Luxury Institute News

November 26, 2010

Big Spenders Returning To The Luxury Fold

By Marina Strauss
Globe and Mail
November 25, 2010

In the depth of the recession, Tiffany & Co. (TIF-N60.14-0.46-0.76%) struggled to sell $3,200 (U.S.) diamond earrings and $12,000 bangles, while it fared better with $100 silver necklaces.

Today, the situation is reversed, as the high-end retailer grapples with softer sales of jewellery under $500 even as it enjoys a recovery in higher-priced items.

“The people who are coming in to spend $1,000 or $5,000 or $10,000 or $20,000, they’re showing a much greater willingness to spend,” Tiffany vice-president Mark Aaron said in an interview on Wednesday.

“That customer is feeling a little better about things, while people who might purchase silver jewellery are spending more cautiously.”

New York-based Tiffany and other purveyors of luxury goods are rebounding from the recession in their North American businesses, which are still underperforming their overseas operations.

Retailers such as Saks Inc. and Coach Inc. are beating analysts’ quarterly expectations, luring well-heeled customers with pumped-up ad spending and classic styles, while scaling back margin-pinching discounting.

“We have turned the corner,” said Milton Pedraza, chief executive officer of market researcher the Luxury Institute in New York.

Still, upscale companies will be challenged to sustain the gains because of the relatively easy comparisons with previous recessionary years, he said.

And wealthy consumers are no longer shelling out for $800 camera bags or other frivolous merchandise, he said. “There’s a flight to quality.”

At Toronto-based men’s clothier Harry Rosen, sales of $5,000 (Canadian) Tom Ford suits and $4,500 Zegna leather jackets are particularly strong, said CEO Larry Rosen. The privately-held retailer’s overall sales so far this year have jumped by more than 13 per cent, compared with a decline of 5 per cent in 2009, he said. For this month alone, they’ve shot up 25 per cent from a year earlier. “The luxury customer has come back.”

But the past couple of years have taught Mr. Rosen to be more disciplined in focusing on classics – such as $300 cashmere sweaters – and refraining from taking risks on bright orange sweaters or “off-the-wall” items, he said. This year he is running sales with discounts of up to 20 per cent, compared with 40-per-cent reductions last year.

Saks has also reduced its promotions by offering, for example, “family and friend” discounts of 20 per cent this year compared with 25 per cent last year, CEO Steve Sadove said last week. The retailer’s cosmetics markdowns dropped to 10 per cent from 15 per cent. “We are consistently trying to reduce the number of [markdown] events, the brands included, the value of the events, and move toward a more full-priced selling environment,” Mr. Sadove said.

Tiffany, which doesn’t discount merchandise, raised its ad spending this year – shifting toward previous peak levels – after reducing it to 5.9 per cent of sales in 2009, down from 7.2 per cent of sales in 2008, Mr. Aaron said.

The marketing helped the jeweller perk up its third-quarter sales by 14 per cent, to $681.7-million (U.S.), while profit jumped 27 per cent to $55.1-million; Tiffany forecast a strong holiday season and raised its annual outlook.

Tiffany’s revenue in the U.S., Canada, Mexico and Brazil, which makes up about half of its business, rose 9 per cent, although the gains trailed those in the Asia-Pacific region (up 24 per cent;) Europe (22 per cent;) and Japan (12 per cent.)

Same-store sales, an important retail measure, rose 5 per cent in the Americas, below the overall 12-per-cent gain and largely driven by higher prices, which are expected to increase further early next year to offset rising costs of diamonds and precious metals such as gold.

To try to win more business, Tiffany is expanding into handbags, briefcases and watches. It and other upscale retailers are capitalizing on affluent consumers who feel more confident in their spending, helping the chains outperform other merchants whose customers are worried about the uncertain economy and sticking to must-have purchases.

http://www.theglobeandmail.com/report-on-business/big-spenders-returning-to-the-luxury-fold/article1812574/

November 24, 2010

Holiday Gift Guide: The Best of Everything

SmartMoney
November 23, 2010

For a year that started with so many expectations, 2010 is drawing to a less than stellar close. The stock market might be bouncing back, but the economy is still sputtering, yields are lower on everything from government bonds to certificates of deposit, and summer movie attendance hit its lowest level in more than a decade. We even have to look down to find something that’s up: Casual shoes for men are among the few high-end fashion categories to see their sales surge this year.

For two tough years the luxury-goods market has been struggling as well, with 2009′s decline of 8 percent the worst ever recorded for the nearly $230 billion category, according to consultants Bain & Co. And yet 2010 could end up being the year of the comeback for all things upscale: Bain is predicting an increase of 10 percent for worldwide sales of luxury goods. To be sure, with the financial crisis still fresh in Americans’ minds, experts say, folks returning to the diamond counter are being careful with their nonessential purchases. Simple and useful are in; showy and impractical are out. “The severe recession rewrote-and is still rewriting-the rules,” says Milton Pedraza, CEO of research firm the Luxury Institute.

While it might be less conspicuous, it’s still consumption-and we’re here to do our part. Each year SmartMoney does some early holiday shopping, talking to retail experts, strolling through stores and scrolling through online catalogs, all in search of some of the best products for your wish list. To narrow down our picks, we try out our top choices-taking a few swings with the new tennis racket, a few steps in the sharp-looking shoes and a few glances in the mirror at that black-pearl necklace.

This year, in keeping with the so-so economy, we focused on indulgences that can work just as well in the carpool lane or at the park as they do in a five-star restaurant or corner office.

Click the link to read the entire article: http://www.smartmoney.com/spending/deals/the-best-of-everything/

November 22, 2010

APPS-PAREL

In contrast with their reputation as leaders on catwalks the world over, luxury brands have perfected the slow embrace when it comes to technology. Will it be to their detriment?

By Hannah Tattersall
The Australian Financial Review
November 19, 2010

It’s 1am in Sydney. A woman wakes up and turns on her iPad. She opens her Burberry app and goes to the latest catwalk parade live from London Fashion Week. She zooms in on a model sporting a trench coat, moving her cursor from the shoulder of the garment down to its belt. As soon as the show finishes, she logs her interest and waits for a customer service representative to call and take her details. 

In six to eight weeks – four months ahead of its arrival in store – she receives her product. 

This ecommerce initiative, which ran for a week after the recent London show, was a world first, the brainchild of Burberry chief creative officer, Christopher Bailey.  So excited was he by the move, after the show he tweeted that the fashion house was “now as much a media content company as a design company because it’s all part of the overall experience”. 

Burberry has 2 million fans on Facebook.  Conservative by nature, luxury brands such as Chanel, Gucci, Louis Vuitton and Bulgari have been slow to embrace ecommerce. They pride themselves on the store experience they offer customers. And that experience -with personal service (champagne at times), and a touch and look approach – cannot be recreated online. Furthermore, these brands argue, even if you could sell luxury online, the affluent consumer isn’t interested.

Until now.

In October, New York based Luxury Lab released its second annual L2 Digital IQ Index of 72 luxury brands, ranking websites and mobile applications, digital marketing strategies and social media initiatives to quantify brands’ digital competence. Coach ranked number one, Ralph Lauren two and Burberry six. 

A Luxury Institute survey found 34 per cent of affluent respondents have downloaded apps to their smartphones, with another 11 per cent saying they intend to do so in the near future. 

Luxury brands are now scurrying to be recognised as having the knowhow to compete in a digital world. “Today, nobody questions doing ecommerce,” Milton Pedraza, Luxury Institute chief executive says,”but a few years ago there was a silly debate in the luxury industry about whether they should sell online or not. That’s been put to rest.”

Pedraza says this is because luxury brands were in the “same constellation but not of the same planet as mass brands”.

They didn’t see the web as able to replicate the store experience, without which, they believed, luxury brands weren’t luxury.

“They weren’t like Amazon.com; they weren’t like Zappos.com,” Pedraza says.  “They didn’t quickly embrace the convenience factor of the internet. They were afraid of it.”

He says it’s time luxury brands moved away from Flash sites that take minutes to load and annoy users, to embrace mobile applications.

Sites such as Foursquare can inform sales staff when clients enter a store. “Luxury needs to use that as the centrepiece to groom relationships,” he says. “You’re using the mobile device to enhance the consumer and also to enhance the sales professional and make it easier to interact between the [two].” 

The biggest mover and shaker in the luxury market, Asia, has spurred the need for brands to recognise online mechanisms globally. A 2008 study by KPMG International found Asian respondents felt most comfortable making financial transactions on their mobile.

Luxury brand consultant Melinda O’Rourke says in China alone, 60 to 70 per cent of luxury consumers are 20 to 27 years old. “Luxury brands have to look overall at their strategies because for the first time there’s such a big youth market,” she says.

Many global brands are yet to view Australia as a profitable market – in critical mass terms, we are not as important as China or the US. But Australia proved it was a robust market when it came through the global financial crisis relatively unscathed. And with our dollar at parity with the US dollar, Australians are embracing online retail in droves. We are the third biggest users of luxury shopping site NetAPorter, where the average annual spend per Australian customer is £728 ($1190), when the international average is £313.

In a survey conducted by O’Rourke’s firm, MO Luxury, in Australia in September, 57 per cent of respondents claimed to have visited luxury beauty websites. O’Rourke says NetAPorter has increased confidence in the online luxury market. The Richemont Group bought a 33 per cent stake in NetAPorter in April.

Associate professor of marketing at Melbourne Business School and luxury brand consultant Mark Ritson says luxury brands like to break rules and push fashion forward.

“But when it comes to business strategy, that’s not the case,” he says. “In business strategy, most luxury brands take pride in moving very slowly . . . they think about things in a decade or double decade way.”

While other luxury brands might see Burberry as a shelf down from them in the luxury store, Bailey’s moves in the online world have not gone unnoticed.

Francesco Trapani, chief executive of Bulgari, says his luxury house has “made a massive leap in the scope and sophistication of its online initiatives” in the past few years. It has a Facebook page about its brand, products, events and activities around the world, shares campaign videos on YouTube, and uses Twitter in the US to engage with customers – it has about 4000 followers.

“We’re evaluating the roll out of Twitter to other markets, but to date we haven’t seen high demand for it elsewhere,” Trapani says. “Expect to see more mobile activity next year.”

His company has noted an increase in product research and brand engagement online, he says. For now, however, it has no plans to launch online shopping in Australia.

Juliet Fallowfield, Chanel Australia and New Zealand’s corporate communications manager, says the company has been streaming shows from Paris to Australia within 24 hours, allowing consumers to watch and zoom in on product detailing. But it has not yet embraced ecommerce and she is unaware of any plans to do so. Chanel has a Facebook page and uses its website to alert consumers to news and announcements.

One thing Facebook can’t provide is tangibility. “Our customers are aware they receive more than just access to the physical product when they visit Chanel,” she says. “They won’t just come in, have a look and hear about the price. They’ll have the expert advice, the tailored Chanel environment, which gives a complete luxury experience.”

Trapani agrees the luxury consumer expects more than what can be provided by mobile and online devices, particularly when it comes to the brand’s high end jewellery ranges.

“Each high jewellery purchase is a major investment from both financial and emotional perspectives, so the human touch is vital,” he says. “In comparison, customers who purchase our fragrances need an initial physical experience to learn about the scent, but once they’ve become a fan of a particular scent, they generally prefer the convenience of finding the product online.”

Critics, however, say by being so accessible, brands risk losing the exclusivity that comes with being a true luxury brand. “Brands have to compete and make sure they’re relevant,” Pedraza says. “But they still need to show they’re a luxury brand. The risk with moving online is that anyone can access the brand.”

With social media “anyone can be involved, have a dialogue,” O’Rourke says. “And although they’re very consumer focused these days, it’s still about coming to our house and respecting our rules. We’ll serve our clients but we’ll serve them in our own environment.

“What’s fundamental is luxury is very much about the experience . . . Luxury brands are all about control. They have beautiful stores you walk into, this seamlessness, whether it’s Tokyo, London, New York, Sydney or Melbourne. There’s a consistent look. They can control their environment, everything from product to the store’s look, staff, knowledge.

http://afr.com/p/luxury_online_the_slow_embrace_RgYXqTdd1nrBPpxdry8HTK?hl

November 10, 2010

News Release: Leisure is the New Luxury for Wealthy Americans Today

NEW YORK, NY–(November 10, 2010) – With the economy in the throes of a difficult recovery, affluent Americans consider that the most valued goods, services and experiences are not material in nature, but leisure-oriented pursuits. This finding is a result of new research conducted by the Luxury Institute, in cooperation with Resonance Consultancy, of households with an average income of $332K and net worth of $3.3 million. The conclusions suggest that while conspicuous consumption is on the wane, conspicuous leisure may soon be on the rise.

“Affluent households today consider leisure-oriented pursuits such as exotic vacations, vacation homes, the freedom to work from home and extended time off work to be the most desirable luxuries,” says Chris Fair, president of Resonance Consultancy. “It’s a significant change from the past when the most desired luxuries were usually material goods.”

Despite the recession, the tastes of the affluent have changed little since the last survey was conducted in 2008, with only the desires for electric/hybrid cars and jewelry dropping significantly. “In tough economic times, it’s not surprising that wealthy consumers are shying away from more visual displays of wealth such as fine jewelry and watches,” says Milton Pedraza, CEO of the Luxury Institute. “The good news is that the desirability of philanthropy has held steady. Large gifts are a very public way of communicating status.”

Companies that will benefit from the U.S. shift from conspicuous consumption to conspicuous leisure are likely to be high-end resorts, highly-differentiated hotels and experience purveyors from travel and tour curators to leisure outfitters.

About the Luxury Institute
The Luxury Institute is the objective and independent global voice of the high net-worth consumer. The Institute conducts extensive and actionable research with wealthy consumers about their behaviors and attitudes on customer experience best practices. In addition, we work closely with top-tier luxury brands to successfully transform their organizational cultures into more profitable customer-centric enterprises. The Luxury Institute also operates LuxuryBoard.com, a membership-based online research portal, and the Luxury CRM Association, a membership organization dedicated to building customer-centric luxury enterprises.

About Resonance Consultancy
Resonance Consultancy specializes in developing brand strategies and stories for innovative organizations, places and products to generate awareness and influence perceptions.

November 8, 2010

Posh going practical at Neiman’s Last Call Studio

By Kerri Panchuk
Dallas Business Journal
November 5, 2010

The economic downturn has challenged Neiman Marcus to balance its reputation as a luxury retailer against more practical concerns, like building revenue.

That has spurred the creation of its off-price brand, Last Call Studio by Neiman Marcus, which was rolled out in late October.

Neiman’s is focusing on Last Call Studio as it rebounds from a period of deep losses in 2009. The company reported a net loss of $1.8 million for the 2010 fiscal year ending in July, much improved from a net loss of $668 million in 2009, according to Neiman’s earnings statements.

“It is a growth strategy,” said Milton Pedraza, CEO of The Luxury Institute, of Neiman’s push into off-price retailing. “But there is no question that the way people perceive the exclusivity of the brand will change. They will see the brand as more ubiquitous.”

Prior to Last Call Studios, Neiman’s had Last Call by Neiman Marcus Clearance Centers, which are still open across the United States. But Last Call Studio is considered a different beast since it caters to somewhat affluent buyers by selling leftover Neiman’s merchandise and common Neiman’s brands that are manufactured for Last Call Studios to sell at lower prices. Lastcall.com also was launched in late October to reach customers online. The website shows product selling at prices 30 percent to 50 percent off comparable retail prices.

“We have been thinking about doing this for several years,” said Wanda Gierhart, chief marketing officer for Neiman Marcus Group. She says Neiman’s made the move into a more-affordable market after noticing a “white space” for an assortment of off-price goods that can be sold through multichannel environments.

Neiman’s has one standalone Last Call Studio by Neiman Marcus in Dallas at 5550 West Lovers Lane and two opening in November – one in Maryland and one in New Jersey. The store is smaller than a traditional Neiman’s, designed for urban dwellers who want quick access and don’t want to drive to a mall or outlet center.

Gierhart said Neiman Marcus cannot say if more Last Call Studios will be developed in Dallas or across the United States, but the company will evaluate expansion plans after seeing how the first three stores perform.

It’s about time

Pedraza applauds Neiman’s for flexing its muscle in the off-price retail space.

“I think the brand has realized they need a safety valve, and they need to spread their offerings to more affordable and differentiated products,” he said. In turn, this will build the revenue they need to continue growing the entire business, he added.

Neiman’s is the only high-end brand without a strong presence in the off-price side of the business, Pedraza said.

Most of Neiman’s competitors, including Saks Fifith Avenue, Nordstrom and Bloomingdale’s, have found ways to reach what Pedraza calls “aspirational” consumers.

He describes aspirational shoppers as young professionals making about $75,000 per year.

The risk of compromise

“If I were a purist, I would say it (off-price stores) definitely creates some loss of exclusivity (for the Neiman’s brand),” said Pedraza. But, he added, “I would also argue it is a necessity, and it will probably make the business stronger long-term.”

As Neiman’s pursues this channel, it will be important to keep Last Call Studios distinctly separate from the main stores, marketing experts say.

“There is a potential of cheapening the brand,” said Elten Briggs, an assistant marketing professor at the University of Texas at Arlington. “They have to make sure the consumers psychologically and physically make a separation between the two.”

Briggs says different branding and advertising techniques will help.

But, in this economy, he’s not surprised by the retailer’s willingness to brave new channels.

“For your higher-end stores, once their market share starts eroding a bit, they start looking for creative ways of replacing that revenue or supplementing their revenue stream. You saw this with Tiffany’s,” he said.

While Tiffany’s didn’t create another jewelry store, the company did make a big decision to offer jewelry at varying price points, Briggs said.

http://bizjournals.com/dallas/print-edition/2010/11/05/posh-going-practical-at-neimans-last.html