Luxury Celebrity Endorsement

Wealth and Luxury Trends 2010 and Beyond

As the luxury industry ends a disappointing 2009 and prepares for 2010, there are strong signs that many top-tier luxury brands are gearing up for a renaissance. CEOs of major luxury brands are embracing the challenge to reinvent themselves, even as they fight to survive the remainder of 2009. We expect to see a dramatic redesign in key components of the luxury business model, resulting in a true, customer-centric luxury industry worthy of the name. There is hard evidence that the luxury industry is rising to the occasion, and we look forward to the innovations that will emerge in the coming year. The following are predicted forthcoming trends:

1) Social Media Becomes Plain Ol’ Luxury Media

The Luxury Institute’s latest survey on ‘Social Networking Habits and Practices of the Wealthy’ shows that seven out of 10 wealthy consumers are now members of social networks. The wide participation of the wealthy customer is rapidly persuading luxury brands to join in the online conversation. Whether it is fan pages, contests, exclusive offers, or simple banner ads, most major luxury brands will have accepted and embraced social media participation as mainstream in 2010. Print media will always have its role in luxury, and will innovate to stay relevant. However, social media may dominate the future, as well as morph into unforeseen vehicles to help promote a refined and effective luxury conversation that is unmatched by any other marketing or communication channel. States Mathew L. Evins, CEO of Evins Communications, Ltd., “The real value of social media to the luxury consumer is that it is neither ‘push’ nor ‘pull’ in nature. Traditional media has overly solicited luxury consumers and bombarded them with a surfeit of messages. Social media gives the luxury consumer the opportunity to decide what brands they engage with and on what terms. It’s this element of control that really is the ultimate luxury.”

A major economic crisis truly is a terrible thing to waste and luxury will prove it’s up to the innovation task.

2) Impatient Luxury Beginners Exit the Industry

During the boom times, many merchants, designers, investors, private equity firms, service providers, consultants and others with no experience in luxury goods or services jumped onto the luxury bandwagon looking for immediate wealth opportunities. The newcomers were mesmerized by the beauty and awe of luxury, but they underestimated the skill, investment, dedication and time required to create and deliver at the highest levels of design, quality, craftsmanship and service. A historic truism of the luxury industry is that those who serve the ultra-wealthy can achieve great success, but luxury’s slow and surgical scalability rarely allows providers to become instantly successful. Some wealthy entrepreneurs who entered the game during the boom have unfortunately learned that being rich and consuming luxury does not make you a luxury purveyor, especially if your orientation is not customer-centric. Luxury takes special talent, skill and sacrosanct devotion to serving customers that very few brands are able to deliver consistently. Many newcomers have discovered that luxury also takes a long time to bring to fruition and very few beginners have the patience. This exit will prove to be a blessing for the luxury industry as truly devoted luxury purveyors take back leadership and control of the industry for the benefit of all.

3) Customer Data is Valued as a Vital Asset Rather than as a By-product

In good times, luxury brands thought they could afford to ignore the quality and accessibility of their customer databases. Surprisingly, even the top-tier luxury brands were negligent when it came to customer intelligence and its enhancement of the customer experience. Demographic data such as email addresses, home addresses and cell phone numbers remained uncollected, disorganized and outdated. Transactional data, the heart and soul of customer intelligence, remained trapped in operational systems that were diligently used by accountants, but marginally valued by sales and marketing teams. The days of customer data mismanagement will end as luxury brands begin to embrace excellence in customer data management and analytics to generate real-time, actionable customer insights.

4) Luxury Sales Compensation Gets a Redesign

One of the most destructive conflicts in the luxury industry is the battle as to who really “owns” the customer: the sales executive or the company. Luxury salespeople refuse to provide their customer information to the company, believing that doing so will undermine the salesperson’s control of the customers, their independence, and ability to earn commissions. Many salespeople think of their customer information as job security. The company rarely provides the salesperson with real-time insights and marketing support that can be beneficial to the salesperson as well as to the company in retaining, cross-selling, up-selling and reactivating the customer profitably. Salespeople typically are not rewarded or given recognition for collecting or using customer data intelligently. In the current severe downturn the lack of cooperation on customer data has proven disastrous for salespeople and for luxury brands. In the upcoming year, expect the smart luxury companies to redesign their sales selection, training, reward and recognition systems to drive teamwork and accurate data collection in order to have a beneficial source of insights for continuously reinventing the customer experience.

5) European Luxury Launches a Redesign of its Service Culture

Unfortunately, European luxury brands are not world-renowned for delivering extraordinary customer experiences, albeit Europe is the birthplace of luxury. The quality of customer interaction and customer service of European luxury brands globally is nowhere near as great as their products and venues. European luxury executives are beginning to recognize that the time has come to not only rival the non-European luxury brands such as Ritz-Carlton, The Four Seasons, Lexus, Nordstrom and Apple in customer experience, but to dramatically surpass them in 21st century style . This task will require cultural transformations of massive proportions for the product-centric Europeans and will take several years. Look for top-tier European luxury brands to take on the challenge passionately as they begin to reinvent themselves in 2010.

6) Many Well-Intentioned CRM Projects Will Fail to Deliver Results

Several major luxury brands have decided to undertake Customer Relationship Management (CRM) projects. But Luxury CRM is vastly different from Wal-Mart CRM. The challenge is that many of these luxury brands’ leaders believe success lies within the parameters of data, analytics and technology. It is critical for luxury brands to first embrace the right culture, values, people, skills, metrics and compensation systems in order to redesign the customer experience and internal business processes in ways that are extraordinary, relevant and lasting. The data, analytics and technology are merely tools that should be used only after the customer-centric culture is embedded in the enterprise. Luxury brands also need to beware that CRM technology vendors know nothing about luxury, and surely do not practice CRM with their own clients; they only sell CRM. Luxury CRM is a virtuous endeavor, but one that can only thrive in the context of a devout customer-centric culture and a cautious approach to CRM vendors. Look for brands to finally discover this after some false starts in 2010.

7) Trusted and Authenticated Peer Ratings and Reviews Surpass Friends and Family Recommendations as Influencers on Luxury Purchase

In a recent Luxury Institute WealthSurvey, 42% of wealthy consumers chose “ratings and reviews from a trusted source” as the most influential factor in purchasing luxury goods and services. This marks a discerning shift from “friends and family” as the most trusted source. Wealthy consumers are becoming comfortable with using the expertise of trusted peer groups to help make luxury purchasing decisions. The aggregated experiences of the larger peer group become a more reliable and expert source for making luxury purchasing decisions as long as the source is trusted. Research shows that under the right circumstances, the aggregated insight from legitimate peer groups is far more reliable than an individual, albeit trusted, source of knowledge. Look for major luxury brands to begin to embrace this trend and begin to engage in this rich and profitable ratings and reviews conversation, especially with their own customer communities, in 2010.

As 2010 approaches, there is much in the luxury industry for which to be grateful. It will take a significant amount of time to recover and surpass the economic success levels of 2007, yet luxury is cyclical, and the category will benefit from the growth of the world economy over time. Asia remains a very bright spot and will drive dramatic growth in the 21st century. The top-tier brands of luxury have already embarked on a reinvention and renaissance that will make luxury wonderfully unrecognizable several years from now. Look for those famous green sprouts in 2010. They are definitely there, but hard to see with the naked eye.

The Wealth Report - September Issue

Number of US Millionaires Drops

The number of millionaires ($1m or more in investable or liquid assets, excluding sponsored retirement plans and real estate) in the US has declined by 14% over the past two years (Phoenix). However, the ranking of states has varied little, with Hawaii leading the nation with a ratio to millionaire to total population of 6.4%. While the top states in millionaire percentages are much the same, overall the market downturn has taken its toll on the ranks of millionaires in most states: there are only 5m households in the US that qualify as millionaires compared to 6m two years ago. The table to the right shows the ratio of millionaires by state.10 Wealthiest US States

Residency Offered to Wealthy Investors

US companies have been offering green cards to wealthy foreigners as an incentive to invest their money in the US (Daily Business Review). The US immigration Act of 1990 established the EB-5 immigrant investor visa program which offers a green card to those having invested $1m in a US business.

This idea being mirrored by other countries around the world in the hope of attracting wealthy individuals. New Zealand
recently announced that it had relaxed its rules on immigration in a bid to attract wealthy entrepreneurs (Agence France Presse).
Migrants with at least $6.6m will no longer need English language skills or business experience, and the maximum age limit has been removed. Those moving to the country will be required to stay there at least a fifth of every year and the invested money will have to stay in the country for at least three years.

Shanghai has also released residency rules aimed at attracting and retaining quality personnel from other cities (EIU). HNWIs (paying over $146,000 in annual income tax for three consecutive years) may qualify immediately for household residency in the city. Less wealthy individuals will need to have a city residence card for seven consecutive years and work in certain state-prescribed employment grades to qualify.

World’s Most Expensive Streets Drop in Value

Prime residential property on the world’s top ten most expensive streets saw their overall value fall by 12% in the last year (Wealth-Bulletin). The most expensive street on the list fell from $190,000 per square metre a year ago, to $120,000 per square metre this year. Only one street from an emerging market made this year’s list, Ostozhenka Street in Moscow. The table to the right shows the top ten most expensive streets this year, and their value last year.

Wealthy from Emerging Markets Buoy Offshore Financial Centres

Although offshore financial centers have been feeling pressure from Washington, Paris and Berlin, they may have a new ally in the wealthy from emerging markets (Wealth-Bulletin). Wealth managers in Switzerland have seen a surge of money from the Middle East and Latin America in the past six months; members of the Channel Islands’ financial community make regular trips to Asia and the Middle East to sell their offshore services. These individuals put their money in offshore centers for security reasons as they want their money looked after in a country safe from social upheaval.

Financial Crisis Takes Toll on Asia’s Wealthy

44% of Asia’s wealthy individuals (at least $2,150 income and over $91,000 in liquid assets) suffered losses in the past six months due to the market turmoil. Singapore’s wealthy saw the biggest drop in assets with 56% affected by the economic downturn (HSBC). The crisis has not only taken a toll on personal wealth but has also affected investors’ risk appetite and private consumption. Despite the downturn, 46% of wealthy Chinese saw their wealth rise by as much as 50% in the last six months.

Marc Cohen and James Lawson

Dubai Luxury or not?

The World's Most Expensive Advertisement

A Brief History of the Language of Luxury

From the beginning wealth has been a sign of power.

At first power came from control of nearby territory
And the signs of wealth and power were special things from the nearby territories

Horses in Arabia
Silk in China
Pearls in Micronesia
Salt in Salzburg
Silver in South America

And each territory that was a kingdom
had its own signs and symbols,
its own code of
wealth called Luxury.

With time, new wealth and power came from trading between the territories.
And banking to support trading
And the navies to protect trading.

And the new signs of wealth were the luxuries
that came from far away places.

And these luxuries were added to the old.
Silk and spices in Europe
Woven fabrics in Africa
Thoroughbred horses in Asia
And luxury became a common code of wealth
across various territories.

In the industrial era new wealth and power came from manufacturing.
And providing energy to factories
or distributing things in cities.

And the new signs of wealth, the new luxuries,
were powerful things that moved.

And these symbols were added to the code.
Steam powered yachts
Private railroad cars
Planes
Automobiles

Over the centuries all these forms of wealth and
power and their concomitant luxuries had
developed slowly.

And the people who had them came to
be known as aristocracy and then old money.
And they stuck together
Transmitting the accumulated code,
the signs of wealth and power,
to their children, especially the boy.

Keeping it from their employees and the hoi polloi

(Carnegie was the exception that proves the rule.
He gave his fortune and information
away a library at a time to the last dime.)

The signs in the code included:

driving (or being driven in) the right cars,

having the right number of homes in the right places,
with the right art on display

wearing the right clothes and right accessories,

vacationing in the right places,

traveling in the right way,

dining in the right places,

reading the right writers,

listening to the right people,

going to the right events,

having the right kind of wedding,

going to the right schools

supporting the right charities

and doing all these things in just the right combination.

In the 21th century new wealth and power came from information.
From knowing, creating, manipulating, processing, storing, and
distributing information.
And from applying information to all the historic forms of wealth and power.

And the new sign of wealth and power:

the new luxury was knowing.

Knowing about health, beauty,

Knowing what to know,

Knowing whom to know,

Knowing who knew,

Knowing how to know

Knowing the people who were well-known

Even knowing how to remain unknown,
un-Google-able

And the people who knew were known as new money.

They came from ordinary, un-monied families.
They quickly grew in number
Outnumbering the old money
They were too many, all at once, to fit in with the old money.
And their parents didn’t know the code.
Making it hard to learn the old money code.
But they had to communicate.

And since they were too many to be all the
same and had different information new codes developed
different from the old money code and different from each other.

Six codes developed, six ways of $igning.

Each included certain ciphers
(symbolic products, services and experiences)

chosen from the innumerable possibilities

according to the strategies they represented.

About how needs are met and benefits
selected. in an increasingly global economy.

Each code was communicated in a signature amplitude and frequency

Over different combinations of channels

Using different levels of redundancy
and different rates of obsolescence.

Each code varied from a norm, a state of equilibrium.

Each a different pitch (like the modem tones that send a fax).

Or waves of pixels that inform your computer screen.

Each made sense and was clearly under
stood if both sender and receiver
had a similar algorithm,

Otherwise the code was merely gibberish.

One could rave about the latest fashion trend the
other would perceive only an enigma

unless they shared a common rosetta stone.

Richard Baker

Understanding China's Wealthy

The New Face Of Fashion: Sustainable Luxury

Looking Back

It is important to recognize that for all the tumult the economic crisis has caused consumerism is not dead, luxury is still something to which many aspire, and shopping in stores remains a significant cultural activity. That said, the Rules of Retail over the last 20 years have grown to include obsolete absolutes, such as:

• Aggressively developing a network of branded stores even in questionable markets

• Building flagship locations that were unnecessarily large and existed only for their advertising value

• Creating stores intended to have a short life span, and then relocate or significantly renovate them within 5 years

Reinforcing a message of disposability and over-indulgence, retailers promoted the concept of “fast fashion”, encouraging the consumer to replace their wardrobe season to season (or even delivery to delivery) as opposed to focusing on quality pieces that last. Additionally, many brands advanced the concept of “Lite Luxury,” with a more approachable and affordable product that lured a new set of aspirational consumers. This strategy created a deeper reach into the consumer market which was fueled by the expansion of available credit and the reduction of the U.S. savings rate. But these trends were not sustainable.

Looking Ahead

Going forward retailers should use available resources creatively to promote their brand’s message while anticipating the sophisticated customer’s tastes. This could include:

Living Green – This is an obvious facet of defining a sustainable retail landscape, but too many brands are satisfied with making minimal changes and layering on the feel-good “greenwashing” marketing messages. Instead we must look for significant ways to minimize the industry’s impact on the world’s resources, and it takes more than simply installing a bamboo floor to satisfy this objective. Looking at the organization’s construction and operational practices can facilitate a real green strategy. For example: recycling existing construction materials before demolition of a new space.

Grow Organically – Instead of opening store locations based on the best real estate deals, retailers should be more diligent in testing markets before committing precious resources. Brands can maximize the use of pop-up shops, designed in such a way to allow them to be recycled from location to location to explore initial market penetration. This allows the brand to determine if there is a reasonable appetite for their product before investing in a full flagship. Retailers can also band their brands together, gathering co-owned labels in one space, essentially creating a mini specialty store. This allows for shared services and reduces the amount of space and resources required for each separate brand.

Build Stores that Last – As resources become increasingly scarce, each store must increase its life span. Retailers should focus on designs that transcend trends and allow for timeless designs that will endure. Design should simultaneously allow for flexibility, minimizing the need for future physical modifications. The environment should convey quality and value to the consumer rather than disposable ostentation

Edit the Product – The size of a luxury store is largely determined by the breadth of the product line. A tight and targeted edit allows for adjusting a store’s size to better fit its specific market.

Be Fun and Accessible – The “new retail” should not be indulgent, nor can it be boring. Stores must be filled with surprise and discovery, revealing new things with each visit. Rather than the current obsession with brand consistency, focus instead on testing different ideas in different marketplaces and responding to local cultures and communities through design.

The New Rules

The future of Luxury retail will need to include a few simple principals:

• Not So Big: Reconsider the pace of growth and test markets to determine that full resources should be expended

• Not So Fast: Rethink the size of product lines, operations of the retail store and other in-grained assumptions in the current retail paradigm to allow appropriately sized stores to be designed and built

• Not So Disposable: Focus on designs that are flexible that can transcend current trends and live longer

• Not So Indulgent: Reinforce quality and heritage in developing creative environments that are fun and surprising
It is brands that take these tenets to heart that will be poised to thrive in the emerging environment. Embracing sustainability and crafting a new face of luxury need not be at odds; indeed by exploring ways to achieve both simultaneously an exciting new era of of design can be borne.

by Jeffrey Hutchison