Luxury Institute News

March 17, 2014

Wall Street Shares Wealth, for Better or Worse

By: Martha C. White
NBC News
March 15, 2014

The $26.7 billion in bonuses that Wall Street hauled in last year will help fill city and state tax coffers, and certainly boost retailers when bankers sport Patek Phillipe wristwatches and slip into Maseratis. But all that green is a double-edged sword for New York City.

Wall Street bonuses grew by 15 percent in 2013, to an average of $164,530, according to the New York State Comptroller’s office. Milton Pedraza, CEO of research firm the Luxury Institute, estimated that Wall Streeters spend between half and three-quarters of their bonuses, then save or invest the rest, and about half the amount they spend is funneled into the local economy.

Because they spend an incredible amount of money in their jobs, “I think that spills over in their personal life,” said David Friedman, president of research and consulting company Wealth-X.

Click the link to read the entire article: http://www.nbcnews.com/business/economy/wall-street-shares-wealth-better-or-worse-n53071

March 6, 2014

Would You Pay 70 Per Cent More For Chanel?

By: Lauren Milligan
Vogue.com
March 5, 2014

IT’S not just the recession and higher property and living costs that’s making you think it, the price of luxury goods is actually rising. The Wall Street Journal reports that the price of a quilted Chanel bag has on average risen by 70 per cent in the past five years, while Louis Vuitton’s classic Speedy bag is 32 per cent more expensive in America than it was in 2009.

There are several theories behind the increases – which represent a general trend across the luxury goods industry, including watches and jewellery. Some say the prices are intended to help customers differentiate between the high-end brands and their increasingly popular mid-market competitors.

“The more Tory Burches and Michael Kors there are, the more the Chanels and Louis Vuittons will try to price up,” said Milton Pedraza, chief executive of the Luxury Institute, told the WSJ. Others explained that the price increases, although far outpacing inflation, were unavoidable in order to maintain quality – thanks to rising production costs.

Click the link to read the entire article: http://www.vogue.co.uk/news/2014/03/05/price-increases-for-luxury-items—chanel-louis-vuitton-bags

March 3, 2014

Soaring Luxury-Goods Prices Test Wealthy’s Will to Pay

Sales Growth Slows as Competition Heats Up; ‘Prices Have Gotten Really Crazy’

By Suzanne Kapner and Christina Passariello
Wall Street Journal
March 2, 2014

Despite expanding into new markets, the luxury-retail business has been relying on price increases to drive sales. Now, even the very wealthy are nearing the limits of what they are willing to spend.

In the past five years, the price of a Chanel quilted handbag has increased 70% to $4,900. Cartier’s Trinity gold bracelet now sells for $16,300, 48% more than in 2009. And the price of Piaget’s ultrathin Altiplano watch is now $19,000, up $6,000 from 2011.

Click the link to read the entire article which includes a quote from Milton Pedraza, CEO of Luxury Institute: http://online.wsj.com/news/articles/SB10001424052702304585004579415110604829016?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702304585004579415110604829016.html

 

January 23, 2014

Three Luxury Myths Killing Your Brand Equity

(NEW YORK) January 23, 2014 –As one the world’s foremost research and consulting companies for top tier luxury brands, Luxury Institute has been privileged to work with the most dynamic brands in the U.S., Europe and Asia.  We often find ourselves engaged in rich dialogue, and healthy debate, with senior executives and top leadership at the world’s greatest luxury firms.

We help iconic brands adapt themselves to compete in the new world where technology, people and product superiority combine to drive success.  Below are three of the biggest myths that we often encounter and our recommendations for how brands can overcome the tendency of destroying their own equity, despite the best of intentions.

Myth #1: You Must Choose One Area of Focus Among Product Leadership, Operational Excellence and Customer Intimacy

Back in 1995, Michael Treacy and Fred Wiersema published “The Discipline of Market Leaders” in which the authors addressed the idea of strategic focus, and discouraged attempts to excel on multiple fronts.  The concepts and principles were adapted by top-tier consultants and spread throughout the management ranks of corporations that engaged them, propagating the myth that you have to choose only one area of differentiation.

Today, superior products, efficient operations and brand intimacy are an inseparable trio for building and maintaining a luxury brand. The reality now is that you have to be great at all three, or you are highly disadvantaged.

A clear example of achieving excellence on all three fronts is Bottega Veneta.  The iconic luxury fashion brand has seen a phenomenal sales growth trajectory over the past ten years. It was on the brink of bankruptcy in the late 1990s, and in 2001 was acquired by the company that is now Kering.  Back then, annual sales were around $50 million and the income statement was mired in losses. Today Bottega Veneta’s sales are topping $1 billion.

Bottega Veneta’s management team is best-in-class. They are blessed with a brilliant, authentic designer matched by a management team that is beyond superb. The brand delivers on all three disciplines seamlessly. At Bottega Veneta, brilliant execution delivers a reported profit margin of 32%. Phenomenal sales and profit growth flows from product leadership, operational excellence and customer intimacy that is the envy of any brand. A profoundly personal, humanistic culture translates into the Bottega Veneta brand running on all three disciplines, instead of getting a lift from only one.

Myth #2: A Luxury Brand Must Be Organized As a Hierarchy In Order to Be Effective

At the center of a luxury brand is usually a brilliant innovator and founder whose creative genius is unquestionable. There is also typically a business partner who makes all of the decisions jointly with the founder.

The origin of luxury in Europe has created an industry organizational model that has some of the strictest hierarchies known in the business world. When we visit with senior management teams in Europe, and even at many U.S. firms, the organization is defined as a military style, top-down hierarchy.

Proponents of this model say that luxury brands, unlike brands in any other industry, have lasted hundreds of years–or at least for several decades–so why fix what is not broken?

There are two major reasons why the myth of the luxury brand as a strictly regimented organization must be shattered. The first is demographic in nature. As millennials in the 21-34 age group enter the work force, our research shows that that these younger people are far more idealistic about having meaningful purpose in their work.  They tend to change jobs more frequently and often leave if they are in a structured environment where opportunities to develop and contribute are limited. Author and researcher Daniel Pink says that three things are required in an organization today to retain employees: a meaningful purpose; some degree of autonomy over how they perform their function, and continuous skills growth.

The second reason why rigid hierarchies are ineffective is the new meaning of strategy. The metaphor for a successful brand is not the machine model, but the organic model. There must be a balance of adapting processes to achieve healthy, sustainable growth while adhering to corporate DNA.

Myth #3: Sales Professionals are Anonymous and Robotic Transactors

Luxury sales teams at most brands already have enormous turnover and this is not likely to decrease in organizations that fail to empower associates. Brands must embrace the ‘freedom with boundaries’ approach or watch their associates walk out the door.

While luxury executives say they are sold on the ideas of customer experience and engagement, they are far less enthusiastic about employee experience and engagement.  Most brands will tout the new principles but will resort to giving orders instead of trusting front-line professionals, especially in tough times.

The paradox is that in order to unleash the power of customer relationship building, driven by a customer culture, brands cannot simply task front-line employees with delivering results, excluding them from the “customer” definition. Employees are really internal customers and they should be measured just as carefully. In addition to empowering employees, brands must use innovative education and daily customer and sales associate metrics to improve skills and reinforce the culture daily.

Luxury sales professionals in the future will be treated as artisanal entrepreneurs who are given their own email addresses and digital devices for professional use. They will be given the freedom to innovate in small and large ways daily in order to personalize and customize for the customer

It may be true that many sales associates in a variety of industries will be replaced by technology solutions. However, in luxury, these jobs will be upgraded to deliver the extraordinary customer experiences and build the long-term relationships that brands once took for granted when they first opened their doors.  Innovation will flow from the bottom-up as much as from the top-down.

Conclusion:

Luxury Institute has worked with more than a dozen luxury brands or conglomerates on Customer Culture projects in the past few years.  The improvements are real and deliver powerful results in customer data collection, conversion and retention. Brands have seen retention of employees increase too. Bridging the gap between management, the front line, and the customer may be hard for some executives to swallow or imagine, but that is the future of luxury.

The luxury industry is very much a darling of Wall Street today, and with good reason. As the global population of affluent consumers grows, luxury is in for a good ride indeed. Yet, these myths are preventing many luxury brands from achieving significantly better sales and profit growth and could potentially drive many established companies out of business.

About the Luxury Institute (www.luxuryinstitute.com)
The Luxury Institute is the objective and independent global voice of the high net-worth consumer. The Institute conducts extensive and actionable research with wealthy consumers globally about their behaviors and attitudes on customer experience best practices. In addition, we work closely with top-tier luxury brands to successfully transform their organizational cultures into more profitable customer-centric enterprises. Our Customer Culture consulting process leverages our fact-based research and enables luxury brands to dramatically Outbehave as well as Outperform their competition. The Luxury Institute also operates LuxuryBoard.com, a membership-based online research portal, and the Luxury CRM Association, a membership organization dedicated to building customer-centric luxury enterprises.

 

January 11, 2014

Tiffany results signal caution among luxury shoppers

By Jonathan Berr
CBS News
January 10, 2014

Shares of Tiffany & Co., whose name has been synonymous with luxury since before the Civil War, fell Friday after the second-largest luxury retailer said its earnings would be less than analysts had expected.

The New York-based company expects to earn $3.65 to $3.75 per share in the fiscal year ended January 31. While that forecast is unchanged from a previous forecast, it was below the $3.79 that analysts surveyed by Bloomberg News had forecast.

This is the latest sign of the uneven performance of many retailers during the holiday season despite the improving performance of the U.S. consumers. Wealthy consumers appear to be less enthused about buying goods and services than many experts predicted.

Click the link to read the entire article which includes a quote from Milton Pedraza, CEO of Luxury Institute: http://www.cbsnews.com/news/tiffany-results-signal-caution-among-luxury-shoppers/

Spread the wealth, share!

January 9, 2014

Top-Shelf Toasts: Wealthy Consumers Reveal Preferences Among Champagne And Liquor Brands In Luxury Institute Survey

(NEW YORK) January 9, 2014 – After ringing in another new year, the premium spirits industry is looking forward to a robust 2014. To determine which brands carry the most prestige, the New York-based Luxury Institute conducted its 2014 Luxury Brands Status Index (LBSI) survey to gather opinions of eight high-end champagne brands and 29 liquor brands from four categories. Respondents age 21 and older have an average income of $282,000 and net worth of $3 million. Brands rated include:

Champagne: Cristal, Dom Pérignon, Domaine Chandon, G.H. Mumm, Moët & Chandon, Perrier-Jouët, Champagne Taittinger, Veuve Clicquot

Gin: Bombay Sapphire, No. 209, Hendrick’s, Plymouth, Tanqueray

Scotch: Balvenie, Chivas Regal, Dewar’s, Glenfiddich, Glenlivet, Glenmorangie, Johnnie Walker Blue, Macallan

Tequila: 1800 Reposado, Cabo Wabo, Corazón, Don Julio, Herradura, Jose Cuervo Reserva, Patrón, Sauza Tres Generaciones

Vodka: Absolut, Belvedere, Chopin, Cîroc, Grey Goose, Ketel One, SKYY, Stolichnaya Elit

The LBSI is calculated by averaging each brand’s scores on five separate components of status that relate to premium spirits: quality, taste, packaging, worthiness of a premium price, and appropriateness as a gift.  Respondents also reveal total spending on high-end spirits, as well as personal history with particular brands and the brand that they will most likely buy next.

“Brand status is the key to achieving sustainable growth, especially in saturated categories,” says Luxury Institute CEO Milton Pedraza. “Listening directly to the voice of the wealthy consumer will help champagne and liquor brands stand out on the shelves.”

Patron outranked its competitors in tequila and Balvenie took the lead in premium scotch. To find out more about the rankings within each category, contact us with any questions or for additional information.

About the Luxury Institute (www.luxuryinstitute.com)
The Luxury Institute is the objective and independent global voice of the high net-worth consumer. The Institute conducts extensive and actionable research with wealthy consumers globally about their behaviors and attitudes on customer experience best practices. In addition, we work closely with top-tier luxury brands to successfully transform their organizational cultures into more profitable customer-centric enterprises. Our Customer Culture consulting process leverages our fact-based research and enables luxury brands to dramatically Outbehave as well as Outperform their competition. The Luxury Institute also operates LuxuryBoard.com, a membership-based online research portal, and the Luxury CRM Association, a membership organization dedicated to building customer-centric luxury enterprises.

November 20, 2013

Treasure, What’s Your Pleasure?

There’s never been a better time to make a mint in fashion.

By Naomi Barr
Slate Magazine
November 19, 2013

The new titans of business are now also the best dressed. Take a glance at the Bloomberg Billionaires list: As of this writing, the third wealthiest person in the world is Amancio Ortega (net worth $64.2 billion), the founder of Spanish clothing chain Zara. No. 15 is luxury goods magnate Bernard Arnault ($33 billion), chairman of LVMH Moët Hennessy Louis Vuitton SA; just a few places behind is Stefan Persson ($29.3 billion), chairman of Swedish retail giant H&M. In the past year, a noteworthy crop of high-end designers made their first appearances on Forbes richest-billionaires list, including Tory Burch, Dolce & Gabbana’s Domenico Dolce and Stefano Gabbana, and Diesel founder Renzo Rosso. Brunello Cucinelli, with his eponymous label of suits and $2,000 cashmere sweaters, has reportedly sailed past the 10-figure mark while the ubiquitous Michael Kors is on the brink, if he hasn’t crossed it already.

High-end (or highish-end) fashion is the provenance of a new class of billionaire. “It’s the bifurcation of the world,” says Milton Pedraza, CEO of the Luxury Institute, a research and consulting firm. “People talk about the 99 percent and the 1, but it’s really more like the 80 percent and the 20. That top number of consumers is growing exponentially, and as a result, premium and luxury brands are surging.” With an expanded consumer base in China and other Asian markets as well as in Europe, Russia, the Middle East, and the Americas, the luxury market has boomed; according to the consulting firm Bain & Co., these consumers worldwide have spent roughly $292 billion in 2013 alone.

Click the link to read the entire article which includes a quote from Milton Pedraza, CEO of Luxury Institute: http://www.slate.com/articles/business/billion_to_one/2013/11/the_next_fashion_billionaire_michael_kors_marc_jacobs_and_others_on_the.html?wpisrc=burger_bar

 

 

Are flash-sale sites a flash in the pan?

By AnnaMaria Andriotis
Wall Street Journal
November 19, 2013

When shares of Zulily (NASDAQ:ZU)  soared 71% Friday following its initial public offering, investors seemed to be betting that flash-sale sites are here to stay. Consumers, however, are having trouble sorting out whether the limited-time offers they peddle are really a good deal. Zulily, the first such startup to go public, is part of a growing industry of high-end flash-sale sites geared toward more affluent consumers. The business model is fairly simple: offer consumers a limited period of time—typically from as little as one hour to two days—to buy high-end inventory at a discount. But the process hasn’t worked out so smoothly for shoppers.

In a sign that consumers are growing wary of the industry, one study found shoppers’ complaints to be widespread: Forty-four percent of comments on flash-sale Facebook pages were negative earlier this year, according to findings released in May by Dotcom Distribution, which provides fulfillment services, including serving as a warehouse, for companies that sell products via e-commerce. Just 29% were positive. Meanwhile, a look at the unique desktop visitors of 10 popular flash sale sites (data supplied by comScore, an analytics firm that tracks consumer behavior) reveals that they declined for all but three of them in October compared with a year prior.

Part of the problem is that these sites grew popular as a response to the downturn—and those conditions are no longer in play. As store sales tanked, high-end manufacturers were stuck with excess inventory and looking for ways to unload it. That’s when many flash-sale sites popped up offering high-end luxury brands, along the lines of Gucci and Chanel, at discounts that consumers could not previously find elsewhere. Those market conditions created a new category of discount sites that have been marketing to relatively affluent consumers who are looking for a steal on what (even with a discount) is still a relatively pricey product.

But that high caliber of retail is harder to come by on these sites now, says Maria Haggerty, president of Dotcom Distribution. Manufacturers have since scaled back production so there are fewer grade-A products on these sites. While most items are still relatively high-end, they don’t inspire the same excitement and flurry of demand. “There isn’t enough inventory of the type of products these sites want to sell because it’s doing well in stores,” says Milton Pedraza, CEO of the Luxury Institute, a New York-based research and consulting firm for the luxury industry.

 Click the link to read the entire article including a quote from Luxury Institute’s CEO Milton Pedraza: http://www.marketwatch.com/story/are-flash-sale-sites-a-flash-in-the-pan-2013-11-19/print?guid=5A07C5D6-5086-11E3-AD6E-00212803FAD6

November 19, 2013

T-shirt for $7 or $70? How the wealth gap is altering retail

By Allison Linn
CNBC
November 19, 2013

The growing wealth gap between the richest and poorest Americans is creating a shopping chasm between those who are trading up and those trading down, experts say. What’s missing is the middle.

“There is a two Americas kind of thing going on,” said Chris Christopher, director of U.S. and global consumer markets for IHS Global Insight.

The result is a retail marketplace in which even basic goods like socks and razors are becoming either incredibly cheap or extremely expensive, experts say.

Say you’re a guy who needs a new T-shirt. A shopper who feels like he has fallen down the economic ladder might opt for the $6.98 Kmart item. But a tech industry hotshot for whom things are looking up might be tempted by the $70 version available at Barneys.

Is there a new baby in the family? Cash-strapped shoppers might head to Wal-Mart for a $6.96 hoodie to bundle up that bundle of joy. The high-end shopper, on the other hand, could be eyeing the $135 cashmere number offered at J. Crew.

Robert Barakett $59.50 men’s white T-shirt versus Kmart’s Basic Edition $6.98 white T-shirt.

Looking to get back to the gym before the holidays? The 1 percent may go for Lululemon’s $98 yoga pants (despite the recent troubles) but the 99 percent probably is more prone to scoop up the $14.99 product at Target.

On the high-end side, experts say retailers are seeing an opportunity to snag consumers who have fared well in the weak economic recovery and now want the best—even in a toothbrush, hair dryer or coffeemaker.

“A lot of even basic items have gone premium,” said Milton Pedraza, CEO of the Luxury Institute, a consulting firm focused on affluent consumers. He said one company even contacted him recently about the possibility of developing a luxury detergent.

Click the link to read the entire article which includes a quote from Milton Pedraza, CEO of Luxury Institute: http://www.cnbc.com/id/101207907

November 15, 2013

Luxury Outlook 2014: Up, Down or Flat?

By Staff Reports
November 14, 2013

Luxury marketers and retailers have held their ground in a global economy still on the mend from the recent slowdown, high unemployment and growing consumer and public debt. Given this environment, what is the outlook for luxury brands in 2014?

In this free hour-long webinar on Tuesday, Dec. 3 at 2 p.m. ET, senior executives from the Luxury Institute, Select NY and Bloomberg Pursuits will discuss what luxury marketers can expect in the year ahead, how to craft their marketing plans accordingly and what left-field surprises to expect, if any.

“Luxury marketers know that the key to sustained growth is nurturing both brand and customer,” said Mickey Alam Khan, editor in chief of Luxury Daily, New York. “The coming year will bring its own opportunities and challenges as global events dictate the rise and fall of consumer confidence. Luxury brands must continue their focus on quality and exclusivity even as the siren call of market share beckons.”

This webinar is one in a series produced by Luxury Daily to inform and educate luxury marketers on the ins and outs of luxury marketing and retail.

Themes discussed in the webinar
• What luxury-focused brands, retailers, agencies and publishers can expect in the year ahead
• Which marketing or retail channel, if any, will be the breakout star in 2014
• Surprises ahead and how to act or react
• Lessons learned from 2013
• Crafting strategy for next year to truly embrace multichannel marketing, including social and mobile
• Three best-practice tips for luxury marketing and retailing in 2014

Panelists
Milton Pedraza, CEO, The Luxury Institute
Mike Dukmejian, publisher, Bloomberg Pursuits
Wolfgang Schaefer, global creative strategy officer, Select NY

Moderator
Mickey Alam Khan, editor in chief, Luxury Daily

Attendees to the webinar can request a copy of the deck

http://www.luxurydaily.com/luxury-outlook-2014-up-down-or-flat-2/

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