THE BULLETIN: Monthly analysis of the luxury headlines, August 2009

From the oscillating fine wine market to designer brand debt plans, Robb Young probes beneath the month’s headlines and asks how the luxury industry should weigh up the arrival of m-commerce and compact cars.

Luxury Cars Get More Compact

When it comes to the automobile, size has always been a gauge of luxury. So when Aston Martin announced the specs for its new Cygnet model, market observers knew something was afoot. A tiny 1.0 litre hatchback that takes three times longer to accelerate from 0 to 60 than the sexy Aston Martins in a James Bond flick, the Cygnet doesn’t exactly measure up to the classic definition of a luxury car. It’s an ultra compact, fuel-efficient commuter vehicle with an estimated price tag of around only £20,000 ($32,800). Touted as a “luxury commuter concept” with Aston’s craftsmanship and brand values, the Cygnet is no doubt a step forward in terms of environmentally-friendly design but, for many, it may involve too great an aesthetic sacrifice. Unlike the launch earlier this year of the Ghost, Rolls Royce’s “baby” Phantom, the Cygnet isn’t a humbler version of a classic. It’s a car for the masses marketed as “affordable luxury”. Will it be ridiculed as diluting the Aston Martin luxury cache or applauded as an eco-luxury breakthrough?

Sources:
The Telegraph – 29 Jun 09
The Times – 30 Jun 09
CPP Luxury – Jul 09

Repositioning Shanghai & Barcelona

Two cities are on the hunt for luxury travellers. For one, it’s a matter of reclaiming an opulent colonial heritage; for the other it’s about highlighting slick, five-star urban amenities. Both Shanghai and Barcelona are hoping that a spate of luxury hotel openings will be the key to capturing the top end of the tourism market. The Peninsula and Hyatt have recently bowed on the Bund in Shanghai and the iconic Peace Hotel is also due a major refurbishment. But the building boom is not exclusive to the big hotel groups either. Many new boutique hotels and independents like the Zendai Hotel Yin are being constructed in the anticipation that the Shanghai “brand” will move even more upmarket after the World Expo there next year. In Barcelona, the W and the Mandarin Oriental will open in the coming months as the city hosts the Travel Convention including a standalone Luxury Travel Forum for the first time at the event. Tourism representatives in both Shanghai and Barcelona believe their cities have been underserved and underestimated by the luxury hospitality market so we can expect bold campaigns and promotional activities in the coming year.

Sources:
ABC News – 7 Jul 09
Luxury Travel Magazine – Jul 09
TTG Live – 2 Jul 09

American Fine Wines Feel the Pinch

Steep discounts, falling sales and tight credit are plaguing high-end American vintners. Although Americans’ interest in and consumption of wine is at an all-time high, the recession is having a profound effect on the top end as consumers continue to trade down. According to Jon Fredrikson, an industry consultant with Gomberg, Fredrikson & Associates who spoke to the WSJ, the total volume of wine sales in the US rose about 5% in Q1 of this year, but bottles priced at $25 and up fell about 12%. Retailers, distributors and luxury restaurants are pressing for steep discounts to try to shore up demand, but vintners fear that prices may never recover. Compounding the problem is a growing interest in New World fine wines from South America and Australasia that will stiffen competition even further for Napa’s vintners. And all international fine wine producers should pay close attention to the consumption trends of Americans who are forecasted to become the single biggest market for wine by next year.

Sources:
Wall Street Journal – 8 Jul 09
Bloomberg on AOL – 9 Jul 09
Pulling The Cork – 8 Jul 09

Luxury Shopping Fairs in Identity Crisis

Critics call them brazen symbols of excess and greed that are out of step with the times. But this hasn’t stopped a handful of VIP luxury shopping fairs from carrying on with business as usual – or has it? Last month, extravagant novelty items grabbed the headlines once again, like the 30 bottles of Exousia Gold Luxury mineral water that were sold for €2,000 ($3,280) each at the Deluxe fair in Porto Cervo, or the rare wild African Serval breed of kitten that sold for $15,000 at the Millionaire Fair’s summer event in Moscow. Sportscars, yachts, mansions and diamonds are supposed to be the mainstay of such fairs but, at a time when flaunting wealth is seen as gauche, some wonder if spectacle is the right marketing strategy to pursue. A more worrying sign is that many exhibitors of the big-ticket items seemed less than enthusiastic about sales figures — even if organisers tried to remain upbeat by talking up visitor numbers.

Sources:
Wealth Bulletin – 29 Jun 09
Moscow Times – 29 Jun 09
AME Info – 28 Jun 09

Green Luxury Movement Gets Meticulous

Titans like LVMH and PPR may be making grand gestures towards sustainability through their support of The Climate Project and films like “Home”, which highlights man’s impact on nature. But the luxury green movement is also headed in another direction, as consumers grow increasingly concerned with the finer points. According to research firms like Datamonitor, sustainable packaging will no longer be an added enticement to buy, but will, instead, become a core consumer expectation. The implication for fast-moving luxury goods using a lot of packaging like perfumes and cosmetics is obvious. In the travel and hospitality sector, eco-certifiers are asking operators to go the extra mile to earn their green credentials as well. Sean Brennan, general manager of the Alila Villas Uluwatu resort in Bali that was built last month in accordance with EC3 Global’s “Green Globe” criteria, recently told Reuters that operational performance is as important as eco-design. “There are only three items on the menu that are not locally sourced — the beef, the lamb and the cheese.”

Sources:
Premium Beauty News – 21 Jul 09,1086
Wall Street Journal 2 Jul 09
Reuters – 13 Jul 09

Couture on the Defensive

July, of course, means haute couture week. And July during a recession means a lot of couture bashing. The mass media, long alienated by the idea of six-figure gowns sprinkled with diamonds, went in turn throwing a few timely punches. “During a recession, how do you hawk a dress that costs more than many cars?”, asked Jenny Barchfield, an Associated Press writer for ABC News. The Boston Globe picked up the same story but chose a more disparaging headline: “Lingering global recession brings haute couture down a few pegs.” Closer to home in Paris, Dominique Schroeder of the Agence France-Presse predicted a “sombre haute couture week ahead” and in Italy reporters were using the word “crisi” more to describe the future of couture than the economic crisis itself. This season, the media was full of added pessimism with one of the most distinguished couturiers, Christian Lacroix, filing for bankruptcy. The fashion trade paper WWD was one of the few publications to make a sympathetic report, noting some concrete (and encouraging) figures suggesting that couture isn’t on its deathbed after all. Couture will probably have to downsize and reorient itself to survive, but one couturier’s failure (or one recession, for that matter) doesn’t make an entire industry redundant.

Sources:
ABC News – 7 Jul 09
The Boston Globe – 7 Jul 09
AFP on Google – 3 Jul 09
WWD – 6 Jul 09

Fashion’s Leading Labels Do Property

First they licensed their brands to high-end home furnishings, then they co-branded with hotels, and now they’re venturing into the property game. By expanding their reach to luxury residential complexes, villas and tower blocks, fashion designers are making the leap from purveyors of clothes to lifestyle gurus who conceive the spaces we inhabit. Last month, Giorgio Armani was commissioned to design interiors for 62 apartments across six interlinked buildings in Rome’s historical quarter, scheduled for completion next year. The designer has a similar deal to kit out 44 residences in the Burj Dubai tower. Last year, Fendi Casa was awarded a €50 million ($71 million) contract to design and furnish Al Mazaya’s Sky Gardens project at the Dubai International Financial Centre. Also in the emirate, Karl Lagerfeld is designing 80 “couture homes” for Isla Moda in The World archipelago while Versace is creating 169 private residences in the mixed use Palazzo Versace estate overlooking Dubai Creek.

Sources:
Reuters – 10 Jul 09
Trade Arabia – 1 Jul 09

Local Luxury Sets Standards & Gets Organised

In countries where the traditions of luxury long ago evolved into luxury brands, associations eventually sprung up to pool resources, set standards, promote values and collectively lobby for their members. The Comité Colbert, Altagamma and Walpole are now internationally-recognised organisations operating in France, Italy and the UK respectively. But in other markets where local luxury firms are only beginning to emerge onto the world stage, nascent associations are taking shape together with debates around the very definition of local luxury. In late June, the Southern Africa Luxury Association (“SALA”) was officially launched by Piers Schmidt, chairman of Luxury Branding (and a member of Luxury Society). Schmidt believes that now is the moment to nurture some of South Africa’s up-and-coming local luxury goods and services. In South Korea by contrast, merchants of luxury goods have controversially gone on record saying that Korean firms are not yet on par with international brands’ stringent standards. But do watch this space, for it’s only a matter of time before such sophisticated luxury consumer markets begin to churn out successful luxury brands of their own.

Sources:
The Times (South Africa) – 17 Jul 09
Southern Africa Luxury Association
Korea Herald – 17 Jul 09

New Mobile Applications Launch

Over the years, convenience has increasingly become an important aspect of good luxury service — and technology is often the way we get it. Now that the convenience of ecommerce has finally persuaded most luxury firms to go online, the same visionaries behind the revolution are poised to profit from shopping via our mobile phones. Net-A-Porter is banking on a cultural shift whereby users spend less time at their computers and more on handheld devices. Its newly launched iPhone application Net-App makes it possible for customers to buy whenever, wherever they choose. M-commerce (mobile commerce) was embraced by Polo Ralph Lauren last year and, according to WWD, Galeries Lafayette is also raising its m-commerce profile. In other handheld news, Quintessentially, the luxury concierge service, has just expanded its city guide application from an exclusive offer with iPhone to include BlackBerry users. The guide features 47 cities across the globe including Rome, Amsterdam, Hong Kong, Singapore, Buenos Aires, Beirut and Paris, giving travellers regular updates on restaurants, hotels, special events, city navigation and other tips.

Sources:
New York Times – 19 July 09
WWD – 14 Jul 09
Business Traveller – 30 Jun 09

Iconic Brands in Zero Sum Debt Game

The black cloud of insolvency looms overhead for one of the fashion industry’s most famous brands. Escada has been trying to convince its bondholders to agree to a debt restructuring, prompting executives to extend the deadline for an 80% approval rate in order to raise €29 million and avoid insolvency. Most analysts believe that if Escada offers bondholders a better deal it will find a way out — something that the New York jewellery brand David Webb unfortunately couldn’t achieve. Six decades of design came to an abrupt end last month when a cash-flow crisis caused the Silberstein family to shutter its business. Debt is even crippling luxury leviathans like Valentino, whose owner Permira is in negotiations with banks over €2.5 billion. Observers are carefully monitoring luxury sales figures as plummeting revenue has been one of the biggest contributors to the debt crisis.

Sources:
Reuters – 14 Jul 09
Financial Times – 21 Jul 09
WWD – 29 Jun 09
National Jeweler – 25 Jun 09
Financial Times – 29 Jun 09