U.S. luxury spending grows, wealthy are happy-survey

(Reuters) - Spending on luxury goods by affluent Americans is forecast to grow by $28 billion in 2010, experts said on Wednesday, and the wealthy are happy despite most believing the United States is still in recession.

The "Survey of Affluence and Wealth in America" found luxury spending would rebound for the first time in three years, led by purchases of automobiles, services, travel and children's clothing.

But the online poll of 1,900 households with an average annual income of more than $235,000 by American Express Publishing and Harrison Group showed 94 percent still believe the United States is in recession.

The households surveyed between January and April represent 10 percent of Americans and 50 percent of all retail sales.

"Interest in luxury is trending up, but this interest is qualitatively different from the unbridled enthusiasm that characterized ... the mid-2000s," said Jim Taylor, Harrison Group's vice chairman. "People take pride in the way they have managed their finances and family through the recession."

"We think it's going to be a pretty good Christmas (for retailers)," he said.

And this pride had led to happiness among the rich, with 71 percent saying they are happy, up from 40 percent in 2007.

"It's because they didn't know they could survive something this bad," Taylor told the Luxury Marketing Council of New York on Wednesday. "They have got competent, they have gotten close to their family, they have self-esteem from their ability to handle a crisis."

"Happiness is now the abiding object of affluent American life, not success," he said. "They're really happy with their ability to operate under pressure."

More than 80 percent of families are now eating at least four meals a week together, compared with 16 percent five years ago, Taylor said.

The survey also found the recession has resulted in more people measuring their success by their personal lives, not their careers. Only 45 percent said they were successful in 2007, while this year 76 percent consider themselves successful in their personal life and 67 percent in their career.

"In (2007) people were really measuring themselves about the bigger house they were going to buy ... the better vacation, the next promotion," said Cara David of American Express Publishing.

"Few people are judging their success that way anymore," she said. "It's about the lives that they're living rather than the living that they're making."

From: http://uk.reuters.com/

Luxury firms are digital laggards, but some are catching up

WHEN Oscar de la Renta, an American fashion house, launched a transactional website some years ago, it expected people to buy mostly smaller items such as belts and perfume. The firm was stunned when it received an online order last spring for an $80,000 sable coat from a new customer in New Hampshire. He couldn’t get to New York, apparently. Online customers have been snapping up the firm’s core product: $4,000 cocktail dresses. “We could not have been more wrong in our expectations of the internet,” says Alex Bolen, the firm’s chief executive. Online purchases are still a small proportion of total sales, but growing rapidly.

Most luxury-goods firms are less open-minded. Many scorn the internet as a plaything for plebs. A product sold online, wrote Jean-Noël Kapferer, a French branding guru, in “The Luxury Strategy”, published last year, ceases to be a luxury item. In early 2008, of 178 luxury firms around the world surveyed by Forrester Research, only a third sold their products on the internet. That figure has risen, but still about half of firms don’t sell online at all, estimates Federico Marchetti, the founder of Yoox Group, owner of Yoox.com, a luxury-goods website.

Prada, an Italian design house, had no website until 2007. It did not start selling products online until last year. Several American companies, such as Tiffany & Co, have thriving web businesses, but European firms, especially the old French houses, such as Chanel and Hermès, are still afraid of mice.

Luxury executives explain that the internet is too impersonal for their products, which need the human touch. Allowing anyone to buy online can mean a loss of cachet. Luxury firms like to dazzle customers with plush stores and sleek ads, so that they think only about beauty and not at all about price. The web, by contrast, shines a clear light on price. “That’s the last thing I want people to think about,” wails an executive from the watch industry.

It is largely the industry’s own fault that the internet is associated with lower prices for its products. For years, firms discreetly disposed of end-of-season stock at deep discounts via websites such as Yoox.com. Some fashion houses make clothing exclusively for Yoox.com as a way to use up left-over fabric. Also, by shunning the internet in its early days, legitimate firms helped to create a vacuum that counterfeiters were happy to fill, says Uché Okonkwo, the author of “Luxury Online”.

There is every sign, however, that buyers of full-price luxury goods crave the convenience of online shopping, so companies are being forced to adapt. In April Richemont, a Swiss luxury-goods giant, bought Net-a-Porter, a specialist fashion online retailer founded in 2000, in a deal valuing it at £350m ($535m).

Net-a-Porter’s appeal is not price, says Danny Rimer of Index Ventures, a venture-capital fund which backed the firm, but the convenience of getting items delivered to your door before they sell out. Executives are now watching to see whether Richemont will allow Net-a-Porter to sell its many other brands, including Cartier watches. Most luxury-watch firms, such as Hublot, do not sell online. This seems perverse: watches fit easily and buyers are usually collectors who know the models well. The main problem, explains Jean-Claude Biver, chief executive of Hublot, is that watch firms have long-standing agreements with independent retailers, and selling online would disrupt the system.

Another sign of change is a new venture by a former Richemont executive, Mark Dunhill, to revive Fabergé, a jewellery-maker (one of whose baubles is pictured above), using the internet as its chief global distribution channel. Fabergé, owned by Pallinghurst Resources, a mining firm, launched last September with a single shop in Geneva and a sophisticated, interactive website. The industry is watching the experiment closely. If a luxury brand can thrive without a vast investment in retail space, says Luca Solca of Bernstein Research, barriers to entry will fall.

A person close to Fabergé says it has reached its nine-month target of hooking 50 new clients, each spending on average $100,000. Even Prada now says that within five years, some 40% of its revenues in America will come from the internet. Observers, however, doubt that such an aggressive target is realistic, noting that Prada currently sells only bags, wallets and other accessories online, not its main clothing and footwear collections.

Luxury firms may at last be waking up to the internet, but they have a long way to catch up. Carmakers have been innovating online for nearly a decade, observes Ms Okonkwo. With exceptions, luxury websites tend to be showy but unoriginal, since firms often use the same web designers. Few are properly interactive: customers usually cannot view products from different angles, or try on clothes virtually.

The most innovative online luxury firms are typically small start-ups, such as Net-a-Porter, Yoox (which went public late last year) or Gilt Groupe, a website which runs exclusive sales for members. All these companies have built successful new business models. The industry’s ageing giants have been caught with their elegant trousers down.

Louis Vuitton, a maker of leather goods and clothes, is one of the few luxury brands to have prospered online. Unlike many of its peers, it offers nearly all its products on the web. The internet brings in as much money as one of its biggest bricks-and-mortar shops, says Antoine Arnault, the firm’s communications director. But Louis Vuitton’s parent, LVMH, was last year forced to shut down eLuxury, a website founded in 2000 which sold a wide variety of luxury brands, because it lost money by the suitcasefull. According to insiders, it failed mainly because it lacked focus: it sold expensive products alongside relatively cheap ones. It is odd that an industry that would not be seen dead in last season’s colour is wedded to the last century’s technology. Divorce beckons.

From: http://www.economist.com/

New Delhi Misses Luxury Boom as Wealthy Go to London for Gucci

Vikram Baidyanath prefers to travel more than 4,000 miles to London to get suits from his favorite brand, Ermenegildo Zegna, than to drive half an hour to New Delhi’s luxury mall.

“The feel-good factor and the whole experience of shopping abroad is better,” said Baidyanath, 32, who also buys Burberryshirts and Gucci or Prada shoes on trips to London. The chief executive of traditional medicine and health-product makerBaidyanath Group said he’s attracted to the ambience, wider selections and lower prices to be found overseas.

Luxury spending in India, the world’s second-most populous nation, was less than a tenth of that in China last year, according to Bernstein Research. Wealthy shoppers’ penchant for the shopping centers of Paris, London and Milan pose a challenge for companies such as LVMH Moet Hennessy Louis Vuitton SA and Gucci parent PPR SA in a country where the biggest stock market rally in 18 years produced about 42,000 millionaires last year.

“Indian consumers are buying a lot of luxury, but they aren’t buying it here,” said Mohan Murjani, a retailer who gave up selling the Gucci and Jimmy Choo labels two years after opening his first store in Mumbai, India’s financial center, in 2007. “I don’t see luxury taking off for at least another decade.”

Murjani, 64, garnered sales of less than $500 per square foot in his stores, half of what he had projected in 2005, when he began planning to bring luxury goods to a country where more than half of the population survives on less than $2 a day. India has a population of 1.2 billion people.

Takashimaya, Tiffany

Takashimaya Co., Japan’s third-largest department store company, has sales of about 1.6 million yen ($18,000) per square foot at its stores in Tokyo and other cities, according to investment relations documents. Takashimaya’s stores carry more than a hundred brands, including Bulgari, Cartier, Louis Vuitton, Gucci and Armani.

Worldwide stores of Tiffany & Co., the world’s second- largest luxury jewelry retailer, generated sales of $2,400 per gross square foot last year, Chief Financial Officer James Fernandez told investors on June 30.

India’s spending on luxury clothes, watches, jewelry and cosmetics was about 600 million euros ($777 million) last year, according to a Bernstein Research report. That compared with 6.6 billion euros for China excluding Hong Kong, Macau and Taiwan, and 3.4 billion euros in South Korea, a country with a population of about 49 million.

Economic Growth

Asia excluding Japan is the fastest-growing market for LVMH, the largest maker of luxury goods. Sales in the region for the maker of Marc Jacobs, Kenzo and Fendi fashions, Hublot watches and Dom Perignon champagne rose 13 percent to 3.85 billion euros last year.

India’s economic growth accelerated to 8.6 percent in the three months ended March. China’s economy expanded 11.9 percent in the same period, the fastest pace in almost three years, before easing to 10.3 percent in the second quarter.

The absence of the ambience usually associated with luxury shopping is an impediment, said Narayanan Ramaswamy, executive director at KPMG in India.

“A buyer of a Cartier watch doesn’t want to buy from a store that has pushcarts selling bananas on the sidewalk,” he said.

Murjani’s Murjani Group paid 60 percent more than expected in rent, because of a lack of suitable locations. Murjani now focuses on selling relatively lower-priced brands like Tommy Hilfiger and Calvin Klein.

‘One Season Behind’

Suitable retail space for stores selling Louis Vuitton products or Bulgari SpA’s watches is rare in a country which got its first mall in 1999, Murjani said. Murjani Group built the Galleria in Mumbai, which it says was the first Indian shopping center where most tenants sold high-end products targeted at the rich. Before that, luxury stores were mainly located in five- star hotels in New Delhi, Mumbai and Bangalore.

The DLF Emporio mall in New Delhi, where common areas resemble a five-star hotel lobby with fountains and potted plants, is one of the few locations in the capital city of 14 million people where brands such as those of Giorgio Armani SpA, LVMH, Jimmy Choo and Ermenegildo Zegna can set up shop.

Luxury outlets in India also have to fight the perception that their collection is dated.

“In India we’re probably one season behind,” said Baidyanath, whose company had about 3 billion rupees ($64 million) in sales last year. “Last summer, when I was in London, I noticed that a lot of the things they had were slightly different.”

India’s Millionaires

Still, a growing economy, increasing incomes and urbanization will boost the prospects for luxury retailers in the long term, Bernstein Research analysts Luca Solca, Andrea Rosso and Matt Wing said in the report.

Economic growth may accelerate to more than 8.5 percent in the financial year ending March, from 7.4 percent in the previous 12 months. Prime Minister Manmohan Singh wants to boost economic growth to 10 percent to help improve the lives of the country’s poor.

The number of millionaires in India rose 51 percent to 126,700 last year, according to the 2010World Wealth Report by Bank of America Corp.’s Merrill Lynch & Co. and Cap Gemini SA.

The Indian luxury market, including cars and jets, is forecast to reach about $14 billion by 2010 end and then double to $30 billion by 2015, consultant AT Kearney predicted in 2007.

For now though, shoppers including 22-year-old Nazuk Bardeja, a jewelry designer setting up a design studio in New Delhi, still go overseas.

“The decor is the same in India, the attention from the sales people is the same,” she said. “It’s just that the feel of walking on a Milan street, the whole environment, is so amazing.”

From: http://www.bloomberg.com/

LUXURY BRAND HERMES SALES BOOM

Luxury goods group Hermes reported on Tuesday a near 23-per cent surge in first half sales and doubled its revenue forecast for the year, in an indication the market for high-end products is vibrant.

Sales came to 1.0747 billion euros (S$1.92 billion) in the January-June period, up 22.8 per cent from the figure 12 months earlier, the company said, adding that it now expected sales to grow between 10 and 12 per cent for the full year.

The company had previously predicted a sales increase of 5.0 per cent. The sales spurt was especially sharp in the second quarter, 27 per cent, after a gain of 18.5 per cent in the first.

Analysts polled by Dow Jones Newswires had foreseen increases of 19 per cent in the first and second quarters.

The company said it had benefited in the first half from a weaker euro against the dollar. At constant exchange rates sales rose 20 per cent.

Asia continued to be the sales driver, with first half revenue – apart from Japan – growing by 45 per cent. Sales rose 26 per cent in the Americas and 17 per cent in France.

Getting Luxury Goods Online

F. Scott Fitzgerald famously observed that the very rich are different from you and me. Perhaps. But just like everyone else these days, they have been won over by the convenience of online shopping. Around 80% of high-net-worth consumers — in Western societies defined as those with annual gross income and assets of at least $500,000 — use the Internet daily, and they regularly buy products online. A great opportunity for luxury goods, right? One would think so, but only a third of the world's premium brands sell their goods online, according to a new study by consultants Forrester Research. And fully half of those eschewing web sales have no plans to change course. On the sidelines are some of the sector's biggest names, including Cartier, Versace and Rolex.

That reticence is a big mistake, Forrester says, because the growth in online sales shows no signs of easing. In Europe alone, total online sales should rocket 63% from an estimated $246 billion this year, to $401 billion in 2011, it predicts. In the U.S., total sales are expected to soar 93% from last year to $335 billion in 2012. Premium brand companies that are selling online expect their total sales to jump 111% within five years, by which point they will account for 22% of total sales. And selling on the web can help boost a company's brick-and-mortar sales, too. "It's our most powerful marketing tool and a significant driver of store traffic," says David Duplantis, the senior vice president who oversees web sales for Coach, the American leather goods manufacturer. Coach.com receives 60 million visits a year, and 40% of Coach customers say they view products online before making in-store purchases.
Some luxury brands jumped on the e-commerce bandwagon during the dotcom boom in the late 1990s, only to bust with the bubble in the early part of the current decade. So they're reluctant to try again. There's also an older wariness dating back to the 1980s, when too many designer brands went on licensing sprees that cheapened their pedigree. "Since then, the mantra has all been about control of brand. And to some, the net looks like the Wild West," explains Guy Salter, deputy chairman of Walpole, the British luxury brands trade association that collaborated on the study. Chi-chi brands also worry the web is more hoi polloi than haute couture. "Some feel they might be perceived as an Amazon or an Ebay," says Victoria Bracewell-Lewis, a Forrester senior analyst. "But the opposite is true. A well-run digital channel can only enhance their image."
The emphasis, of course, being on well-run. Unfortunately, many luxury brand sites are too glitzy for their own good. Off-key efforts to replicate an in-store experience are usually overly reliant on Flash technology and needlessly saturated with music and videos. The result is sites that are slow, clunky, difficult to navigate — and potentially image-tarnishing. "Most online affluent shoppers don't want all that," Bracewell-Lewis says. Usually they're looking for a specific item or manufacturer and don't want to dig through layers of Flash images.
Still, they're not adverse to a bit of pampering. When they're paying big bucks, they expect topnotch, personalized service with every click. That's why British retailers Harrods and Fortnum & Mason have almost adopted a concierge service online, Bracewell-Lewis says. Salter expects savvy luxury brands will eventually adopt Web 2.0 technologies, including social networking. For example, fans of a specific brand could connect online with other like-minded, well-heeled folks to chat about their favorite products. Says Salter: "It could become like an exclusive club." Or an online community with a difference: it's gated.


From: http://www.time.com/

Luxury goods in Poland

THE elegant silhouette of Aston Martin’s DB9 sports coupé draws admiring gazes anywhere. But it stands out even more than usual amid the drab communist-era apartment blocks of Warsaw’s Praga district, where the British carmaker’s first Polish dealership opened this spring. The city will soon also get Bentley and Ferrari showrooms, and the sellers of expensive cars will be joined by purveyors of pricey fashion brands: Louis Vuitton and Christian Dior boutiques are in the offing. The global market for luxury goods shrank by as much as 13% in 2009, say some estimates, but high-end goods are flourishing in Poland.

Last year Poland was the only member of the European Union to avoid a recession and the economy still looks perky. Investors also find it welcoming. A recent French study ranked Warsaw the third-friendliest city in Europe for entrepreneurs. As Poles get richer, they are developing a taste for luxury.

KPMG, a consultancy, calculates that some 2.5m Poles now earn at least 3,700 zlotys ($1,100) a month, and they are ready to devote 13% of their disposable income to luxury items. This tots up to 27 billion zlotys. And the ranks of those with financial assets of $1m or more are growing particularly fast: swelling by 11% in 2007-09, to over 86,000, according to MDRC, a research firm. The keenest shoppers are 30-somethings who came of age after the fall of communism and are happy to flaunt their wealth.

Retailers are gradually responding to the demand. KPMG estimates that over half of the world’s premium brands now have an official distributor in the country, with luxury cars especially well represented. A persistent carp is that cityscapes razed during the second world war, then blighted by communist urban planners, offer few locations swanky enough for upmarket outlets. Another challenge is finding skilled staff.

The more imaginative retailers are working around these problems. One perfumery, GaliLu, sends its staff to London for training. A shirtmaker, Da Vinci, shifts most of its stock through an online shop and sends tailors to customers’ homes and workplaces. The result, predicts Andrzej Marczak, of KPMG in Warsaw, will be that Poles raise their spending on luxury by a half within the next three years. What next, mega-yachts on the Vistula?

From: http://www.economist.com/