Luxury Institute News

September 30, 2009

Affluent shoppers may bring about recession’s end

By Bonna Johnson • THE TENNESSEAN • September 27, 2009

On one hand, Kim Koster is putting off buying a new SUV for a year in hopes that the economy improves. On the other, the recession hasn’t stopped the Brentwood mom from buying luxury brands like Coach and road tripping to Atlanta to shop at Nordstrom.

That split personality illustrates a key economic point. A financial turnaround for the country may be driven largely by affluent shoppers’ attitudes and whether their desire for the good life outweighs lingering worries about money and jobs, many analysts and retailers say.

Store owners, for their part, are attempting multiple strategies – from redesigning stores to slashing prices to, yes, even raising prices – to get wealthy shoppers to open up their Birkin bags and start spending more again.

Although the affluent make up just 20 percent of the nation’s households, they typically account for 40 percent of all spending, making them crucial to any kind of rebound.

But not everyone agrees that the richer classes will go back to their pre-recession levels of spending in the foreseeable future and make up for the penny-pinching rest of us who have a new-found fondness for saving rather than maxing out credit cards.

They’ve got the new frugality bug too, said Pam Danziger, president of Unity Marketing and a consultant on the luxury market.

“They’ve definitely changed their spending habits now to live much more within their financial means,” agreed Milton Pedraza, CEO of the“>Luxury Institute.

The luxury market was expected to feel at least a 15 percent decline in sales the first half of this year, according to a semiannual luxury goods survey by Bain & Co. consultants.

But all is not lost for Armani and Gucci.

Another recent survey showed that concerns about the U.S. economy are easing, and optimism about the future is rising among the wealthy. They aren’t buying as many cars, taking as many trips or redecorating as many rooms as they did in 2008, but conspicuous consumption isn’t dead, according to the survey by Ipsos Mendelsohn, a market research firm that studies affluent consumers.

Koster said it’s a matter of making choices.

“I think some people will always be able to afford and want to pay for better quality,” said Koster, who had just bought two blouses from high-end retailer Jigsaw in Green Hills.

Still, the mother of a teen and pre-teen isn’t immune to the pressures of the faltering economy and has pulled back on some spending.

Koster keeps an eye out for sales at her favorite high-end stores, which rarely sported “sale” signs in their front windows pre-recession, and she started trimming the coats of her Wheaten terriers instead of sending them to the groomer.

To update the kitchen she opted for less-expensive granite resurfacing rather than installing granite counters. And Koster, who once taught hearing-impaired children in Williamson County, has bartered baby-sitting a friend’s toddler for minor car repairs.

America turns frugal

Today, some observers with keen business insight say there’s been a huge shift in consumer behavior akin to the impact of the Great Depression, which made the generation of the 1950s into feverish savers who’d make big purchases only with hard-earned cash stockpiled over years.

Recent economic statistics back up the idea that 21st-century adults may copy that conservative behavior. More Americans are paying down debt, perhaps because they’re preparing for or coping with the loss of a job. Nashville-area unemployment rates are flirting with 10 percent, and the U.S. rate is even higher.

The volume of revolving credit outstanding or credit card debt has declined at double-digit annualized rates for two consecutive quarters.

Put in perspective, there have been individual months in the decades since World War II in which credit volumes actually declined but never even one full quarter of “less” before this, said economist Donald Ratajczak, a consultant and professor emeritus from Georgia State University.

“Banks are tightening credit, people are losing their jobs, and more people are becoming convinced there’s a benefit to saving rather than creating more debt,” Ratajczak said.

At The Curtain Exchange, a high-end drapery shop in Green Hills, owner Kip Meyer knew the nation’s economic misery was affecting his customers when they started taking longer to decide on purchases.

They didn’t stop buying in the past year, they just bought less, said Meyer, who also owns a store in Memphis.

“If they want to redo the living room with new rugs, a new sofa, paint the walls and do their windows, they may just do the windows and paint the walls and get the other pieces for the room later,” he said.

And, instead of spending $20,000 to buy drapes for three rooms, they may spend half as much to redo just a room or two.

Look for bounce-back

The 23.9 million U.S. households with annual incomes of at least $100,000 have cut back in the past year, but millions of them are still planning to make big expenditures, and the economy hasn’t throttled major life events for many, such as getting married or bringing babies into the world, according to the 2009 Mendelsohn Affluent Survey. Nearly a third purchased fine jewelry, and a fifth purchased artwork or collectibles in the past year.

Some 12.2 million of the wealthy plan to travel abroad this year, compared with 13.6 million last year; 7.3 million plan to redecorate their homes, compared with 8.8 million last year; and 6.3 million plan to buy or lease a new vehicle, down from 7.7 million the previous year, the survey showed.

“They are poised to lead us out of the recession,” said Bob Shullman, president of Ipsos Mendelsohn.

On average, the wealthy are 2.4 times more likely to buy than those in lower income groups, and when they do buy, they spend 3.7 times more, he said.

Meyer acknowledges he has seen renewed hope in many consumers recently: “We’re slammed. Things have really picked up.

“You can tell that confidence is up; you can feel a switch in people.”

Also, some competing stores have closed, funneling more customers to Meyer’s curtain shop.

For another high-end retailer, perhaps an anomaly, buyers’ appetite for luxury never diminished during the recession.

At the Jaguar Porsche Audi Nashville showroom, where vehicles range from $30,000 to $180,000, sales are up year-over-year, General Manager James Corlew said.

Porsche sales at the Franklin Pike dealership are up 3 percent for the fiscal year ending July 31, while dealers nationwide averaged a 40 percent dip in sales, Corlew said. Audi sales increased 177 percent over 2008, compared with a 10 percent drop at other dealers in the country.

“I know there’s a recession, but we don’t talk about it here,” Corlew said.

Discount shopping

Like the rest of us, though, many of the wealthy are changing behavior, with 80 percent choosing to shop more often at Walmart and 82 percent at Home Depot, according to the Mendelsohn survey.

C. Dowd Ritter, chairman, president and CEO of Regions Financial Corp., said the days are gone “where we borrowed whenever we needed to make consumer purchases; we were a nation that relied heavily on plastic. We found a way to get what we wanted, and we found a way to get it today.”

Now, the nation has come full circle, and frugality will become the new norm for many years, Ritter said at an economic conference in Murfreesboro last week. “For now, until at least the year 2030, I think we’re going to be a nation of savers.

“Instead of Starbucks, it will be coffee at McDonald’s for $1; for Christmas it will be Target and forget about Tiffany. Vintage clothing is in, and Nordstrom is out.”

High-end retailers have responded in varied ways to this mind-set, trying to get consumers to return to their chic shops with new or tweaked strategies.

For Tiffany & Co., that has meant an actual change in its style of doors.

At a couple of recently opened stores, it replaced its customary stainless steel entryways with glass doors to make its shops more inviting.

At the same time, the jeweler plans to stick to its no-discount policy even as Bain & Co. says sales of jewelry and watches have declined 12 percent.

“We’re in a luxury drought,” Unity Marketing’s Danziger said. And it’s not clear that retailers know how to respond.

Handbag-maker Coach introduced a budget-friendly line, called Poppy, for instance. And high-end department store Saks went through a season of markdown madness.

“We’ve definitely seen a lot of discounting, and we don’t think it’s a good thing,” said the Luxury Institute’s Pedraza, who worries some brands might be tarnishing their prestige. “But maybe it’s a necessary thing.”

In contrast, high-end furnishings chain Restoration Hardware announced last week it is raising prices an average of 20 percent to 30 percent to punctuate its move to a higher level of craftsmanship and design.

“It’s a terrible misstep,” a shocked Danziger said. The era of “he who dies with the most stuff wins” is over, she said. “Spending has gone down,” she said. “There is a new normal for this market.”

September 25, 2009

Somber environment for luxury industry

Posted in Luxury Market

Fri Sep 25, 2009 By Patricia Reaney

NEW YORK (Reuters Life!) – Even the world’s mega-rich are feeling the effects of the worst recession in seven decades.

Luxury isn’t what it used to be. Conspicuous consumption is frowned upon and greed has been replaced by a new frugality, according to research on the spending habits of the wealthy.

“Across the board, at every level of wealth, we have seen a significant, if not dramatic (hit),” said Milton Pedraza, the CEO of the Luxury Institute, which provides insights in the world of the wealthy.

Wealthy individuals worth $100 million have seen their fortune slump to $60 million. Someone with a $1 billion fortune, is now probably worth $600 million, he added.

“It is a somber environment out there in terms of luxury because of the lack of money and the failure of the luxury industry to deliver on what consumers see as the fundamentals,” he said, citing superior quality, craftsmanship, design, exclusivity, brand heritage and customer service.

“Those are the worst that they are not delivering on,” he added.


A survey of more than 400 wealthy consumers with six-figure plus incomes and high net worth showed 42 percent are spending less on luxury items since the beginning of the year.

More than half said their spending is “based on need rather than want” and three-quarters regard luxury items as an extravagance.

Sixty-percent said in today’s economy buying luxury items would be irresponsible and in what could send shudders down Rodeo Drive in Los Angeles and New York’s Fifth Avenue, 21 percent said they would spend more on discounted goods and services.

“The top category where consumers said they would be spending the least from now until the end of the year. is jewelry, by a long shot,” said Pedraza, adding that home furnishings, watches, handbags and shoes followed.

On the upside 15 percent of wealthy consumers said they would spend more on leisure travel. A similar number cited dining, health and fitness, technology, entertainment or cars as items for which they would dig deeper into their pockets.

In addition to being more reluctant to dispense with their hard-earned cash on luxury items, well-heeled consumers are also less eager to flaunt their wealth.

“You don’t want to become the pinata,” Pedraza said referring to the party toy and likening it to a rich-bashing attitude.

“You don’t want to stand out as a conspicuous consumer of luxury … There is a sensitivity (about displaying wealth).”

Pedraza predicts there will be a temperate, moderate approach to luxury in the next decade.

“I think it will take at least 24 months to get to the level of 2007. And we will get there differently by selling more value, more classic luxury than we will with frivolous luxury. And it will be spending by fewer people,” he said.

Luxury brands will also have to up their game to get consumers through the door and then out with bundles of luxury buys.

“Brands are starting to understand they need to deliver impeccable customer service and experience and to inspire customer loyalty. They need to do something far more special for their clients,” he added.

September 23, 2009

Survey Finds Wealthy Less Keen on Luxe Category

by Vicki M. Young
From WWD Issue 09/22/2009

If you are interested in the Luxury Institute’s lastest WealthSurvey “The Current State of the Luxury Industry”, which is referenced below, click here

As if luxury brands didn’t have enough problems coping with the global recession, they now have to battle two perceptions in the minds of the wealthiest consumers they’re banking on to lead a recovery – commoditization and declining quality.

According to a recent survey by the Luxury Institute, 48 percent said luxury products are too accessible and are no longer exclusive; 40 percent believed luxury brands are becoming a commodity, and 52 percent said luxury brands that also sell products for mass consumers are no longer luxury brands. And while superior quality and craftsmanship continue to be attributes most associated with luxury brands, a large percentage of wealthy consumers perceive that those characteristics are being delivered worse today than in years past.

Looking ahead to the balance of the year, just 7 percent of wealthy consumers in the survey said they will spend more on luxury goods and services, although 21 percent said they are likely to spend more on discounted goods and services. Of those who will be spending their cash, 55 percent said they will buy more of what they need rather than what they want.

“I think the frugality will continue in luxury spending. It will be a tough slog, and will be at least another 12 to 24 months before we see any growth rates in spending,” said Milton Pedraza, chief executive officer of the Luxury Institute.

He explained, “There is a sense now of living within their means, regardless of how wealthy they are because 90 percent of them were not born wealthy….They are sensitive to the plight of the average American because many still have family members who are middle-class.”

Of the 427 survey respondents, the median age was 51. The average annual income was between $250,000 and $350,000, and the average net worth was between $2.5 million and $3 million.

Among other highlights, 15 percent said craftsmanship is better today than in the past, while 45 percent said it is about the same and 40 percent said it is worse. As for quality, 16 percent said it is better today than in the past, compared with 48 percent who said it is the same and 36 percent who said it is worse.

Jean-Claude Biver, ceo of watch brand Hublot, owned by LVMH Moët Hennessy Louis Vuitton since 2008, has a two-pronged strategy for his watch brand. “The concept is very simple. Human beings always want what is very rare to get.”

Prong one is to deliver half of what is on order. Prong two is to control sellout and stock level. “The big enemy for brands is the discount….Discounted brands lose prestige,” Biver emphasized.

While not new, Biver’s strategy does ensure exclusivity and curtails the possibility of discounts.

 For premium brands that cater to the well-heeled, the strategy still seems worth bearing in mind. In the Luxury Institute survey, 41 percent said luxury brands that have their own discount outlets are no longer luxury, and the same percentage concluded that luxury brands that are heavily discounted are not truly luxury.

The spate of discounting beginning in late November had the most negative impact on perceived value and lower increases in spending and appeal among men, and older and wealthier consumers. Discounting had a positive effect on overall spending and the appeal of luxury products among women, consumers under age 55 and consumers with less than $1 million in net worth.

Matt Kaden, associate director of Net Worth Solutions, believes that direct-to-consumer sites such as those hosted by Rue La La and Gilt Groupe will continue to capture consumers looking for luxury at better prices. “These are sites that are supported by major venture capital money,” he said.

Kaden doesn’t believe online discounting damages a brand’s image. “These sites are by invitation only, which leverages off of the social networking trend,” he said.

Gian Maria Argentini, general manager of outerwear brand Allegri, said, “The consumer is looking at the concept of value for money.”

The company, which has annual volume of $45 million in euros last year, has started to use hangtags as a way to provide product information, such as technical elements of water-repellent fabrications, as a point of communication with consumers. “Because consumers will not pay the same prices as in the past, we need to communicate why they should pay $500 for a jacket or coat,” said Argentini.

He sees the Internet and social media sites such as Facebook and Twitter as useful tools to market product to consumers.

According to Andrew Sacks, president of marketing consultancy Agency Sacks, contact between consumers and brands will become even more important as firms try to retain and grow market share.

“The affluent have gone from living in a world of luxury to living in a place of flux,” Sacks said.

According to research data from Agency Sacks in conjunction with the Affluence Collaborative, of those with household income of $250,000 and over or investable assets of $2 million plus, 63 percent are optimistic about their own future, although 70 percent no longer consider themselves wealthy.

“What stands out is people who have self-confidence, those who made their own money, are not terribly concerned that they will not make it again. Luxury marketers need to take a longer-term view of things. This is the time to build relationships, something that luxury brands don’t do well with their core customers. Consumers spend thousands of dollars, and what do they get? A form letter,” Sacks said.

He explained that in the joint survey, more than 52 percent of the affluent are on Facebook and 68 percent visit the site regularly. Of those 30 percent who are on LinkedIn, 27 percent check it regularly. As for Twitter, 11 percent of the affluent are connected, and 60 percent of them check in regularly.

Sacks is telling companies to go out and hire letter writers to get that personal connection with consumers. He also sees a greater number of wealthy consumers spending time online.

“Use social media. Engage in a real dialogue. Social media is real. Be direct, be human and show thanks. Companies have to work harder to provide a rational alibi to purchase. Educate. Make it OK for them to spend money,” he advised.

September 20, 2009

Accessories After the Fact

The It bag died before the downturn. How companies are fighting back.

By Lisa Bannon
The State of Luxury
Wall Street Journal Magazine


“Whether it’s a red Ferrari or a Prada bag, we are impressed, for better or worse, by people who wear these products,” says Milton Pedraza, president of the Luxury Institute in New York. “They have become symbols of meeting someone of your own tribe.”


It’s been a brutal year for the arbiters of all things luxurious. World-wide accessories sales, the engine driving the explosive growth of the luxury-goods industry over the past decade, are projected to decline 10 percent in 2009, according to Bain & Co., the first real decline since Bain began tracking the sector in 1995. “Consumers have lost 40 to 60 percent of their assets broadly in the U.S. Long-term, they’ll start spending again, but not at the levels they spent before,” explains Lew Frankfort, chief executive of American accessories giant Coach. “Anyone who believes things are going to return to how they were is delusional.”

Evidence suggests that after a long shopping hiatus last winter and spring, consumers have been tiptoeing back into stores to buy shoes, handbags and sunglasses, selectively. Despite the downturn, some brands have reported stable or growing sales in the first half of the year-Gucci sales were up 8.3 percent for the first half while LVMH Moët Hennessy Louis Vuitton said sales rose 0.2 percent, including an 8 percent increase in its fashion and leather-goods business. Hermès sales were up 7.6 percent and it’s projecting flat annual sales at constant exchange rates. “If you had told me last year that we would have flat sales in 2009, I would have kissed you on both cheeks,” said Hermès chief executive Patrick Thomas in The Wall Street Journal in July.

But even fashion’s most ardent devotees have changed their mind-set about splurging, prompting the industry’s biggest players to rethink everything from pricing, to product mix, design and marketing. Although few will go on the record, many of the industry’s most discriminating brands are creating cheaper handbags and accessories, or recycling classic lines. “People want value for money in every single market-from Japan to the U.S., and now it’s happening in Europe,” says Ralph Toledano, chairman and chief executive of Chloé in Paris. “Pricing is a key issue we are working on.”

Read the full article here:

September 17, 2009

Despite the recession, gourmet tea has been posting strong sales, prompting some tea brands to consider expanding
Thursday, September 17, 2009

Milton Pedraza, chief executive of the Luxury Institute, a market research company in New York, said he believed that many tea suppliers had seen tea as a mass-market commodity and sold it that way, leaving space for entrants at the high end of the market.

“With the growing popularity of tea, there is an opportunity to differentiate at the top level, even in these challenging economic times,” Mr. Pedraza said. “There is consumer interest in the premium end of almost any category, and I believe a larger segment of tea connoisseurs can be developed globally. But it will take a great deal of education to help consumers to discern differences and be willing to pay a premium, so it will be a slow build.”

The global economic crisis may have dampened the appetite for high-end goods, but one small daily luxury – gourmet tea – has been posting surprisingly strong sales, prompting some tea brands to consider expanding around the world.

Their offerings have poetic names like Silver Moon, Emperor’s White Garden, Goût Russe Douchka and Sakura, Sakura!, which reflect the wide range of exotic flavors, attracting an almost religious following among tea lovers. While the rarest teas, like yellow teas, can cost $2,120 for a kilogram, or 2.2 pounds, gourmet teas cost 30 percent more than standard teas on average, making them an affordable luxury for many.

“There is definitely no crisis when it comes down to gourmet tea; our sales have been increasing every year by 15 to 25 percent ever since we started in 1987,” said François-Xavier Delmas, founder and chief executive of Le Palais des Thés in Paris.

He said the privately owned French company posted annual revenue growth of 19 percent in 2007-8, with sales of €9.66 million, or $14.2 million.

Le Palais des Thés’ experience has been similar to that of other luxury tea brands, as well as specialist retailers.

Read the full article here:

World’s Most Expensive Cars
Hannah Elliott. 09.16.09

“According to Milton Pedraza, CEO of the Manhattan-based Luxury Institute, the custom-built options and concierge-like service the very wealthy expect in their cars will keep them coming back to Rolls-Royce and Bentley, even in hard times.”

Hate the smell of exhaust or the skunk you just passed on the highway? If you buy the Maybach 62 Zeppelin, your nose will never have to suffer again. The car comes with a built-in, illuminated atomizer that gently diffuses the fragrance of your choice throughout the cabin.

Granted, that peace of mind will cost you–to the tune of $506,500. But that’s the low end when looking at the limits of what money can buy at the dealership. For a whopping $1.8 million you can get the Cinque Roadster, which features a stunning 678 horsepower V12 engine, carbon fiber racing seats, a titanium suspension and a 0-60 mph time of 3.3 seconds.

In Depth: World’s Most Expensive Cars

But those who still don’t want to be outdone should consider the Bugatti Veyron 16.4 Grand Sport or the Koenigsegg CCXR, both of which cost more than $2 million.

The auto industry may have fallen considerably this year, but that doesn’t mean those who can afford to spend six- or seven-figure sums on a luxury vehicle are lacking options.

Behind the Numbers  
To compile our list of the most expensive cars this year, we reviewed price lists from all the ultra-luxury automakers that had the potential to produce a contender this year for the top spot, including Bentley, Bugatti, Ferrari, Koenigsegg, Lamborghini, Leblanc, Maserati, Maybach, Mercedes-Benz, Pagani, Porsche, Rolls-Royce, Saleen, Shelby SuperCars and Spyker.

We narrowed our terms for the list by choosing only cars that are currently in production and street legal, which eliminated the discontinued $653,000 Enzo Ferrari, $585,000 Saleen S7 and $500,000 Mercedes-Benz SLR McLaren Roadster, among others. Prices do not include taxes; some prices have been converted from euros to dollars. And not all of the vehicles on our list are sold in the U.S.

It’s been a mixed bag this year for purveyors of ultra-luxury cars. Maybach sold 12 cars last month–the same amount it sold in July of this year. Rolls-Royce sold twice that, up 50% over July. Ferrari, Maserati and Bentley saw relatively routine year-over-year declines of 10%, 31% and 43%, respectively. But all of them except Rolls are down more than 50% in a year when the total auto industry saw a comparatively small 28% decrease year-to-date.

When sales do bounce back, expect luxury cars to recover slower than traditional segments. Lincoln Merrihew, senior vice president of business solutions for market research firm TNS, says the delayed recovery is due in part to the fact that these cars never see Cash for Clunkers-type incentives. They also have a shelf-life that matters: The difference between one model year and another is significant for collectors and connoisseur-investors, who notice even the most minute changes in body styling, horsepower or interior trappings.

But more than anything, even people who can afford to buy a $1.5 million Lamborghini Reventon LINK are going to think about just when and how to make the purchase, if at all, Merrihew says.

“There have been times when the U.S. was in recession or Japan was in recession or Europe was, but the rest of the world wasn’t,” he says. “This time, it’s a global event–so there isn’t a safe haven for these products, and even their distinctiveness isn’t going to help.

“The Price of Luxury  
According to Milton Pedraza, CEO of the Manhattan-based Luxury Institute, the custom-built options and concierge-like service the very wealthy expect in their cars will keep them coming back to Rolls-Royce and Bentley, even in hard times.

A heady mix of image, exclusivity, design and racing technology makes these cars expensive. The Pagani Zonda F Roadster runs on a V12 Mercedes-Benz AMG engine, but it costs almost $1 million more than the McLaren Roadster, which also has an AMG engine, albeit with less power and racing technology. There’s a certain component of exclusivity in that Pagani Zonda mark-up as well: Production is limited to 25 units.

Those who purchase a $1.4 million Pagani Zonda F Coupe are buying into a racing heritage–and Formula One engineering. The car’s body design and specialized crash structure (built to maintain safety at ultra high speeds) are derived directly from race car aerodynamics.

Expensive cars also have bespoke qualities and standard amenities that connoisseurs simply can’t get anywhere else. The $1.4 million Maybach Landaulet is a chauffeur-driven car with a top that can be opened fully at the rear, while the chauffeur’s compartment remains completely enclosed. A partition screen with clear glass and curtains dissects the car, and folding tables in the back allow for afternoon Champagne lunches on the go–on reclining white-leather seats, of course. When the weather doesn’t allow for such things, there’s a Dunhill umbrella stowed in a special slot on the door.

While that may seem excessive, there’s still a market. And industry experts say that ultra-luxury automakers must control production numbers, maintain superior service standards and invest in new technology if they want to survive–and thrive–during and after the recession.

When the wealthy are ready to start handing over their American Express cards again more freely, the automakers had better have something different and unique available.


Hilfiger Opens on Fifth Avenue in Slump; Tory Burch Shows Denim

By Cotten Timberlake

Sept. 17 (Bloomberg) — Tommy Hilfiger is responding to the apparel sales slump by opening a new Fifth Avenue store during New York Fashion Week that offers the widest range of his designs.

“We did that for impact,” Fred Gehring, the brand’s 54- year-old chief executive officer, said in an interview at the new store yesterday. “The whole fashion world is here.”

The store, which officially opens today just before the designer shows his spring collection on the runway, offers more Tommy Hilfiger products than any other of the brand’s more than 900 stores, Gehring said. It includes clothes modeled on the catwalks, women’s and men’s sportswear, and accessories. Prices range from $49 for a polo shirt to $1,000 for a blue pinstriped suit, he said.

“The consumer seems comfortable with mixing and matching different price points,” Gehring said.

Neiman Marcus Group Inc. and other retailers have been cutting orders to suppliers by as much a quarter as consumers reduce spending in the face of job cuts and declining home values. U.S. women’s apparel sales fell 6 percent in the 12 months through June after edging up 0.3 percent in the year- earlier period, said Port Washington, New York-based market- researcher NPD Group Inc.

Opening the new Tommy Hilfiger store is “a brand-building exercise, rather than a retail exercise,” said Milton Pedraza, CEO of the Luxury Institute in New York. Tommy Hilfiger has the revenue to sustain such a store, he said.

Tommy Hilfiger’s Gehring says that the brand is outperforming its competition. Sales were up 21 percent in the year that ended March 31, the company said in a statement. The Amsterdam-based brand is owned by Apax Partners Worldwide LLP.


Other designers showed spring collections in New York this week that also offer cash-conscious consumers more choices on how much to spend. Couturiers focused on multiple pieces including skirts, shorts and narrow pants, rather than just dresses, and are offering a wider range of prices.

“The collections are much more sportswear-oriented,” Robert Burke, a luxury-goods consultant and founder of Robert Burke Associates in New York, said. “Evening wear is a difficult business now. Everyone has been so focused on lowering prices and using less-expensive fabrics. Minimalism is making a return.”

Tory Burch, known for her tunic tops and Reva ballet flats, said she was reaching beyond her core customers, women aged 25 to 45, and using both pricey items like sequined tunic dresses and less-expensive offerings like denim pieces.

Wider Age Range

“I am looking to appeal to older ages and younger ages, and they can do their own take on it,” Burch said in an interview at her event yesterday.

She did a presentation at the tents in Manhattan’s Bryant Park for the first time, showing a potpourri of separate pieces, with skirts, shorts, and jackets. The color palette was mixed, with solids, prints and tie-dyed fabrics.

Ralph Lauren today showed a collection inspired by prairie workwear, with weathered jeans, overalls, sturdy shirts and floral-print dresses.

The fashion was “basic American,” with the luxury pared down, said LaMont Jones, Jr., editor of, a fashion Web site with style reviews.

Cheaper Badgley Mischka Line

Badgley Mischka toned down the embellishment on its evening clothes, and plans to introduce a lower-priced collection called Mark and James — named after the designers Mark Badgley and James Mischka — in the spring, said Neil Cole, CEO of Iconix Brand Group Inc., which owns the brand.

“It is suitable for the times,” Cole said backstage after the show Sept. 15.

Donna Karan did what she does well, which is to wrap and drape fabrics, said Neiman Marcus CEO Burton Tansky after the designer’s show Sept. 14. She sent out easy-to-wear clothes in rough and natural linens and poplin in subdued colors like chalk, pumice and sky blue, punctuated with a few garments in bright coral.

“It is going to sell,” Tansky said.

Oscar de la Renta produced multiple pieces for many of the 53 looks he presented — compared with Badgley Mischka’s 41 — and used fabrics that were highly textured in monochrome.

De la Renta used white tweed trim on white denim. Clothes also were embellished with crochet and embroidery. He injected optional luxury with alligator and python waist-cinching belts, handbags and slingback stilettos.

Hundreds of designers showed spring collections geared to carrying them through the apparel sales slump at New York Fashion Week, which ends tonight with the Hilfiger show.

Michelle Obama

The main runway event, organized by IMG Fashion under Mercedes-Benz Fashion Week, brought 63 shows to three tent venues in Manhattan’s Bryant Park, and 12 associated shows offsite. More than 150 other shows took place around the city.

Maria Pinto, a Chicago-based designer whose clothes are worn by Michelle Obama, said she balanced her collection between day and evening wear, and that she targets executive women with outfits in the $750 to $1,500 price range.

She showed her collection publicly in New York yesterday for the first time, choosing a venue in the edgy Meatpacking District. The slinky, tango-inspired fashions were worn by 15 models with multicolored rose petals strewn at their feet.

“Business is out there,” she said in an interview at the event. “You just have to work harder for it.”

To contact the reporter on this story: Cotten Timberlake in Washington at

Last Updated: September 17, 2009 12:49 EDT

Luxury Retailers Rush To Adapt: Chic Goes Cheap
Thursday, Sep. 17, 2009
By Janet Morrissey

Milton Pedraza, CEO of the Luxury Institute expects “15% to 20% of brands in luxury categories, particularly the marginal brands, will go under.” Read the full story below.

As fashion editors, department store buyers and couture afficionadoes congregate along the catwalks for New York’s Fashion Week shows, luxury retailers and designers may be looking upon beauty but their thoughts are likely on the ugly economy.

The crippling economic downturn with its mounting job losses and frozen credit markets has extended far beyond mainstream America, hitting high-end consumers in their Gucci pocketbooks. “This is one of the worst financial crises of our time, and [luxury] has been one of the hardest hit markets for retailers,” said Monica Aggarwal, a director in Fitch Ratings Retail Group.

As analysts scan the landscape they see a virtual Who’s Who of battered luxury chains. “Saks and Neiman’s sales are horrendous. Tiffany was down 27% in U.S. same-store sales last quarter, Bulgari was down 21%, Harry Winston sales were down 49%, and [LVMH Moet Hennessy] Louis Vuitton down 23%,” says Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking services firm. “If you look at Madison Avenue, it’s a ghost town in terms of store closings. It’s an absolute disaster.”

Although many retailers say the worst is over, industry experts believe many high-end retailers remain in “survival mode” and that more could fail before the sector rebounds.

What’s clear is that the future is uncharted. In past economic downturns the luxury end of the market was largely unscathed as high-income shoppers tended to be less affected by the ebbs and flows of the economy and more impacted by stock market fluctuations.

But the luxury market expanded in recent years to include new demographics, as surging home prices and easy access to cheap credit transformed ordinary people into the nouveau riche with an appetite for chic goods. Many used their homes as instant banking machines, tapping home equity loans to snap up clothes, handbags and shoes from the world’s most prestigious labels. TV shows, such as Sex and the City, Project Runway and The Rachel Zoe Project added to the hype. (Read “Macy’s: The Retail Universe in a Box”)

Luxury sector sales almost doubled to $80.4 billion in 2008 from $44.1 billion in 2003, said Neil Hendry, global director of consulting for consumer and financial services at Datamonitor Group, a research and analytical company.

But all of that changed when the stock market collapsed, housing prices plummeted, and credit markets seized up. Not surprisingly, many recent converts to luxury shopping quickly reversed course and went downscale. But what caught retailers off guard was that long-time luxury shoppers grew more frugal, too. The widely publicized bailout of Bear Stearns, the takeout of cash-strapped Merrill Lynch, the government rescue of American International Group, the collapse of Lehman Brothers and the meltdown in the credit markets – all served to rattle the upscale crowd, as many work in the financial industry. Fashionable free-spenders morphed into penny savers.

In response, upscale department stores such as Saks Inc., closely-held Neiman Marcus and Nordstrom Inc., started slashing prices to unload a glut of inventory. Saks fired the first volley, slapping 70%-off signs on luxury designer clothing in early November 2008. Neiman and Barneys frantically followed suit.

The fire-sale prices blindsided smaller boutiques and designer-owned stores, and broke an unspoken cardinal rule with fashion houses not to deep discount luxury names. (See the Style & Design: Global Luxury Survey)

“It was a wake-up call,” said Steven Kolb, executive director of the Council of Fashion Designers of America.

All of this took a toll on sales and earnings at upscale department stores and chi-chi fashion houses around the world. Luxury department store sales are down 25% to 30% on average from their peak in early 2008, estimates Aggarwal.

Luxury designer retailers and fashion houses have taken most of the worst blows, with some, such as Bill Blass, Fortunoff, Christian Lacroix and IT Holding SpA (which owns the Gianfranco Ferre label) either filing for bankruptcy protection or liquidating their assets. Several more, such as Prada, Bulgari, Mariella Burani and Valentino Fashion Group, are treading water under a tidal wave of debt.

Prada and Ferragamo, spooked by the upheaval, postponed their planned IPOs until 2010.

Aggrawal doesn’t expect luxury retail sales to rebound until late 2010 or 2011 at the earliest. (See The Luxury Index 2008)

So what’s the next move for ritzy retailers? Department stores cut new merchandise orders for the upcoming holiday season by at least 20% to bring supply in line with demand, and began pressuring fashion houses to offer lower-priced goods. “They needed to get traffic into their stores,” says Milton Pedraza, chief executive of the Luxury Institute LLC.

Luxury brands responded by reining in spending, closing unprofitable stores, and offering secondary lines with lower price tags.

Ralph Lauren, Donna Karan, Calvin Klein, Dolce & Gabbana and Armani have been offering secondary lines for years to cater to mid-priced spenders, and many more designers followed suit in recent years, such as Roberto Cavalli’s Just Cavalli, John Galliano’s Galliano, and Alexander McQueen’s McQ lines.

Some have signed deals with even cheaper retailers, such as Jimmy Choo designer Tamara Mellon’s deal with H&M, Anna Sui’s clothing line for Target, and Vera Wang’s partnership with Kohl’s. This week, Narciso Rodriguez announced plans to sell a line of his clothing exclusively on e-bay.

“They had to get more creative,” said Steven Kolb, executive director of the Council of Fashion Designers of America.

Some are more discrete, hosting sample sales in dark industrial buildings in Manhattan and using invitation-only third-party websites, such as,, and, to sell excess inventory at heavily discounted prices.

However, some observers worry that all the discounting and secondary lines could tarnish a brand’s upscale image in the long-term. “You want to avoid the Pierre Cardin catastrophe,” says Sanford C. Bernstein & Co. analyst Luca Solca, who was referring to the way Cardin’s apparel wound up in bargain basement bins at discount retail stores because there were few checks and balances to control quality, distribution and pricing. (Read “Recession? Not in New Delhi’s Luxury Stores”)

The distressed environment could pave the way for consolidation.

A survey, released this month by the Luxury Institute, found more than half of wealthy consumers with annual incomes exceeding $150,000 believe there are too many luxury brands, and 44% think many luxury brands have become commodities.

Pedraza expects “15% to 20% of brands in luxury categories, particularly the marginal brands, will go under.”,8599,1924242,00.html

Luxury After Lehman Brothers

Jeanine Poggi
09/17/09 – 10:42 AM EDT

NEW YORK (TheStreet) — Luxury, since the collapse of Lehman Brothers , hasn’t looked pretty.

In fact, the fall of the sector has been unprecedented. Not once during the major downturns of the past three generations — not in 1974, 1989, 1992 or 2001 — have wealthy consumers responded to an economic downturn by so radically smothering their spending habits. But today, the psyche of these consumers has undeniably changed.

“Frugality is the new black,” Stifel Nicolaus analyst Richard Jaffe says. And this trend could last a decade. Because while Federal Reserve Chairman Ben Bernanke declared earlier this week that the recession is “likely” over, that’s hardly the case for the luxury sector.

According to a recent survey conducted by The Luxury Institute, 77% of wealthy shoppers believe luxury is less important in today’s economy, and only 40% say it’s a good investment.

For this reason, Milton Pedraza, CEO of New York-based research firm The Luxury Institute, predicts the sector will not recover in the next 12 to 24 months. “The stock market has only made back half of what it lost, we need to do better than that before we see a true recovery,” he says.

And even once a full recovery is realized, Pedraza expects spending levels to be nowhere near what they were several years ago for at least the next five to ten years.

“Unless there is a new economic boom … I do not see a true return to the luxury spending we saw several years ago,” Pedraza says. “Luxury is cyclical; it doesn’t grow any faster than the economy — and there is nothing on the horizon to convince people to spend above their means.”

Indeed, the hedge fund manager who once had $100 million in assets most likely now has $60 million, while the dentist who made $100,000 quite possibly makes $75,000 — and his 401k has been slashed, Jaffe says. There is no reason to cry for either; they can both still afford a $200 pair of True Religion jeans. But it seems they are choosing not to.

“Their homes aren’t growing in value, nor are their stocks,” Pedraza says. “In the past, they weren’t afraid to spend because they had those assets to mortgage their future. Those expectations of having those assets are no longer there.”

Consider the survey by The Luxury Institute, which found that 58% of wealthy shoppers said they are spending more on essentials rather than on what they really want, and are spending the least on are jewelry, home furnishings and watches.

“Need to have and want to have are now two different things,” says analyst Dana Telsey, of the advisory firm bearing her name. “The need is not as strong as it has been and price has gained in importance where it was never even a factor in the past.”

Indeed, Pedraza believes that some sectors, like luxury housing, haven’t even scraped bottom yet — a bracing notion for luxury home builders like Toll Brothers.

Worth noting, of course, is that sales comparisons in the luxury realm stand to get significantly easier in the second half of the year; it’s hard not to achieve a strong report card when you’re being graded on a curve against historically dreadful quarters. But even that might not be enough for some of the most damaged stocks in the sector.

Consider Tiffany, which upped its full-year guidance after reporting a 30% drop in its second-quarter earnings. CEO Michael Kowolski said even though economic and retail conditions remain challenged, stores are achieving small to modest sales growth year-over-year compared with the previous two quarters.

Of course, the company is achieving these “increases” only when stacked up against last year’s dismal results. But this hardly means luxury shoppers are any better off than they were last year.

Price, indeed, has been such an important consideration for high-end shoppers that retailers have resorted to drastic markdowns, something rarely seen in the luxury sector prior to the recession. Most notable: the blaring 70% off signs at Saks last holiday season.

This focus on price has helped bolster the market share of such discount retailers as TJX and Ross Stores. Those off-pricers, on the whole, have been able to stock better merchandise as retail consolidation perpetuates.

As a result, both companies are outperforming the sector. In August, TJX saw same-store sales grow 5%, while Ross was up 6%. Meanwhile, on average, total same-store sales declined 5.7% during the month.

Losing the retail game to a bunch of discounters is probably just the wake-up call that high-end retailers sorely needed — and several luxury sellers are visibly upping their games.

Coach, for one, is using its excess cash to invest in new product, like its lower-priced Poppy line. The company is also making its first foray into apparel with the Reed Krakoff division.

Likewise, Tiffany has launched its “Keys” collection to drive traffic ahead of the holiday season. The line ranges between $150 for sterling silver to $15,000 in platinum and diamonds. The jeweler has been struggling with sales of items over $50,000.

Nordstrom, meanwhile, has held up better than its competitors by emphasizing its famed customer service and its tier-pricing strategy. Same-store sales at Nordstrom declined “only” 7.6% in August, while competitor Saks plunged 19.6%.

And these days in the luxury sector, losing by less than your competition is as close as you can get to winning.

– Reported by Jeanine Poggi in New York

September 14, 2009

Silver: Bridge between what is fashion and what is fine

Posted in Luxury Market
By Claire Adler
Published: September 14 2009 09:46

Earlier this year, nearly two-thirds of respondents to a Luxury Institute survey, agreed that pricing of exclusive brands is too high for the value they deliver.

Then last month, the institute released research confirming that jewellery is the category on which wealthy consumers are most likely to say they will reduce their spending, followed by home furnishings, watches and gifts. Against this backdrop, many jewellers on both sides of the Atlantic have been quietly pricing down.      

“Brands aren’t saying items are on sale or making a to-do about it, but everybody is re-pricing now,” says Milton Pedraza, chief executive of the New York-based Luxury Institute. “They are pricing down in a stealthy manner.”

A prime example of a jeweller who had the foresight to appeal to a wider audience and increase profits by introducing silver jewellery is British designer Stephen Webster, who, with 22 stores worldwide says his sales are up 20 per cent this year. Mr Webster began creating silver jewellery in 2007. He partially attributes his aggressive expansion plans to the success of this diversification.

With slow store traffic and sales up to 50 per cent down, according to Mr Pedraza, many jewellers can only aspire to Mr Webster’s growth rate.

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