Luxury Institute News

May 28, 2013

Insight: Luxury brands position for U.S. boom

By Astrid Wendlandt & Phil Wahba
May 24, 2013

Most men might balk at spending $600 on a pair of Dior sneakers but for U.S. shoppers like Ephraim, an upbeat 30-year-old, such indulgences are becoming increasingly commonplace.

Ephraim is the kind of man who gives luxury goods makers high hopes that the U.S. market can fuel future growth, as China runs out of steam and demand in Europe sags.

“There is a cultural shift,” Ephraim says while browsing at Saks Inc’s New York City flagship. “Men are becoming more fashion forward.” The growing appeal of luxury goods to men and increased confidence among affluent spenders as the U.S. economy and asset prices recover have boosted sales and encouraged luxury brands to step up their investments in the United States.

Click the link to read the entire article which includes a quote from Milton Pedraza, CEO of Luxury Institute:

May 25, 2013

Neiman, Saks could create international success

By Daniel Abril
Dallas Business Journal
May 24, 2013

A Saks Fifth Avenue, Neiman Marcus merger could create new opportunities for both brands to save money and expand their footprints, a retail expert industry expert said.

News broke this week that private equity firm KKR could be considering purchasing and merging New York-based Saks and Dallas-based Neiman Marcus.

Milton Pedraza, CEO of New York-based Luxury Institute, thinks that the chances the two retailers will merge is 50/50. But if they did, he said, the two would open the doors in the luxury retail world.

“The savings from being together would create more buying power, whether it’s for marketing or products,” he said. “It gives them opportunity to be more profitable and innovative.”

Pedraza said the savings that would come from combined back office operations and online efforts could create more resources to do what both companies need to survive in the current market: Improve customers’ shopping experiences.

“They don’t deliver a compelling person-to-person in-store experience,” he said. “They’re transactional, not focused on relationships.”

He also said a merged company could fill a gap in the international luxury market.

“There is no international brand that has mutibrands under one roof … that really delivers a fantastic experience,” he said. “I think Saks or Neiman could fill that void.”

But if the two were bought and merged, its owners would need to keep the two brand identities intact, Pedraza said. This could manifest itself in the two brands buying different products from the same designer and also offering their own unique selections.

A merge would make the two retailers a unique luxury brand in a market that is thriving, according to Pedraza. But a move like that wouldn’t happen overnight.

“A lot of pieces have to come together to build that puzzle,” he said, adding that management would have to spend time developing a sound business model. “There is a business case to be made … but it might be really unique opportunity.”

May 20, 2013

Richemont’s Asia focus drives full-year sales up 14pc

By Erin Shea
Luxury Daily
May 17, 2013

Richemont is attributing its full-year sales increase to demand in China and Asia-Pacific, contributions from currencies and exchange rates and the broad growth from its brands across all regions.

Luxury conglomerate Richemont reported a 14 percent increase in annual sales to approximately $13 billion in 2012, compared to last year’s sales of $11.4 billion.

Richemont also reported that its profits for the year are up 30 percent to $2.6 billion from $2 billion in the previous year, much of which can be attributed to the sales in Asia-Pacific. The conglomerate released its results May 16 for the fiscal year that ended March 31.

“The Chinese and the Asians have a very healthy appetite for jewelry,” said Milton Pedraza, CEO of The Luxury Institute, New York.

“I think that ready-to-wear products may be oversaturated [in Asia], and handbags may be oversaturated, so watches and jewelry tend to be valuable,” he said.

“There are some companies in luxury that continue to grow, despite the global economy.”

Mr. Pedraza is not affiliated with Richemont, but agreed to comment as an industry expert.

Richemont, which was not able to comment directly, owns a number of luxury brands including Vacheron Constantin, Jaeger-LeCoultre, Baume & Mercier, A. Lange & Söhne, Cartier, IWC, Piaget, Alfred Dunhill, Van Cleef & Arpels, Montblanc, Chloé and Roger Dubuis.

Asian expansion
Richemont attributes its sales results to an increased demand in China and Asia-Pacific, contributions from currencies and exchange rates and the broad growth from its brands across all regions.

The company said that it works on a long-term basis of benefiting from the prestige and heritage of its brands, which will continue in the future.

However in the short-term, Richemont said that economic troubles may impact consumer confidence in some markets. Overall, the conglomerate is cautiously optimistic about the future.

During this past fiscal year, Richemont reported that Asia-Pacific accounted for the majority of its sales, with 41 percent of the group’s total sales coming from that area. Hong Kong and mainland China are its two largest markets.

Europe, including the Middle East and Africa, was responsible for 36 percent of Richemont’s overall sales.The conglomerate says this area’s growth was a result of demands from tourists.The Americas region had a third consecutive year of double-digit growth. This year, it accounted for 15 percent of group sales.Compared to other regions, Asia-Pacific is the area that is leading Richemont’s growth.

“Asia-Pacific is still a vibrant part of the world and there are some companies that are doing well there,” Mr. Pedraza said.

“Some brands are doing a fantastic job in that area,” he said. “Richemont is doing a fantastic job.”

Retail v. wholesale
Another aspect responsible for Richemont’s growth is its individual brands’ focus on retail over wholesale.

Cartier boutique

For the Asia Pacific and Europe, Richemont reports that its brand’s own boutiques had the highest growth rates.

In Asia, the brand boutiques had higher sales growth than the company’s wholesale partners. This is in part due to the expansion of the boutiques in the region.

“Richemont has set out over the last few years to try to keep its own distribution,” Mr. Pedraza said.

“Retail is outselling wholesale, which can help a company grow faster,” he said. “You can have faster growth when you are de-emphasizing wholesale and emphasizing retail.

“Most luxury brands want to control their own distribution. Watch brands tend to be more retail-oriented.”

May 16, 2013

U.S. 2 Percenters Trade Down With Post-Recession Angst

By Cotten Timberlake
May 15, 2013

Jennifer Prentice, a medical-equipment saleswoman in Minneapolis, once had no qualms about dropping $600 or more for Gucci purses. Now she spends $300 for Coach Inc. bags and is filling in her Burberry wardrobe with pieces from j.-crew.

“The things we went through over the last couple of years definitely have an impact on what I am doing,” Prentice, 45, said in an interview. “I tend to be less frivolous now.”

While good times keep rolling for the super-wealthy, many Americans at the bottom end of the privileged group with incomes of $250,000 or more are thinking twice. These “two-percenters,” unnerved by the most recent recession, are trading down to less-expensive offerings from Coach Inc. and Ralph Lauren Corp. (RL) rather than pricier goods from Prada SpA (1913) and Giorgio Armani SpA. Even with the stock and real estate markets rebounding, they’re not draining their wealth again, and the shift may prove challenging for the highest-priced brands that can no longer lean on credit card-fueled aspirational customers.

Click the link to read the entire article which includes a quote from Milton Pedraza, CEO of Luxury Institute:

Wealthy Shoppers Focus On Quality And Price As Brands Blur Lines Between Luxury And Mainstream

(NEW YORK) May 16, 2013 – What specific factors differentiate luxury brands from mainstream brands? What would happen if one type of brand expands into the other’s market? These are among the questions answered by wealthy shoppers with minimum household incomes of $150,000 surveyed by the Luxury Institute.

For 60% of wealthy consumers, particularly those with higher levels of wealth, quality is the overriding differentiator between luxury and mainstream goods and services. Price (55%) is cited as the second biggest point of differentiation. Craftsmanship (48%), prestige (47%) and design (38%) are also critical.  Older wealthy shoppers are notably more selective (51% vs. 43%) on craftsmanship than their younger peers.

Launching an extension into mainstream retail does not appear to be the kiss of death for luxury brands because there is little brand prejudice on the part of wealthy shoppers. If a luxury name branches out into mass-market, 84% of wealthy women and 78% of men would continue shopping with that company. In the case of a mainstream brand migrating up-market, 88% of wealthy women and 79% of men would remain customers.

Of the challenges facing the mainstream offshoot of a luxury brand, 24% of wealthy shoppers say the biggest risk is damage to the luxury brand’s image or reputation; 17% cited perceptions of inferior quality at the lower-priced stores.

“Luxury brands can leverage their edge in quality and craftsmanship with current offerings by communicating these attributes clearly with consumers,” says Luxury Institute CEO Milton Pedraza.  “This enhances perceived value and alleviates price sensitivity.”

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.

May 9, 2013

Going public could bring more innovation, long-term growth for Neiman Marcus

By Erin Shea
Luxury Daily
May 8, 2013

If Neiman Marcus Group Inc.’s private-equity owners decide to launch an initial public offering of the company, it could mean more innovation and long-term growth for its department stores.

The Irving, TX-based company’s private-equity owners Texas Pacific Group and Warburg Pincus LLC are rumored to be meeting with banks to discuss a public offering of the group, which owns department store chain Neiman Marcus and New York department store Bergdorf Goodman. Since the brand is healthy and the economy improving with the Dow Jones Industrial Average at an all-time high, now seems like an opportune time for the owners to sell.

“2013 is a good time for Neiman Marcus to have a public offering,” said James Dean, vice president and head of luxury practice at WealthEngine, Bethesda, MD. “Initial public offering activity is gradually escalating and likely to spike upward in the second half of 2013 and into 2014.

“With the stock market rising and demonstrating less volatility, the central bank actions are creating a stronger economic environment and generally brighter prospects for luxury consumers in 2013,” he said. “Now is the right time for companies considering an initial public offering to act.

“With the luxury goods market doing well and outperforming the rest of the retail business sector, I expect TPG and Warburg Pincus to take advantage of conditions and take Neiman Marcus public.”

Mr. Dean is not affiliated with Neiman Marcus, but agreed to comment as an industry expert.

Neiman Marcus declined to comment.

Cashing out
Neiman Marcus was previously a publicly traded company after it spun off from its retail parent Carter Hawley Hale Stores in 1987.

General Cinema – later Harcourt General – retained control of 60 percent of the company until 1999.

In May 2005, Neiman Marcus was part of a leveraged buyout by Texas Pacific Group and Warburg Pincus. The two private equity firms purchased Neiman Marcus for $5.1 billion in cash and debt.

Initially Warburg Pincus and TPG planned to hold the company for approximately five years, but were delayed by the 2008 recession.

Now, it seems that TPG and Warburg Pincus are looking to launch an initial public offering of the company by hiring Credit Suisse Group to aid in the process. The owners are hoping to receive approximately $8 billion for the company, according to Bloomberg.

Since the economy is doing well, this would be an ideal period for Neiman Marcus to debut an IPO.

“The owners want to cash out, the brand is healthy and I think that this is a natural progression of private equity,” said Milton Pedraza, CEO of The Luxury Institute, New York.

“I think this is a good move, since it is a good time to go public,” he said. “I think being a public company is not a short-term focus.

“Being in the public domain with many shareholders is far more open than it used to be.”

Sharing the power
If TPG and Warburg Pincus were to launch the public offering, Neiman Marcus would join other publicly traded luxury companies such as Saks Inc., Nordstrom, Michael Kors, Salvatore Ferragamo and Tiffany & Co.

A number of luxury brands went public in 2011 to increase their reach emerging markets (see story).

In addition, taking the company public could give more opportunities for its department stores.

“With the luxury markets doing well, luxury retailers that are public companies can really take advantage of the conditions by expanding their brand and opportunities,” WealthEngine’s Mr. Dean said.

“Luxury retailers such as Saks, Nordstrom and Michael Kors Holdings benefit as public companies, helping them further the growth of their business, expand their client base and improve their financials,” he said.

“When luxury retailers go public, it allows them to expand their brand, open new stores, advance their product line and create a greater opportunity to improve the customer experience.”

Also, going public would allow the company more room to grow financially on a long-term basis.

“When you’re a private company, the focus is more on short-term profitability,” the Luxury Institute’s Mr. Pedraza said. “Being public would mean the company would have more access to capital markets and more access to investors.

“Shareholders are long-term investors,” he said. “Private-equity owners are not long-term investors.

“Today, if you have a courageous management team, you can compromise a little bit of the short-term investments to build out the long-term investment.”

This decision would also bring more innovation and freedom to Neiman Marcus as a whole, since the company would be controlled and owned by its shareholders.

“This would open the brand up to a lot more innovation by being in the public domain,” Mr. Pedraza said. “This means freedom to innovate, and freedom to empower employees. Of course, it is a choice, not a given.

“The management could have many different shareholders on the board and have different ideas from the shareholders,” he said.

High-Income Shoppers Embrace Online Commerce, but Stores Also Benefit From Web Browsing

NEW YORK, NY–(Marketwired – May 9, 2013) – The Luxury Institute surveyed wealthy consumers earning at least $150,000 a year about their usage of the Internet and mobile devices, and how these technologies affect their interaction with brands across platforms.

High-earners are about as likely to have bought something at a store (78%) in the past 12 months or ordered it online via computer (77%). Despite the growing popularity of mobile and tablet shopping, research done on a traditional computer still feeds foot traffic into brick-and-mortar stores, and led to in-store purchases among 45% of the consumers surveyed. Only 25% of wealthy shoppers buy online after checking out merchandise and gaining insights at a store.

Using a tablet’s Web browser has officially entered the mainstream as another shopping channel. In the past year, 20% of wealthy consumers reported using these devices to make a purchase. Web-enabled tablet usage is more popular for transactions than catalog purchases (17%), telephone orders (15%), or buying via smart phone Web access (14%). Retailers still send out catalogs because they’re effective drivers of sales in other channels: 20% were motivated by a catalog to make an in-store purchase; 16% of respondents say they bought something online in the past 12 months after seeing it in a catalog. Downloaded apps for phones (12%) and tablets (11%) are also gaining in popularity as distinct retail channels where wealthy consumers shop.

“Successful brands turn shopping and browsing into a seamless experience across traditional websites, apps for smart phones and tablets, and within brick-and-mortar stores,” says Luxury Institute CEO Milton Pedraza. “Wealthy consumers are eager users of the latest technologies and brands need to be, too.”

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.

May 8, 2013

Neiman Marcus sale could build more customer-focused brand

By Danielle Abril
Dallas Business Journal
May 7, 2013

While private equity investors of Neiman Marcus Group Inc. consider their exit strategy, a luxury retail expert predicts a move that could result in an increased emphasis on customer relations.

Milton Pedraza, CEO of The Luxury Institute LLC, said he belives that the next logical step for Dallas-based Neiman Marcus is to go public. The move would allow Neiman Marcus the freedom to focus on building relationships with its consumers.

“Neiman will have a very solid structure if they go public,” Pedraza said. “It will be customer-centric rather than shareholder-centric.”

Bloomberg reported earlier this week that TPG Capital and Warburg Pincus LLC, Neiman Marcus’ private equity investors, were considering selling the company or taking it public. The firms held their investment for eight years, 60 percent longer than the norm, according to Bloomberg.

Neiman Marcus declined to comment.

Neiman Marcus could take four different directions, according to Randall Ray, partner with Munck Wilson Mandala LLP. Ray has spent almost 25 years dealing with corporate legal matters and said one thing is clear in this situation: TPG and Warburg will choose the path that ends with the highest profit for them in the least amount of time.

The four options, according to Ray, are: filing an initial public offering, selling to a private equity firm, selling to a strategic buyer and choosing a dividend recapitalization.

Pedraza said it was “less likely” that the firms would sell to another private equity firm.

“It would take a very special private equity firm to do the things Neiman Marcus needs,” he said. “You need patient money to rebuild the brand.”

Pedraza cites online retailers Amazon and Zappos as companies that have benefited from answering solely to the consumer. He also said that other retailers, such as Nordstrom and Michael Kors, have been successful in their transformations to becoming publicly owned.

Pedraza also said the recovering economic climate offers an opportunity for TPG and Warburg Pincus to sell to the general public.

“It’s a good time to go public,” he said, adding that a booming economy would offer the best conditions for the move. Whatever road Neiman Marcus chooses, there will be few clues as to its direction until the transaction is complete.

“Unless Neiman Marcus feels compelled to make this information public, there won’t be a lot of transparency in the process,” Pedraza said.

May 5, 2013

9 apps for millionaires

No need to ask Jeeves, just whip out your smartphone

By Kelli B. Grant
May 4, 2013

You’re wealthy and you don’t want to wait out a flight delay? There’s an app for that. BlackJet lets members book a seat on a private jet via their smartphone. Although the app is free, the service sets travelers back $2,500 for an annual membership, plus the cost of the flight; roughly $3,500 for a one-way jaunt from New York to San Francisco.

Sure, it’s not likely to appeal to everyone (read: most anyone), but apps for the 1% have become a hot market. According to a 2012 survey from marketing firm Luxury Institute, 64% of wealthy consumers view luxury brands more favorably if they have their own app. (Most are just window-shopping: Only about 13% of the affluent have purchased a luxury product or service via their phone.) “The best luxury apps come from branded applications,” says Brad Spirrison, the managing editor for review site Appolicious. It’s common to find fashion houses’ look books, high-end hotels’ recommendations for local amenities and other value-added features that any fan might use. But some, like BlackJet and these eight, are really made for rich customers.

Click the link to read the entire article:

May 4, 2013

75pc of affluent consumers would buy luxury brand’s mainstream extension: Luxury Institute

By Tricia Carr
Luxury Daily
May 3, 2013

Most affluent consumers will continue to purchase from a luxury brand that offers a mainstream line, according to a new report from the Luxury Institute.

The quarterly Wealth Report polled wealthy consumers on their perception of luxury and mainstream brands and 24 percent of respondents said that damage to a luxury brand’s image or reputation is a risk when entering the mass market. The report also uncovered shopping habits of wealthy consumers such as the likelihood of making a purchase in-store and online is about equal among respondents.

“One thing for sure is that consumers, regardless of what price point they’re paying, expect great quality from luxury brands,” said Milton Pedraza, CEO of the Luxury Institute, New York.

“Millennials expect great quality and boomers expect great quality, regardless if they are buying a luxury brand or mainstream brand,” he said.

Luxury Institute surveyed wealthy consumers with annual household income of at least $150,000 for the Quarter 2 Wealth Report.

Going mainstream
The Wealth Report found that wealthy consumers are open to mainstream brand extensions from luxury marketers.

Eighty percent of respondents said they would buy goods or services from a mainstream offshoot of a luxury brand and 75 percent said they would buy a luxury brand’s mainstream line.

Eighty-four percent of women and 78 percent of men would continue to purchase from a luxury brand that has a mainstream extension.

Meanwhile, 88 percent of female respondents and 79 percent of male respondents would continue to buy from a mainstream brand that offered an up-market line.

If a luxury brand were to launch a mainstream line, 28 percent of respondents reported being skeptical about consumer acceptance.

Also, 24 percent of respondents believe that damage to the luxury brand’s image or reputation is a risk and 20 percent said quality concerns.

Mainstream lines are doable for luxury marketers because consumers will accept them, but the level of quality and brand DNA should still be in the products.

“You do need to differentiate your brand offerings with quality, with design, with craftsmanship and with pricing,” Mr. Pedraza said.

When asked what differentiates luxury from mainstream, 60 percent of respondents said quality. Among this portion are many respondents on the higher end of wealth and income.

Fifty-five percent said that price is a differentiator between luxury and mainstream. Many who chose price earn less than $200,000 per year and have a net worth less than $1 million.

Additionally, 48 percent said craftsmanship is a differentiator between luxury and mainstream, 47 percent said prestige and 38 percent said design.

Craftsmanship was chosen more often by older respondents.

“The standards have gotten so high,” Mr. Pedraza said. “They expect quality in both, but the quality of a luxury brand has to be dramatically higher than mainstream.”

Shop till they drop
The Wealth Report also found that new technologies drive store traffic instead of keeping consumers away from bricks-and-mortar.

Seventy-eight percent of respondents said that they made a purchase in-store in the past year and 77 percent made a purchase online.

Fifty-seven percent of respondents made purchase decisions based on information they gathered while shopping, but 58 percent gathered their information online via desktop.

But ultimately digital could be considered the most effective channel to trigger purchases since 69 percent of respondents made a purchase on the Web based on information they found online.

Luckily, far less respondents, or 25 percent, participate in showrooming – buying online after gathering information in-store.

“As a retailer, it should be about a seamless relationship with your customer,” Mr. Pedraza said. “Stop looking at it as channels, but relationship-building between the channels that you use and they use.

“Consumers will become seamless in how they engage brands across channels and the word ‘channel’ will become a useless term,” he said.

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