A very interesting IHT article on luxury goods, from
www.iht.com
America's take on "new" luxury
By Katie Weisman International Herald Tribune
MONDAY, DECEMBER 5, 2005
NEW YORK That luxury goods are enjoying a buoyant market is a given. What's harder to define is why consumers at so many different income levels are in hot pursuit of relatively expensive things they don't really need.
The reasons, in fact, are as varied as the kind of luxury goods people are buying, from the ubiquitous $1,000-plus designer handbag to the $6.3 million three-bedroom apartment on The World cruise ship.
"It's about 'luxe in flux'," says Todd Myers, the lead consultant at Faith Popcorn's trend forecasting consultancy BrainReserve in New York which focuses on the American market.
Luxury is being defined in new ways and that definition evolves constantly with ever-shifting demographics, socioeconomics and the geopolitical climate, luxury observers note. Furthermore, the definition of luxury is not only objective, but also subjective depending on the buyers' personal circumstances.
Michael Silverstein, senior vice president and global consumer and retail practice leader at The Boston Consulting Group and co-author of "Trading Up: The New American Luxury," notes the emergence of "new luxury goods," pointing out that a Victoria's Secret bra and panty ensemble, priced at around $80, represents a luxury purchase for a modestly paid office assistant as does a Subzero refrigerator-freezer for a high-income household. These "new" luxury items are in contrast to "old" luxury brands such as Hermès, Cartier or Gucci. Basically, there is more stuff available that could be considered luxurious from the U.S. consumers' point of view. "The market for new luxury has completely broadened and appeared in the most unlikely places," Silverstein says. "Who would have guessed that the world 'needed' a Starbucks coffee provider with $6 billion plus in revenues?"
The cliché used to be that fragrances were the point of entry into a traditional luxury label's domain. Over the past decade or so, designer eyewear has become a luxury category with relatively easy entry prices. More recently, watches, often further up the price scale, have also gained importance as a symbol of luxury, notably in the United States, compared to Europe where watches have been a traditional form of luxury, notes Ravi Dhar, the director of the Center for Consumer Insight at the Yale School of Management.
"You can't drive your Porsche into the boardroom, but you can distinguish yourself with a watch," says Dhar. Here, there is a mix of conspicuous consumption and the feel-good factor of wearing a great watch.
One way the notion of luxury has entered people's vocabulary is via the media. The increased availability of celebrity magazines or celebrity television programming, in addition to coverage in more traditional consumer glossy publications, means that more people know what's available.
"A Prada handbag used to be only seen by a limited audience," observes Myers. "Now, with mass media and celebrity rags, a person in Iowa knows that handbag and who wore it. The democratization of the media has propelled luxury to the masses and consumers have the desire to be part of something more glamorous."
"Eighty percent of Japanese women own or have bought a Vuitton bag," says Pierre Chandon, a professor of marketing at the Insead-Wharton Business School Alliance. "This is not to distinguish themselves from the rest, but to show that they are part of the group."
Of course, to buy either "new" or "old" luxury goods requires disposable income and this has been on the rise: most rapidly in the United States and Asia and more slowly in Europe.
In the United States, luxury observers note, there are four million households that have an income of more than $1 million. It is this population that is driving the ultra-high end of the luxury sector. At the same time, Silverstein estimates that there are 48 million households in the United States earning between $50,000 and $150,000. "That's the driving force behind the democratization of luxury," he says.
In addition, consumers are bombarded with stimuli encouraging them to buy. "The organization of selling is key. Stores are dream palaces; Web sites are windows; advertisements have perfected the vision and language of dreaming; and dreaming is a source of innovation," observes the sociologist Sharon Zukin of the City University of New York and author of "Point of Purchase: How Shopping Changed American Culture."
"Consumers are bombarded with inducements to buy and this constant motor leads to luxury purchases since consumers can visualize themselves as better for having bought a particular good," she said.
The self-improvement factor is supported by Silverstein who credits the "the growth of emotional icons - Oprah Winfrey - and her encouragement to take care of yourself."
"The real paradigm shift occurring in the luxury market that signifies new luxury is the consumer-centric way people are defining luxury as an experience or feeling," writes Pamela Danziger, founder of Unity Marketing, a consultancy specialized in consumer marketing, in her recently published "Let Them Eat Cake: Marketing Luxury to the Masses - as well as the Classes."
"Old luxury is about the thing whereas new luxury is about the consumer's experience," she continues. The brand becomes irrelevant because what matters is what it delivers.
This explains why so many goods for the home and living fall under the luxury heading. And why so many luxury goods are being marketed as necessities, as opposed to coveted dreamy things.
"It's not about conspicuous consumption at all," says Silverstein. "Most of the goods are personally consumed. The new bathroom with the soaking tub, elaborate shower, wall of windows and mirrors is a place of refuge for a working woman who has few moments to really relax."
The only way for luxury brands to survive when the very definition of luxury is constantly shifting is to be consistently innovating, observers note. This is particularly important when courting the super rich. "The super rich have always stood out from everyone else, but the distance has shrunk," notes Myers. "They want to continue to distance themselves."
Observers have a fairly positive outlook for the sector. The Boston Consulting Group estimates that the global market for new luxury goods is $500 million and will reach $1 trillion in 2010.
Yet Myers sees another scenario less lucrative for luxury makers: leasing.
"One big thing we're seeing with luxury is that consumers don't see the need to own anything anymore," he says. The attitude is: "Why do I need to buy a Porsche when I can lease it for $300 a month?"
"The consumers watch what's going on at the Academy Awards with all the borrowed dresses and jewelry. It's not real," Myers continues. "They ask: If the stars can do it at that level, then I can do it at my own level. Why should I make this investment?"