By Patty Orsini
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.