From The Top

Frank's Bank

2009-09-14T18:55:00.004-04:00

I talked with Frank today. Frank is a 66 year-old businessman who recently started a new bank.

In the throes of the recession, Frank’s bank is thriving, his happiness is high, and his health is better than ever. But his perspective has changed. No longer cares to fly to Europe every year for the food and culture, or to Los Angeles every quarter for the shopping.

Frank attributes this shifting perspective to his age. Luxury in the past for him was in the form of an Alfa Romeo, mink coats, and yearly trips to southern France.

“The recession has made me focus on how finite life is. Luxury means caring what the day is like. The striving part is less important.”

He spends but he spends differently: less. He spends but he spends more thoughtfully: on time. For Frank, it has become more important not just having time, but to make sure he spends his time meaningfully. More time with his grandchildren, more time at his vacation home in Florida, time on his rose garden, longer runs, time focusing on continuing a thriving business. Time in Europe is replaced by one “mind-blowing” experience in Africa.

“You can’t compare a luxury item to a luxury experience. I stay at high quality hotels because I don’t want to waste my time. It’s not a statement to anyone but myself.”

IMPLICATION: Whether it’s a function of age or a function of the cultural moment, luxury today is measured by experiences and products that enable us to get more out of our time. There's an opportunity for brands to empower people to maximize their experiences, particularly at a local level.

Financial Crisis

2009-09-10T22:34:00.007-04:00

No names, no photos. This was Mr K’s sole condition to grant me this exclusive interview. He is not willing to take any chances. He can’t afford to, not after an incident where his S500 got jacked during which the carjackers panicked and fired a shot, merely inches away from putting a bullet into his brain.

When most people say/think financial crisis, all that comes to mind is the negativity, one which we all fear.

Afterall, the definition of crisis =
1) a time of extreme trouble or danger
2) an emotional stressful event or traumatic change in a person's life
3) an unstable condition, involving an impending abrupt or decisive change

Based upon our fears, we start to behave differently eg spending less, save more, becoming more stressed out, worrying etc...

But Mr K gave me a whole new perspective, where he thinks differently and reacts in a more positive manner. How?

Instead of defining the word crisis in English, he uses a Chinese interpretation instead which brings us to the word 'Ngai Kei' 危机. 'Ngai Kei' is actually a combination of two words where 'Ngai'危 means danger, and 'Kei' 机 means opportunity.

Therefore to him, Crisis = "Without the danger, there cannot arise the opportunity".

Instead of worrying about how his net value is dropping today, he is already looking beyond the horizon, planning on how to capitalize the most out of this recession. Afterall, recession is merely a part of a cyclic process in the business world.

Xploring in Paris

2009-09-10T01:45:00.010-04:00

Luxury Brands – Much more valuable than I ever imagined.

Going to Paris to Xplore high net worth individuals – what can possibly be more glam?

The dizzying fusion of city lights, diamond jewelry and Champagne flutes with sparkling Dom Perignon… it's easy to be dazzled (not to mention the 32 degree sunshine).

Our first tour of the luxury boutiques of Rue Royal and Place Vandome proved to me what I already knew: that the world is full of things I'll never be able to afford in my lifetime.

Christian Dior cellphone – $5,000
Cartier wristwatch – $4,100
Gucci coat – $3,400

I couldn’t help wondering, is it all about the price? Is the high price the only factor behind the purchase? Has the price tag itself become the brand?

Things started to look completely different after I left the shops and the salespeople, and went to meet the people buying these goods, or as we call them our 'target audience' - the truly affluent.

I quickly realized that for wealthy consumers, the price is not an issue. When you have enough money to buy any product or service you want, the thrill from buying something expensive, per se, ceases to exist.

The real need of the affluent is to acquire those things that money can't buy. A magical thrill, even if it lasts for only a moment...

As obvious as it may sound, expensive products are simply means to a higher, emotional benefit. The question is, what kind of an experience are we talking about? We figured pretty quickly that it's not about the joy of spending large amounts of money in an unrestrained matter. Vulgar displays of newfound wealth, dripping in upmarket bling, represent the corrupt side of wealth in the eyes of the old money. It's not their thing at all…

So what are the things that make our high net worth individuals tick?

They are very naïve, innocent, pure, basic thrills – experiences that recall memories of genuine romance, family moments or even revealing childhood moments – that have nothing at all to do with money.

It became very clear to me that the true value underlying those brands is much dearer than any price tag I've come across.

Amit Koren
S&S Israel

All Gilt, No Guilt

2009-09-09T16:08:00.021-04:00

House in the Hamptons? Of course. Amex Black? Naturally. Yacht parties in South Beach? A weekly occurrence. For most of us, the only way we can get access to this level of luxury is through 3°+ of separation connections - which is the only way I was able to meet Tameka and Nick.

Despite the downturn in the economy, Tameka is investing her own money into a startup cosmetics company. Her husband flips hot Miami properties. Her kids enjoy the spoils. While speaking on the phone with her, she received a picture message on her iPhone. A friend spotted the cutest little $1,000 jumper by Rosa Chá. Based soley on the photo, Tameka casually mentioned to "pick me one up too." Apparently, this is mere pocket change to Tameka, which leaves this humble-spending blogger wondering, "Is there a $1,000 value menu out there somewhere for these people?"

Tameka and her husband boating in South Beach.
Tameka and friends enjoying a "little weekend retreat" at Sanctuary Spa in Phoenix.
In New York, Nick owns several restaurants on Long Island. He gets his model looks from his Greek ancestry, but his body from his personal trainer whom he pays to see six times a week. While walking with him into his Upper West Side high-rise apartment, Nick asked if we could stop by the front desk to check his mail. Nick is immediately handed several boxes of daily shopping spree. He has a near unquenchable thirst for fashion. And in order to keep up with the trends, he scans a luxury designer website, Gilt, every evening and one-click buys a few items. The concierge didn't even bat an eye at all the packages. I, on the other hand, clicked my tongue knowing all I would have to look forward to from my tiny metal mailslot were MasterCard credit bills and Ikea circulars.

Nick on a recent month-long trip to Greece and posing off his expensive physique.
Gilt: All in a Day's Mail
Though the recession has not yet truly made a dent in either Tameka or Nick's lives, their expression of luxury is no simple case of conspicuous consumption. They've both built up their own empires to enjoy the money for their own sake. They feel they've earned the lifestyles they now have and are determined to live their personal lives outside of the economic downturn as much as they can. In fact, they admit they may even be slightly overcompensating with the stubborn sensibility that,"no economy is going to tell me what I can and can't have." For them, luxury should be guilt-free.

Opportunity: Acknowledge their "I've earned it" attitude and tap into their "no matter what" take on luxury.

Does Luxury Have a Future?

2009-09-09T12:25:00.012-04:00

What has made luxury a luxury will always remain true. There are elements of luxury that are foundational and have endured over time. But because we do not live in a static world, people have changed and the context for luxury has shifted. As a result, luxury expressions and manifestations will change over time. Once defined by social significance (owning a lot of expensive things), luxury has evolved to be about personal importance (creating unparalleled experiences for oneself).

My first conversation was with an expert in the field of luxury who spends a great deal of time researching what the future of luxury looks like and will mean to affluent consumers. She was quoted in a recent article by saying, "luxury is as much about people looking for ways to define themselves as it is about exclusivity."

In our conversation, she talked about how modern notions of luxury embody ‘tools that allow for personal transformation, that add originality and a new dimension to oneself.’ In other words, luxury today is less about being an owner of expensive things, and more about looking for ways to express oneself as complex and original human beings.

Luxury consumers still want to consume; they’re just looking for ways to justify it. In turn, she infers that luxury is nuanced and multi-dimensional. Some of the new dimensions could include:

Ethical: Luxury is less about expensive and inaccessible materials/craftsmen. It’s more about just methods of production, fairly sourced materials, and having an interesting and transparent back-story.

Altruistic: Luxury experiences or products that give back.

Productivity: Luxury with an element of utility that allows one to maximize their time and experiences.

Luxury has endured because it never loses sight of its foundation. But if luxury brands continue to act the same in a changed world among a changed consumer, they risk becoming irrelevant.

Hamburger Hill

2009-09-09T01:54:00.003-04:00

Palos Verdes, California. Population: Approx. 42,000. Median household income: $95,000. It's zip code, 90274, was US' 47th most expensive zip code in 2007 according to Forbes.com. To Lesley Tanchum, this was the perfect place to set up her art gallery/shop that sold/consulted/framed art affluent consumers that appreciated the value of art.

Much to her surprise, it was everything but. "The mindset of these people was far from what I expected." She described the residents of Palos Verdes to be 'avid negotiatiors' and 'conservative' with their spending, always looking for a bargain. Customers that come into her store wanting a piece of art to be framed often try and haggle the price down to a number that they can find at a mass market shop, saying things like, "wow, $100 to frame this? I was looking online and saw that you could frame this for $20 less than this amount." The irony is astonishing to her, as she quoted that it was "funny seeing how people would drive up to the store in their Ferrari's yet come in and ask to pay the lowest price for a frame."

And if anything, the recession has only made this worse. Lesley's sales are down nearly 50-80%. Residents of PV are spending less money on art. And if they are, they come to the store saying, "my husband will kill me if I spend this money..." or something of the like.

Above All Else. Image.

2009-09-08T11:49:00.018-04:00

13H30 is 14H00 on Billy’s R68 000 birthday present watch bought for him by his boss. For a PA, he is late for our meeting! He also thought it a good idea to get a little high-fashion shopping done, whilst we chatted. Billy’s profile reads: PA to the CEO of ACG International, a global network that works with the rich and fabulous”.

Through an associate, we met Billy at a millionaire’s party that he organized a while ago in the luxurious and decadent suburb of Houghton, Johannesburg. He has agreed to squeeze us into his busy schedule as a favour to a friend of a friend (only the rich!). Billy is really living it up at 28, working for a Luxury Lifestyle Private Aviation company that hosts some of the world’s most notorious dignitaries. He has met Mandela, Jacob Zuma, Richard Brandson, Oprah, Patrice and some royal families.

Billy knows a lot about the rich and fabulous. He told us that the richest of the rich still love flashing their wealth, they still love showing off their possessions, and, with his portfolio of South African clientele, those in the money game were still spending their money even in the recession.

“People are still buying diamonds, hosting parties and investing in art, I tell you. A significant amount of individuals are still buying luxurious goods because now more than ever they believe that the purchase of luxury goods is a significant investment.”

These individuals want to look good and even though they may be a little knocked by the crisis, they are still taking risks to maintain their image.

In the August issue of DRUM we read about the ZULU princess wedding worth millions. With her father earning more than 10 million a month in state compensation, the little princess royalty went all out for her wedding, inviting the who’s who of the entertainment industry, royalty clans, and media. As if that was not enough her gown alone was said to be estimated at R120 000, imagine how much more all her other wedding costs were.

The rich are spending. All in the name of image. Tumisho Masha recently threw his 34^th birthday party, and gave his guests gifts. Playing the image game, rather than the saving game in this “economic crisis”. Perhaps losing their image costs for more than losing their money.

But, if you want to play, you must also pay. One local rich celebrity is paying immensely is Khanyisile Mbau, ex-wife to business mogul Mandla Mthembu. At 23, the flamboyant madam has fallen from grace because she and her husband have burnt through most of their millions all whilst thinking “this recession thing” is not really that real.

In the South African’s richville, we guess even though the world is in recession, having money comes with huge burdens because image becomes an integral part of the game. And most of these people have to forget the immediate problem of the recession and try to please their peers and society so that they do not look like they are struggling. In the worst case scenario of Khanyi, how do they recover their money together with their image?

Money is an emotional game that leaves those who fail to play effectively, feeling unworthy and gloomy once they lose most of it.

So the rich will keep spending unwillingly because they want to seem as though they can maintain their lifestyle. The recession has really knocked more than their balance sheets, it is playing havoc with their image.

Opportunity: Help Them Maintain Their Image / Live Out Loud

- Adene

Smart Thinking

2009-09-08T11:40:00.015-04:00

“It was obviously made by, you know, a gay, because its just beautifully made with attention to detail. Even the buttons are covered!”

Wendy is telling the story of how she just found the cutest little jacket for her dog, Onion, at the Charity Shop, after she’d taken him to the parlor for a “little pedi”.

Wendy is proud of her savvy. She can skillfully combine

luxuries with unashamed visits to the local charity store, which she also sees as supporting a good cause, while saving money.

“Your generation doesn’t know how to find a deal. We never pay more than R30 for a bottle of wine. Although of course we buy a few cases at a time… you know…”

Wendy and her friends aren’t negatively affected by the recession. In fact, they have been able to take advantage of the current state of affairs by investing in cheap shares, taking advantage of holiday deals overseas and by ‘switching’ holiday homes with Europeans.

“The recession has done wonders for my business. I own four Montessori schools and because a lot of woman are going back to work we have had a 30%

increase in enrollment this year.”

“We have had some wonderful opportunities by switching our barge in France with Europeans who have houses all over the world. We had a lovely skiing holiday in Austria, we stayed in a country manor in England and we had a holiday by the sea in Australia. All without paying for accommodation.”

Whilst Mike is less flashy than Wendy and her friends, he too,

has seen the recession as a positive. A way to filter out the bad, and make way for the new. In fact, Mike refers to the recession, as “nothing more than the common cold”. His life as he knows it, has not stopped. He is not hospitalized or re-evaluating his will. He has by no means been reckless enough to have the “cold” morph into something like “pneumonia”.

And, he and his management team seem to have benefited from the recession.

“Having recently completed a management buy-out, the recession helped us filter out any unnecessary spending. The limping-antelope-divisions were sacrificed so that the stronger herd could remain. Our timing was perfect. We knew high-risk before we were really tested by it. We’ve been cost-cutting cautious, which made us welcome the recession. We were ready to take it on.”

This market knows that success does not come easily – “you have to be proactive and work hard”, says Tony, the CEO of an IT company and self-made billionaire, “the world is not there to pay me any favors, and the recession can try to steal my worth, I will just have to work harder to outsmart it”.

Unlike the BEE market in South Africa, they don’t believe in quick fixes and pots of gold at the end of the rainbow. They are realists. Their ethos is rooted in their experiences of having lived through the likes of petrol rations, water restrictions as well as interest rates of 20%. They are the children of the parents who lived through the Great Depression. They know they have to be smart. Perhaps it’s about rewarding their “deal-finding” abilities with certain luxuries that they may find guilty purchasing otherwise? Perhaps, this is the generation that grew up, where reward was given for hard work, not easy gaps and quick fixes.

Opportunity: Give Them Deals That Make Sense. Not Too-Good-To-Be-Trues.

- Adene

2010 - The Hope of South Africa

2009-09-08T11:21:00.011-04:00

Patrice Motsepe, one of South Africa’s first black people to be listed on the Forbes International top rich people in the world has recently bought Sundown’s Soccer Club. Sitting at number 500 on the Forbes list, this is a milestone for most South Africans. It gives hope to those who seek affirmation for their hard work.One could argue this is a strategy to get back into the game, and a quick fix solution to the millions he has lost as a result of the recession. Patrice is not the only one invested in the African Game.

Government has employed many other small companies to build stadiums and transport tourists.This is all good and well for many who have not known what it means to be part of a huge economical project. Individuals whose companies have been registered as builders and organizers are earning more than R100 000 into their personal pocket now - this quickly classifies most of them as high-income earners, with most believing, and acting, as the rich do.

“While this seems all good and well in practise, it is a ticking bomb” says Palesa Ncube, Economist for Standard Bank. “The thing is right now, these 'rich' people are earning far more than they are accustomed to. They believe that the money they are making with their contracts will secure them in the future, which is not necessarily true. They have pushed up their income brackets far too quickly, which will soon end after 2010. Outspending on luxury items, without thinking about the future.”

In a recent radio show on South Africa’s leading radio broadcaster SA FM, Tim Modise spoke about 2010 and all the things planned. He spoke about how life changing it was for most people to move up from middle-income earners to high-income earners in such a short space all because of 2010.

In most South African minds, 2010 is the light at the end of the tunnel. With FIFA’s support, the estimated turnover expected into the country for the event would be between 40 000 to 500 000 people. This number is set to boost the economy significantly as well as highlight South Africa to the rest of the world.

With this said, we started asking South Africans about their thoughts after 2010, and it seems as though no one has an answer, or rather no one has planned beyond that.

Merchais runs a refurbishment company that is largely contracted to the Government for the 2010 stadiums project. Since 2007 he has been making an estimated 2, 3 million worth of business yearly.

“It hit me the other day that I should stop spending my money supporting this lifestyle I have created for myself since this contract. The recession is real, because I don’t know if I will ever make as much money as I have made from this one contract after 2010. Business is almost finished and we now have to fight for new contracts after 2010”

This is a hard truth in Merchias and so many newly found wealth individuals. So whilst many are weathering the recession by capitalizing on 2010, the question we need to ask: Are they ready for what lies beyond the game?

Opportunity: Help Them See Past 2010.

- Adene

What Recession?

2009-09-08T10:44:00.024-04:00

Recession! What recession? This is the kind of response you might get from South Africa’s BEE individuals (Black Economic Empowerment). They are the newly found rich segment in South Africa. They are the ones who found the golden pot at the end of the rainbow after 1994 once the democratic government came into power. They are South Africa’s “black diamonds”.

And they are spending. The latest findings of the UCT Unilever Report shows that, despite the recession, this markets’ spending power has grown by 39%, from R150 billion in 2007, to R250 billion to date.

Solly is just such a guy. He is rich. He is sleek. He’s an eternal optimist. And he knows what it means to fight for what you want. So what we might call a recession, he calls a “social struggle”. An opportunity to roll with the punches and come out stronger as a result. “I grew up in the struggle, I laugh in the face of what you call a crisis”

We met him at the Radisson restaurant situated in one of South Africa’s most prestigious hotels in Sandton City. He arrived, dressed in a black shirt and sleek designer black jacket, jeans and very shiny shoes. Waving keys to a R2,4 million Bentley, he quickly tells us that this is his new investment. He is thinking of buying this “baby” to add on to his other high profile portfolio of cars parked in his garage. “I am an optimist,” he tells us “I believe that the recession is a state of mind” he says with a look of determination on his face.

Solly is not the only rich guy who shares the same sentiments about the recession.

Bonnke, a self-made

man, struggled through life to become the man he is today. A man who knows what it means to grow up in a “recession / struggle” all his life says “this is just another opportunity for me.”

The same is true for other high-flying BEE people.

In an email we got from Thami, a Senior Sales Trader for an international company, he writes about his friend who recently went on holiday in Greece. In the long conversation emails we had, he sarcastically writes in huge bold letters:

They are happily going about their holidays, buying new cars and expensive furniture for their houses because they feel that if it is not directly affecting them, they should keep spending.

“Buying a couch worth R120 000 is easy for these people” says a sales executive at one of the most prestigious and high-flying furniture stores in Johannesburg. With commission of at least R50 000 a month, it means Sipho has to sell furniture worth just over a million a month to make this income and Sipho tell us, doing this, is quite easy.

“The months have been good thus far. In a month I know I can make that much because these people are buying. They do not mind spending that much money, even in the recession.”

The truth is that these BEE guys are still living quite comfortably and spending quite freely. Perhaps they feel they deserve it. Perhaps they made smart decisions. Perhaps the recession really is small when compared to a life filled with struggle.

One thing is for sure, they are tenacious and one can only be humbled by such resilience.

Opportunity: Recognize Them For Their Tenacious Spirit.

- Adene

From the Top: South Africa

2009-09-08T10:30:00.012-04:00

As the world watches, banks and companies listed on the stock exchange spiral out of control, but South Africans are still shopping comfortably, throwing parties and even finding new opportunities that seem contradictory to recessionary behavior.

For us, it was interesting to see what the big players in the market were doing with their money. It took patience, trust and perseverance to get most people to talk about their cash to us – real and imagined, the losses and the gains.

We really had to immerse ourselves in their world. Hang out in the places they hang out. Lunch with the PA’s that run their world. Drink tea with the mothers that shaped their world. Listen to the economists and investors that predict their world. The husbands and the wives that are their world.

We wanted to find out what their stories were in the face of the economic chaos. How were they maintaining their image, their lifestyle and most importantly, still playing the money game in a world that was “Down the Tubes” as the above article in The Times of May ’09 suggests?

- Adene

"No Sleepless Nights" for Mr. Richad

2009-09-08T09:41:00.013-04:00

Richad is an über wealthy Expat living in Dubai. His and his family’s wealth go back 4 generations from the time his grandfather set up their trading business in the East. He has chosen to live in Dubai after living in England with his family for 20 years or so for various reasons: “Dubai is a safe, clean and centrally located city. It’s easy to travel from Dubai to Europe and the east where the core of my business lies. More importantly, Dubai has a really good quality of life – you can easily get anything you want – a great big house and staff to work there too.” He also mentions that it’s closer to his native Bombay where his mother lives at the moment, so he can pop in and out when need be.

Unlike many others who have lost a lot of money in the recession, Richad’s business has thrived. He says he is one of the very few lucky ones that have on the contrary made money as a result of the recession. “Our core trading business at the moment is in asphalt. A key raw material for infrastructure, the latter which is a key industry most governments around the world have shifted their focus to, away from real estate. So we have made more money than we probably did before the recession. We also have not speculated in the real estate market and hence we have not lost money.”He did say though that he has bought property (home and offices) to use and although they have depreciated slightly, he is not bothered and is sleeping well at night.

Unlike many, he believes in the calculated risks and in being content with everything. That’s always been his philosophy in life and business – it’s gotten him and his family this far with 4th generation wealth. So it must work for them. “The key is not to be consumed by greed. That in my opinion is what has fuelled the recession and the failure of many. I may have lost on the price of the property, but that’s okay. I have to accept it and hope tomorrow would be better. I have not borrowed money on this property, so if I win a little less than expected … it’s still a win. And in life you win some, you lose some.”

There is an aura of confidence, calm and ease in his voice as he opens up to me; because at the core of it all, he’s made it. He truly believes that money doesn’t grow on trees. So although he and his family (wife and two adult boys) are privileged and lucky, he knows that this has come after working very hard for over 30 years in preserving and growing what wealth his father had passed on. He feels that he does not have to prove himself to anyone and consequently does not have to flash to demand the respect of his peers or others. “There is a big difference between commanding respect and demanding it. And I truly believe that the latter is driven by a need for people to show the whole world that they have made it.”

He did not have to take a step back from his lavish lifestyle at all. He feels that as a person, he is still living well and travelling well – always first class – always exclusive holiday destinations, the best clothes and the best homes. He is by nature a more conservative and cautious man, and he believes that with age comes the wisdom of spending lavishly because you deserve it rather than splurging for the sake of it. He has always been a moderate man except when it comes to his shoes! He has a shoe fetish and owns over 300 pairs of very expensive shoes. He buys them because he loves them not to flash or tell people ‘look at me’.

He feels he deserved them with his hard earned money so there is no feeling of guilt associated with the purchase at all. He loves that his Berlutis are unique “…each piece is hand stained, so it’s like buying art - no two pieces will ever look the same…” This feeling of exclusivity is what he is after. “Not everyone knows or can recognize a Berlutis, only those who know.”

He drives a Bentley and has a BMW X5 parked in the driveway for his wife, but still goes to work in his 5 year old Lexus RX 350 because again, it’s not about the flash. He does what makes him comfortable.

With a base in Dubai, a home in Bombay and London, he spends his year moving with the weather, 3 months in each location and finally holidaying with his closest of friends in Gstaad and Geneva.

His dream is for his two boys to have the platform base for them to continue to excel and build their wealth for the next 4 generations. He soon hopes to work a little less and invest time in his passion: playing golf all around the world with his wife and friends by his side. “In the end, I really believe my wealth lies in the people around me – family and friends.”

Classic wealth will always exist, recession or not. Those are the true representations of the luxury industry. This industry, in the incredible boom around the world, became like all other industries, commercial and available to all. With easy credit the mass had access to luxury. And based on speculation we have heard this year, the world will never pick up like it did pre-this recession. People will not have those massive big bonuses and make tons and tons of money like they used to.

The Truth: Classic Luxury will always prevail. It’s those few, ‘in the know’, that will always seek uniqueness. One they genuinely believe they so deserve!!

Challenge: Bring back the exclusivity of luxury brands to those privileged few.

Denny's!

2009-09-08T00:15:00.006-04:00

Hallie and her husband have built great success as owners of many designer clothing brands and manufacturing operations. They have a huge home in the hills above LA that they recently renovated top-to-bottom, and four luxury cars in the garage. When they built this house, they imagined it as the perfect place to retire and indulge in their passions for travel and collecting fine vintage wine.

But the recession has hit them hard. Since American consumers stopped spending on designer clothing, Hallie’s livelihood has virtually disappeared. Her husband had to shutter multiple clothing lines, and has begun manufacturing goods for mass retailers instead of his high-end designs in order to keep the business afloat.

Not only has this been a dramatic financial change for Hallie and her family, but it’s fundamentally changed the way she sees her spending. “When we were younger, and when we were doing well, we just didn’t pay attention to how we spent money. We weren’t reckless or irresponsible, we just didn’t pay attention. I think we assumed we could do that forever”

Since she’s watched her retirement savings disappear just a few years before her husband was planning to retire, Hallie has dramatically changed her lifestyle. She’s cancelled her family’s annual Christmas celebrations abroad and has stopped shopping for anything that isn’t a necessity. In fact, when I spoke with her, she had just returned from brunch with her husband at Denny’s. “Before all this, I never would have gone into Denny’s in a million years! It would have seemed totally ridiculous. But you know what? This morning I got to go out with my husband for fifteen dollars! We had a brunch date and did the crossword puzzle. It shocks me that I had a nice time, but I did.”

Consumers have shown a serious ability to adapt in this recession, and luxury consumers are no different. Now is the time to shock them… or help them shock themselves.

Fear and Greed, Shaken not Stirred

2009-09-07T21:22:00.008-04:00

It’s a beautiful day down on the viaduct in Auckland harbour where I’ve arranged to meet Simon, a self-made multi-millionaire in his early forties. I’m fully expecting that he suggested we meet here so he can take me out on one of his yachts, drink champagne and talk money, darling. But no, Simon, turns up on a vintage Vespa in board shorts , an old t-shirt and jandals and suggests we head to his favourite café, a slightly truck stop-like institution with no sea view.

The thing about New Zealanders is that tall poppy syndrome is ingrained in us.
In Auckland particularly, as soon as somebody starts doing something a little bit exciting, a little bit original, and starts to become a little bit successful, people feel the need to cut them down. By walking around the shops, looking at who is eating and drinking in which restaurants and where money is being spent, it is impossible to see how, where and when the economic down turn has affected the high society. But it has.

Within minutes of meeting Simon and before our coffees have arrived, we are deep into his reveal about how much more prudent with money he is having to be. Crucial words here being having to be. Common sense disappears out of the window he tells me during the glory days and you are left with the consequences when the dust has settled.

He has stock exchange investments, a rarity for a New Zealander as we mostly prefer to sink our money into real estate, and has been fairly badly hit by the recent ‘economic world war III’ as he refers to it. To take pressure off his investments he is cutting his spending and so this year he will not be replacing his car (one of two his and hers Audi’s), they are refurbishing not buying another house for themselves and after sacking his stock broker and hiring err, himself, he is being far more picky about his investments.
There is categorically no way he would buy another property as an investment in this market - another change in mind set for him as in the last recession, he came out 4 houses richer.

Whilst media are reporting the worst in New Zealand is over, the sleepless nights are not. “The thing about being rich that most people do not understand is that just because you have money does not stop you from wanting more. I’m just trying to hold on through the tough times”

I pick up the tab and as he climbs on his scooter to head home, he offers me a single piece of advice, “If you want to make money, be fearful when others are greedy and greedy when others are fearful.”

Crisis? Yes - But Let's Have Some Fun!

2009-09-07T15:27:00.013-04:00

Saturday night - the 30th Birthday of a M&A consultant in Frankfurt. He got his birthday party as a present from his girlfriend. Nice present! 140 people, champagne, everybody in white, amazing location - a museum, superstar DJ from Frankfurt, fireworks with music and entertainment for about 20k- (that’s what we guessed.)

The atmosphere was positive, hilarious - no negative or "crisis vibes" in the air. Talk of the party: past holidays, coming holidays, the next party, the new car.

When I talked to Thomas - stockbroker from Frankfurt, he told me that he is in such a good mood because he just came back from 2 stunning weeks in Ibiza. He told me he had the best time, partying everyday, luxurious beach parties and beach clubs, rented a boat and had a great time with his entourage. So I asked him if he doesn’t feel the crisis - especially in his job? "In the beginning of this year, we had a decrease in income of about 30%, but now it’s on a brilliant level again. There is always something going - the stock exchange is not dead - like everybody might think. I am doing great business here." I also asked him if he changed his behaviour in some ways since the crisis or if it had an affect on his private, leisure life?! He said that of course it has changed everybody who works in the stocks business. You are probably more cautious - but to be good broker you must be aggressive and take risks - and it seems that everybody is on this level again....and privately? - he laughed and told me he would send me a picture from his Ibiza trip which would perfectly answer my question....

I also met Anna at this party. She just changed her job 6 months ago. She used to work in an investment bank in the M&A department. She was completely fed up with this business - "on high speed through the world." She worked 17hs - 7 days a week. Just money, money, money, growth, growth, growth... of course - she earned a hell of a lot of money - but she couldn’t even spend it. So she decided "to become a good person and change life completely." The crisis hasn’t been the main reason, but it seemed like an accelerator and enforcement for changing something.

She is now working for a private equity company which is just investing in renewable energy. Of course she has a lower salary now - but she has much more time to live and enjoy life and friends. And she is so happy that she can do something positive for the environment. (Something she didn`t care about at all in her last job - just numbers counted.) However, the first months in her new job were quite hard for her - she had to change completely: 4 gears down - de-accelerate, slow down and become much more responsible and conservative in her decision making. "Sometimes my colleagues looked at me and thought oh my god - what kind of stressful and over ambitious person is this?! I really had to get used to it - but it is a great process for me. And the funniest thing is: the capital of the family we are managing in the private equity company has increased since the crisis. It is amazing. They have profit from the crisis because they are the most conservative investors in Germany. Everybody was laughing at them before the crisis because they were investing so risk averse 'and could get much more out of it' - and now we are laughing!"

When I talked to Florian - a Consultant at BCG he told me that "oh yes, we do feel the crisis - not me personally - but the company did. There are many people losing their jobs at the moment, but my department is doing great. Our figures are over plan - we also planned so conservatively - amazing. It would have been the worst year ever, but now it’s great!" He said that their business and tasks have changed completely - normally they stand for innovation and growth. But what they are doing at the moment are mainly restructuring processes for cost cuts. It has been strange in the beginning also for the attitude of the employees - working for "growth and innovation projects" is much more attractive than "reducing costs". Especially when you tell people what you are doing - the sexiness is kind of out. But he said they all got used to it and they are still earning very good money. He also told me that the crisis hasn’t affected his personal behaviour or plans. The next ski trip to Lech (in Austria - luxurious skiing location) is already planned -same 5 star hotel like always. But he has changed his personal investment behaviour - he's gotten much more conservative and cautious about how he is investing his savings.

SF/Employed, ISO a Good Deal

2009-09-07T13:04:00.016-04:00

London is the epitome of a global city. People come from all over the world to work and play in a metropolis whose history, location, and regulation make it an attractive destination for personal and corporate wealth. Growth in the banking and financial services sectors over the last two decades in the City of London has been phenomenal: London has over 480 overseas banks, more than any other city in the world, and more US dollars are traded in London than New York. And, for people in front-room positions in the industry, fat bonuses became the rule rather than the exception. In 2006 alone, average pay in The City rose 26% in comparison to only a 4.5% general rise in wages.

Big bonuses at the top in London's largest industry, an honour still held by banking and finance, have fuelled a pricing boom in everything from property to cocktails, making London the most expensive city in the world in 2008, according to the latest UBS Survey. Carol moved from New York to London quite a few years ago to advance her career in finance and has managed to beat the statistics in an industry with a massive gender pay gap that is only magnified at bonus time: the average bonus for a man in the City is 80% higher than for a woman.

But Carol, whom I met on Saturday to go shopping, doesn't let that, or the downturn which has brought an estimated 70,000 layoffs in the financial industry in London alone, stop her. She took me to a Boutique Sample Sale in London’s trendy Shoreditch neighbourhood. She first started shopping sample sales when she lived in New York. Now in the UK, and even though there isn’t quite the same culture around getting a ‘good deal’ as there was on the other side of the Atlantic, she hasn’t given up the habit. When she gets an email telling her Paul and Joe will be on the rail, she tries to get there early.

In her mid-thirties and without children, Carol, by her own account over a cup of coffee, lives a very comfortable life and is confident she’ll be getting a bonus again this year. So has anything changed for her in the economic downturn? London definitely had a tireless ‘spend-spend’ mentality that perhaps has rubbed off on her. She remembers when Chloe bags seemed as common as Nike trainers, and there seemed to be ‘must-have’ items every few months. While Carol tries to avoid fads, she believes her appearance is important and looking the part has helped bring her success, so she 'invests' in the right look. Nevertheless, 2009 has flown by and there have been very few- if any- whimsical indulgences. In fact, she just hasn’t experienced that ‘must-have’ feeling. It’s not just about shopping either. She’s noticed a change in the sentiment around spending more generally.

Her friends are socialising more at home and over lunch at a gastropub rather than meeting at the latest bar or restaurant. After all, the location is secondary when it comes to catching up with friends and she, at least, doesn’t particularly miss cocktails at Hakkasan. That’s important given the uncertainty around income for some of her nearest and dearest. One of her friends who works in private equity has already lost her job and is probably heading to Singapore, the only place she’s had an offer, in a month’s time.

Her goal today is to only buy clothes that she can wear to work- classic suits, nice tops- that kind of thing. We arrive at the sample sale. There is no line out the door, no cover charge, and none of that frenzied tone I had imagined a sample sale would inspire. Carol says it’s still worth coming early because there is no line to try things on. Gone are the days of grabbing what looks good and worrying about the fit later. There are racks of Paul & Joe, Acne, and Missoni amongst others, and none were left un-scrutinised. But about an hour and a half later when we exit clutching our finds, Carol hasn’t faltered from her plan very much and walks away with exactly what she came looking for… plus a few cosmetics as well.

Uncharitable Wealth? At Least Until Things are Back to Normal.

2009-09-07T12:50:00.019-04:00

Monte Carlo, a haven for the rich, the famous, and the rich and not-so-famous, seems like the last place in Europe where the recession should matter. Wandering down the sun-drenched streets on a Saturday morning, I realise that Friday night's revelry in Monaco is not marked by the odd broken beer bottle and grime but rather by forgotten and shattered champagne glasses on the bricked sidewalk. Some things haven't changed in the downturn. But after digging under the surface of summer parties and expansive yachts puffing in and out of the famous marina, there are some cracks of uncertainty appearing in unexpected places.

Michael Folsom and family have made Monaco their home for the last 10 years. He and his wife have one daughter, Hannah age 9, and a miniature dog named Flirt.

Hannah has been sent to summer camp in America. Mom Michelle, who grew up moving between exclusive boarding schools in Europe, thinks an outdoor, fun-and-games summer camp is the best thing she can do for her daughter given the glitzy lifestyle that imbues even the primary schools of Monaco with the feel of a glossy magazine.

"You can’t believe these girls. 9 years old and carrying around the latest £10,000 handbag. And Hannah doesn’t even go to the poshest school. She doesn’t really care about any of that, but I do get the feeling that girls don’t get the chance to be kids anymore. No one can be sure what the future is going to hold and we want her to have a 'normal' perspective."

Of course, normal is a sliding scale. Even the bag carrying the wet beach towels lying at our feet is a Louis Vuitton, and we've started every meal except breakfast with Moet or a similarly delectable bubbly. But when we start talking about how things have changed back in Monaco since last summer, there is no question that people are spending differently.

"We're a big supporter of a certain charity. Michael worked for his money so he’s generous. In 2008 they threw the most incredible event- it launched the summer scene and raised tons of money. The bidding during the live auction just went skyward. People got really into it, out-bidding one another, showing off, and of course agreeing that it was all for a good cause. This year, it’s as if people with private jets are counting pennies. It was almost embarrassing how few tickets sold. Given last year’s success, the party was being covered by a number of magazines and news channels, but no one wanted their picture taken. Most items for auction went for, like, half of their actual value. I’m sure people have lost a bit-we certainly have- but it’s not as if anyone is struggling. The recession is just a really good excuse to be stingy."

So does this stinginess or insecurity spill into life outside of the charity balls?

At one point Michelle asked me, "[h]ave you ever been to the charity shop in Monaco? It’s nothing like your average high street Oxfam. I think I’m the only mom who would admit to checking out the charity shop. We’re expected to donate to charity, not buy from it! But you can find the latest, even one-offs, from the top designers. You can also find amazing vintage. This year it is either picked through or people aren’t donating as much. It’s probably both. It’s become chic to shop for vintage. Of course, you have to say you’re shopping for vintage, not that you’re willing to wear someone’s cast-off. But people must be holding onto their designer clothes longer. Maybe even wearing them twice…" She says the last statement with a bit of a snicker.

So while champagne is still flowing and school girls accessorise with the latest Hermes handbag, in one of Europe's wealthiest enclaves, people may be holding onto their cocktail dresses a little longer, keeping their paddles down at the auction, and staying away from the flashy fundraisers. Perhaps ensuring that 'normal' remains a summer experience for future generations.

Recession? What Recession?

2009-09-07T10:56:00.015-04:00

A few weeks ago, on one of the crazy summer nights about town in Beirut, we all heard a DJ at probably the most sought after open air club in the world “Sky Bar”, protest. It went like this…music stops … everything is quiet… and then the microphone screams… “They say there is a recession… we say B#@$ S%^$!!! – what recession?” and the crowd goes into a frenzy...screaming, jumping, dancing on the bars, pouring champagne left right and centre, fireworks light up the beautiful Mediterranean clear sky and the music kicks in louder and louder. According to Jetsetreport.com at Sky Bar "The crowd is a bronzed and beautiful assortment of models and playboys pouring from their magnums of Dom at tables that seem to rise out of the open-air horizon. In the background, are the electronic beats of pop anthems and dance tracks getting progressively louder as the night matures. While the rest of the world wallows in economic sorrow, things are hotter than ever at the rooftop lounge...Bottle Service is on the pricey side so don’t expect anything under 500 Euro."

Really, people who visit the Middle East and Beirut in particular this summer wonder, has the recession not affected this part of the world? Of course it has especially to those individuals and organizations who really speculated in the stock and real estate market. Beirut, however is a slightly different story. It's not so much the recession that affects the country but rather the political and economic stability - or the lack of it. With the city named the hottest destination this summer, everyone just wants their share of the fun and spending spree.

The picture changes slightly for Dubai. Many have lost loads of money in the property market; while many others have lost their jobs and the city that once has seen a massive boom, has also seen an exodus of people in the first quarter of the year.

But if you visit the region now, you’ll think on the surface, it’s all ok and that cloud of doom and gloom has vanished. Not surprising to think so when you see things have continued to pick up – especially in the retail sector. Based on sources from publications like Arabian Business and Gulf News, the Middle East luxury market is still expected to grow 15% over the next 5 years.

There seems to be a strong retailer sentiment that the Middle East market (and the Gulf in Particular) will recover faster than the rest of the world.

These are just examples of how other luxury brands have already started to take this opportunity on board:

Italy’s largest jeweller, Damiani, has identified the Gulf as a key emerging market, opening stores across Dubai, Abu Dhabi, Jeddah and Qatar.

Louis Vuitton have opened their “global store” concept in the Dubai Mall spanning an area of 645 sq mtrs and offering shoppers the full range of LV’s precious product – including the option of hand bag customization that did not exist before in the region.

Tom Ford at the Dubai Mall will too start offering their Bespoke suits – never before in the region.

Cartier soft launched their 7500 sq ft store in Dubai Mall opened by Monica Belluci and Anil Kapoor.

Apparel Group, a large retail group in the UAE, claim that they will continue to grow luxury brands if they get opportunities in key malls. For them and many other retailers its not really the recession they are worried so much about as much as it is fighting for key store locations at key malls across the country.

This is in addition to other global department stores making their debut in Dubai namely Galeries Lafayette and Bloomingdale’s the latter stretching over 146,000 sq ft.

Last but not least, Christian Louboutin will be opening the first flagship store in the region in Downtown Beirut by winter 2009 that will be among the many new luxury and high end additions; La Perla, Chloe, Dior, Gucci, Valentino, Fendi, Dolce & Gabbana, Fendi all flagships.

The Truth: We can certainly say with all these investments behind new store and debut launches, the Middle East Luxury Market is a hopeful one. Wealthy Arabs will continue to spend on luxury fashion the same way they did pre-recession – in fact now, they do not have to travel outside the region to get it.

Picture Perfect

2009-09-07T09:31:00.013-04:00

Looks. Wealth. A successful career. A gorgeous wife. Kerim's world is no doubt picture perfect. But it was his magnetic humor and his incredible lightness of being that convinced me that he wasn't really Turkish. He's an alien. Ok, maybe not, but he's definitely a rare species. Here's a little story from his holidays.

"I recently spent some days in Bali and went fishing with a local fisherman. With a beaming smile, he took me to his distant water platform. We sat there, line extended, whistling, waiting, laughing at nothing and everything. Suddenly we caught a fish, and he let me pull it in. Grabbing it in his rough square hands his face opened in utter joy, just a like a child, and he laughed and laughed. I was amazed! He looked like he was catching his first ever fish! I thought it so wonderful that he could feel such joy from something so simple and for him, so everyday! I felt a great sense of envy and admiration for his life. The next morning, inspired by my new fisherman friend, I challenged my brother to our favorite childhood game: who can stay underwater for longer? He beat me. Again. But I bet you it had been a long time since someone had taken his breath away. Literally."

Truth: Even with all the money in the world, it is still our sense of wonder that makes every picture perfect.

Down to the Last 100M...but Doing Fine

2009-09-07T07:09:00.003-04:00

Twelve months ago , Moscow overtook New York as the billionaire capital of the world, with 74 tycoons to New York's 71. Today there are 27 in Moscow and 55 in New York. Now Russia has less billionaires (Forbes.com) and it has certainly changed certain mood states for the remaining bunch.

Yet, you are still far from being poor once you have dropped from being a billionaire to a mere millionaire. For Russians it is just a travel along the “toilet paper route”. In the 80s, we had only one or two plants in the USSR that produced toilet paper. So most of the population had to re-use newspaper as toilet paper, if they hadn’t had a chance to buy a low-quality one-layer Soviet-made toilet paper proper (4 layers to 2 layers TP). In the early 1990s, we moved up a notch and saw in our stores 2-layered toilet paper made in Poland. By the 2000s, everybody could afford 4-layered, colored, flavored toilet paper. The current crisis means that figuratively speaking, that we have to move from 4 layers down to 2 layers, but we are still a long way to go back to recycling newspaper.

Something similar happens to the very rich Russians currently – they find themselves forced to tier down in their consumption habits but on a different scale. But we want to highlight here that in Russia everybody remembers how it feels to be quite poor.

One of the Russian tycoons understands that. But he also believes that moving up is as easy as moving down this scale in Russia. He built his estates for the very rich in the middle of the generally poor and unkempt landscapes on the outskirts of Moscow. “Agalarov believes that as it is possible to become extremely rich in a short amount of time in Russia, so it is not such a tragedy in that culture to lose one’s wealth. And poverty isn't far away from the Agalarov Estates, trees have been planted close to the new estate to mask the rundown village nearby. Many of its inhabitants gave up their homes, succumbing to hefty cash offers, according to Sky's report.”

This is what Agalarov Estates look like:

And this is what is hidden by the face around this estate:

So losing some of the riches is not seen by the Russian tycoons as that much of a tragedy so far.

Insight: When you make so much money so fast you treat them as easy come, easy go. Some of the emotional attachment and joy disappears after a certain order of digits in your bank account.

- Ilia

Luxury Meets Simplicity and Communication

2009-09-07T07:05:00.007-04:00

Before the crisis, there were a few big restaurant owners who opened most of the restaurants in Moscow which would be aimed at mostly the rich. The main purpose to visit those places would be to show off - actual dining and hanging-out was at the bottom of the list. The apogee of this trend is the new restaurant claiming itself to be “a place for those who have money that will never end...” This restaurant boasts eclectic interior design – placed in a very old villa with Gothic arches combined with ultra modern furniture and a white bar in the middle of it.

Now there are a few companies owned by the younger generation and this year they opened a handful of more democratic places with good and simple food for normal prices; which was not the case even 1 year ago. There is an emerging interest in different simpler format of restaurants.

There is also something new for Russian restaurant visitors - they start to visit restaurants to meet with friends and to “party” rather than to try new flavors and develop their sense of taste.

This proves that Russia is moving from the “village”- Asian type of culture to the urban - European culture.

For centuries Russia was managed in the centralized fashion. Hence the richness of Moscow and the stagnation of the regions. The Russian understanding of beauty has always been rooted in its Orthodox roots - Byzantine-gold and flashy design.

Look at the interior of the recently opened Russian-cuisine restaurant - Barbarians:

Now we are moving towards the European, “urban” culture, where it was a common habit for centuries to spend most of your life in the public - living in a medieval city with narrow streets. That is why Europeans can spend hours sitting in a cafe just talking over one cup of coffee.

Russians are only beginning to understand how one can come to a restaurant not to show off and celebrate their achievements by spending hundreds of dollars on a bottle of wine, but to casually converse and just hang-out.

Compare Barbarians with a recently opened Ginza Project restaurant with moderate prices which is frequented by the golden youth:

Plus, more and more restaurants are offering dishes with simple ingredients but done in a sophisticated way.

The same is supported by the night life in Moscow. Julia, 24 years old, used to spend a lot of time in Dyagilev, First, The Most and other famous high-end night clubs in Moscow: “I would say that there is a trend towards democratization of night clubs. Drinks and food in clubs become less expensive, say, more user friendly. Before that they were ridiculously over-priced. People tend to be more interested in organizing home parties for friends rather than going to clubs. They would invite a DJ and order food delivery from their favorite restaurant and still have high-quality fun.”

Insight: Pure show-off entertainment attracts less and less. People are looking for that cozy feeling that you don’t get in usual night clubs.

Saving Your Face is #1

2009-09-07T07:00:00.011-04:00

When you are down to your last hundred of millions, the most important is to save your face. It is the question of who is in and who is out. One businessman told us: “Nobody knows how many digits you lost in your bank account. I have the same Lexus, the same 2 bodyguards. So on the outside people will think my business and I wasn’t affected by the credit crunch.”

Yet, it can be hard to conceal your financial troubles when you live on the shore of a local sea and you share the pier for your yacht with your neighbors. This is when they will notice when you had to sell your yacht and they probably know your factory is not doing well. Next time you might not get invited to some event where a lucrative deal can be concluded.

In Russia, it is very important to maintain connections. Thus the places where you can show off and make connections are always in demand in Russia.

This is why we see that even though over a year, 215 restaurants were closed in Moscow, 358 new ones were opened. Rich Russians still want to feast in a high-profile way to network.

Insight: One of the new drivers in the luxury consumption is that people are looking for simple/affordable ways to be still ‘in’: now it is even more important to look fresh, still throw parties with exclusive but more affordable champagne, etc. Show-off behavior is less kitschy now.

- Ilia

True Luxury is Not Something that Shines but Something that Lasts

2009-09-07T06:49:00.009-04:00

What is still important to the rich Russians is the security and the acknowledgement of their luxury that was achieved relatively recently – somewhere in the 1990s. They long for the authentic, 100% luxury, there is no doubt about that.

Uskov, Editor-in-chief of GQ Russia, who is considered the icon of the rich and glamorous lifestyle in Russia, proves this point: “Luxury is a statement of personal success in Russia and Russians love status symbols. Russian money is mainly new money, but the ultimate dream is to look like old money.”

Hence, there are three main reasons why anyone would spend extravagant money on a pair of sunglasses or a watch in the midst of a recession. They are: brand, inherent cost of materials and craftsmanship. The show-off period of the new Russian money is over. Now they are looking for the qualities of the old. Fewer people are looking now for clothes with conspicuous luxury brand logos. They look for watches that can be inherited by their grandchildren.

This is also supported by the trend to buy classical books in quality editions. Publishers note that less of low-grade pulp fiction is consumed this year. Rich people are interested in collecting libraries of classic literature in expensive editions.

Therefore, moderation is in for the top consumers in Russia. It is now considered very improper and so-last-season for your appearance to scream “Luxury”. One rich girl told us: “In this economy it is so improper to wear too many diamonds. It is more important now to look fresh and groomed: tanned skin, beautiful hair, perfect nails. These are the best class indicators today. The point is that you have to have sufficient money and time for this. And yet it’s more affordable than diamonds.”

The rising trend in beauty care is lead by no other person but the current girlfriend of Roman Abramovich (who actually lost a staggering amount of money on the London Stock Exchange within just six months as Evraz's value plummeted from €28 billion to just €3.2 billion) – Daria Zhukova. Dasha claims that “the real it-girl unlike others can combine a Chanel handbag with Converse sneakers, and wears a simple white t-shirt as if it was haute couture. And this she proves by selling simple white t-shirts from her own clothing line for some 50 dollars.

The beauty care trend has reversed from subjecting your skin to some heavy duty treatment with conspicuous flashy make-up and heavy salon-tanning to investing significant money in skin-care. Now the proper way is to invest a lot of resources in beauty care to maintain your natural look. Combining luxury accessories with a simple white t-shirt, accompanied with simple but well-kept hair, skin with zero or invisible make-up, but shining with its natural, healthy look – this can take some serious time and money investments, although so far only people in the know will understand how expensive it can be.

“Buying pendants for your mobile phone for 500 Euro is so irrelevant now. It is a symbol of bad taste and makes you look odd and stupid.” Olga, 26

Insight: There is a yearning for a certain kind of sustainability in luxury. Something that cannot be taken away with a credit crunch. Something that will always indicate your social status. (Even if you have 40 Euro in your pocket, you still have Breguet on your wrist and your skin is shining with wealth.)

A Timeless Luxury Experience

2009-09-07T06:43:00.016-04:00

Hong Kong is the heart of Asia’s luxury market where brand names flood the aisles of shopping complexes and flagship stores of high-end luxury goods are found on the corners of the main shopping districts. For the affluent, the options for luxury are unlimited.

Mr. S’s prudence is hinted from the start when he asked for anonymity from this discussion. We meet him and his partner at the Hong Kong Country Club, a social club limited to only 2,500 highly sought ordinary members.

Having lived in Hong Kong for over 10 years, Mr. S has seen the movers and shakers come and go. Recession may have hit hard on Hong Kong but it posed no threat to the CFO of a global lingerie brand. His rule of managing finance like “water to the Bedouins” has kept him safe, if not positively affected. Amongst the truly affluent men, finance tips are never shared. Where spoken, it is usually a stage for bravado. “It’s amazing how many fantastic investors you have in the male changing room. Everybody has a story where they made an amazing killing.”

For Mr. S, recession is more indulgence and buying opportunities. A value investor or as he describes himself “bottom fisher (buy low, sell high)” sums up what recessions has meant for him. “I liquidated before the recession. I scan around. Pay more attention to housing, local or overseas. I bought the apartment at ‘Celestial Garden’ in 1998, at the tip of the recession. 70% off of what it was before.” "For a splurge, it would be a vacation. I would choose top-of-the-line hotels but I won’t spend irresponsibly, but certainly big bucks to try to make it almost perfect….It was more splurge this summer than last…again you get more for the buck.”

Much of this quality-seeking behavior is reflected through his beliefs towards luxury. Luxury is an understatement of status but in truth, it is a deeper personal experience with a brand grounded on quality, style and craftsmanship. “I might have 10 pairs of Brogue shoes and the first one I bought was when I started working 23 years ago and I still have them….I will never tell anybody what brand I am wearing but I know it looks good. Somebody who appreciates it will see it.” For him, brand names might not necessarily be luxurious but luxury will have to be a brand name.

Mr. S who comes from a affluent but thrifty family defines high net worth individuals as owning $10 million disposable income. Christan, a newcomer in the high net worth category sees the amount to be a calculation of ‘living comfortably’. “$2 million. I can think of ways to live with that. I can live off interest from it. I have my house and things are done, it’s not like I’m struggling for that. I’ve done the numbers and I can live off that."

This is what sets them apart on how they perceive luxury. As opposed to the timeless classics Mr. S sought after, Christan seeks for the extrinsic value that luxury brings. “I feel better when I dress well. When I’m in a nice tailored outfit or having a nice bag. It’s kind of exclusive.” She still seeks for value and quality but living in Hong Kong has increased this desire for luxury which is equally replaceable. “I have a budget but it’s now just bigger but I am still within it…. I know it’s living in Hong Kong because it’s all around you.”

Insight:
For the affluent, they are careful with how they spend and especially for men, what information is shared. Often, they are alert about the market and in truth, are themselves the bank. With that in mind, recessionary times for the affluent mean increased purchasing power and more indulgence grounded on value. Similarly, when it comes to luxury, they are hunters of both intrinsic and extrinsic values.

Opportunities:
The label will soon become a basic. With fundaments of quality and craftsmanship, luxury goods will have to prove itself as a timeless classic that builds a deeper and more personal experience with the consumer.

High Net Worth Individuals in Malaysia: How Have their Lives Changed?

2009-09-07T05:17:00.012-04:00

The car industry is often seen as a barometer of the world economy, and it has stormed into a deep recession with sales and profits tumbling in almost every other country. The same situation is occuring in Malaysia, where we see a consistent contraction in car volume sales in the past 2 years. But what about luxury cars? Have the wealthy changed their spending behaviour as well?

Both BMW and Mercedes seem pretty optimistic for this year. A check on luxury car sales figures (source: Malaysia Automotive Association) shows us that sales have been either stable or growing for the past 3 years, and sales for the 1st half of this year has so far been pretty close to figures achieved for the 1st half of last year. So why has nothing changed despite the estimate of 20% decline in wealth for the HNWIs as reported by Merill Lynch/ Capgemini?

Shafie, a sales consultant at a BMW authorized dealer has this to say, "They can't afford not to upgrade their car when the time is due, be it during a boom or a recession. I can tell most of our customers purchase their cars not for the driving experience, but rather as an essential business investment. The bulk of our customers are local businessmen owning several companies. The average Malaysian businessman needs to make a statement with his car and his Rolex watch; he is doing well in his business, hence hand him the contract". He added, "I guess that is why we see quite a high number of cases where luxury cars are repossessed and auctioned off.".

Observation: Though it may seem like a superficial practice at first, what these businessmen are practicing is in a way, quite similar to a well chanted mantra in our industry; Advertising pays in a downturn.

Clouds over Frankfurt?

2009-09-07T04:38:00.011-04:00

The luxury shopping street of Frankfurt – “Geothestrasse” – is close by to bank towers which, accompanied with dark clouds, set up the coulisse when German media is talking about the recent economic downturn. Are there any dark clouds over the “Geothestrasse”, too? Talking with the sales staff reveals that the impact is not the same for all – it differs from store to store.

The first store I enter isn’t really busy. Well, it just opened and the staff is giving the inventory the perfect look. The atmosphere is relaxed and they expect the day not to be hectic. “…at all, we are less busy” one says after being asked if they see any changes since the crisis. It’s the occasional customers that visit the store less frequently.

Regular customers remain the pillar. “Our loyal customers enjoy our unique designs and the extraordinary service” says a salesperson in another store. “Each time they visit us, they find something they can’t resist.” They see shopping and getting pampered at their favorite designer as a part of their recreation time they definitely don’t want to miss.

As I continue my walk, one store catches my eye: a designer outlet. In these times “smart shopping” concepts are highly frequented. And indeed: “We cannot complain, there is a lot of traffic here.” And there is more that is contrary to single-designer stores. Almost all customers are occasional customers: “No, I wouldn’t say we have lots of regular customers. They are for sure customers we see more often, but regular customers?... Rather no.”

So, reaching the end of the “Goethestrasse” and waiting for the traffic light to become green, I notice a woman with a Wolford-Bag checking some bills. Do the High Net Worth Individuals really have to take care of their bills?
The impact of the economic downturn seems to be prominent enough to lead occasional customers into a “designer outlet”, but loyal customers don’t change their habits. They stick to their favorite brands and don’t let any dark clouds over the Skyline of Frankfurt affect them.

Give them a unique experience and service, and make them loyal!

High Net Worth Individuals in Malaysia: Who Are They?

2009-09-07T04:28:00.010-04:00

...and how exactly do I find them?

According to the World Wealth Report by Merrill Lynch/ Capgemini, HNWIs are defined as those having investable assets of US$1 million or more. That is a LOT of money in Malaysia, considering our exchange rate vs the dollar.

And a question arose...

Is a high net worth individual in Malaysia equal to another high net worth individual from another part of the world?

Apparently not.

The chart above by the Asian Banker paints a different picture, not just for Malaysians but across several Asian countries. Interestingly, one only needs to be half as wealthy in Malaysia vs in an OECD country to be segmented as a HNWI. Pretty much tells us the cost of living and quality of life in Malaysia.

NEXT: How have their lives changed?

Buying Into a Future.

2009-09-06T14:50:00.015-04:00

On a recent Xploring project, I met aspiring Emirati photographer Alia al Shamsi. She has studied abroad and while her passion is photography she loves to contribute to the growth of the arts and culture in her native Dubai – she is now working for the Dubai Arts and Culture Authority. She comes from a wealthy UAE family , who despite her wealth was brought up to really appreciate hard work. This has shaped who she is today.

Although she works for a government entity, the likelyhood of her losing her job is practically impossible (that’s because she is a national). So unlike most others living in Dubai, she can still live the same lavish lifestyle she has always lived - buying without looking at a price tag, or having fancy dinners without worrying about the bill, spending an extra two years post graduation in London just roaming around Europe and occasionally interning). Despite that, she still feels a sense of guilt towards her lavish spending (luxury shopping) because she is close to many people who have lost their jobs: “I feel bad knowing I am walking out of a store with loads of shopping bags.”

Her consolation is however the classics. “If I need to buy something it's got to be a classic – something that not only lasts one season but is really timeless!! I love going for the limited edition pieces of my favourite fashion brands. I think of them as more of an investment.” She says that she would love to pass on her best limited edition hand bags to her daughter in the future; she says the passing on of items through generation is no longer just about jewelry and watches.

Of course, that has something to do with her being an artist – she always looks for and appreciates those collector items- collaborations of art and fashion. To her true luxury is about craftsmanship, innovation, creativity and most important of all, that which will stand the test of time.

“In life, there will always be ups and downs, recessions, bad decisions and the financial risks people take. These are things we can’t really control. We have to deal with them. But what we can control is how we spend our wealth. When I buy a piece of expensive jewellery, watch, or even a handbag its not about the price tag or me showing off my status in society. But really its about me investing in my own and family’s future.”

So much so, that Alia is in fact now considering ‘investing in her future’ beyond the material things – and that is starting her own business. “I want to have something I can call my own. Don’t want to be employed for the rest of my life. Although I have the initial financing I would need from my family, it will however require a lot of hard work.”

She is also considering buying a flat in the Dubai Marina (she currently lives with her family, a prevailing custom in the Gulf until one gets married) and she believes buying an expensive car is her way of owning a lasting vehicle and a piece of art. She wants to be independent and not have to wait for the man to buy her a house and a car – a luxury not many have over here. All of which are luxuries that last – rather than short term indulgence.

The Truth: Luxury is more than the price tag put on an item, a status symbol, or the immediate reward you get. Luxury is that which you will continue to be rewarded by in the future to come. Its timeless. Its one that will continue to give back.

Opportunity: Give them the chance to buy into their future, today.
Luxury brands should stand for more than the reward for today and tomorrow. They should stand for a future of giving.

Brand Time

2009-09-05T10:57:00.011-04:00

Famous celebrity food columnist & host Chua Lam told me over lunch, “Every meal means one meal less on earth for me, so why would I settle for crap? I don’t have time to waste.”

Li, a typical 40-year-old successful Chinese entrepreneur, made his first pot of gold during the property boom earlier this decade. His businesses now span across property, hotels, high technology, new energy as well as global import and export. His latest interest and venture: a new breed cross-terrain off-road machine to be produced in Hangzhou.

“I’m going to make it the next rich man’s toy,” he proclaimed.

Ambitious. Aggressive. He spends his 24 hours as if he’s got 48 everyday.

“I’m so busy with work everyday, meeting people, seeing to my businesses and looking out for new ones, there is hardly anytime left for myself, let alone time for bullshit. I can play at any golf club here (Hangzhou, where golf club membership fees are amongst the most expensive in China) for free, but I just don’t have the time.”

Like many of the high net worth individuals whom I’ve spoken to, Li relies on the Internet for accurate and quick sources of information, as he needs to ‘gather facts fast, but not just from hearsay’.

“Opportunities do not wait, you have to be in the know in order to talk business with just about anybody. You may call it bull, but you need to carry any and every conversation well if you want to do business here in China.”

He drives a Mercedes-Benz S600, uses a CNY 25,000 ($3,660)-mobile phone, jets around the world, dines at the city’s most popular KTV-box style restaurants and gets invited to previews, parties and launches by Bentley, Lamborghini and Ferrari. “I know they are flashy, but these brands are at least worth my time.” Li owned up.

“By the way, I’m attending a Maybach event this Friday. You can come along if you have the time.”

Truth:

The common language of rich Chinese - Don’t waste my time.

Opportunity:

Is your brand worth their time?

Nothing is Forever Now, Not Even Our Home

2009-09-04T10:29:00.010-04:00

Adriana Sierchuk is an architect that builds impressive houses. Her studio has won a lot of architecture, decoration and design international awards All of them have very unique design pieces. This makes Adriana the architect that the Argentinean upper class prefers. She is a specialist in building really; customized houses, designed to cater and reflect the owner’s unique personality, taste and needs.

Some months ago, the global crisis, added to a national one that was already taking place was an explosive cocktail to the local construction business (which until then was doing great): suddenly all the projects Adriana was working on were put on hold or cancelled.

Everything is reactivated now, but not everything is the same as before: she noticed a behavior change, her clients no longer ask for “customize to the extreme” “unique things for them” houses. They are still asking for interesting designs, but not that extreme. The reason behind the attitude shift is simple: they need “easy to re-sale” houses. These clients now are willing to compromise design that expresses their uniqueness, if that will give them flexibility to sell fast if they need-want to.
In Argentina’s chaotic economic environment those who have a lot of money are buying expensive things, but they need to have the freedom to transform those things back into money if “something happens”.

Challenge: Understand that in crisis times there are no long projects, and if we are asking them to make a big purchase, we need to offer them the flexibility to reverse it.

No Change, Because of a Solid Base

2009-09-04T04:11:00.010-04:00

Leonard, 26 years old, Germany:

I come from a family with money in 3rd generation. My great grandfather started our family business. So I grew up with money but learned very quickly it does not grow on trees. It is a great responsibility and should not been taken lightly. I don’t want to loose what my parents build for themselves. On the contrary I want to be able to give my children what I had.
So I am a risk adverse investor.

Money can give you great pleasure and gives you opportunity to escape the routine of daily life. A weekend trip to visit friends is not something I do once a year but once a month. That is great and helps me to handle my work life balance. I don’t look at the price when I go to the supermarket or when book a hotel. But this does not mean I drive around in a Ferrari and don’t work for my living. I started working right after university and I am currently living break-even, meaning I only spend what I earn, at the job, at the stock market or through dividends. So I don’t touch the savings. It is important to find this balance and not go crazy with the money. I have seen many people, even at my young age, lose all they possessed. And it’s much harder to trade down than to trade up!

I didn’t change my consuming behavior because of the crisis. I just became even more careful with my financial investments. As I have worked for an asset manager during 2003-2005 I knew how to judge such a situation and did not freak out with all the negative media. I also lost about 20% of my cash at the stock market in the 2nd half of 08 but I knew that sooner or later the tides would turn. Currently I am up 10% in 09 and of course 06 and 07 were great years!

During my last visit at the Cannes I saw that the habits had change a bit. A lot of the new and quick money people were not there anymore, I guess they had run too much risky business in their portfolios.
I received all sorts of discounts while partying or chartering boats, like a bigger boat for the same price, or getting a good table in the club for a minimum spend of one vodka bottle where as it used to be a minimum of several champagne bottles. In 08 and 07 eastern Europeans often booked all the boats out. They have seemed to disappear this year.

Brands have never been important for me. A product has to catch me through form function and design and not through a brand name. I like the iPhone because it’s simple to use and has a great web application not because it’s an Apple. The same goes for clothes and cars.

I don’t plan shopping trips like going into town on a Saturday afternoon.
I buy what I need and like when I see it and when it fits the schedule.
I have been known for buying 2-3 shirts (often Etro because I love the designs) while waiting for my airplane or some furniture right after lunch on my way back to the office.
When I had a small car accident last year, the dealer offered to take my old car in without repairing it and gave me a great deal to buy a new one. It was great I didn’t have any hassle repairing the car. The insurance did not increase and I wanted to buy a new car soon anyway.

Truth: Not everyone is affected by the crisis. Some people have a solid base and see it just as a short-term downturn.

Opportunity: Some young wealthy people do not seek for luxury items per se, they just love the convenience to shop things spontaneous, wherever they feel attracted to it and have the feeling it fits to their lifestyle.

Challenge: Let us think about new places where we can meet these people not just for advertising but also for retailing opportunities.

General-ese

2009-09-03T21:28:00.004-04:00

A common observation we had while xploring luxury and the world of high net worth, was the propensity for individuals to speak in generalities about the types of luxuries they spend their money on. It seemed as if they would shy away from throwing out a brand name in order to not appear to be gloating. When asked what kinds of brands they were loyal to or what brand their handbag was, the answer was always a “you know…” or “well anything that’s nice” kind of answer. On a few occasions, they almost seemed defensive and used quality as a justification of their purchases, “well what matters to me is the quality.”

Is admitting to the fact that your handbag is from Louis Vuitton or your watch is from Cartier uncouth? Could it be that these individuals don’t want to be perceived as people that just spend their money on designer labels? It seems they are willing to open up broadly about the ‘types’ of things they spend their money on i.e. clothes, travel, cars, charities. Speaking in terms of generalities is the modest approach to “name-dropping.”

Insight: Framing purchases in terms of ‘top-quality’ & ‘best experiences’ vs. the price tag or the name is the proper way to gloat.

A Penny Earned is a Penny Well Spent

2009-09-03T14:48:00.003-04:00

Putting Work Into the Harvest Buys the Right to Reap Its Benefits

Merriam-Webster states the definition of 'luxury'" as "something adding to pleasure or comfort but not absolutely necessary." Well, according to some of America's wealthy, it seems that "luxury" is actually a necessity, a necessity which lies in the importance of self-expression.

We spotted a group of three 40-something year olds dressed in crisp dress shirts and Prada shoes. These guys obviously understood style as they sat sipping $16 cocktails in a snazzy Beverly Hills hotel bar talking about all the cool things they have done/seen/bought since the last time they met. It's a typical scene with these three as they often enjoy socializing, fine-dining with friends, and traveling the world.

Jim, who is a lawyer at a big law firm in Houston, believed that living this kind of lifestyle was by no means a source for guilt as he viewed his money as hard-earned and well-deserved. He has recently bought a new house and has since been renovating. He joked by saying that he saw the "Cash for Clunkers" program as the "Cash for Bling" program. The timing of his new luxury car happened to coincide with the program shedding light on the vast differences between those who need government assistance to buy a new car Corolla vs. a new Mercedes Benz.

John, who is a photographer, shares the same sentiment and spends his money on travel and the latest technology and gear for work. He appreciates the success he has gained over the years and justifies his purchases as helping him garner even more success/$$ to enjoy the things he'd like to enjoy.

Humor is a Luxury Not Everyone Can Afford

When asked how the recession has affected them personally, they admitted to the fact that it didn't have much of a profound effect on them. They even had a slightly humorous outlook on the situation as they joked that their idea of '"scaling down" meant ordering the prix-fixe meal at Flemings (a prime steakhouse and wine bar in Houston where a prix-fixe meal costs about $40 a person.) Those with money can afford to make light of a grave situation, as seen with these guys. Yet, one thing is for sure, their appreciation for their friends and where they're at in their lives has definitely grown and for that they are grateful.

Mr. Webster's definition of luxury should have a disclaimer that reads "*luxury & necessity are relative terms." Luxury, whether expressed through the food one eats, the drinks one drinks or the clothes one wears, is an expression of hard work and success. The value comes from the freedom to enjoy the things they want to enjoy.

Truth: Access to luxury is something that is earned.

Opportunity: Position luxury products as means of self-expression and as a symbol of success & hard work.

The Sweet Life

2009-09-02T20:08:00.002-04:00

America’s wealthy haven’t cut back… but they’ve reallocated.

It’s Wednesday night at the SLS Beverly Hills. Watching well dressed patrons eating foie gras covered with cotton candy one might be tempted to ask, “What recession?”

The bar, restaurant and dessert counter are all bustling at this ritzy hotel.

It seems that high income individuals have chosen not to scale back on luxury experiences during the economic downturn. Based on conversations with the cocktail drinkers and diners we spoke to…the wealthy are still spending money on what they enjoy and value. Dining out, spending time with friends and family, socializing with coworkers and cotton candy covered foie gras are just some of the things make the no-sacrifices list. But if you look closer, some things have changed.

Spending on Self AND Others.
Susan is a high power entertainment lawyer and philanthropist. She looks very put together and is in her element at SLS.

Susan indentifies herself as “very liberal”, and has increased her spending on tips and charitable donations. She tells me she has always been a philanthropist, but now she wants to contribute in ways that have an immediate impact on those in need.

“I am tipping more. I always have, but more now since people are without jobs and I am very fortunate.” Susan still goes out for fine dining and expensive drinks herself, but she is also making adjustments with other people in mind. For example, these days she throws more dinner parities at her house. “I invite my friends over that I know are cutting back. They might pass up on a dinner out somewhere, so this is what I can do to stay in touch.”

Interestingly, while Susan is very open to talking about increases in charitable spending she is more reluctant to discuss the luxury goods she buys (even the items she is wearing at the time of our conversation).

INSIGHT:
Talking about luxury in a conspicuous way is passé even with those who have Louis Vuitton on their shoulders and Louboutins on their feet.

For The Person Who Has Everything

2009-09-02T17:29:00.004-04:00

A night at chef Thomas Keller’s fabled Per Se restaurant in New York City is every foodie’s dream. With expertly executed food that looks more like a magic show than a meal, this is an expensive experience that attracts powerful and famous clientele.

So it was the ideal setting for last week’s American Express event with select Centurion card holders. The American Express Centurion card, also known as the Black Card, began as an urban legend; rumor had it that there was a secret American Express, the Black Card, that was only for elite members of society and that had no spending limit. Years later, American Express capitalized on the cache and created Centurion-- the invitation-only card with concierge services and elite benefits available to no other Amex cardholders.

The Per Se restaurant event (which cost over $1000 a ticket) began with a cooking lesson from Thomas Keller himself, followed by cocktails, hors d’oeuvres, and an elaborate 7-course meal. Only Centurion members had access to this one-time-only event, which took over the restaurant’s entire dining room.

Over half the cardholders at Per Se flew in for the Per Se dinner. Two of the women are event regulars. They met each other at a Centurion event years ago in Aspen and have been attending events together for years since, despite living in different cities.

But Lisa, who coordinates these elite-access events, says attendance has been down in the recession. “People are doing less these days… even these people,” she said. “Or they’re buying $1000 event tickets instead of $2000.”

Yet despite the economy, Centurion members are still paying to attend these events. Lisa credits the exclusivity of the program. “Centurion offers our members something anyone just can’t buy. We offer them access. We get them box seats at the US Open. We get them prime seats at New York fashion week and introduce them to the designers. You can’t pick that up on a shopping spree or order it on the Internet.”

Amex understands that true luxury lives in exclusive access and priceless experiences.

Opportunity: Give luxury consumers more than product features—earn them access.

The Bubble

2009-09-02T11:00:00.004-04:00

Dario is an Argentinean doctor who owns an (expensive) clinic in Buenos Aires, an other one in Punta Del Este and an office in Miami. He belongs to the very small percentage of wealthy people in Argentina, a country where 40% of the population lives in poverty and where the middle class is witnessing how their purchasing power shrinks every year. In Argentina violence, unemployment and poverty are on the raise while public education and health are deteriorating.

He lives in Nordelta, a very exclusive “private town”: a group of eight private neighborhoods with schools, malls and a medical center inside. ( I had to go through four controls until I reached his house.)

Nordelta was founded 10 years ago around a set of artifitial lakes.

Nordelta is almost a “parallel reality”: it is half an hour away from the center of Buenos Aires, but it feels like an other country. The houses are new, the streets are clean, the people are well dressed and the children drive their bikes in the streets.

Many of those who live there don’t need to go outside. And many wonder how will the children from Nordelta incorporate to society when they grow up (now it is too soon to tell).

Dario’s house has a private beach where he has a little sail boat. Nothing looks obnoxiously luxurious, nothing screams money.

But Dario is wealthy and he is enjoying it, with his money he is buying what almost everybody in Argentina lacks: safety, tranquility, an unpolluted view, health (his health insurance even covers treatments in the US) and academic excellence for his children.

For example, crime right now is a huge concern in Argentina, and almost every house has bars, but Dario doesn’t need to lock his house when he goes to sleep. He has three cars, but none of them is flashy (a medium size SUV, a PT Cruiser and a 2 seats topless Peugeot). He prefers it like that, “flashy is dangerous, I don’t want people to realize that I have money.”

Dario hasn’t always lived in an isolated community, he used to live in the city across Parque Lezama, one of the biggest parks the city. But one day he and his wife decided to go away. “I used to go to the park, some years ago people from different social classes could share the same space, now, it is full of drug addicts, it is dangerous and dirty. What happened with the park is a metaphor of what happened with our society,¨ he said in a nostalgic way. “I wish things were still like that, but I decided to give my children a safe present and protect them from the things that are going on…I know we live in a bubble here, but we are enjoying our lives..."

Opportunity: In a complicated environment give them access to the simple things: safety, sun, air ...an enjoyable present and the illusion of a brilliant future

Recession, an Excuse

2009-09-02T07:56:00.006-04:00

Recession is a buzzword. You hear people talking about it and sometimes using it as an excuse, but for Rahul it is business as usual. Recession is what has impacted him the least. He goes to his office in his Armani suit and pair of chic Gucci sunglasses and drives around in his fancy Mercedes convertible. He is able to afford his lifestyle because “those who are rich in the true sense have enough reserves to maintain their lifestyle. In India, we don’t just live by our savings but those of our parents and grandparents put together. We have a good buffer to last us during the bad times. It’s the noveau rich who are affected by the turn of the economy.”

A recent article in a leading magazine supports his thought. Leading fashion designers and luxury houses have seen no let-up in demand from their luxe clientele. Top designer Shantanu-Nikhil say that, “even though overall prices for their Spring-Summer line have increased, the demand is still holding good”. The duo’s business has grown at a consistent 20% over the last year but they admit to a faster growth had the aspirational segment not slowed down its purchases. “The only negative impact of the recession that we have seen is the aspirational segment who has taken a step back. The growth of that market has slowed down for the time being.”

Kavita who takes close to 4 trips abroad a year, is aware of the recession affecting the world with the shopping malls going empty, things getting cheaper with everything going on sale including homes. However this couldn’t have been a better time for her. She gets more for the same amount of money, more diamonds, more travel, more value. She for sure isn’t complaining.

Opportunity: Make people enjoy the recessionary times

Essence of Life

2009-09-02T07:52:00.002-04:00

Preeti did not think that post her marriage, living in a home which equaled to the size of a servants quarter back in her home town would be termed as ‘luxurious’. Yet when she settled in Mumbai post her marriage, her friends thought she was really lucky she was staying in a spacious 3000 sq.ft individual home at a tony address in the city. Having come from a royal family in Bhopal (a small city up north), she was brought up in a palatial home with close to 30-40 servants, family always dressed in fineries, all of which were hand crafted especially for them.

She hasn’t yet been able to come to terms with the maddening city of Mumbai where the ‘real thing’ is lost in the glitz and glamour. She cannot find a place in this city where she can enjoy both her cup of coffee and find peace with nature. Sending her kids to the most expensive school ISN’T luxury for her but having them spend time horse riding or fishing, being one with nature IS.

For her luxury is all about enjoying the essence of life, the freedom and the space.

Opportunity: Don’t create luxury, it exists in the ‘real thing’

Borrowed Imagery

2009-09-02T07:35:00.002-04:00

When I called Palak to fix an appointment with her, she told me that she would probably be the wrong person to talk to because she rarely consumes any luxury brands. She would rather pay half a million for a hand crafted dress made to her taste rather than run after brands. I thought that it was impossible in today’s world to stay away from brands especially if you are a socialite who gets written about on Page 3 (a page on which celebs, the who’s who of the country get featured) of the leading newspaper. But she proved me wrong when I met her. She got her outfits tailor-made to her taste, she got her bags made from fabric leftover from her outfit so they match perfectly, her shoes are most often hand crafted and she has a family jeweler who designs to individual tastes.

“Its not just about the money but its about the appreciation for the art, the handwork and most importantly, what I wear, what I carry has to be a reflection of who I am and not the other way around.” Why be judged by the brands that one carries and live in the shadow of a brand’s imagery?

“Everyone carries a LV bag, sometimes the same one but when I carry a bag made from my mother-in-law’s rare saree embellished with stones and sequences – its my own creation which no one else has, I stand out in the crowd, it makes 10 heads turn. And all this at almost no cost at all.”

Opportunity: Personalize, so brands can borrow from user’s imagery

Luxury On The Inside

2009-08-30T16:55:00.003-04:00

The surface of luxury was never truly satisfying. Labels and price tags and big names can only entice people for a moment. When money is no object, those symbols of excess soon feel empty and pointless.

Over the past few weeks we’ve heard people say they’re looking for something more. Whether it be genuine history, passionate craftsmanship, complete personalization, or simply something that money can’t buy… super affluent consumers expect more from their luxury purchases. Being expensive, famous or rare is not enough any more.

When Florence tried to tell us about her first taste of Dom Perignon, she was lost for words. Finally, we learned that the 1985 bottle had been opened with an old military sabre, and her first sip was so wonderful she has never matched it since. The experience spoke to her senses and her heart, not to her ego or her mind.

For Vincent, luxury is intimate, something only he knows that value of. He learned to appreciate true luxury from his grandparents.

“My grandmother’s collection of jewels was so beautiful, I would play and pretend to be a pirate, and she taught me about the stones. Now I’m crazy for old diamonds, with fewer cuts.” Vincent grew up to become a designer with Boucheron and now sells his own jewelry.

“Luxury should not be loud. Luxury is on the inside, not the outside.”

The media is talking about a return to refinement, but we think this is only part of the answer for luxury brands. “Toning it down” is an obvious response to the new mood of financial prudence. But refinement is often about less, we believe that affluent consumers are in fact seeking more. More meaning, relevance and personalization. More care, thought and creativity.

Opportunity: As luxury items and experiences become more refined on the ‘outside’, they must become more rich and full on the ‘inside’.

Thick Fashion Magazines Are So Last Year

2009-08-19T17:18:00.002-04:00

September fashion magazines, traditionally the biggest issues of the year, are looking rather skinny this year. About a third skinnier, actually.

Ad pages in Vogue tumbled 36%, to 429. That’s a far cry from 2007, when Vogue issued its record-setting September issue with 727 ad pages--- and weighing in at 4 pounds, nine ounces.

As they spend less on magazines, fashion companies are gingerly testing a range of lower-cost, often more measurable outlets such as Twitter, YouTube, DailyCandy.com, Style.com and more.

Louis Vuitton North America more than doubled its digital ad spending in 2008. Diane Von Furstenberg boosted its web spending from nothing to $43,000 last year. It doesn’t amount to much yet, but it represents one of the few slices of the industry’s marketing budget that are expanding.

Some brands are entering into the social media space as well. Chanel posted a short film to YouTube, starring French actress Audrey Tautou, and promoted the video with search ads and other ads on the site. Other fashion brands are attracting flocks on Twitter, such as Louis Vuitton, which has more than 26,000 followers.

Aiding this move into the digital world is the increasing quality of online experiences. For advertisers concerned primarily with luxury, style and perfection, the aesthetics of the web are finally getting to a place they’re interested in being.

Just as consumers are reevaluating their luxury purchases these days, luxury brands are reevaluating how they spend their own money.

Challenge: Harness the power of the digital space-- not only for financial appeal, but also to bring the luxury world to life

Source: “Thick Fashion Magazines Are So Last Year.” Wall Street Journal. 8/17/09
http://online.wsj.com/article/SB125046605103135399.html

Developing a Palette

2009-08-19T11:54:00.003-04:00

Today, Coco, Amit and I met Florence, a design consultant specializing in limited edition contemporary furniture. Her clients spend millions of euro on pieces that are very hard to come by - her job is to find them.

While some of her clients are passionate and knowledgeable about furniture, there are many who start collecting without knowing much more than the most famous designer's name. Their first purchases are simply statements of wealth. But Florence insists that even these people soon become true collectors.

"They need someone to show them the way. I always tell them the story of the item and try to find some way for them to connect with it... something they can relate to. As they learn they become more interested and they develop their own personal tastes."

On the other hand, she also believes that French people are losing their "sense of luxury." For Florence, luxury is about excellent quality and craftsmanship, along with thoughtfulness and refinement. "French people have lost their palette. We no longer know how to appreciate good wine."

She's talking about truly appreciating luxury, rather than simply buying it as a statement. And it seems that the ability to appreciate can be won or lost. An eye for design can be gained with a little guidance and experience. A palette for good wine and food can be developed with thoughtfulness and practice. And the more you appreciate a luxury item, the more you can connect with the brand/designer/vineyard...

This is a Lovemarks story. Stories reveal the depth and substance of luxury and build Respect. When we discover that there's more to luxury than a fancy shell and a dazzling price tag, our Lust turns to Love.

Challenge: Encourage people to develop their palette and go beyond the surface of luxury. Transform expensive purchases into treasured items.

Passion and Purpose

2009-08-18T09:58:00.002-04:00

Dean is Managing Director at a major global bank and a father of two. He refers the recession as a ‘dislocation’ because “things didn’t just recede, they came apart.” Dean is interested in the new popularity of middle-men or mediators in the banking process. His bank is doing a lot of this work – mediating large transactions for a ‘small’ fee.

“The arrogance has been stripped out… people are making an effort to do things right... by the book. And also, more importantly, people don’t want to be blamed if things go belly up. They’re allergic to negative press.”

But he wonders if this will last. “I hope it will, but I think that when people forget this pain the arrogance will slowly come back.”

Like many people in similar positions*, Dean is reconsidering what’s important to him. He believes he’s more honest with himself, but admits that this could be a function of his life stage.

“I’m not a big football fan, but I used to make the effort to stay informed so that I could be a part of those conversations (with other senior executives in finance.) Now I realize it’s not worth it. If you’re not passionate about something it soon becomes very obvious.”

Dean’s true passion is music. He’s in the middle of an Opera phase – he’s been listening to Opera almost exclusively for 3 months. “I’ve been wondering if it has something to do with all this (the financial crisis). I feel a total connection to it.”

“I’ve even been speaking to people about God and the afterlife… almost as a social experiment. I think people are searching for a god. Or for a purpose.” Dean sure doesn’t seem like a religious guy, but he is curious and thoughtful and obviously seeking more from life than another step up the ladder.

*An except from a recent article by Manhattan socialite Tatiana Boncompagni titled “The Party’s Over for the Hedge Fund Wives” describes a new candour amongst super affluent consumer;

'Many even seem relieved to finally be able to drop the bombast and get real… seated next to me was a hedge fund manager who, mid-way through his filet mignon, revealed that he was going through a mid life crisis. “I look back on the last five years and think ‘yes I’ve made good money but what do I have to show for it?”

Truth: Beneath the drive for wealth and success lies a very human need to for meaning and purpose.

Challenge: Ignite their passions. Go beyond their surface desire for status and achievement.

Class Vs Classless

2009-08-18T09:23:00.003-04:00

Belinda and I spent the afternoon in luxury car dealerships on Park Lane. We started in BMW where the atmosphere is professional, but reserved. The perfectly parked and posed cars are like caged animals at the zoo, lifeless and a little sad. The dealers are adamant that the recession hasn’t affected business… at least not for new cars.

“This is Park Lane, our customer buys a car and sells it back to us a few months later when they go back home (to Russia or the Middle East). They just want a nice car to drive while they’re here. A BMW is not a big purchase for them.”

There’s a sense of arrogance, or perhaps denial at BMW, but next door at MINI - their sister dealership – things couldn’t be more different. We feel like we’re in a futuristic and funky club, not a car showroom. We’re welcomed with smiles and energy. The models on display are colorful, bold and full of character.

At Mini Ryan tells us how he’s seen people trading up and down into Mini’s over the past 6 months.

“I had a customer sell his Aston Martin to move to a Mini. We have Mini drivers who were in Porsche Cayennes and Mercedes. But we also have people who were drove a Fiat or a Renault. The Mini is a classless vehicle. You can park next to a Porsche at the polo and feel like you belong or you can drive to the pub or the supermarket.”

Sophie (the only female sales person we could find) added, “The only real difference between a BMW and a Mini is space. Mini drivers can still have the leather and luxuries, they still have the speed and power. And in a Mini you make a statement… but it’s not ostentatious. It’s a statement about who you are as a person, not how much money you have.”

Truth: You don’t need to play by the old rules of luxury to appeal to affluent consumers. Mini has performance, character and heritage. They reject the idea that luxury is about wealth or class. And people love them for it.

Challenge: Make luxury classless.

Breaking the Conventions of Luxury

2009-08-13T16:49:00.004-04:00

Monocle is a magazine, a perfume, a bag, a notebook, a global following… but more than anything, a group of people passionate about global affairs, business, culture and design. www.monocle.com

Monocle Publisher Pamela Mullinger gave me a tour of their chic but comfy London headquarters where journalists sit next to designers and the walls are lined with custom publications for high end brands.

We talk a lot about the reader, who is hard to pin down.

“Sure they’re wealthy, but they work hard, they travel, they’re quite young, they’re not your typical ‘wealthy target market.'"

By ‘typical’ we mean older – the bulk of high net worth individuals are over 50. Yet while the Monocle reader has a high income, they’re younger and less conventional. And for this creative company, conventions are made to be challenged.

Just take a look at their latest issue, which includes the Monocle Singapore Survey. A magazine within a magazine, funded by Singapore Government but created and edited entirely by Monocle.

“Everything tells a story; whether it is an ad for a watch or an article about a city, these things have a past, they have a story to tell.”

Flicking through the magazine you really notice the difference. The first five pages are still dominated by ubiquitous luxury fashion brand ads, but the grainy paper gives them a more authentic feel and the lifeless mannequins seem to be less prolific. That’s the biggest problem with luxury brand advertising… “mannequin whitewash”… after a few pages it’s hard to determine one uber expensive brand from the next.

Yet with their unique story telling, Monocle helps luxury brands break free of the conventions, giving them a new opportunities to reveal their past, and shape their future.

Opportunity: Shake off the tired conventions of luxury marketing. Tell old stories in new ways.

A Luxury Truth - A Recent Article by Kevin Roberts

2009-08-13T11:44:00.005-04:00

This global recession is a moment of truth. Industries once thought bullet proof have been shot to pieces, and some companies have been caught living a bold face lie. Warren Buffet says: "It's only when the tide goes out that you learn who's been swimming naked." A true story; there are plenty of cases of indecent exposure.

Nouriel Roubini, the economist who predicted the recession, says even if we do everything right, things will only get worse. OK, but I prefer my eggs sunny side up. The way to flip them is to start with the answer and work back. The answer, if you want to understand or shift behavior, lies in understanding not what people are doing in these tougher times, but how they are feeling.

I'm a passionate lover of Italy and its luxury fashion houses, so consider what's happening at the top end of town.

Luxury brands are hurting. The spending behaviors of luxury consumers are distinctive, but arctic winds still penetrate the insulation in those fur-lined jackets. As recession deepens, even wallets made by Berluti open less often. There are less luxury consumers with money to spend and they are spending more cautiously.

In the US, luxury hotel bookings are down 24% and sales for luxury auto brands are down to 1996 levels. This is a widespread problem.

Top end to low end, there is a new sensitivity to price, and yet I don't see price as decisive. Every income bracket knows that price and value are not the same thing. Price is what companies put on the tag; value is what consumers feel they get out of the experience, and, people from all walks of life are seizing control of that feeling.

Consumer sentiment is shifting. People are evaluating their habits and familiar ways of choosing and using. They want to experiment with fresh ideas and opportunities as they redefine what value can mean. And they can juggle stuff, indulgence and health; novelty and familiarity; time and money; shopping more and spending less.

And of course we're more connected than ever before. The search for value is no longer about private discipline. It's gone social and viral.

The affluent are a part of all this. A Ferrari driver feels admiration or admonishment as much as a skateboarder. No wonder some luxury customers reportedly have been asking cashiers at pricey boutiques to put their purchases in "plain bags."

How do you build a luxury house in this environment? Reducing prices is not recommended. For one thing, it awakens the commodification monster. For another, the very wealthy may be buying less, but they aren't reducing their standard of living. In a recent survey of the superrich, 82% said they would make fewer purchases, yet 72% said they'd make "more upscale" purchases.

You'll find the answer lies deep in the value equation, in shifting from price to priceless. In logic-laden times, true luxury customers will always pay for what is rare and special. Value is in a purchase that feels personal, unique or original, or gives access to knowledge or wisdom. It's there in a purchase with immediate impact, a "wow". And in purchases that respect or give back time, and have utility.

As recession deepens, value becomes about something more. More than a product, more than a service, more even than a brand. It's something not just irreplaceable, but irresistible. We call it a Lovemark, a brand with loyalty beyond reason. These are the brands where you say: "I'll make sacrifices before I give this up."

The shift in luxury will be from value to meaningful value, where brands make an increased effort to connect with consumers around shared interests. By responding to what people value most in these times with what brands can uniquely or best deliver, you attract. This way, luxury shoppers ask for branded not plain paper bags.

It's about balancing high status with a definite value proposition, about responding to needs and wants. It's about a long term relationship, not a one night stand. I think the next luxury stars will frame indulgence with universal values like experience and wisdom.

And it's about ideas, generated through new and surprising insights to make the connection. True luxury brands gain share through recessions because they innovate. Flexjet reframed its private jets from a luxury item for rich people to a valuable business tool.

In a downturn Apple doesn't purge staff or stop innovating. Instead Apple invests heavily in R&D, because their premium is creativity.

In December 2008 Apple had their first decline ever in year over year sales of computers. But in the third quarter of 08, Apple's sales were up 6%, cracking the 10 billion mark for the first time.

Apple stores haven taken in $4000 of revenue per square foot of retail space. That compares with around $700 at Saks Fifth Avenue. But what Apple delivers to consumers in the store is value at every point, whether shoppers buy or not. This is in Apple people interacting with you - behind the Genius Bar and on the floor. Information, stimulation and entertainment - irresistible!

Lovemarks open a priceless and shared space, and each time you enter, it's more luxurious than the last. I'm with Robert Polet, Chairman of Gucci Group. "You cannot put a price on a dream."

Past, Present and Future

2009-08-12T13:06:00.003-04:00

I spent the morning with Jody and Peter at their home in Westchester, CT. These two have an eye for originality and style, their home is filled with amazing art works they've collected over their lifetime, and their cupboards are filled to the brim with vintage Hermes, Chanel and Gucci. Every piece has a story and a history. You won't find 'throw away fashion' in this house.

"If I'm going to buy, I want something that is excellent quality, I want craftsmanship. Why waste money on crappy stuff?"

This attitude goes beyond the wardrobe and into the kitchen. It even applies to ice cream "Haagen Dazs has the best vanilla, it's the true test of a good ice cream if they do vanilla well. There's no bells and whistles to hide behind."

Their home is laid back - filled with a constant stream of family, friends and dogs - yet you get the feeling that everything in it has been thoughtfully selected and has a special value.

"When I buy for the kids I like to think that they might keep those pieces for a long time.... they might pick up that scarf twenty years from now and remember when I gave it to them. "

Truth: Craftsmanship, quality and originality are sometimes forgotten in today's fast changing, tech loving world. We've been living in a 'throw away' culture, but times are changing again. People are seeking those things that have a past and a future, those things that have the quality to endure.

Opportunity: Craft a future from the past.