Janus Thinking

Interesting news out of Dubai this week. At the 5th City of Gold Jewelry Conference, business leaders suggested that a unified marketing strategy for the global gems and jewelry industry is necessary in order to prevent gems and jewelry from losing ground in the worldwide luxury market.

KPMG recently undertook a study for the Gem and Jewellery Export Promotion Council of India in which they predict that the global gems and jewelry industry (currently worth $146 billion USD) will see its compound annual growth rate (CAGR) drop from 5.2 percent to 4.6 percent over the next ten years. Other luxury goods, such as luxury apparel (estimated to grow 10–15% over the next seven years) are expected to compete with jewelry for the wealthy consumer’s dollar.

The chairman of the Indian Gem and Jewelry Export Promotion Council, Sanjay Kothari, said that the global industry needs to rethink the retail experience in order to create emotional connections that will inspire consumer confidence. (Emotion in luxury is a topic we’ve discussed before on Janus Thinking).

Says Kothari:

It is time for retailers to take the initiative to grow the market. We need to look into new markets, identify new segments and new value propositions. Most of all, we need to contribute to creating a single unified global marketing masterplan that we can then tailor to the regions of the world.

One new market he identifies is luxury electronics and the potential for integrating precious metals and gems into them. He also suggests a more coordinated effort should be made to introduce jewelry to men, children and people over 65 (all non-traditional markets).

Kothari’s idea for global marketing coordination isn’t a bad one, but I can’t see anything practical coming out of it. There are too many players globally. But if the KPMG projections are true and demand for diamonds, other gems and precious metals does decline over the next decade, drastic times may call for drastic cooperative measures.

This week yet another report suggests that wealthy people spend a lot of time online and that it is more important than ever for those catering to the wealthy to be aware of their online reputation.

In their new survey “Leveraging the Internet Habits of the Wealthy,” the Luxury Institute found that 84% of consumers earning more than $150,000 visit sites where customers write reviews or rate products and services. Some respondents said:

-”It’s so much more important and informative reading about the experiences of product users rather than reading the advertising hype.”
-”I like to see what problems others may have encountered before I purchase.  Also, customer service level is sometimes addressed and this is very important to me.”
-”Ratings and reviews are quick way to eliminate bad choices.”

The Luxury Institute found that 61% of wealthy consumers use the online forums provided on web retailer websites (such as Amazon.com and Circuit City), and half are willing to pay for access to the Consumer Reports website, which provides the oranization’s professional ratings and reviews.

Of course the announcement of this survey that I read failed to mention relevant things like the sample size, composition of the sample, and the margin of error. Still, these findings do agree with other phenomena we’ve seen on Janus Thinking recently.

The Luxury Institute CEO Milton Pedraza sums it up:

“Across the luxury spectrum, nimble luxury firms understand that the world has just become transparent and there is nowhere to hide. In a web-connected world the flutter of a butterfly’s wings in Shanghai can generate a massive hurricane in New York. If you have rigid customer processes, such as onerous return policies, confusing fees, conflicted endorsements, etc., fix them now, and favor the customer. If you are not socially responsible, bet that consumers will gang up on you online. If you make a mistake, admit it, apologize, fix it immediately, and overcompensate the aggrieved parties — no excuses, no exceptions. Your luxury brand reputation is at stake, and it can be severely damaged in a nanosecond.”

How lumbering luxury giants will get on in this new world remains to be seen.

Interesting story in the Wall Street Journal today–Wall Street firms including Merrill Lynch and Goldman Sachs are launching indexes that measure the “separate economy” of the rich, tracking some of the most famous brands in the world.

“The common denominator for all the stocks selected in our sample is they benefit from the increasingly hedonistic and eclectic consumption patterns,” says Antoine Colonna, the Paris-based research analyst at Merrill who helped create the company’s ML LifeStyle Index. … Merrill’s index, a group of between 15 stocks and 50 stocks, includes car makers BMW and Porsche; luxury conglomerate LVMH; fashion brands Bulgari, Coach and Burberry; jeweler Tiffany; auctioneer Sotheby’s; and private-banking firm Julius Baer. The index increased 23% in 2005 and 12.5% in 2006 — above the 14% and 7% posted for the Morgan Stanley’s MSCI World Consumer Discretionary Index, a widely used measure for global consumer stocks.

These luxury stocks are outperforming regular consumer stocks; spending on high-end goods has far outpaced the expansion of the overall consumer economy. But the WSJ does warn that this might be a bad sign:

Granted, investing in the upper class could turn out to be a poor strategy. Wall Street is notorious for launching sector funds at the peak of a sector’s growth. (Think health-care funds and tech funds in the 1990s and commodity funds last year.) The launch of the luxury indexes could be seen as the top of this market. In the wake of the latest upscale-buying binge, many luxury stocks have soared and have price tags as rich as their products.

For now though, people continue to spend and the introduction of the indexes is yet another sign that more people are interested in luxury.

But should they be? Today the Dalai Lama, the Tibetan spiritual leader, made a statement urging people to take a step back from the ”mindless” pursuit of luxury because of the frustration and tension that such a pursuit can cause:

“In the era of globalisation and modernisation people are forgetting their real goal which is causing frustration and tension in their day-to-day lives… The objective of the people is confined to earning money and power by any means to enjoy luxuries and they are becoming selfish and self-centred in this mad run.”

He instead advocated more dedication to service to humanity.

It probably wouldn’t hurt Wall Street to hear the Dalai Lama’s different perspective. But I think if his advice were to reach them, it would probably fall on deaf ears–well, at least until the next bubble bursts.

This week I came across an excellent essay by James Twitchell from the Winter 2007 issue of the Wilson Quarterly, a publication by the Woodrow Wilson International Center for Scholars in Washington DC. Lux Populi describes the commodification of luxury in an interesting and throught-provoking way.

Twitchell says that as Americans have developed an increasingly strong desire to associate themselves with recognized objects of little intrinsic but high positional value, they’ve been increasingly able to afford some form of luxury–it’s the “Twinkiefication of deluxe.” Twitchell argues that as everyone aspires to luxury, “luxury” is no longer something that differentiates.

There is very little cake a rich person once gorged on that a ­middle-­class person can’t get on his plate. You name it; I can taste it. So I can’t afford a casita on Bermuda, but I can get in on a time-share for a weekend. No, I can’t own a stretch limo, but I can rent one by the hour. Maybe Venice is out this year, but I’ll go to the Venetian in Vegas instead. I can’t afford an Armani suit, but what about these eyeglasses with Giorgio’s name plastered on them? Commodore Vanderbilt said that if you have to ask how much a yacht costs, you can’t afford one, but check out my stateroom on my chartered Majestic Princess. True, I don’t have my own Gulfstream V jet, but I can upgrade to first class on Delta with the miles I “earn” by using my American Express card. Is that my own Lexus out front? Or is it on lease from a used car dealer? You’ll never ­know.

Twitchell goes on to say that the very wealthy only have two genuine luxury items left: time and philanthropy. Overall it’s an interesting argument, and it certainly fits in with many of the trends we’ve been tracking on Janus Thinking. You can read the whole article here.

This week Echelon Marketing Group released a study about marketing luxury items. I haven’t had the chance to review their data in depth (so I don’t know the size of their sample or whom they were talking to), but on the surface they seem to have found several interesting things:

- Luxury marketers need to better understand whom they’re going after

Echelon President Don Neal:

“Marketers rely primarily on four categories of data—demographic, geographic, behavioral and attitudinal—however, luxury marketers not so much. To understand who can afford expensive products and the impact of money on their attitudes and behaviors, they also need to consider a fifth category based on economic insights.”

- Luxury marketers aren’t that great on focused consumer messaging; only half of luxury marketers engage in one-on-one luxury marketing (though 85% say they want to).

- Email is the least effective vehicle for presenting a luxury brand image. Direct mail, catalogs, telephone calls and special events involving consumers are more effective.

Neal:

“When invitations are sent to a select group to test drive cars during a special event, research shows six out of 10 of them wind up buying a car.”

These findings suggest that there’s a lot of room for luxury marketers to become more effective. A recent Jupiter report suggested that affluent people spend more time online–but perhaps the ‘cheapness’ of email and its association with unsolicited spam (or a deluge of work from the office) keeps it from being useful.

It’s all about real luxury experiences–when marketers can truly engage potential buyers with their products, their efforts translate into sales.

Nice little article from Suzy Menkes, fashion editor of the International Herald Tribune, about her idea of luxury, recently published in Kiwi Collection, an online luxury travel magazine.

For me, luxury is art, craft and sensory pleasure. Art is something that we understand. It may be difficult and challenging but it is at the heart of luxury.

I agree with her; part of the difficult and challenge in art (and connoisseurship and luxury) is putting in the time and effort to develop a worthy appreciation. At Janus Thinking we believe that a big part of luxury is understanding yourself and what you want–the luxury you choose should always ‘feel’ right. Menkes concurs; she says that people long for true luxury experiences; they go out of their way to find places and things with perfect design and ambiance. You can read all of Menkes’ article here.

Nice little article from Suzy Menkes, fashion editor of the International Herald Tribune, about her idea of luxury, recently published in Kiwi Collection, an online luxury travel magazine.

For me, luxury is art, craft and sensory pleasure. Art is something that we understand. It may be difficult and challenging but it is at the heart of luxury.

I agree with her; part of the difficult and challenge in art (and connoisseurship and luxury) is putting in the time and effort to develop a worthy appreciation. At Janus Thinking we believe that a big part of luxury is understanding yourself and what you want–the luxury you choose should always ‘feel’ right. Menkes concurs; she says that people long for true luxury experiences; they go out of their way to find places and things with perfect design and ambiance. You can read all of Menkes’ article here.

Two items in the news this past week reveal once again how the consumption and connoisseurship of luxury goods is becoming increasingly mainstreamed.

The first was the launch of a new luxury ‘channel’ on CNNMoney.com. CNNMoney.com is the collective online location for several Time Inc. properties, including Fortune, Money, and Business 2.0 magazines. CNNMoney.com has covered luxury items before–stories on the $8 million Maybach Exelero and the private lives of millionaires have yielded video streams in the tens of thousands (according to a spokesperson)–but now the site is putting such stories in their own section. I found the initial content quite interesting, especially the photo gallery of what a $1.5 makeover can do to an Airbus A380. Clearly Time Inc. has identified luxury as a category that its readers (and advertisers) are interested in.

The second was a commentary item from the RightSide Advisors entitled ‘Democratizing Luxury.’ They note how several years ago Michael Silverstein, a consultant with the Boston Consulting Group, identified a new group of luxury consumers. They are middle-market consumers who selectively trade up to higher levels of quality, taste and aspiration, but at the same time are forced to trade down in their housing and other staples in order to afford it.

From the article:

These new customers luxury-rich but asset-poor are more demanding, more selective, and show less brand loyalty than high net worth individuals, the archetypal consumers of the old luxury. They are willing to pay high prices, but they expect commensurate quality; old luxury was never so fussed. And they want the hottest, trendiest designs, which increasingly have to be marketed in creative ways including product placements on TV sitcoms.

The article goes on to mention American shoe retailer DSW as an example of a company catering to these consumers of new luxury. DSW is able to sell famous brand shoes at 20-50% less than department stores, and its stock has been performing very well of late.

As more people see luxury on CNNMoney.com and other web sites, they’ll have greater aspirations and desires, and the market for stores like DSW that cater to these aspirations and desires will continue to grow. For this reason it’s a great time to be a luxury brand or retailer.

For your favorite connoisseur of literature and luxury:

The Bibliochaise combines approximately forty feet of bookshelf space with comfortable leather cushions. Available from Italian company nobodyandco, it is “particularly suitable for grand spaces, hotels, entrances, living rooms…” I’d have to agree.

[Via Coolest Gadgets]