A battered - but wise - luxury consumer shrugs off the world's worries, to the delight of newly aggressive purveyors of the good life
Mortgage rates and the numbers of the unemployed keep inching up, the national deficit continues to explode, and soldiers on duty in Iraq are falling daily. The headlines couldn't get much bleaker, it seems. But for some cheerier news, one need only turn to the business section. Goodbye, Enron, Martha Stewart and Goldman Sachs. Hello, Porsche, Tiffany and Louis Vuitton.
Some recent headlines: Germany's Porsche AG predicts 7 to 15 percent growth in global sales for the current fiscal year, as the stock prices of European luxury-goods mainstays LVMH and Bulgari soar.
Profits for New York-based Tiffany & Co. and Coach are growing at boom-time levels. Dallas-based Neiman Marcus Group boasts July store sales that are 10 percent greater than last year, while DaimlerChrysler's Mercedes-Benz unit reports a better-than-25-percent jump in U.S. sales for July.
The news hasn't been swell all around - Holland's Gucci Group and Paris-based Herm?s International are among the vendors to have sustained big declines in sales this year. But the luxury-goods market, by and large, has bounced back from the ill effects of the dot-com bust, the slowing economy, 9/11 and SARS - driven by consumers at the highest end who have proved loyal to the most exclusive brands even when times are tough, and customers at the lower end who continue to devour a growing array of so-called "near-luxury" products offered by the likes of Mercedes, Tiffany and Polo Ralph Lauren.
"The market for new luxury goods is not quite recession-proof, but there is continued growth in most segments - these 25 million upper- and middle-class households have money in their pockets, very, very low unemployment and literally trillions in home equity," explains Michael J. Silverstein, svp of the Boston Consulting Group and co-author, along with Bath & Body Works president and former BCG vp Neil Fiske, of the upcoming book Trading Up: The New American Luxury.
"The luxury business has definitely been hurt by the economy, war, Wall Street," says Jean Hoehn Zimmerman, executive vp/marketing and sales at Chanel. "But the fact of the matter is people are still buying luxury and into the luxury category - they may buy differently, maybe not as much, but luxury is here to stay."
As Louis Cona, vp/publisher of Conde Nast Publications' Vanity Fair, explains: "At the higher end, the customer might buy one or two Herm?s bags a year instead of three. There will always be a luxury consumer, and they'll continue to spend whether there are wars or diseases or whatever."
Some of the biggest success stories these days are coming from luxury merchants that cater to both the traditional carriage-trade customer and the growing ranks of the entry-level, or "aspirational," buyer. Much has been written about the "democratization" of luxury, but Silverstein says "bifurcation," or the emergence of two distinct luxury markets, is a more accurate assessment of what's happening.
Case in point: Mercedes, whose booming, lower-priced C-class stable - starting at a base price of $26,000 - complements its more luxurious and costly models. Tiffany still sells brooches at $100,000 a pop - but one of the hottest items among the Mary Kate and Ashley set is the jeweler's $100 Elsa Peretti sterling silver alphabet pendant and chain. Meanwhile, struggling retailer Polo Ralph Lauren, which posted declining profits in the second quarter, is hedging its bets with the midpriced Lauren women's line. (The company that Ralph built was one of the earliest to take luxury to the masses. Sure, it still buys multipage spreads in Vogue to peddle its higher-priced items, like the new Blue Label collection. But an ever-expanding part of the company's multibillion-dollar business comes from its factory outlet stores, which generate a reported $500 million a year in revenue.)
"There are more luxury brands available now at different price points - Mercedes, BMW and Burberry kept the cachet of their brands but are allowing more people to come into the realm of their brands," points out Cara David, vp/corporate sales and marketing at American Express Publishing, producer of luxury-lifestyle magazines Travel + Leisure, Food & Wine and Departures.
Consumers at both ends of the spectrum seem to have embraced luxury as a way of comforting themselves in tumultuous times. As David explains: "After everything we've been through - the uncertainty in the economy and in the world - I think people are coming back to what they enjoy the most. They're willing to sacrifice in other areas and fall back on things that mean the most to them."
Whether at the high end or the low end, marketers face a different luxury customer from the one they did only a decade ago - a more educated, more demanding consumer. As the luxury market expands, customers increasingly look beyond merely the prestige of a name brand, experts say; factors like workmanship and utility have become every bit as important as logos and labels.
"Once there were 'badge brands,' where brands really helped define people - they wanted to be seen in a Mercedes car, they wanted to make sure people knew it was an Hermes tie," explains J. Robert Lieber, founder of Omnicom Group direct-marketing agency Lieber Levett Koenig Farese Babcock, whose clients include Coach, Celebrity Cruises and JP Morgan Chase. "Now there's a sense that people are not necessarily approaching luxury brands for that reason as much as they are for the value, getting products that will last longer."
"It used to be that the brand alone was enough to win the sale," adds Gregory J. Furman, founder and chairman of the Luxury Marketing Council, which counts dozens of luxury retailers - including Mercedes, Steuben, Baccarat, Montblanc and Bergdorf Goodman - as members. "Now the brand is just the price of admission. Consumers at this level are looking for companies to go beyond just the brand."
"When times are tight, people think of luxury as an investment - you feel like if you're going to lose all your money in the stock market anyway, you might as well buy something that will hold its value," says Dominique Browning, editor of Cond? Nast's House & Garden. "The luxury market benefits from all that - at least people feel [these products] have staying power."
It's a given that "luxury for the masses" will only continue, given that once-exclusive designers like Issac Mizrahi now peddle their wares at Target. But not all agree it's a good thing that luxury marketers are reaching down. "How far down can you take the product without disenchanting people who pay top dollar for the high end?" Furman wonders. Luxury nameplates like Mercedes, Jaguar and Range Rover contend that their entry-priced models not only have opened up a whole new line of business for them, but also that many of those customers can be expected to trade up later. "I think the jury's still out on that," Furman counters.
Adds LLKFB's Lieber, "Some people think Tiffany is ruining its brand" by courting the masses. (Stockholders might disagree, as Tiffany's second-quarter profits climbed nearly 26 percent to $41.1 million versus last year, bolstered by a surge in engagement-ring sales.)
Not all luxury merchants are going after the lower end of the market. Carol Tricomi Boyd, vp/advertising at Cartier, says that even though the go-go years of the late '90s saw a flood of new customers dabbling in the high-end jewelry market, her company has continued to concentrate on the reliable, established consumer. "Our core customers are tried and true for our business - when making our [marketing] decisions, we need to try to find more of them instead of trying to convert twentysomethings into luxury customers."
Likewise, don't expect to see Badgley Mischka - favorite designer of Hollywood stars like Madonna and Sharon Stone - on the rack at J.C. Penney anytime soon, says partner James Mischka. "Our customer is not part of the democratization," he insists, adding that his company has, however, begun to offer more accessible items like handbags and shoes alongside its signature beaded gowns, which go for anywhere from $3,000 to $10,000.
The resurgence of the luxury market has translated to very good news for media that depends on luxury advertising. Print vehicles have fared exceedingly well, as they make up the bulk of most budgets. (Chanel spends some 75 percent of its marketing outlay on print, and Cartier, 85 percent, according to their reps.) While overall consumer-magazine ad volume remains virtually flat - year-over-year ad pages grew just 1.6 percent as of late August, according to Publishers Information Bureau - those titles that depend most heavily on the support of luxury marketers are enjoying far better-than-average gains. They include Cond? Nast's Architectural Digest, Vanity Fair, Bride's and Conde Nast Traveler, Hearst Magazines' Esquire and Town & Country, and American Express Publishing's Travel + Leisure and Food & Wine.
In fact, advertising growth for such top-tier magazines by far outpaces the growth of luxury marketing budgets - this, as many smaller, less-established business and fashion magazines that grabbed a chunk of luxury business during the bubble years went on to lose much of that business. Some titles folded altogether. "There's a return to basics, blue-chip brands - consumers are buying Tiffany because there's safety there, and advertisers are buying Town & Country and Vanity Fair and Architectural Digest because there's safety there," points out Town & Country publisher Jim Taylor, who reports that 2002 was the magazine's most profitable year ever.
"As money got tighter, [retailers] really stuck with quality publications and quality environments," adds Vanity Fair's Cona.
Ad business at Vanity Fair - which in September produced a whopping 475-page, 20th-anniversary issue packed with spreads from the likes of Prada, Armani, Gucci, Movado, Ralph Lauren, Chanel and Rolex - is running nearly 15 percent ahead of last year, thanks in part to new accounts that include luxury automakers Maserati, Audi and Lexus and increased commitments from existing clients such as Chanel, Salvatore Ferragamo, Louis Vuitton, Christian Dior and Prada. Cona reports that luxury-auto ads are up 31 percent this year, while jewelry and watch business is up 17 percent.
Another Cond? Nast title, Bride's, is reaping 10 percent greater ad volume, thanks in part to a surge in luxury business, says Nina Lawrence, vp/publisher of the Cond? Nast Bridal Group. "This is the most luxury-driven bridal market we have ever seen," she says. The bridal market has proved fertile ground for luxury marketers looking to cultivate brand loyalty early on - after all, the bridal registry is often a young consumer's first brush with luxury.
Luxury is so important to magazines like Bride's that publishers have begun to put more marketing muscle behind events and research tied to luxury advertisers. On Sept. 19, the Conde Nast Bridal Group will kick off its Wedding March on Madison in conjunction with New York's Madison Avenue Business Improvement District. Elite sponsors include Cartier, Chanel, Waterford, Barneys New York and Saks Fifth Avenue.
In August, American Express Publishing's Departures revealed results of its first reader survey of favorite luxury goods, and next April the publisher will host its third Luxury Summit at Miami's Four Seasons Hotel, bringing together the heads of luxury brands such as Vera Wang, Ritz-Carlton and Harry Winston.
Conde Nast's H&G this year sponsored an exhaustive study of luxury-buying habits, "Who Buys Luxury, What They Buy, Why They Buy." For two months during the summer, the magazine's Hamptons designer show house showcased high-end brands like Sub-Zero, Wolf and Asko. After all, what better way to sell a $5,000 refrigerator than to show it to the customers, up close and personal, in their very own dream house by the sea?
"I think the companies that are posting real gains are those that understand you have to work for your customer," says H&G's Browning. "You're not doing them a favor by existing - you need to welcome them in the door. You have to make the reader or the customer understand that this market doesn't need to be frightening. You can't take it for granted anymore that the customer is out there."
A look at some luxury marketing campaigns:
Pop icon Jennifer Lopez appears tough and sleek in Louis Vuitton's fall ad campaign. In the work, appearing in fall fashion and lifestyle magazines and shot by Mert Alas and Marcus Piggott, Lopez sports slicked-back hair and black-rimmed eyes. In one execution, she sits on the naked back of a male model; in another, she pushes two black-clad men out of her way. The campaign's concept is to show an "influential, assertive woman who is also chic and glamorous," artistic director Marc Jacobs has said. Lopez, who has the ability to morph at will from glamorous movie star to Jenny From the Block, fits in with the traditional-yet-modern vision Jacobs has had for the venerated 149-year-old LVMH brand since he joined as artistic director in 1998. "We have on the one side fashion, but on the other side tradition," says a Louis Vuitton representative. "Marc Jacobs found
J.Lo and brought those two sides to one side." Lopez makes sense for the brand, according to James Twitchell, author of Living It Up: Why We Love Luxury. "Louis Vuitton is the supplier of suitcases to French royalty, but really it's the supplier of scarves to the American teenage girl," he says. "Their aspirational goal is to be like J.Lo. The major consumers of luxury in the modern world are not the people who you imagine." - Mae Anderson
Kohler/GSD&M, Austin, Texas
In 2002, when GSD&M picked up the kitchen- and bathroom-fixture company's account along with its 15-year-old tagline, "The bold look of Kohler," the client had mainly shown product shots in its ads. GSD&M wanted to "reinject an idea into the ads," says senior vp, group creative director David Crawford. That idea was to humanize the campaign, so the shop commissioned fashion and art photographers to create a portfolio of shots of the products in surreal settings with models - similar to images found in fashion magazines. In the most recent batch, shot by Hugh Kretschmer, a woman in a white gown strokes a sink attached to a wall and floor of vanilla-ice-cream tubs; in another ad, a woman with bronze rings around her neck washes a vase made of similar bronze rings. Kohler had not done much TV advertising before hiring GSD&M, but has recently begun airing humorous spots.
In one, a host at a tony dinner party makes her guests use plastic dinnerware so she won't muss her Kohler sink washing them. The idea behind the spots is to appeal to tastemakers and influencers without alienating customers who buy Kohler products at Home Depot. The setting for the dinner-party ad, for example, "was a little more on the higher end and yet not totally urban," Crawford says. "The concern is not to go too urban, because a lot of products are bought in Middle America." - M.A.
Diamond Trading Co./J. Walter Thompson, N.Y.
The newest "A diamond is forever" campaign touts something you didn't know you needed: a right-hand diamond ring. "Basically, we're just trying to extend our equity so diamonds are positioned not only as a gift of love, but as an expression of a woman's individuality," says Richard Lennox, executive vp, director in charge of the DTC account at J. Walter Thompson. While engagement rings bring to mind thoughts of emotionalism and love, the right-hand ring is being marketed as a declaration of empowerment: Women can buy this ring for themselves. Thus, in six print ads that are breaking in September magazines, models tout a bright glint of light on their right hands to signify strength, "almost like Wonder Woman," says co-creative director Ed Evangelista. Copy bears sentiments such as, "Your left hand rocks the cradle. Your right hand rules the world." Four different rings are showcased next to the copy, and all ads end with the line, "Women of the world, raise your right hand." The work is running in affluent-female-oriented magazines that include Vogue and Elle. "This is the kind of possession where the ring is up against a pair of shoes, a really expensive bag or a really expensive outfit," says co-creative director Chris D'Rozario. "It's really the first time diamonds are competing directly against other high-end fashion accessories, and that's what really drives the thought behind the campaign." - M.A.