès handbag, almost never see the sale rack.

    It seems these luxury shoppers are on to something. Markiewicz says that high-end retailers’ markdowns are often damaged, ill-fitting, oddly colored or simply a hiccup in the designer’s general aesthetic. “It’s completely picked-over merchandise,” she says. While there are no doubt cases where shoppers have found their dream peep-toe pump on the discount rack at Jimmy Choo, it doesn’t happen often. Even when there is a sale–which is less likely given lower inventories–chances are it’s not going to be something you actually desire.

    “Buying a few expensive pieces that you truly want,” she says, “instead of a bunch of discounted items, is the best way to shop.”

    In Depth: 10 Things Worth The Cost

    Actions on the part of retailers are a big reason shoppers may be forced to adopt this practice. After reductions as high as 70% at high-end retailers like Saks Fifth Avenue and Neiman Marcus this past holiday season, they’ve cut back on inventory, thus reducing the chance of widespread spring merchandise discounts. Some brands, such as Louis Vuitton, have even gone so far as to prohibit discounting altogether in both department stores and their standalone stores.

    Still, as we exit the Era of Markdowns, it’s good to know that there are some things worthy of their price tag, from a bespoke suit to a limited-edition vehicle to a tasting menu at your favorite four-star restaurant.

    The more unique and exclusive something is, whether it’s custom made or one-of-a-kind, the more untouchable the price,” says Milton Pedraza, CEO of New York-based market research firm the Luxury Institute.

    Fine jewelry, for instance, not only holds its value but tends appreciate over time. Despite numerous bankruptcies–including Fortunoff and Fred Leighton–as well a steep sales declines–Tiffany saw its year-over-year revenues decrease by 22% in the first quarter of 2009 to $523.1 million–high-end jewelers aren’t backing down on pricing. “There’s been no room for negotiation,” says Markiewicz, who frequently works with New York-based jewelers like Kentshire Galleries and David Webb.

    For those who can afford it, it may be easy to justify paying full price for an investment piece like a $30,000 diamond–which will presumably increase in value over the years–or a $20,000 Hermès alligator Birkin–which is so in demand that the company had start to breeding its own alligators to keep up with orders. But it’s not just pie-in-the-sky pieces that are worthy of their cost. Some everyday goods shouldn’t be bought in bulk, at a discount retailer or over eBay only to save a
    couple of bucks.

    Simple splurges should include perfume and cosmetics, says Cynthia O’Connor, CEO of Cynthia O’Connor + Company, a New York-headquartered women’s fashion showroom. From Chanel No. 5 to Mac Russian Red lipstick, finding the perfumes and cosmetics that you use the most at a discount is unlikely.

    And when they are available in discount stores, they may be counterfeit. (In July 2008, luxury conglomerate LVMH Moet Hennessy Louis Vuitton sued online auctioneer eBay for selling fake bottles of Dior, Givenchy and Guerlain perfumes. eBay was forced to pay LVMH $4.6 million in damages.) And while at the beginning of 2009, department stores were occasionally offering store coupons that included these items, since the aforementioned decrease in inventory they’ve refrained from that practice. Discount retailers sometimes carry genuine overstock, but it’s usually undesirable colors and scents that may have already exceeded shelf life.

    Full-priced athletic apparel is another worthy purchase. Unless it’s a novelty item–like a famous designer’s range for a big sporting goods company–high-end athletic apparel from brands like Lacoste rarely goes on sale, so buy it when you need it.

    Maybe most importantly, says O’Conner, is to only buy the unforgettable: “The classic pieces from any big brand, no matter what the price point is, are the best investments.”

    July 7, 2009

    Wealthy look for value as downturn bites

    Posted in Retail

    Some retailers are not pricing it as high as it would have been, but not calling it a sale,” Mr. Pedraza said. “They’re not announcing it. Effectively it’s a price decrease. They know they have to price it to move.”


    By Armina Ligaya of The National (Abu Dhabi)


    Luxury retailers in the UAE are stocking more lower-priced items and classic pieces to cater to a new customer mentality after the economic downturn.


    Mohi-Din bin Hendi, president of BinHendi Enterprises, which holds the local licences for Hugo Boss and Gianfranco Ferre, said his group was trying to incorporate goods at the lower end of the price scale, as well as the highest end, to aim for two types of customers that were still buying.  “In the successful days, when the market was going nowhere else but up, you tend to omit those things,” he said. “Now it is necessary to see the product you have is the latest product, sellable products, and also mix it in with not so very expensive products.” 


    High-end retailers have been pushed to adjust their strategies as consumers put off spending on unnecessary items. The research firm Bain said in its latest Luxury Goods Worldwide study that sales would slow around the globe by between 15 and 20 per cent in the first half, before stabilising at a 10 per cent drop for the year.


    The luxury sector would shrink from €170 billion (Dh807.31bn) last year to €152bn this year, Bain said, but it predicted sales would grow by 2 per cent in the Middle East.


    Despite this, at BinHendi’s stores luxury sales have dropped by 30 per cent in the first quarter compared with the year before, Mr bin Hendi said. The group also recently closed its branded two-storey wing of stores, BinHendi Avenue, at Deira City Centre.


    Chalhoub Group, which owns the local licences for brands such as Chanel and Fendi, was adding more classic items to its store offerings, said Mansour Hajjar, the group’s UAE country manager.  “We have focused more on basic items in these collections,” Mr Hajjar said. “We have noticed that the consumers are seeking better value, longer longevity basic items.”


    The group has also cut back its orders for new inventory, he said. Although Chalhoub has added 14 new stores, seven of them fashion stores, mostly in Dubai Mall, the group is ordering the same amount of overall stock as last year.


    BinHendi has not cut back on stock in its luxury stores, Mr bin Hendi said, but it was watching customers’ spending patterns more closely to tailor products accordingly. This could mean, for example, offering more luxury watches with one row of diamonds, instead of two, he said.


    Salam Stores, a chain of luxury department stores which stocks brands including Christian Lacroix, Givenchy and Georgio Armani, was also adding more lower-priced brands to its portfolio, said Aaron Bennett, the group’s retail manager for the UAE.


    “We’re probably bringing in lower price-pointed products than we would have before,” Mr Bennett said. “But it’s not like we’re fundamentally shifting our pricing product.”


    Salam Stores was also offering bigger discounts than in previous years, he said. “We have adjusted our price point in terms of [discount] percentage points, accordingly, because you have to remain competitive.”


    Many luxury retailers worldwide have discounted their goods significantly to boost sales, said Milton Pedraza, the chief executive of the Luxury Institute, a New York-based research group that tracks the sector.


    “Some retailers are not pricing it as high as it would have been, but not calling it a sale,” Mr Pedraza said. “They’re not announcing it. Effectively it’s a price decrease. They know they have to price it to move.”


    In a survey by the Luxury Institute last month, half the respondents said the most important deciding factor when making a luxury purchase was a price reduction, he said. “That’s pretty bad. It should have been quality, style, craftsmanship. But the number one thing was discounts.”


    Retailers were now stocking more classic items that have longevity, Mr Pedraza said. “It’s more classic inventory and stuff that has more utility. Classic style and design with a little bit of flair, but sticking to lasting value. That’s what a lot of wealthy and ultra-wealthy consumers want right now.



    July 2, 2009

    Luxury-Goods Makers Brandish Green Credentials

    Posted in Green,Luxury Market
    To Court Younger Crowd, LVMH Buys Stake in Organic Clothing Maker, PPR Sponsors Film About Environment  -By RACHEL DODES and SAM SCHECHNER

    The bad economy and a fundamental shift in the market for luxury goods are forcing an industry that reveres names like Chanel and Versace to embrace a different icon: Mother Nature.
    Over the past year, many of the world’s best-known luxury labels have started to introduce ecofriendly products, snap up brands that tout their social responsibility and weave environmental themes into their advertising and marketing. In May, French luxury conglomerate LVMH Moët Hennessy Louis Vuitton took a stake in Edun, an organic-clothing company founded by the singer Bono and his wife.

    French luxury goods maker PPR put EUR10 million into a high-end documentary about man’s impact on the environment, in an effort to show the company’s greener side — and pump up sales.

    Other companies have begun to advertise steps they took years ago to promote resource conservation. This summer, the windows of Tiffany & Co.’s retail stores world-wide feature images of coral reefs, publicizing Tiffany’s commitment since 2002 not to use coral in its designs.

    “We want to change the way we conceive our business, socially and environmentally speaking,” said François-Henri Pinault, chief executive of French retail giant PPR SA, which has sponsored a feature-length documentary film highlighting man’s abuse of the environment.

    The film, which was released in 131 countries last month, was produced by French director Luc Besson but PPR’s hand in it is clear: In the film’s opening credits the company’s brand names — Gucci, Yves Saint Laurent, Bottega Veneta and others — swirl around and coalesce into the film’s title, “Home.”

    The luxury industry’s adoption of a green message reflects the challenges facing some of the world’s most glamorous brands. Once able to win customers with the promise of fine design, craftsmanship and service, the luxury business is contending with an aging core clientele and the aftermath of a decade-long expansion that has rendered exclusive brands less so than they used to be.

    Those factors have purveyors of high-end fashions scrambling to re-invent their brands, in part by catering to younger shoppers who more often consider their impact on the environment than do traditional luxury-goods buyers.

    In a recent survey, the Luxury Institute, a New York research firm, found that younger and more-affluent consumers seek information about corporate social responsibility more actively than their older and less well-off counterparts. “Young consumers believe that caring about the environment is how you create a meaningful life,” said Milton Pedraza, the firm’s CEO.

    [green products]

    Some luxury companies jumped on the green bandwagon earlier than others. In 2004, PPR rival LVMH’s Louis Vuitton brand conducted a “carbon inventory,” to gauge its impact on greenhouse-gas emissions. Afterward, it cut back on corporate travel and air shipment of goods.

    In 2007, PPR created a social and environmental responsibility department that reports directly to Mr. Pinault. PPR now ties part of executives’ bonuses to achieving targets in seven areas — from reducing carbon emissions to promoting diversity, Mr. Pinault said.

    Later in 2007, a study by WWF, the wildlife conservation group, singled out the luxury-goods business as out of touch with eco-conscious trends. WWF ranked the top 10 luxury brands on their environmental and social track records; the highest “grade” was a C+, given to L’Oreal SA, Hermès and LVMH. (PPR got a “D.”)

    “Initially [the companies] were quite defensive,” says Anthony Kleanthous, senior policy adviser for WWF and co-author of the study. But now they are pushing environmental and socially responsibility “as a positive driver of brand value,” he said.

    Laurent Claquin, PPR’s senior vice president of corporate social responsibility, said the company’s plans to develop a separate social-responsibility division were in the works well before the WWF report came out.

    Around the same time, LVMH’s Louis Vuitton leather-goods brand launched a “Core Values” ad campaign that has featured tennis player Andre Agassi, rocker Keith Richards and, most recently, astronaut Buzz Aldrin. The ads have emphasized the company’s support for the Climate Project, and the celebrities appearing in them have donated at least part of their modeling fees to the nonprofit group, which was founded by Al Gore.

    Last month, upscale retailer Barneys New York began promoting a collection of $75 sneakers with uppers and linings made of organic material. The sneakers were designed by organic-clothing brand Loomstate in a partnership with Keds.

    This fall, luxury menswear label Ermenegildo Zegna will begin selling an “Ecotech Solar” jacket under its Zegna Sport label, with solar panels on its sleeves that can be used to recharge a battery and heat up the jacket’s collar.

    Whether the new tack will work remains to be seen. Increasingly, consumers and nonprofit groups are scrutinizing the validity of corporate environmental and social responsibility efforts.

    For corporate alliances with nonprofit groups to succeed, companies need to disclose how much money they are donating or risk allegations of “greenwashing” — or paying lip service to environmental causes to promote their products, says Mike Lawrence, an executive vice president at Cone LLC, a Boston-based marketing agency. “Puffery, unfortunately, is legal in advertising,” he adds.

    The global recession is adding challenges that defy simple solutions. Global sales of luxury goods are expected to fall 10% this year to €154 billion ($218 billion), the first decline in 15 years, according to Bain & Co. The industry isn’t expected to return to 2008 levels, €170 billion, until 2012, says Claudia D’Arpizio, a consultant at Bain’s Milan office. In response brands are slowing store expansion, lowering prices and trimming ad spending to cut costs.

    Still, the economy may also accelerate the greening of luxury, industry executives say. A February survey by Cone found that 50% of Americans ages 18 to 24 said they have “higher expectations of companies to make and sell environmentally responsible products and services during the economic downturn,” compared with 35% of Americans overall.

    The Fight Against Fakes

    June 27, 2009
    Robert Klara

    In lower Manhattan, the diagonal crisscross of 19th-century streets creates a number of oddly shaped blocks. One of them is a pie slice of ramshackle buildings carved into being by the intersection of Canal, Walker, Centre and Baxter Streets. Here, on an average day last year, 32 storefronts opened to the bustle of the sidewalk. Inside were 150 workers, unpacking boxes and calling out prices amid the din of traffic. The shops were open 10 hours a day, seven days a week. None of this was unusual for Canal Street, a seemingly endless tourist trap of keychain racks, CD stands and T-shirt stalls. Certainly, it was nothing worthy of the newspapers.

    At least, it wasn’t until the predawn hours of Feb. 26, when a battalion of police officers stormed the gated storefronts with bolt cutters and pry bars, slapping bright orange “Closed by Court Order” notices on the bricks. A tractor-trailer truck idled nearby. Soon, its cavernous interior echoed with the thump of industrial grade trash bags landing one by one, bursting with handbags, scarves, shoes and accessories bearing the most expensive brand names in the world: Dolce & Gabbana, Coach, Louis Vuitton, Prada. By the time the raid was over, the cops would haul off $1 million of merchandise.

    And every last thread of it was counterfeit.

    Ersatz goods selling on Canal Street isn’t exactly news in New York, even though Mayor Mike Bloomberg staged an impressive photo op amid a mountain range of purses. But the size and stealth of the raid on what cops called “Counterfeit Triangle” seemed to verify a change that many in the brand community have sensed for some time. Counterfeiting is no longer a localized nuisance akin to Three-Card Monte games. Thanks largely to the deadly combo of the recession and the surge of e-commerce, it’s fast becoming an epidemic threat to global trade, garnering headlines and the serious attention of local and federal law enforcement.

    Simply put, not only is there a lot more phony stuff out there, but it’s better made, easier to get, fetching higher prices and taking a bigger chunk out of brands’ earnings — as much as $250 billion annually, according to the International Anticounterfeiting Coalition. The U.S. government seized more than $270 million of counterfeit merchandise in 2008, a 38 percent increase over the previous year. The value of the goods seized spiked by 100 percent in the same period. According to a 2009 study by the CMO Council, more than 29 percent of senior-level marketers now believe that more counterfeit products are “flooding the market,” and you don’t have to look far for proof. “There’s no question we’re seeing counterfeits proliferating into all sorts of products and channels that we haven’t seen before,” says Alan C. Drewsen, executive director of the International Trademark Association (INTA). “The seriousness is increasing.”

    So is the fear. “There’s a growing concern about the number of counterfeits in the marketplace,” says Milton Pedraza, CEO of the Luxury Institute, whose own recent survey of wealthy consumers aged 18-39 showed that 72 percent of them believe that the buying of counterfeit merchandise will continue to grow in the coming years.The glut of fakes has triggered an unprecedented response in the business community — from stepped-up efforts by brands to protect their trademarks to the possible passage of a trade treaty that might regulate e-commerce across international borders. But the problem shows no sign of abating. To complicate matters, the rising profile of counterfeit goods has raised some uncomfortable questions within the brand community itself, including how much of the responsibility brands bear for fighting the problem and even, to some degree, for having helped to create it.

    Read the full article here on BrandWeek

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