Luxury Institute News

December 24, 2011

What does Bernard Arnault want with Hermès?

By Rachel Lamb
Luxury Daily
December 23, 2011

LVMH Moët Hennessy Louis Vuitton’s courtship of leathergoods maker Hermès is not a secret, nor is it subtle. Conglomerate chairman Bernard Arnault claims his motive is not to take over Hermès, but if this is true, what exactly is it that he wants?

It is generally acknowledged – by both Hermès executives and the luxury industry – that Mr. Arnault’s continually-rising stake in the saddler is not seen as a friendly gesture, and the family-owned Hermes is putting most of its efforts into ensuring that LVMH does not have a takeover share. Mr. Arnault raised his stake in Hermès earlier this week from 21.4 percent to 22.3 percent and now owns 16 percent of its voting rights, according to a report from Women’s Wear Daily.

“I think that Hermès has impeccable products, the top-tier of luxury goods,” said Milton Pedraza, CEO of the Luxury Institute, New York. “In terms of what customers want, they have the top design, quality and craftsmanship.

“So, that’s what’s attractive to Mr. Arnault, as well,” he said. “However, where other investors come in to milk brands, he invests in them.

“Frankly, I think that Hermès could benefit from his views on customer service and experience, and not just products.”

Back in the saddle
Mr. Arnault wants Hermes, but it is not as if Hermès needs LVMH.

Most mergers and acquisitions are agreed upon because a company is struggling or needs a product refresher.

Hermès is not that case. In fact, it posted a 16 percent increase in sales last year, and its net profit margin increased from 15 percent to 18 percent from 2009 to 2010.

What Hermès may need, however, is a refresher course in customer experience, according to Luxury Institute’s Mr. Pedraza.

“Consumers tell us in research and anecdotally Hermès is the pinnacle of product delivery, but they could become far better in customer experience,” Mr. Pedraza said.

“Hermès could benefit from that and Mr. Arnault gets that,” he said. “That’s probably his interest in Hermès.

“But Hermès is becoming cognizant of that – I think that they will take this opportunity to improve in a human-oriented way, not just a product-driven way.”

High stakes
In September, Hermès was allowed to sell shares to a private holding company rather than publically, which would make it harder for LVMH to gain a controlling stake in shares.

This decision was brought on by LVMH’s refusal to halve its shares when Hermès publically asked. Instead, just a few months earlier in July, LVMH raised its stake to 21.4 percent.

Hermès claimed that the creation of the company will strengthen the independence of the label in the long-term and support the continuation of strategy and creativity in craftsmanship and brand values.

The thing is that if Hermès was to be bought by a label, LVMH would likely be its best bet. This is because Mr. Arnault not only takes interest in brands, but he builds them to the highest essence of luxury as possible.

After all, LVMH did not become the luxury powerhouse that it is without powerful business strategy, claims Luxury Institute’s Mr. Pedraza.

“It seems that Mr. Arnault has a formula for running luxury brands that is working quite well, so the brand would likely prosper,” said Pam Danziger, president of Unity Marketing, PA. “But time will tell whether he and the LVMH management team can keep that magic touch in the future.”

December 22, 2011

Q&A, Milton Pedraza, CEO of the Luxury Institute

By Patty Orsini
JWT Intelligence
December 21, 2011

As CEO of the Luxury Institute, Milton Pedraza has seen the pendulum swing from the exuberance of the mid-2000s to the stalled spending of the recession to the more exclusive market we are seeing now, four years after the downturn started. But while the luxury market has quickly evolved, luxury itself is timeless, he says. Pedraza spoke to us about just what has changed in the category on the part of brands and their customers since the pre-recession period and how a taste of luxury helps purchasers “Live a Little,” one of our 10 trends for 2012.

How do you define luxury?

Luxury is defined by wealthy consumers as the best in design, quality, craftsmanship and service, all combined into an extraordinary experience that is truly relevant, both functionally and emotionally.

Why do people make luxury purchases? What is it that gives people satisfaction?

There has always been a quest to own the best. Having the best gives you tremendous satisfaction, and it certainly provides status, which all humans seek at some level. Beyond that, there is a requirement that the product provide investment value. Consumers are taking their hard-earned money and putting it into something that must deliver lasting value. The design should be timeless, and the quality and the craftsmanship must last a long time. And if there is ever a problem a problem with the product, there is an impeccable level of service.

The idea of investment could appeal even to the most frugal minded then, right?

Yes, there is the investment value of having something that lasts. You may buy a wonderful handbag or a pair of shoes, and you are willing to invest significant sums because you know that it’s going to last you a long time. Consumers are very discerning, so they’re taking a hard look at the quality, the craftsmanship and the functionality to determine investment value. There is a quest for optimization on the part of luxury consumers these days that wasn’t there in 2007. Back then consumers were less discerning, and brands also were willing to offer less value.

So it seems like luxury consumers aren’t feeling guilty about spending these days?

Not the majority, who feel they earn their money without doing damage to society. Most luxury consumers tell us that status is secondary with a luxury purchase. Often it is a reward: They’ve earned it, so they can treat themselves to something special. For the most part the guilt is gone. And there is also less of “I’m going to borrow to get it, even though I haven’t earned it.” I think that is a healthier approach and one that people understand. I don’t see too many people today buying in excess or buying out of their affordability range.

Are brands doing anything differently in their marketing now, compared to 2005 to 2007?

Today advertising is still important, but it’s about building long-term relationships. It’s about retaining customers.

Consumers are still a little on edge, though, never quite sure about their net worth from day to day.

If Europe gets worse, you’re going to see some moderation in luxury spending, because consumers are concerned about the global economic risks. If the stock market declines significantly, there will be a more temperate approach to buying luxury. Still, we all love our luxuries. Even the aspirational consumers, the young professionals who don’t have a lot of assets but have a reasonably good income, are saying, “OK, I might spend a little more, but I will buy a few luxury items that have true lasting value.”

So it’s more about the occasional splurge?

For the aspirationals, it is occasional; it’s rational. Many luxury consumers today say, “I want to have a few special things in my life. So let me buy that Gucci bag, that Vuitton bag, that Chanel bag. I’m not going to buy as many as I used to, but I am going to buy, because luxury has lasting value.”

Do you see luxury popping up in more categories, in more places?

Yes. For example, in concerts and events I invariably see a lot of VIP offerings. You see it in concierge medicine. I think particularly in services, you’re going to see a greater segmentation. In airlines, you can now pay for preferred seating, or early boarding, to get in the front of the line. Service companies are using these services to make some people happy but also to improve their profitability.

How are brands retooling for today’s consumer spending patterns?

Many luxury brands offered a lot of “affordable luxury” back in 2007. Today they have pruned their offerings and are discounting less. Both luxury brands and retailers such as Saks and Nordstrom realized that a lot of those cheaper products were eroding brand equity. Today there is far more rational production and selling of true luxury, as opposed to the pretend luxury we saw during the bubble.

A lot of brands went back to the standard of true luxury, and the effort paid off with both wealthy and affluent consumers. Consumers are willing to pay full price for true luxury.

Going into 2012, do you see the definition of luxury evolving?

What you’ll see is that many companies will go back to delivering the high standards of luxury, as opposed to just pretending to be luxury. Luxury has been very consistent. It’s had its ups and downs, but the definition of luxury remains the same. A true luxury brand delivers the highest level of design, quality, craftsmanship and service, with a long, long history of delivering true value.

December 21, 2011

Coach Outperforms Competitors on Key Brand Saliency and Service Metrics

(NEW YORK) Dec 20, 2011 — As part of its mission to educate and influence the luxury industry to evolve into world-class customer-focused enterprises, the New York-based Luxury Institute recently conducted an intensive analysis of its objective and independent Luxury Brand Status Index (LBSI) surveys and several WealthSurveys with wealthy consumers. With more than five years of data on dozens of luxury goods and services categories, the Luxury Institute sought to identify ‘best practitioners’ that have consistently scored above competitors.

In the handbag category, the analysis revealed that one brand stood alone in owning several critical metrics for brand vibrancy five years in a row: Coach.

Luxury Institute empirical data shows that Coach has achieved what no brand in the luxury handbag category has been able to in a five-year period with affluent women in the US: highest brand familiarity by a wide margin with an average of 73%. In addition, an impressive 25% of the sample of affluent consumers has purchased a Coach handbag in the last 12 months and 25% intend to purchase Coach as their next handbag. For comparison, the next highest rated brand has a purchase rate of 6% and purchase intent rate of 5% in the latest survey.

Coach is also the brand that most wealthy women have been willing to recommend to their friends and family for three out of five years and it has always been ranked within the top three most recommended brands with an overall average of 65%.

The brand is also top-of-mind when shoppers think of superior customer service. In a recent WealthSurvey, Coach was the handbag brand that was cited as having the best customer service on an unaided basis by premium handbag shoppers, outperforming its nearest two rival European competitors three to one. No other luxury handbag came close to achieving these results (see Graph A). Coach, to its global credit, demonstrates similar brand strength in Japan, one of the world’s most sophisticated luxury markets.

Achievements like these are the empirical rewards of a highly disciplined customer culture. Great product is extremely important and Coach is rated among the top quality handbags brands. However, a consumer-centric culture is the critical factor in consistently delivering extraordinary customer experiences.

By design, Coach is a consumer-centric brand built on strong core values. In an increasingly commoditized and highly competitive global luxury handbag market, it is simply not enough to outperform your competition on products; you have to dramatically outbehave them. “Unlike brands that tout their customer culture, yet fail to demonstrate consistent long-term profitability, Coach has repeatedly achieved superior results in Luxury Institute surveys for quality of product and service. In the mind of the U.S. luxury consumer, they are the clear winner in the Handbag and Accessories space,” says Milton Pedraza, CEO of Luxury Institute.

“The customer experience is the new battleground for the 21st century,” says Pedraza. “In a world where design, quality and craftsmanship are often imitated, brands will live or die based on more than just great products and services. With its customer-centric culture, as measured by independent wealthy consumer feedback, Coach is well positioned to thrive in a global marketplace where the human values and integrity of the brand matter most.”

About 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. Our Luxury CRM Culture consulting process leverages our fact-based research and enables luxury brands to dramatically Outbehave as well as Outperform their competition. The Luxury Institute also operates, a membership-based online research portal, and the Luxury CRM Association, a membership organization dedicated to building customer-centric luxury enterprises.

December 20, 2011


By Joshua Linam
December 20, 2011

As a recession-ridden 2011 comes to a close, a few men stand and whisper the word “luxury.” The bold souls I’m referring to not only don fine fabric ties and crocodile satchels, but they also advise companies that produce these costly goods. Each of these men has climbed the luxury ladder for over a decade, and each has earned a rightful place at the head of luxe market’s table. So, what insights can our experts offer on the industry’s present state? Have the rules changed since 2010? Will luxury reclaim its glistening throne in 2012? Stay tuned, as a mixed field of industry elites share secrets of luxury, today and tomorrow…

Click the link to read the entire article which includes an interview with Milton Pedraza, CEO of Luxury Institute:

December 5, 2011

From Georgia, A Peach of a Bank

Atlantic Trust Private Wealth Management offers unusually high-touch service, and it starts with the CEO

By Suzanne McGee
December 3, 2011

The rich like to drive Maybach cars, carry Hermès bags and keep their money at…Atlantic Trust Private Wealth Management. In a recent survey by the Luxury Institute, a New York-based consulting firm, people with assets of at least $5 million rated the low-profile Atlanta firm as the No. 1 wealth-management outfit in terms of quality, service and even “social cachet.”

That may have surprised JPMorgan, Merrill Lynch and the 32 others on the list, but it made complete sense to Jack Markwalter, Atlantic Trust’s CEO. “This may be a crowded market, but very few firms get it right,” he says.

Atlantic Trust, a unit of mutual-fund giant Invesco, offers an intensely personal kind of service, and that starts at the top. Not so long ago, when Markwalter was helping to sign up as a client an Alabama family with five children, the family required that he meet all of them. In short order, in separate meetings, he had discussions with four of the kids. The fifth, somewhat of a global nomad, was harder to pin down. But one day, he got a call saying he could breakfast with her the next morning in London. He hopped on a plane, went straight to the Savoy, met with the daughter for three hours and then dashed home for a board meeting.

That kind of attention tends to pay off.

The firm’s assets under management climbed more than 30% from January 2009 through this past October, to $17.5 billion. About half the gains came from investment returns, the rest from inflows of money from existing and new clients. Atlantic gets the huge bulk of its new business through referrals by existing customers; it does absolutely no advertising.

Good wealth management isn’t entirely about investing; the firm also provides broad financial planning, trust services and more. One woman with “several hundred million” turned to Atlantic Trust for help in giving the bulk of it away, company officials recount. They worked with her for a decade to establish guidelines and priorities and serve as the public face of her philanthropy. Atlantic Trust executives routinely showed up to cut ribbons and open buildings.

“Clients want someone to be their quarterback, even if they don’t give us all their assets, and that’s a role we can fulfill,” Markwalter says.

Invesco created Atlantic Trust by acquiring three small firms from 2001 through 2004 — Boston-based Pell Rudman Trust, Chicago’s Stein Roe Investment Counsel and Whitehall Asset Management in New York — and melding them. The resulting company is still just a tiny part of Invesco, which oversees about $654 billion. But to Markwalter, the link with Invesco is a competitive advantage in a field of stand-alone boutiques and financial conglomerates. Invesco’s mission — investing for clients — aligns very well with Atlantic Trust’s, he says. “Boy, it helps to have the mother ship and the parent company moving in the same direction with you.”

Despite the Invesco connection, only two of the roughly 100 investment managers that Atlantic Trust recommends are part of the Invesco lineup. One is Lyman Missimer, who runs the low-fee, highly regarded Invesco Liquid Assets Portfolio money market fund. The other is billionaire buyout and turnaround specialist Wilbur Ross, whose firm, WL Ross & Co., was acquired by Invesco in 2006.

Says Markwalter: “If we see other opportunities for our clients from Invesco that are special and unique, we’ll put them through the same due diligence that we would any other investment product.”

Like other investors in these times of record-low interest rates, Atlantic Trust’s clients are clamoring for income-producing investments. They’re looking for “an enhanced yield strategy with some growth potential and an above-average income stream,” says Chief Investment Officer David Donabedian. To him, that means energy-based master limited partnerships, floating-rate investment-grade corporate debt, and emerging-markets debt securities, issued in local currency, rather than shaky U.S. dollars.

Markwalter, for his part, is following some lessons learned over a lifetime. Born and bred in Augusta, Ga., he grew up watching his father solve financial challenges for clients as a broker with Johnson Lane and its various successor firms. “Even before I went to school, I’d be at my dad’s office, pulling up the Coke stock quote on the Quotron,” he recalls. What impressed him just as much as the fancy technology was his father’s commitment: On family holidays, he’d spend time on the phone with clients each day. “I saw how helping your clients with these issues created a really special relationship.”

For Markwalter, the challenge now is to keep growing his company without losing the personal touch. “We can double or triple the business without changing that,” he maintains. If he’s right, you can expect to hear a lot more about Atlantic Trust in the years to come.