THE BULLETIN: Monthly analysis of the luxury headlines, Jan. 2010

Rounding up the month’s headlines, Robb Young ponders the meteoric rise of an eccentric luxury industry muse, personality clashes with the publicity machine and botanical DNA as a weapon against counterfeiting.

Superstar Artists Fall Out of Favour

It should come as no surprise that controversial artists like Damien Hirst and Jeff Koons find their stars waning as a result of the cautious buying patterns steering the art market at present. They were always a very acquired taste, after all. What is extraordinary is just how much prices for their works have fallen – by up to 50% in some cases. Is this a momentary bust after the boom decade attributed to economic woes or could it be a sign of collectors’ ennui for their flashy and flamboyant approach to art? The Fine Art Fund’s CEO told Bloomberg that speculators are sitting on major losses for Hirst and some dealers are predicting that it could take ten years before Hirst prices recover to pre-recession levels. Right on cue, as if to confirm that rare modernist classics have supplanted the work of these wunderkinds, art pundits are estimating that one of Alberto Giacometti’s sculptures will sell for $19-29 million at Sotheby’s auction of impressionistic & modern art next month.

Sources:
Bloomberg – 30 Dec 09
Affluent Page Luxury Index – 8 Jan 10
The Art Newspaper – 20 Jan 10

Hotels Struggling with Customer Expectations

Some luxury hotel chains have found themselves playing a dangerous game since the recession hit. Facing declining occupancy and revenues across much of the sector, managers have increased the number of extravagant service perks offered to lure in high spenders while cutting corners and costs in “less perceptible” areas such as fewer toiletries and downsizing staff. But while strategies conceived to simultaneously boost occupancy and reduce costs might be necessary for short term survival, they don’t go unnoticed. Guests have been sounding off recently about the contradictory messages and questioning hoteliers’ priorities. Referring to the exorbitant rates that some luxury hotels charge for internet access and the prevalence of poor wi-fi connectivity, a Washington Post columnist recently summed up the mood in an angry tirade, concluding that “business travellers need to start showing some outrage.” The Dorchester may not be among the hotels that the columnist was bemoaning, but perhaps the entire sector could do with reviewing exactly how customers define “the basics” before launching in-room designer “shop till you drop” packages and the like – popular though they undoubtedly are.

Sources:
Elite Traveler – 2 Jan 10
Washington Post – 1 Jan 10
Cater Search – 1 Jan 10

Market Access: Horse Riding, Hunting and Guns

From references of side saddle riding habits on Dior’s couture catwalk to the battle between Hermès and Gucci to sponsor jumping and racing events, the veiled language of equestrianism could be heard all around Paris last month. Hermès, which has long been the undisputed market leader in this niche, announced the dates for its upcoming Le Saut Hermès at the Grand Palais just after Gucci resuscitated its equestrian heritage through The Gucci Masters event held at Parc des Expositions in Villepinte. As a result of such high-visibility crossover initiatives, other country sporting goods firms are enjoying a wave of outside interest in their specialist lifestyle market – or beginning to make their products more accessible to cash in. Richemont is adapting technology used in Cartier’s watches to bring prices down at James Purdey & Sons for a range of entry-level rifles. And on the other side of the coin, Musto, the British active wear brand specialising in clothes for shooting, sailing and riding, has scored a design collaboration with Zara Phillips, Queen Elizabeth’s granddaughter and an equestrian champion, which should help it climb upmarket.

Sources:
Vogue UK – 25 Jan 10,8635
WWD – 22 Dec 09
New York Times – 14 Dec 09
Agenda Inc Blog

Luxury Brands Fascinated with Daphne Guinness

She may not buy as much couture as some of her more matronly peers but the blue blooded heiress to the Guinness fortune can certainly afford it. The difference is that she’s probably harder to please than most – and far more inspiring too. Couture hasn’t enjoyed a client-muse as exciting as Daphne Guinness in a long time. At the Anne Valérie Hash show last month, the designer was so taken with the Irish aristocrat that her collection included an ‘artisanal’ piece deconstructed from a jacket Hash had Guinness donate for the occasion. Guiness is simply everywhere these days. Comme des Garcons asked her to collaborate on a fragrance; Akris cast her for its current campaign; and adding another feather to her cap, she sat for a shoot with David LaChapelle in a vintage Maybach at Art Basel. In a long line of socialite collaborators who have become creative forces in their own right like Lady Amanda Harlech for Lagerfeld or Loulou de la Falaise for YSL, Guinness stands out as a more eccentric spirit who is as popular in the art and design words as she is in fashion. She may already be on the verge of being overexposed but her fascinating background, outrageous style and artistic flair will certainly attract the attention of many more luxury brands in the years to come. For as the French philosopher Bernard-Henri Lévi told her not long ago, “You are no longer a person, you have become a concept.”

Sources:
The Independent – 4 Jan 10
WWD – 22 Jan 10

Mergers, Acquisitions, Appointments & Buyouts

January may be the month for resolutions, renewal and clear-outs but, contrary to what you’d expect, it has been a quiet month for mergers, acquisitions and executive appointments. The markets have begun to stabilize, economies are pulling out of recession and most firms still aren’t too keen on taking more risks in HR than they have to. But despite all the signs for optimism, bankruptcy still looms over several luxury firms – most recently for the holding company which indirectly controls Italy’s Mariella Burani Fashion Group. Puma, meanwhile, has sold back its majority stake in Hussein Chalayan’s eponymous business to the designer for an undisclosed sum (though Chalayan will continue to serve as the German sportswear brand’s creative director). After 25 years in the firm but less than two years after he took up the top spot, Jaguar Land Rover’s CEO, David Smith has stepped down leaving Tata Motors managing director Ravi Kant to fill in until a successor is found. LVMH’s 2009 acquisition, the ethical fashion brand Edun, has named Sharon Wauchob creative director which is widely seen as a clever move that will push the brand toward a more fashion-forward aesthetic without alienating its core market.

Sources:
WWD – 8 Jan 10
Reuters – 11 Jan 10
Wall Street Journal – 25 Jan 10
Draper’s – 20 Jan 10

Upmarket Publishers Frantic to Adapt

In what it characterizes as a major “culture shift”, Media Week has revealed that not all of Condé Nast’s strategies to adapt to the digital revolution will be quite so high-tech or high brow. Sources suggest that the global publishing empire will begin licensing some of its portfolio through an aggressive brand extension phase. It has been reported that several of its magazines will partner with consumer goods in categories that overlap the magazines’ target markets. Titles at the top like Vogue will probably be spared but Wired, Lucky and recently shuttered magazines like Gourmet could offer additional revenue streams to offset declining advertising and circulation figures. The group is so anxious that CEO Chuck Townsend is said to be offering a $10,000 prize for employees with ideas to improve the company and assigning editors the responsibility of generating new revenue alongside management. GQ and Hearst’s Esquire have introduced iPhone versions of their magazines and both publishers have high hopes for recouping subscription charges once they’ve adapted their titles to the tablet computer format that’s due to launch. Meanwhile, Vogue has partnered with luxury e-retailer, The Gilt Groupe, to hold “Shop The Issue” sales where items featured in the magazine can be bought directly online through a promotion. Although the business model is not clear, presumably Vogue will take a cut from Gilt’s sales in return for driving traffic to the site.

Sources:
The Fashion Beat – 4 Jan 10
Brand Channel – 16 Dec 10
Media Week – 24 Jan 10

The Puzzle of Pitching Ads

Creating successful images for luxury ad campaigns is hard enough. Take a recent WWD article about the American knitwear company St. John, in which the CEO conceded that, in hindsight, Angelina Jolie had actually “overshadowed” the brand during the years she fronted its campaign. The recession ushered in whole new set of challenges. For one, how do you pitch extravagant products to wealthy customers suddenly concerned with their shrinking status and pocketbooks? Louis Vuitton’s answer, as seen in its latest campaign, was to highlight the brand’s artisanal heritage in a Vermeer-esque campaign that captures the “making of” its leather goods instead of a glossy image of a finished product. Consider that the number of advertising outlets has also increased exponentially and the net effect is even more puzzling. Media planning these days can be a right muddle. Digital ad spending is now as much as 50% of the pie, according to agencies like KraftWorks, which creates campaigns for Ralph Lauren Collection and Calvin Klein Jeans. But just how much should brands be spending online? And more to the point, how? Is there a future for print? What about bold formats like the giant digital billboards that were been erected over a London expressway last month that debuted with a Dior ad?

Sources:
Financial Times – 5 Jan 10
Marketing Week – 4 Jan 10
WWD – 6 Jan 10
Reuters – 8 Jan 10
Go Go Paris – 11 Jan 10

Scientific Breakthrough May Combat Counterfeiting

As Burberry’s latest legal skirmish demonstrates ($1.5 million in compensation for a dozen fake items sold by an online import merchant), the stakes are only getting higher when it comes to counterfeiting. While luxury brands are more and more aggressive – and successful – at litigating against secondary parties involved in the illicit trade, experts predict that the annual global trade in illegitimate goods will be worth $1.2 trillion in just four years, double what it is now. Richemont and Gucci Group are about to collect $300,000 from the Bank of China for its role in a 2007 trademark infringement settlement against a Malaysian merchant who used an account at the bank to receive payment for phony luxury goods. But the cost of monitoring, pursuing and prosecuting offenders is steep – and one that firms would like to minimize. Hence any deterrent is welcomed by the industry. One technique that claims to make the identification of fakes easier is about to be trialled by an unidentified European luxury brand, according to the CEO of Applied DNA Sciences, the lab that developed it. The firm offers to embed a unique botanical DNA signature based on patented “BioMaterial Genotyping” into the fabrics, dyes or glues that are used when manufacturing a product. What is ironic about the whole trade in knock-offs, however, is that there’s also new evidence that fakes might serve to entice a significant number of entry-level consumers (40%, according to one MIT researcher) to actually “trade up” to genuine products if they have been dissatisfied with the quality of fakes in the first place.

Sources:
Toronto Sun – 27 Jan 10
WWD – 7 Jan 10
Portfolio.com – 11 Jan 10
WWD – 12 Jan 10

How Brands Negotiate Big Personalities

When personalities inexorably linked to a brand get caught up in public relations disasters, how should a brand mitigate the ensuing storm? Such is the question that comes to mind when hearing that Patrick-Louis Vuitton has been accused of trespassing on private property while allegedly heading up a “brutal and bloodthirsty” stag hunt in the French countryside. As the highest profile descendant of Louis Vuitton’s founder (who is still engaged at the firm as director in charge of special orders), this episode may not provoke much controversy in France where hunting for sport is not such a contentious issue but it could prove damaging elsewhere. LV is also now connected to a divisive politician, Tony Blair, who will reportedly take up an advisory role at the company, although LVMH has yet to confirm the reports. Brands are increasingly taking big risks when it comes to deals with larger than life personalities, knowing that if they get it right the rewards can be equally as big. Halston just confirmed that Sarah Jessica Parker has taken an equity stake in the American brand and will become chief creative officer and president, alongside Harvey Weinstein and Tamara Mellon, the firm’s primary investors. While it may yet prove to be an exceptionally successful move, as a business model, mixing actors up in the roles of ambassador, model, investor and designer sounds rather chancy to say the least.

Sources:
The Times – 3 Jan 10
The Telegraph – 9 Jan 10
Reuters – 12 Jan 10
WWD – 19 Jan 10

“Revenge Legislation” Has a Mixed Impact

The post-recession “revenge legislation” of bonus capping and higher taxes will certainly make waves in the coming year. But analysts still can’t seem to make up their minds about how much it will impact the luxury market in financial centres like London and New York. Most British newspapers are claiming that the “exodus” which many financial sector pundits had predicted is already happening – citing tallies of hundreds of top company directors who have left the capital to avoid the government’s new top tier 50% income tax rate. But a closer look suggests that many of these HNWIs are actually relocating to the nearest off-shore Crown Dependency tax haven such as Jersey, Guernsey and the Isle of Man where they can conveniently commute by private jet back to London rather than moving farther afield. While the nation’s coffers will certainly suffer from the lost tax revenues, perhaps the London luxury market may be less affected. More optimistic experts have also pointed to indicators like the upswing in UK luxury property prices as proof that lower bonuses aren’t impacting the market as severely as previously thought. Meanwhile, in New York, where several financial institutions are deferring bonuses or reducing the proportion of bonuses paid in cash, the assessment is a mixed bag. Some observers say that the city’s luxury market will surely feel the pinch in 2010 but others are positively giddy after seeing signs to the contrary – like anecdotal evidence collected through surveys on the ground from Porsche dealerships, Sotheby’s auctioneers and waiters at Nobu.

Sources:
AP in Luxury Institute Blog – 21 Jan 10
ABC News – 14 Dec 09
The Telegraph – 13 Dec 09
Newsweek – 21 Jan 10