Luxury Institute News

May 12, 2015

Niche marketers target the 1% – at their peril

Crain’s New York Business
By: Anne Field
May 11, 2015

Last year, Steven Abt decided to overhaul the business model of Caskers, his five-employee craft-spirits company in Manhattan. He focused his marketing on two segments: the original customers who bought curated spirits on Caskers’ website, launched in 2012, and new, even more affluent buyers, who would receive one-on-one, concierge-style service.

A significant portion of his higher-end clientele was interested in such an approach. “It seemed like an opportunity to tap the luxury market, which is growing in general,” he said.

Five months later, the new offering generates about 2% of the firm’s annual revenue, which is just under $10 million, according to Mr. Abt. He expects that figure to increase to as much as 15%, with pretax margins of 20% to 30%, compared with 10% to 20% for the original service.

Mr. Abt is one of a growing number of small-business owners in New York City who are embarking on a two-tiered strategy in their marketing. That’s the result of a variety of factors: healthy demand for high-end goods and services, postrecession changes in the spending habits of affluent consumers, capabilities made possible by digital technology and the need to ramp up volume.

In some cases, it means branching out into a more upscale market, as Mr. Abt has done; in others, expanding from an affluent clientele to the mass market. Regardless, said Daniel Levine, a consumer-trends expert and director of the Manhattan-based Avant-Guide Institute, “these businesses are just following the money.”

Certainly, there’s a time-honored tradition in such sectors as fashion to bring a luxury brand to a mass audience. Take Lilly Pulitzer—known for its connection to Jacqueline Kennedy Onassis and the very rich—which recently began selling a line of clothing in Target stores.

But such a strategy can be a gamble. The premium brand that expands to a less-affluent market may dilute its cachet. Even trickier is going after a higher-end customer. Companies often are reluctant to admit to doing so, fearing they’ll alienate potential buyers in either market. And it can be difficult to convince more elite customers that their product or service is top of the line.

“It’s always harder to go upmarket,” said Milton Pedraza, CEO of the Luxury Institute, a consumer-trends research firm in Manhattan. He points to British-based Mulberry, a maker of high-end leather bags. It recently stumbled, with declines in profits, during an international expansion that included a flagship store in SoHo; it also increased prices to an ultraluxury level.

Many factors are contributing to the two-tier trend. For small businesses in New York pursuing wealthier customers, one of the most important is postrecession spending by upper-income households. From 2009 to 2012, the total growth in U.S. consumption, adjusted for inflation, happened mostly at the higher end, according to Steven Fazzari, an economist at Washington University in St. Louis.

Two ways to grow

Among those at the bottom 95% of income distribution, there was 2.8% growth during that time period, compared with a 16% increase among the top 5%. That trend has likely continued in recent years, according to Mr. Fazzari. “Growth in consumption has been exclusively driven by the top,” he said.

Companies have also been reacting to significant changes in the buying habits of affluent customers since the recession, according to Jim Taylor, a senior adviser at YouGov.com, a Waterbury, Conn., firm that conducts surveys aimed at better understanding public views about products and current affairs. He is the co-author of The New Elite: Inside the Minds of the Truly Wealthy.

He divides the affluent into two categories: those who seek “worth” and are willing to pay a premium for the things they buy, but go through a rigorous vetting and shopping process. Others are “discounters,” focused more on price. “They derive pride from squeezing their vendors,” he said.

Using technology platforms strategically has also helped some companies expand smoothly from a premium-only service to a larger market. Kofi Kankam co-founded Manhattan-based Admit Advantage seven years ago to provide advice to graduate-school and college applicants. He charges about $200 an hour, with packages running as high as $10,000.

About three months ago, the company launched Admit.me, an online platform that is more affordable to a wide audience. It allows applicants to interact with current students and alumni at schools where they are applying and for admissions offices to search for potential recruits. The basic service is free, but customers can pay about $10 a month for additional capabilities.

“We want to build a scalable business,” said Mr. Kankam, whose profitable, five-employee company has $2 million to $4 million in annual revenue.

The big benefit of expanding to a mass audience is increased volume—especially for small-business owners who have made their name providing time- and labor-intensive, hands-on service. Take Joey Healy, founder of a three-year-old company in Manhattan that bears his name. At Joey Healy Eyebrow Studio, which provides eyebrow-shaping services, Mr. Healy spends about an hour working with each client. He charges $135, up from $85 three years ago.

More recently, Mr. Healy formed a partnership with hair-removal specialist Spruce & Bond to train eight employees in his eyebrow-shaping techniques. They were placed at all four Spruce & Bond stores (three in Manhattan, one in Scarsdale). Called Browlab, the service at the stores costs clients $50; customers also can buy from Mr. Healy’s line of products. “It brings me a new audience,” he said.

Underwriting expansion

About 10% of Mr. Healy’s total revenue, which is “just under $1 million,” now comes from Browlab, but that should increase as Spruce & Bond expands to more locations in Manhattan. Also, in October, Mr. Healy plans to move from his 500-square-foot studio to a bigger space, which will serve as what he calls “more of a flagship” for the profitable company.

In some cases, small businesses regard their premium market as a way to underwrite expansion to a larger mass clientele. Four years ago, Kim Caspare, who has a doctorate degree in physical therapy, opened PHlex Health and Wellness Studio in Manhattan, where she treated patients who were able to pay out of pocket and were mostly referred by doctors.

Since then, she has added such services as acupuncture and meditation and expanded from 1,500 square feet to about 2,200, with plans to increase to 4,600. She recently started treating a new group of patients with insurance coverage, too. Her premium clients, who pay from $160 to $300 an hour for a variety of services, “subsidize everyone else,” said Ms. Caspare. Her profitable, nine-employee company has $1 million to $3 million in annual revenue.

For those adding a higher-end tier, the key is retooling the product or service to make it attractive—and worth the price—to a wealthier clientele. That generally means not moving too far upstream from the company’s original segment.

At Caskers, Mr. Abt had already sold pricey spirits, usually in the $40 to $60 per-bottle range, to affluent buyers. Although his concierge clients have paid as much as $27,000 for an order, “moving to the high end has been a natural extension of the business,” he said.

Another notable example is concierge medicine, through which doctors provide extra services to their patients, who pay an annual fee. About a year ago, Dr. Herbert Insel, a cardiologist and internist in Manhattan, introduced this option.

He charges a $2,500 annual fee to cover services, such as a lengthy physical exam not reimbursed by insurance, longer visits and a direct telephone number to the office. So far, 10% to 15% of patients have signed on. Many of them “are very busy executives in their 40s and 50s who are used to this type of approach,” said Dr. Insel. “They were champing at the bit.”

Source: http://www.crainsnewyork.com/article/20150511/SMALLBIZ/150509841/businesse

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May 5, 2015

The latest fashion trend among millennial men? Luxury cologne

Fortune
By: Shivani Vora
May 1, 2015

These four luxe fragrances are part of a growing market for younger male shoppers.

Luxury men’s fragrances are no longer mass produced bottles priced in the high double-digits and available at every department store; the latest upscale scents for men are sold selectively at boutiques, usually cost several hundred dollars, and are often blended by hand in small batches with top quality ingredients sourced from around the world.

According to the Chicago-based market research company Euromonitor International, sales in the U.S. of men’s premium fragrances, classified as labels sold in department stores, grew from $1.28 billion in 2004 to $1.47 billion last year. Those numbers are still dwarfed by the $3.7 billion of sales last year for women’s fragrances in the same category, but the segment is growing as it increasingly appeals to younger consumers.

Milton Pedraza, the founder of the New York City-based luxury research and consulting firm The Luxury Institute, says that men, particularly those in the millennial generation, are becoming enamored with expensive colognes in the same way that they are with fashion. “There is a big movement today of men who have spare money to spend are using it to look good, and fragrance is part of that trend,” he said.

Here are four of the latest luxe colognes to try this spring.

Reckless by Roja Parfums

Courtesy of Roja Parfums

British perfumer Roja Dove, who is known for statement-making scents that often run into the four figures, wanted to create a blend for men who aren’t afraid to take risks, and this spicy and fresh rendition is it. Black pepper, musk, clove, and cedar wood are the most prominent notes, and in a nod to the luxury Dove is famous for, the plaque on the bottle is dipped in 18 carat gold while the cap is made of hand-cut Swarovski crystals. $480, bergdorfgoodman.com

Akkad by Lubin

Courtesy of Lubin

Parisian perfumery Lubin, which dates back to the 18th century and handcrafts fragrances today in its Left Bank atelier, introduces this heady scent, the sixth in its collection for men. It’s named for the ancient and powerful empire part of Mesopotamia and has prominent notes of spicy amber, citrusy mandarin and bergamot; woody and rich patchouli and sweet vanilla are also evident but more subtle. $180, luckyscent.com

New York Sandalwood by Bond No. 9

Courtesy of Bond No.9

The more than decade-old New York City-based brand has a cult following for its upscale women’s fragrances, but this new unisex version is sure to win some male fans too. Like the name suggests, warm and smooth sandalwood, derived from the fine-grained wood of tropical trees, is the main attraction while earthy carrot, spicy cardamom and ripe figs figure into the background. Whether you’re into the scent or not, the attractive gold bottle it’s in is a keeper. $330, bondno9.com

Charming California 215 by Krigler Perfumes

Courtesy of Krigler Perfumes

New stores call for new scents—at least according to the more than century-old New York City and Monte Carlo-based label that’s a favorite of royals around the world and introduced this fresh and light fragrance in celebration of the recent opening of its boutique at the Four Seasons in Beverly Hills. Inspired in part by the jacaranda, a blue flowering tree that flourishes in both Los Angeles and the French Riviera, the perfume is a pick-me-up combination of coriander, orange blossom, green tea and cedar wood. $315, krigler.com

Source: http://fortune.com/2015/05/01/luxury-mens-cologne/

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April 28, 2015

Luxury Panel: What Millennials Want

Previews Inside Out
Topic: Life & Style
April 27, 2015

When you hear the words “affluent millennial,” do you picture a 30-something tech mogul buying a trophy home in the hills of LA? Or a hashtag-happy celebrity starting a lifestyle brand? Clichés aside, millennials—more than 74 million adults ages 18 to 34 in the U.S.—are changing the luxury landscape as we know it. For our “Luxury: The Next Generation” issue, we decided to go straight to the experts—the Luxury Institute’s Milton Pedraza, Luxury Daily editor Mickey Alam Khan and Forbes’ millennial reporter Larissa Faw—to find out what this increasingly influential group really wants when it comes to luxury.

Previews Inside Out: What does the next generation of luxury consumers want from brands today?

Milton Pedraza: Across the generations, millennials, Gen Xers and boomers all want the best in design, quality and craftsmanship, along with great service.

Mickey Alam Khan: The next generation of luxury consumers want to build stronger emotional connections with brands. They not only want to experience the products in-store, but also via digital media such as online and mobile. They also want to feel good about their luxury acquisitions from an ecological standpoint. In other words, the next generation of luxury consumers want to see authenticity, digital savvy and environmental nobility from their favorite luxury brands.

Larissa Faw: The key words are “make them feel special.” They want to be the only ones able to experience that product or opportunity. The worst thing in the world is to be mass and beige. Everywhere and generic. Coach got itself into trouble because it opened up an outlet shop in every city. It became overly accessible to everyone. The worst thing for luxury buyers is when some downscale shopper has the same item. That is the kiss of death for affluent shoppers. That brand is no longer luxury.

Milton Pedraza: Hey, and also respect brand heritage! But only as long as the brand stays relevant to them.

Previews Inside Out: There was a recent survey published in Luxury Daily that found the majority of affluent consumers have a different definition of luxury than they did five years ago. What do you think the definition of luxury is today?

Mickey Alam Khan: One of the biggest changes in the last few years has been the shift in the luxury-consumption mindset from “I have” to “I experience.” So it’s gone from simply material acquisition to a collection of exquisite memories to be cherished for a long time from unique experiences. That said, as defined by Luxury Daily, luxury must have these time-proven qualities: exceptional craftsmanship and customer service, brand authenticity, limited distribution and high perceived value. That hasn’t changed.

Larissa Faw: Once upon a time, luxury meant price. You almost just knew something was a luxury product because it was insanely expensive. Now, luxury means exclusivity and authenticity. One-of-a-kind items that come from a true place. A product can be $5, but if it is the only one and rare, that is luxury.

Milton Pedraza: Today’s luxury consumers also demand demonstrated expertise, trustworthiness and generosity from the brand ambassadors. These days, they also prefer a brand with a social conscience that treats associates, clients, suppliers and the less fortunate in society like human beings. Along with the best product, that is what creates an extraordinary experience for most.

Previews Inside Out: Do you think millennials are partly responsible for this shift? How so?

Mickey Alam Khan: Yes, the millennial generation is quite responsible for the shift in luxury’s definition. This generation is digitally savvy and is responsible for the evolving approach in marketing and retailing. Presence on social media enables brands to stay connected with their younger customers and prospects, dialoguing with them in the lingua franca of the day.

Milton Pedraza: Yes, the millennials, with their more humanistic values, are influencing the business world to deliver extraordinary product innovations, but also extraordinary human empowerment with kindness.

Larissa Faw It is great that millennials have moved beyond the materialistic nature of what has been considered luxury. Many traits that typically define luxury—like fawning treatment or rich, indulgent services—are no longer acceptable or cool. Can you imagine being served by someone wearing a uniform and white gloves? I shudder at the thought.

Previews Inside Out: Beyond that, how are millennials transforming the luxury industry?

Milton Pedraza: They tend to take the design, quality, and craftsmanship and service for granted. They want customized, personalized solutions “now, now.” As Four Seasons says, “Show me you know me.”

Mickey Alam Khan: Four words would reflect the transformation in the luxury business: high touch, high tech. Millennials want that kind of experience with their brand, and so do Gen Xers and, to some extent, digitally savvy baby boomers. Luxury brands are being shepherded along a digital path where online and mobile are the start of the research process that may or may not culminate in a store sale.

Larissa Faw: They are making everyone rethink what it means to be a luxury brand. Just because you charge $5,000 for a bag does not mean you are luxury. Just because you operate a nice hotel does not mean you appeal to affluent millennials. What was once considered top-flight treatment—like that white glove treatment—does not necessarily align with younger generations. This presents opportunity, but it is also challenging, because what once worked, no longer does. You don’t earn five stars by doing what you did for decades. That said, I also think millennials take for granted a lot of what is known as luxury. Like top-sourced leather goods. They expect all brands, even discount ones, to offer that. They expect great service, like immediately tending to their demands. Those services used to separate luxury brands from regular ones.

Mickey Alam Khan: Also, for many young people, it’s not simply about flashy identification with a lifestyle or a product, but a reflection of their values. Hence, the importance of storytelling and codes for luxury brand and luxury retailers to get their message across.

Previews Inside Out: Let’s talk more about this push toward authenticity in luxury, which is an important value for many millennials. In what areas of the marketplace have you seen authenticity play out most dramatically?

Milton Pedraza: They require authenticity across the board. But let’s face it—many product offerings are copycats and commodities, even in some luxury circles. So the authenticity is more about the founders, the brand purpose, the brand ambassadors and “how” they do what they do.

Mickey Alam Khan: I’d say authenticity continues to play a key role in leather goods and accessories. Look at Hermès. While other luxury brands such as Gucci are suffering from logo fatigue and endless line extensions, Hermès continues to post above-industry growth. What does Hermès do differently that attracts all generations to its brand? Attention to quality, to its codes, to its heritage, to its line of products. Its messaging is consistent. The equestrian and travel themes are embedded in most ads. And, most of all, the product standards have been maintained over the decades. Hermès is France at its best, and that’s what millennials and other consumers are buying. Pedigree continues to matter to millennials.

Larissa Faw: Fashion and watch brands are really overplaying their histories and design backstories in order to capture that authentic hook. Upscale alcohol brands are also trying too hard. I don’t need to see another old-timer posing with his dog on a farm to tell me a brand is authentic—and that this makes it okay to charge $300, since it has been aged in a barrel for 100 years. This authenticity does matter to millennials, but I see it becoming too commonplace.

Previews Inside Out: Can you identify any luxury brands you think are already starting to make this adjustment in their marketing? You know—moving away from exclusivity to authenticity.

Mickey Alam Khan: Well, let me just point out that exclusivity and authenticity can’t be mutually exclusive. You have to have both to survive long term as a luxury brand.

Milton Pedraza: Bottega Veneta is a prime example of expertise, trust and generosity with all constituents. And they have the numbers to prove it. Burberry is there, too. We see Van Cleef & Arpels moving in that direction. Sephora, too.

Previews Inside Out: Why are some of the top luxury brands a bit stalled today?

Milton Pedraza: Their products are too common, too logoed, and they have disengaged brand ambassadors. So the customers become disengaged, too. The brands have become passive transactors rather than humanistic relationship builders.

Mickey Alam Khan: Gucci comes to mind for me. It’s had some turbulence over senior talent most recently with the departure of the CEO and creative director. While the successors are in place, what Gucci needs to do is rethink its positioning. It’s become rather common, which is the kiss of death for a luxury brand. If too many people have access to the product, it loses its allure. I foresee something similar with Louis Vuitton. Way too many people sport its handbags, thus diluting its exclusivity. It’ll end up catering mostly to aspirational consumers and risk alienating those with serious money. It pays to be slightly discrete in luxury. I know Louis Vuitton is working to scale back on plastering its logo everywhere. The wink-and-nod in luxury should be the styling that those in the know are aware of.

Larissa Faw: Millennials are like cats. If you try too hard, they don’t want anything to do with you. I know Honda isn’t a luxury brand, but its recent commercials featuring top toys from the 80s—like Strawberry Shortcake and Skeletor from He-Man—speaking to the camera to try to sell me a car were pathetic in how hard they were trying to appeal to millennials. My mom had no idea who that skeleton-looking toy was, since these toys were totally millennial-centric, but both my sister and I knew immediately. No one likes a desperate brand that is obvious with its advertising. Pretentiousness is another reason brands are toxic to millennials. Jewelry brands that continue to embrace that silly fairy-tale engagement proposal turn off a lot of millennials. That isn’t how our world looks, and we don’t want any part of it.

Previews Inside Out: When you look at the luxury market as a whole—travel, auto companies, fashion, jewelry—where are you seeing the most innovation when it comes to imparting authentic experiences?

Larissa Faw: I recently saw an ad for a jewelry brand that lets people create their own rings. That is exactly what it takes to reach millennials. Who wants a ring that his or her nemesis in high school might have? Everyone wants to brag he or she has the only one of something. Any company that is able to develop customized and personalized experiences will win them over.

Milton Pedraza: Electronics are the obvious answer. But since technology is invading every space, we see autos, apparel, accessories and really all luxury categories using technology online, in-store and after the sales to enhance the client experience and build a long-term relationship. The most interesting innovations, however, will come from empowering and enhancing the brand ambassadors to build human relationships with their clients. No algorithm can replace a powerful and kind human relationship.

Mickey Alam Khan: There is digital innovation across luxury sectors. Some of it is consumer-led, and some of it brand-driven. Travel and hospitality is a leader in the space. The sites, apps and social media are nonpareil—as are the unique culinary experiences, meet-and-greets with famous chefs and tours in the vicinity of hotel properties that respect the land and traditions. Fashion is also a leader in authenticity. See the abundance of live streams of runway shows that deliver the live experience to the desktop, lap or palm.

Previews Inside Out: In terms of real estate, where do you think the industry needs to move in order to cater to more affluent millennials?

Larissa Faw: Good question. The industry needs to make them feel special, by offering services that understand their life stage. For instance, maybe arrange for Uber accounts so they can have private car services. I recommend taking a page from luxury hotel brands and how they cater to them with dry cleaning, maid services, food delivery. If you come at millennials with the mindset to make them feel special, you can’t go wrong.

Mickey Alam Khan: I’d say real estate needs more digital moxie. Not just PC sites or mobile-friendly versions, but better social media and app executions. Younger luxury consumers are researching on tablets and smartphones, and real estate’s presence on those devices can be improved.

Milton Pedraza: Empower the agent through technology, data and coaching to enhance the client. Real estate is not a game of bricks and mortar; it is a game of hearts and minds.

Source: http://www.previewsinsideout.com/2015/04/luxury-panel-what-millennials-want/

 

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April 22, 2015

In $10 million home sales, Miami Beach a leader

Miami Today
By: Susan Danseyar
April 22, 2015

Miami Beach is in impressive company among the nation’s top cities for luxury home sales, third highest for sales of $10 million and over.

Miami and the Beach have high rankings in The Previews Luxury Market Report for 2015, released by Coldwell Banker on Tuesday, which lists the top 20 US cities’ property listings and sales in three price points: beginning at $1 million, $5 million and over and $10 million.

In 2014, Miami had 967 closed sales for properties $1 million and over, ninth on the list just behind San Diego (976 sales) and above cities including Santa Barbara (673 sales), Newport Beach (611 sales) and Honolulu (591 sales). Miami Beach, number 14 in this category, had 704 sales.

For properties $5 million and over, Miami Beach was fourth with 89 sales compared to New York City (182 sales) at the top of the list and and above San Francisco (64 sales) and Malibu (48 sales).

There were 26 sales in Miami Beach for properties $10 million and over, behind Beverly Hills (35 sales) and New York (56 sales). Miami Beach, third on the list, had more sales in this category than Los Angeles (26), Malibu (14) and San Francisco (7).

North Miami Beach, in zip code 33169, had the third highest number of active home listings for $1 million and over (460), behind New York’s zip code 10022 (465) and Park City’s zip code 84060 (611). Miami Beach’s zip code 33139 was fifth in this category with 355 listings.

For properties $5 million and over, Miami Beach’s zip code 33139 had 115 compared with 143 in Park City’s 84060, top of the list, and above Vail’s 81657 (69) and Beverly Hills’ 90210 (68).

In the highest category of $10 million and over, Miami Beach in zip code 33139 was ninth on the list (44 listings) compared with New York’s zip code 10023 at 84, top of the list, and Malibu’s zip code 90265 at 26, bottom of the list.

According to the report, the demographics are changing in the luxury housing market. “Many wealthy homebuyers have historically looked to leisure-rich spots like Hawaii, Florida and Arizona for second homes, or waited until they were finished working to make a move,” the report states.”That’s changing, with recent trends suggesting that younger homebuyers are not waiting until they retire to put down roots in places where they would love to live.”

Technology and ease of travel are rapidly transforming the workplace for wealthy professionals, the report states, creating flexibility in terms of work locations and the ability to choose where they want to live. “Millennials have come of age in this kind of environment and are accustomed to the idea of striking a work-life balance that meets their personal needs. As they achieve more wealth, their live-anywhere attitudes are likely to become more of a force in luxury real estate.”

According to the Previews Luxury Institute millionaire survey, 73% of those under 35 say that they expect to buy a home in the next 12 months, compared to 49% of 35- to 44-year-olds and 26% of 45- to 64-year-olds. Just 11% of millionaires 65 and over say that they’re planning a purchase.

The report cites homebuyer surveys and the accounts of local realtors, stating they confirm ultra high-net worth individuals are highly mobile and flocking in growing numbers to areas once pegged as resort or second-home markets, as advances in technology, transportation and communication enable a “live anywhere” working-age population.

Florida, the report states, has a favorable tax environment that’s attracting live-anywhere high net-worth homebuyers, particularly those coming from the Northeast.

“The taxes on inheritance and estates are very high in some states, like New Jersey,” said Clark Toole, president of Coldwell Banker Residential Real Estate in Florida. “Florida is one of the most attractive places to live from a tax perspective, so we get quite a few people who decide to live here for at least six months and a day each year. People are saying ‘I want this money to go to my kids instead of to pay taxes.’”

Source: http://www.miamitodaynews.com/2015/04/22/in-10-million-home-sales-miami-beach-a-leader/

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April 20, 2015

Changing Tactics, Apple Promotes Watch as a Luxury Item

NY Times
By: Brian X. Chen
April 19, 2015

SAN FRANCISCO — Apple has scrapped its usual routine for releasing products with its new device, the Apple Watch. The company is instead taking a page from the playbook of another industry: luxury goods makers.

Gone are the long lines in front of Apple stores that would accompany a typical iPhone release. Gone is the flooding of a vast worldwide distribution network where Apple would make a new iPhone available. The company is selling the Apple Watch, which goes on sale on Friday, in just nine countries and exclusively through its own channels, not through third-party retailers like Best Buy. In contrast, Apple unveiled new iPhones in September in more than 30 countries and in numerous retail outlets.

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For the first time, Apple is also bringing personal attention and tailoring into the mix through a process for trying on the watch. While consumers typically couldn’t touch a new Apple device until it was publicly available, the company this month began inviting customers into its stores to see, wear and feel the watch.

Evan Weissbrot, a 33-year-old watch collector, experienced the sneak preview firsthand. After he arrived at the Apple Store in SoHo on April 11, an Apple employee took Mr. Weissbrot to a station and unlocked a drawer containing a variety of the watches. In between small talk, the employee showed Mr. Weissbrot different straps and cases — and even let him check out the gold watch, which costs more than $10,000 and typically requires a separate appointment to try on.

The amount of personal attention and the allure of the process “was a rip directly from a high-end watch store,” Mr. Weissbrot said.

All of this echoes the tactics of luxury goods makers like Burberry and Hermès. Giving consumers an early peek before they buy things is a familiar strategy in the fashion industry — as, increasingly, is tempting early adopters with the bonus of circumventing the shop. When Burberry shows new lines of clothing and handbags on the runway, the company lets customers order select items immediately after the show for delivery even before the products arrive in stores.

Apple also appears to be mimicking the scarcity-creates-desire approach, one that has served Hermès well with items like the Birkin and Kelly bags. They are rarely in stock, and customers sometimes wait months to receive one. That strategy has also worked for companies like Ferrari, which has loyal customers who pay thousands of dollars just to get on a list to wait as long as a year to own the next hot Italian sports car.

“They’re definitely treading on new territory,” Milton Pedraza, chief executive of the research firm the Luxury Institute, said of Apple. While high-end fashion brands, jewelers and luxury car brands often use selectivity and personal attention to generate interest when a product makes its debut, it is new for Apple, a company whose products typically speak to an enormous consumer audience as opposed to a privileged few, he said.

The strategy is a deliberate move by Timothy D. Cook, chief executive of Apple, and Angela Ahrendts, the company’s retail chief and a former chief executive of Burberry, to lay the groundwork for a successful introduction of the watch. The watch is the first entirely new device Apple has introduced under the leadership of Mr. Cook, who took the helm in 2011, and brings the company into the fashion market, as well as the luxury market, with the 18-karat gold version of the watch.

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In a recent letter to Apple’s retail employees, Ms. Ahrendts said the company needed to come up with the preview approach for selling the watch because “there’s never been anything quite like it.” In the memo, which was cited by the blog 9to5Mac, she said it was unlikely that people could buy the watch at Apple stores before June because of supply constraints.

An Apple spokeswoman, Amy Bessette, said Ms. Ahrendts was not available to comment on the retail strategy for the watch.

Apple’s top brass has been energetically promoting the watch over the last seven months, granting interviews about the creation of the device to The New Yorker and Wired. Apple has also invested significantly in advertising, spending an estimated $36 million since March 9 on a television campaign for the smartwatch, just slightly less than the $38.5 million that it spent on TV ads for new iPhones since mid-November, according to iSpot.TV, an analytics firm.

The watch’s success remains far from assured. Mr. Cook said on Apple’s financial earnings call in October that the company would report sales of the watch in a group with other products, rather than breaking it out into a separate category.

“I’m not very anxious in reporting a lot of numbers on Apple Watch and giving a lot of detail on it, because our competitors are looking for it,” Mr. Cook said.

Sales estimates for the watch are modest compared with Apple’s past best sellers. Toni Sacconaghi, a financial analyst for Sanford C. Bernstein, predicts Apple will ship 7.5 million watches in the second half of the company’s fiscal year, while tens of millions of iPhones fly off the shelves every quarter.

For now, Apple’s luxury experiment with the Apple Watch appears to be bringing in mixed results. At Apple’s London flagship store nine days ago, employees asked people if they wanted to sign up for personal appointments to get hands-on with the product. Several people were bemused that they could not handle the watches without appointments.

At an Apple store in Hong Kong, a Chinese tourist from Beijing, Scott Sun, took photos of the gold watches to send to his friends but said every version of the watch — which starts at $350 — was too expensive for him.

“There’s no way I’m going to buy one,” he said. “But for rich people, this gold one will definitely be popular.”

Another question raised by Apple’s luxury experiment with the watch is whether customers will believe it is worth the wait. While the watch will begin shipping to customers on Friday, some customers have reported that their shipping times have slipped to May or June.

For Mr. Weissbrot, the watch collector in SoHo, the wait was not a deterrent. He placed an online order for an Apple Watch Sport, which is the least expensive model and has an aluminum case, before the session in which he tried one on. The estimated date of arrival for his watch is May 13.

“It’s kind of a bummer,” he said, before adding that he was still excited to be among the first to have the device.

Source: http://www.nytimes.com/2015/04/20/technology/personaltech/changing-tactics-apple-promotes-watch-as-a-luxury-item.html?_r=0

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March 30, 2015

Digital channels influenced $1.5T in-store sales in 2014: report

Luxury Daily
By: Nancy Buckley
March 30, 2015

More than 70 percent of consumers expect brand digital channels to have knowledge of in-store product availability, according to a new report by L2.

Accommodating both digital and in-store trends requires brands to adapt to e-commerce expectations of click-and-collect or free shipping, but also adhere to in-store demands. Many traditional brands face pressure from online retailers to offer better options for consumers turning to digital for both browsing and shopping.

“While luxury fashion in the past required a high touch, in person sale, things have changed,” said Eleanor Powers, director, Insight Reports, L2. “Overall fashion brands are still focused on online e-commerce conversion (e.g. by providing free shipping options).”

Channel options
Prior to interaction with a sales associate, 80 percent of United States consumers know what they want and how much they plan to spend. This knowledge stems from Web rooming, a concept that should be encouraged by brands because it leads to 40 percent higher conversions.

Digital channels effect 50 percent of in-store sales, despite direct-to-consumer ecommerce only accounting for 4 percent of sales.

Ecommerce is being challenged by larger online retailers. When British retailer AllSaints began accepting Amazon Payments there was concern among fashion brands, which escalated with the rumors surrounding Amazon and Net-A-Porter.

Amazon may be in talks to purchase Net-A-Porter, if reports that have been rumored are true.

The etail giant has been unsuccessful in entering the luxury industry in spite of attempts in recent years, and this potential acquisition could be significant for the future of both companies. The impact that this purchase could have on Net-A-Porter is unclear, but the retailer has been not been profitable despite its popularity (see story).

Amazon Prime’s rewards encourage consumers to shop online and receive free shipping for an annual fee. The Prime membership concept has been adapted by ShopRunner, a platform used by one-fifth of luxury brands.

Without ShopRunner, consumers are shopping to a minimum spending level to receive free shipping, but even with that many consumers are pulled away from luxury brands to find less expensive items online.

Some brands, especially in Europe, offer click-to-collect. Without these options, consumers are Web rooming for products and then purchasing in-store. Even with this option, consumers expect brands to have easily accessible information about store availability.

Generational thing
Difference in digital options also vary across generations.

Consumers are split on their willingness to download luxury brand applications, but when dispersed into generations, 72 percent of millennials are inclined to download a branded app, according to a report from The Luxury Institute.

Digitization of the luxury world is slowly evolving as younger generations grow into being affluent consumers. Luxury clients differ across more than just generations, but understanding the prime and upcoming consumer can prepare marketing teams for the future (see story).

Changing to adapt to generational and technological changes requires brands to look internally and adapt within every channel.

“Brands also need to support the hand-off from digital to in-store to support a seamless shopping experience,” Ms. Powers said. “This requires investments in infrastructure for local inventory visibility and providing options for click-and-collect and in-store returns.”

Source: http://www.luxurydaily.com/digital-channels-influenced-1-5t-in-store-sales-in-2014-report/

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March 25, 2015

Is this American-made leather bag really worth $10,000?

BBC News
By: Neil Koenig
March 25, 2015

Wander round a well-to-do shopping mall or district in any major US city, and you will see lots of stores offering luxury goods. But with a few notable exceptions, most will not be American brands.

Why? One reason, say observers, is that the country no longer produces luxury items on the scale that it used to.
That is partly because the pool of skilled talent needed to make those goods has shrunk enormously: “All that got hollowed out when things started to be outsourced in the 80s through into the 90s,” says Peter York, who has advised many large luxury companies.

This phenomenon has occurred across the Western world.
In France, for example, concern about the disappearance of craft skills has resulted in the industry setting up new training schemes, in the hope of reviving interest in artisanship.
So against this backdrop, what Chicago entrepreneur Steven Fischer is trying to do, seems somewhat reckless.

He is now selling a hand-crafted luxury leather bag, made entirely in the US. The cost? Just under $10,000 (£6,683).

It all came about when he spotted an old leather bag at an auction, and bought it on the spur of the moment.
“It just spoke to me emotionally,” he recalls.

Shortly afterwards he took the bag on a plane journey.

As he disembarked, he noticed that the flight attendants were lining up to talk to him: “I thought, ‘Oh, boy, I’m in real trouble now.’ But what they told me was: ‘Sir, we don’t know where you got that bag, but that is the most beautiful bag we’ve seen in a long time.’”

Mr Fischer says he received similar comments from other people. Eventually he began to ask himself: “What would it take to make a bag like this… not only make it, but make it 100% American?”

At the time, Mr Fischer was teaching a course about fashion at Northwestern University, Illinois. He was also providing advice to various organisations on the luxury industry.
Launching a luxury product, however, was a new departure.

He recalls that almost every supplier he spoke to told him he was crazy.
They said to him: “Look, Steven, if you really want to make money, don’t make [it] in the US,” he remembers.

Mr Fischer ignored the advice and set off on a quest to find supplies and craftsmen skilled in leather-work, spending months driving across the mid-West.

He began by talking to horse owners, asking them who made their saddles and harnesses.

As time passed Mr Fischer managed to build up a network of skilled leather and metal workers, who could make the various components to the exacting standards he was looking for.

Some of the craftsmen belong to Amish communities – Mr Fischer says he finds their work to be of exceptional quality.

However, there are challenges. Some Amish people are reluctant to use modern technologies, such as the internet, so communication can be difficult.

The leather for the bag comes from Horween tannery in Chicago, the last one remaining in the city.

All the effort, time and materials that go into making the bag do not come cheap, with a standard example priced at $9,995.

Mr Fischer says the cost is justified. He believes that if he can make a product of the highest quality, then there are customers out there who will buy it.

Although the business is still small, he hopes that he can make it grow. He is already expanding the product range to include belts.

But how much of a market is there for products like this?

Some experts say there is a growing interest in the provenance of goods generally, including luxury products.
“In every luxury market where there are already a lot of luxury consumers, there’s always an opportunity for a ‘made in’ that country [product]“, says Milton Pedraza of the Luxury Institute, a New York-based firm that advises large businesses.

However, he adds that skills shortages can make producing handmade, luxury items at scale very difficult.

Another challenge is intense competition. It is a field where the big players in the industry undoubtedly have an edge because they benefit from economies of scale.

Despite the challenges, Mr Fischer remains undaunted.

“This is a huge undertaking – I would never have imagined three or four years ago this is where I would be right now,” he says.

“But there’s something deep inside which is telling me to continue this and to demonstrate that we can create refined luxury here in the United States.”

Source: http://www.bbc.com/news/business-32027515

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March 19, 2015

Weak Euro Undermines Chanel’s China Strategy

Marketplace World
By: Adam Allington
March 18, 2015

If you’re thinking about planning a vacation to Europe, now would be a good time. The American dollar is worth more now against the Euro than at any point over the past decade.

While the exchange rate may be welcome news for some tourists, the same may not be said for luxury European brands like Chanel or Gucci. Chanel handbags are so much cheaper in Paris than in China that Chinese tourists are flooding Paris shops for luxury bargains. Chanel want them to buy its handbags in China, expanding its market there.

So Chanel will increase prices in Europe and cut them in Asia.

“I think the Chinese consumer will benefit from this, because they will get lower prices and they won’t have to go shop in New York, London or Paris in order to get the benefit of those relatively lower prices,” says Milton Pedraza of the Luxury Institute.

But high-end brands in particular need to think long and hard about changing prices from country to country.

“One of the keys to running a luxury business is that the customers understand that the prices don’t move all that often, and that you’re not waiting for products to go on sale,” says Stifel analyst David Schick.

Schick says long-term profitability for companies like Chanel or Louis Vuitton won’t hinge on exchange rates, but rather on how they are able to compete in a market that is increasingly crowed with competitors — many of whom are perfectly willing to sell you a handbag online, instead of through a shop on the Champs-Élysées.

Source: http://www.marketplace.org/topics/world/weak-euro-undermines-chanels-china-strategy

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March 10, 2015

Generational shift to luxury digital

Data sourced from Luxury Daily; additional content by Warc staff
March 10, 2015

NEW YORK: Affluent consumers in the US prefer to buy luxury goods in store but there is a discernible generational shift taking place as fewer millennials are concerned to shop this way with more inclined to explore options via an app.

A report from The Luxury Institute surveyed wealthy consumers in the US with a minimum household income of $150,000 per year and found that only 40% of millennials wanted especially to shop in store, while 72% would download a branded luxury app.

“There are clear generational differences where the boomers are less digital and millennials are extremely digital,” Milton Pedraza, CEO of The Luxury Institute told Luxury Daily.

“There is no one size all client experience,” he added, “and we have to understand the consumer not as a segment but as one individual, as a human being, in order to build a long-term relationship.”

That said, the differences leapt out in a number of statistics. Overall, 53% of luxury consumers did not download apps, while 47% did so, with most of these being in the younger generations.

Another instance came in social media, where almost two thirds (64%) of wealthy consumers didn’t follow any brands. But among millennials a similar proportion (68%) followed at least one brand and among Gen X the figure was 58%.

But more than one third (38%) of baby boomers also claimed to have downloaded branded luxury apps.

“Boomers are behind in digitalisation, [but] they are by no means not digital,” said Pedraza, “especially the highly educated global traveller.”

The Luxury Institute drew attention to the role of fashion bloggers in reaching and influencing the younger generation.

It found only 15% of boomers followed a fashion blogger compared to 62% of millennials. And followers had made an average of 4.2 purchases from blogger suggestions.

Even if these bloggers can find it difficult to maintain a leading edge position, Luxury Daily observed that their followings can compare favourably with magazines, the traditional influencer in luxury fashion.

The influence of technology is inexorably influencing purchase decisions in some way: 61% of all affluent consumers said it allowed them to make more purchases, while 65% said it was changing the way they shop with luxury brands.

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Can Apple Sell Wealthy Shoppers on a Luxury Watch?

The New Yorker
By: Vauhini Vara
March 9, 2015

Because Apple first unveiled its smartwatch six months ago, and little has changed about the product since then, there wasn’t much for the company’s C.E.O., Tim Cook, to tell his audience on Monday, when he took the stage at a theatre in San Francisco for a follow-up event. Everyone already knew about the watch’s cool, if not necessarily essential, features and its stylish design. Cook did reveal one bit of news, though: the price of a high-end version of the watch, encased with a special kind of eighteen-karat gold that is, according to Apple, twice as hard as regular gold, will start at ten thousand dollars.

Apple had previously explained that there would be three different versions of the watch—Apple Watch Sport, Apple Watch, and Apple Watch Edition—but hadn’t disclosed how much each type would cost, beyond announcing that pricing for the least expensive model would begin at three hundred and forty-nine dollars. The Apple Watch Edition, with its gold casing, was expected to be expensive, but the ten-thousand-dollar starting price still took people by surprise; John Gruber, who runs Daring Fireball, a popular and authoritative Web site about Apple, had guessed that Edition watches might begin at seven thousand four hundred and ninety-nine dollars.

As I have written in the past, smartwatches are a bit confounding, as tech products go. People tend not to gravitate toward gadgets unless they fulfill some unmet need. But smartwatches don’t do anything that existing devices, like smartphones and fitness trackers, aren’t capable of, and it’s unclear whether the convenience factor—having the device strapped on your wrist rather than stuck in your pocket—will make up for that fact.

Apple executives seem aware of that pitfall, and so, while they have pitched the Apple Watch as a tech product, they have also taken another tack, as if to hedge their bet: marketing it as a high-end fashion item. Last year, when the watch was still only a rumor to the outside world, Apple hired Angela Ahrendts, the well-regarded former C.E.O. of Burberry, as its head of retail; the year before, Apple had convinced Paul Deneve, a former employee who had gone on to become the C.E.O. of Yves Saint Laurent, to return to the company. Ahrendts and Deneve were surely influential in guiding the development of the deluxe watch, but so were more long-established Apple executives; in Ian Parker’s recent Profile of Jonathan Ive, the senior vice-president of design at Apple, a friend of Ive’s told Parker that Ive had “always wanted to do luxury.”

It’s relatively rare for a single watchmaker to simultaneously sell a three-hundred-and-forty-nine-dollar watch and a similar ten-thousand-dollar version; for the Apple Watch to be successful, the company will have to market to a mass audience and a luxury one at the same time. Some tech bloggers, accustomed to seeing high-end products priced at most in the hundreds of dollars, immediately balked at the ten-thousand-dollar price tag on the Apple Watch Edition, especially given that the guts of the watch—what’s inside the gold casing—are the same as what’s in the other, less expensive versions. But people from the luxury-fashion world were not particularly surprised; by their standards, the price was somewhat modest. Milton Pedraza, the C.E.O. of the Luxury Institute, a consulting firm, told me, “At ten thousand dollars, I would call that more of a premium watch”—that is, something less than a luxury watch, a term reserved for the highest-end watches that sell for six figures. The luxury-goods business model relies on selling exorbitantly priced items to small numbers of people, which means not having to persuade the masses (tech bloggers included) that the price tag is reasonable. Profit margins for luxury watches tend to be around thirty per cent, compared with ten per cent or less for mass-market watches.

To Pedraza, the ten-thousand-dollar price tag seemed eminently justifiable. For one thing, the gold casing adds significant cost—in the high hundreds of dollars, at least—to the Edition watches. Perhaps more important, though, is that no one expects luxury products to be priced based on the value of their components; what’s being sold is cachet. “With the first caveman or cavewoman, the one who found the shiniest shell to make a necklace had an advantage, and ever since then people have been trying to one-up themselves,” Pedraza said.

Selling cachet, of course, requires special tactics. Pedraza noted that Apple’s marketing has tended to focus on the possibilities of achievement that are contained within a computer or a smartphone. The finest luxury brands, he said, draw their prospective customers’ attention, instead, to what a product suggests about the owner’s acquired achievement. In other words, he said, Apple might do well, with the Edition watches, to focus less on what the watch allows its wearer to do than on what it conveys to others about what the wearer has already done. “It’s about how people look at me and see me and how I want to be seen in the world,” Pedraza said. To an extent, Apple seems to appreciate that message; at Monday’s event, Christy Turlington, the supermodel, appeared onstage to show off her watch.

Apple will face another challenge with its Edition line. The luxury watchmaker Patek Philippe advertises its watches with the tagline “You never really own a Patek Philippe. You merely look after it for the next generation.” The point, of course, is that Patek Philippe watches—many of which are priced at twenty thousand dollars or more—are investments. Like art, they don’t lose value as time passes; they may even gain value. It’s hard to make the same case with an Apple Watch; at best, new technologies last for three years or so before they are seen as obsolete. “If you spent ten thousand dollars on an Omega gold watch, theoretically, in two years time, it should hold most of its value,” Bassel Choughari, a luxury-goods analyst at Berenberg, told me. “What are you going to be left with in three or four years time with your fifteen-thousand-dollar Apple Watch?”

Apple executives are surely aware of this issue; it could be one of the reasons the Apple Watch is built with removable straps, which can, at least theoretically, be removed from an obsolete watch and attached to the next version when it comes out. There is also some precedent for attempting to sell luxury tech products. A British firm called Vertu makes high-end smartphones that sell for tens of thousands of dollars. “A phone is more, in a way, like a car,” Vertu’s creative director, Ignacio Germade, told Sam Byford, of the Verge. “You don’t buy a luxury car because you want to buy it for the next 10 years or 20 years or 100 years; you buy a luxury car because even if you use it for two hours every three days, you want to have the best experience that you can have. If you look at the difference between when you buy a car and when you sell a car, you will realize that it’s actually a huge investment for a product that you use a few times a week.” Notably, in his Profile of Ive, Ian Parker quoted Ive’s friend as saying that Ive was “very interested” in Vertu.

Source: http://www.newyorker.com/business/currency/apple-watch-luxury-shoppers

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