Maximum Luxury
As luxury brands move into the mass market, they need a new way to make the superrich feel special. Welcome to the 'experience economy.'
By Rana Foroohar
Newsweek International
July 25-Aug. 1 issue - The old lexicon of luxe hardly serves to describe the Celux Club, located inside Louis Vuitton's Omotesando building in Tokyo. The few hundred fashionistas, artists, celebrities, and other trendsetters deemed cool enough to pass the rigorous admission process and pay their $2,000 membership fee need a swipe card to enter the store. Once they’re inside, the shopping is epic—not only can members purchase the latest LV products, but they also get first dibs on limited-edition fare from other top brands. But Celux is more than just shopping—in recent months, members have enjoyed a lunch party with a sake master and watched the debut of the latest “Star Wars” in Japan (a week before 20th Century Fox’s own premiere). Next year the club will dip its toes into the ultra-high-end real-estate market, opening up a custom-designed apartment nearby.
This kind of luxury experience is the future. We're not saying that every big boutique will have 87 restrooms and a helipad like the newly remodeled Daslu store in São Paulo. But because goods at all levels are increasingly being commoditized, luxury shopping will have to move beyond simply offering expensive goods in a reasonably pleasant environment. To be successful, luxury brands must transform themselves from manufacturers and purveyors of fine goods into topnotch services that can make even the wealthiest elites feel more pampered and unique. In this Special Issue, NEWSWEEK explores this emerging redefinition of one of the world's most high-profile industries.
They'll still offer made-to-order suits, handcrafted bags and fabulous jewels—but will also toss in a day of indulgence in a private garden, membership to an in-store club, access to exclusive art exhibits and film screenings or purchases hand delivered anywhere (cab, airport, private island). Art and commerce will blur, as top architects create stores that attract sightseers, and brands fill their spaces not only with clothes, but with art.
Some companies may even move into new service industries—witness the recent launch of Armani- and Bulgari-branded hotels. Of course, the treatment of customers—which currently varies dramatically—will have to be stellar from start to finish. "If I'm going to spend thousands of dollars on something, I want the whole experience to be a fairy tale," says Milton Pedraza, head of the Luxury Institute, a market-research firm in New York that tracks the preferences of the world's wealthy. "We're living in the experience economy, and the customer is the star of the show."
The transition is already well underway, driven by the commoditization of goods from T shirts to $10,000 tote bags. The rich are getting richer, and there are more of them, creating demand that luxury-goods companies like Hermes, LVMH, Armani, Gucci, Tiffany, Prada and many others have rushed to fill. From the mid-1990s onward, the size of the major luxury brands exploded, as did their stock prices—during 1999, their record year, luxury indices climbed 144 percent, according to Bear Stearns. Top brands doubled their capital spending, building megastores and turning the shopping districts of cities like New York, London, Paris and Milan into luxe theme parks.
Now that consumers in the West can get great design practically any place (megastores, airports and High Street shops are hiring top-end fashion figures like Isaac Mizrahi and Karl Lagerfeld), luxury brands have shifted their attention to emerging markets. India, Russia and South America are booming. Analysts now forecast that China will be the world's most important luxury market by 2011. But by bringing luxury to the masses, brands like Armani have put themselves in a tricky position. As more products become available to more people, the pressure increases to offer something truly special. "Even as brands have tried to guard their luxury positions, they have also had to become more available to grow. You walk down the street in New York, and every fourth woman is carrying an Hermes Birkin bag," says investment banker Gail Zauder of Elixir Advisors, referring to a famous handbag with a two-year waiting list.
Couple this with the rise of fast fashion rip-offs of haute couture at stores like Zara and H&M, and it's no wonder that some of the wealthiest consumers in developed markets are beginning to spend their money on experiences like elite travel, spas or dining, rather than on goods that have lost the patina of exclusivity. In the United States, a fresh pool of aspirational customers (mainly wealthy minorities, baby boomers and Middle Americans new to luxury) has boosted sales in the short term. But the ultimate trend line in the Western world is downward: Merrill Lynch predicts that U.S. luxury sales will slide from 25 to 17 percent of the global market over the next 10 years. Europe will go from 26 to 20 percent over the same period.
That means that in much of the world, growth for luxury brands will come from grabbing market share from their competitors. In many cases, that means a return to what made luxury products desirable in the first place—their uniqueness. It's no accident that one of the fastest-growing brands of late is Bottega Veneta, owned by the Gucci Group. Its beautifully crafted leather goods have no logo, and its slogan, "When your own initials are enough," appeals to the top end of the market. Gucci CEO Robert Polet says sales were up 54 percent last year to 100 million euro, and he hopes to increase that fivefold. But after that, he says, "We'll let it level off. Not every brand should be a billion-euro brand."
Luxury brands are also padding the shopping experience by increasing their production of bespoke products. At the jewelry house Boucheron, sales of custom-made products are rising 15 percent a year, and it's not unusual for designers to work with customers for as much as two years on the creation of a product. The wildly successful American accessories company Coach spends $3 million a year on consumer research, with 5,000 top customers advising on prototypes.
Even when customized products don't contribute directly to the bottom line, they can help a company rebuild its image. When Burberry's distinctive check pattern was commandeered by C-grade pop stars, the label fought back by launching a limited-edition clothing line. Louis Vuitton makes most of its enormous margins on its off-the-shelf handbags, but likes to play up its origins as a bespoke luxury-goods maker. Says CEO Yves Carcelle, "You can come in and ask for a case for your violin, or if you are a tea master, perhaps a box for your tea set. You can have whatever you dream."
Increasingly, you can have it all in comfort, with entertainment thrown in. Customers in Louis Vuitton's Tokyo Omotesando store, for example, can relax with a glass of champagne and put their feet up in a VIP room. In Japan, which has the most developed consumer culture in the world, designer shops are tourist landmarks, many with eye-popping extras, like the Hermes art museum on top of its Ginza store. Prada's "epicenter" stores feature high-tech amenities like changing-room doors that can be frosted for privacy, then illuminated to display an outfit to onlookers. The company's New York store, designed by Dutch architect Rem Koolhaas, recently hosted screenings for the Tribeca Film Festival.
Prada, perhaps more so than any major luxury brand, has figured out clever ways to elevate clothes beyond commerce. Its new perfume was launched in a short film by Ridley Scott. For a show in Shanghai this May, Prada skipped the catwalk and scattered a collection of skirts around the landmark Peace Hotel—in the hallways, on the stairs, in the rooms. Marketed as an art exhibit, the display generated enormous buzz. "It gave us the opportunity to interact not only with fashion people, but with curators, media, business people and politicians," says Prada CEO Patrizio Bertelli—a clever way into a communist country with little fashion press. Boucheron, which recently launched its own store in Shanghai, took another route—it invited the 30 wealthiest people in the city to a four-hour, 10-course French dinner.
While such events are really the icing on the cake, some brands are launching entirely new service businesses to cater to consumers' longing for luxury experiences. Bulgari, the Roman jeweler, now has a branded hotel in Milan, and is launching another in Bali. Armani, which already runs a luxury mall on Milan's Via Manzoni complete with various branded shops, restaurants and a chocolatier, now plans to open its own hotel chain in 2008, starting with Milan and Dubai. Is this the start of a more profound shift in the luxury business, away from manufacturing and toward pure service? "Already, wealthy people have fractional ownership of things like jets, cars and boats. Why not jewelry, too? Why not clothing?" asks Pedraza of the Luxury Institute. "I could imagine luxury companies offering memberships that would allow people the use of all sorts of luxury items. After all, this stuff tends to depreciate."
Of course, there will always be luxury items that get better with age—heirloom jewelry, a vintage couture suit, a handcrafted leather trunk. But as the world gets smaller, most objects will continue to shrink in value. Time, and what we do with it, will only become more valuable. Viewed in this light, all luxury goods—even the kind sold at retail temples like Daslu—feel a bit beside the point. What is exciting is the possibility of adventure, and discovery, that a well-crafted shopping experience can offer.
It's no wonder, then, that the freshest concept to hit the luxury scene in recent memory are the "guerrilla" shops of Rei Kawakubo's Comme des Garcons. They open and close within a year in offbeat places including Warsaw, Helsinki and Ljubljana, Slovenia, as well as unfashionable areas of Hong Kong and Berlin. Opening costs are less than $2,000 per store, and no fashion people are involved—the company hands out clothes to eager entrepreneurs, who have included a Finnish linguist, a Chinese musician and a Polish statistician. The spaces have been used not only to sell clothes, but to show art, produce music and put out magazines. They are, of course, a huge hit with the fashion crowd. Comme president Adrian Joffe says he "wanted to give people an adventure." The lines outside these shops prove that a thrill is exactly what people are looking for.
From msn.com. I thought it was quite relevent to the discussion, although very looooong.
I realise that a part of my joy in shopping is just browsing in a nicely laid out shop. 
