TIME Style & Design has just come out with an in-depth report on affluent consumer tastes from around the world. The print edition (unfortunately not available online) delves into the appetites of European shoppers—the Spaniards, Italians, French, British, and Germans—who now are considered some of the wealthiest consumers in the world thanks to a strong euro.

Did you know that Italians own more brands than any of their counterparts and outspend them on watches and jewellery? Or that Spain has the highest percentage of “uber lux” consumers, those with high incomes and luxury-market activity?

It is fascinating to juxtapose the tastes and psychologies of EU neighbours, but TIME adds some more food for thought in its online exploration of luxury in the top emerging economies of China, India, and Russia. What does luxury mean to these three countries who for the first time in decades are finding the economic freedom to afford such indulgences?

For China, who accounts for 12% of global luxury sales, luxury is in demand. Designer watches (66% of affluent consumers bought a watch of an average $2,253 in the last 6 months) are high status symbols, as well as skin-care products. The Chinese consumer will spend up to $280 on a skin-care product, which is almost 3 times as popular as make-up.

In India, the luxury market could grow as much as 25% in the next 3 years. Menswear brands top the most well-known luxury list, which is no surprise as many women still wear saris. Interestingly, local brands, such as Park Avenue, Allen Solly, and Reid & Taylor, also rank high, but considering previous high import taxes, it’s no surprise foreign brands aren’t more prominent yet.

And for Russians, with a heightened sense of brand awareness, flaunting one’s economic status is what luxury is all about. While Russians crave luxury fragrances, it’s jewellery that really whets the appetite: Bulgari, Cartier and Tiffany & Co. top the list of most widely owned brands.

It appears as if there are ripe markets to break into and hungry consumers to feed—something luxury retails are well-ready to capitalize on.

Tiffany was in the news this week, not for a new line of diamond rings or earrings but because it lost the long-running lawsuit it’s had with eBay about the sale of counterfeit Tiffany goods on the site. Tiffany maintains that eBay knowingly encouraged sellers to dilute Tiffany’s value and trademarks by not putting a stop to counterfeit Tiffany listings on the site. Rather than resting with eBay, the burden for identifying counterfeit goods rests with Tiffany, who have to report counterfeit listings to eBay and have eBay remove them. EBay argues that like YouTube it’s up to the trademark holder to report false listings, and they already take enough action against counterfeit items because these are bad for their marketplace.

This American ruling is interesting because it diverges from recent findings in European courts. In Germany a ruling for Rolex found that eBay must make greater preventative measures against the sale of counterfeit Rolexes, and in France eBay was ordered to pay Louis Vuitton 40 million euros in damages for the sale of counterfeit goods.

Counterfeit goods damage brand value–if discovered, they’ll upset people who purchase them and receive them as gifts; they mock the effort that people make to show their love and appreciation for one another. The takeaway from this case is that one needs to be careful when make purchases from a source that hasn’t been completely vetted. When a deal sounds too good to be true, it probably is.

[Photo by minxlj]

This week Tiffany and the Swatch Group announced a new partnership lasting at least 20 years that will expand Tiffany’s small watch business into “one of the most important watchmakers in the world in the next five to 10 years,” according to Nicolas G. Hayek, Sr., Swatch Group chairman and co-founder.

Tiffany will continue its current lines and expand them in a new company, Tiffany Watches, which will be entirely owned by Swatch. Both companies will share their expertise to collaborate on design, engineering, manufacturing, marketing, distribution and service. Tiffany will have a seat on the company’s five-member board of directors, product design and marketing committees, and will get a share of the new company’s profits.

Many consumers associate Tiffany with fine diamonds and Swatch with cheap watches (even though Swatch does own several luxury timepiece brands, including Breguet, Blancpain, Glasshütte Original, and Omega). Tiffany will have to be careful so as not to pull a ‘DaimlerChrysler’–tarnishing the brand image of both companies (bringing the Tiffany brand ‘down’ to Swatch) and losing a great deal of money in the process (when expected synergies don’t actually happen). It sounds like Tiffany and Swatch are on the right track though, as they’ve already said distribution will be “selective” through the Swatch Group global network, Tiffany stores, and areas where rivals like Bulgari watches are sold.

If the volatility of a diamond investment fund is concerning (see my earlier posts), even more concerning for the industry is a diamond futures market
based on the price of monthly cash-tenders for brilliant-cut diamonds between 1.01 and 1.19 carats.

Martin Rappaport’s intended move goes beyond his speculative Rappaport Index, and produces real sale prices as the basis for derivatives trading. The futures market creates a floor where people can trade the goods and pay him a fee for using his facilities.

The industry at large has much to fear from a further increase in commoditisation and transparency.

If transaction-based prices become publicly available, what’s to stop consumers using these precedents to drive their high-street negotiations? What difference in value is there between Tiffany and versus eBay

The move (and that of others, are likely to accelerate the unbundling of the jewellery industry into separate processes of diamond purchase and jewellery assembly, and will also encourage the emergence diamond leasing as a hedged ownership strategy – both for businesses and higher-end consumers.

In the process, the notion that “a diamond is forever” will be further undermined, and the American trend of diamond ‘upgrades’ is likely to become more and more prominent as selected consumers and brokers start to arbitrage the market.

Without historic category-wide mystique, diamond differentiation will need to be on harder considerations such as sourcing history, country of origin or fair trade credentials. In the commoditised marketplace that Martin is creating, synthetics will feel like a very real choice.

The industry may be drowing in $12 billion of debt, but swallowing the water won’t help…

Poor Martin enjoys the dubious honour of being the only scapegoat for the industry failures. He alone is recognised by name (the rest of the scapegoats are companies, or industry quangos). But he is not the evil.

Martin has an excellent “nose” to smell opportunities and to exploit them. His price list that was supposed to be an estimate of the non-existent cash-based New York market became the industry’s bible. While pricing of diamonds in the past was an obscured art, they became now an open book.

His actions, then and now, are the symptomatic of an entire industry that forgot how to market its product. This trend is an old one and my research traces it back to 1980, although the trend has intensified many fold in the last five years.

Martin is honest enough to point out that good jewellers will not need this vehicle as they are able to create proper added value. In other words, those who understand how diamonds should be marketed will prevail.

But what is clear is that an internal crash in the industry is increasingly inevitable and largely self-inflicted. These commoditising practices are simply the final nails that are hammered into the industry’s coffin.

The only hope I have is that the new industry leader will emerge who will lead both the death and subsequent resuscitation of this beautiful industry in a way that will be least painful to my friends and colleagues.

Saviours can sometimes come in unlikely form…eh Martin?

When we initially envisaged this connoisseurship series, we thought there would just be four posts (the definition of connoisseurship, aspects with which to engage an object, connoisseurship’s academic legacy, and sham connoisseurship), but the material keeps coming. In this fifth post, we discuss value’s place in connoisseurship.

A great example of a modern connoisseur is Mark Resnick. A vice president at Twentieth Century Fox, he (along with his wife) has amassed a very highly-regarded collection of American posters dating from the 1890s. In an interview from last November, Mr. Resnick said that his connoisseurship of posters ties together lifelong interests in art, commerce and popular culture.

I collect posters for the love of it. Not a day goes by without my trying to expand my knowledge—for its own sake—of graphic design. That isn’t to say I’m not rather businesslike about my collecting. I have to be, in order to build and manage what is now getting to be an archive. If there’s a “recipe” here, I think it’s to combine a sharp eye, deep knowledge of the material, and solid business skills.

I thought the most interesting part of the interview was Mr. Resnik’s description of the entry standard for posters in his collection:

The collection’s breadth means there are few restrictions. I do avoid purchasing even great posters, however, if they’re excessively priced. And I’m more cautious still when it comes to “good-but-not-great” posters, posters in poor condition, or posters in a category already well represented in the collection. I know that if I don’t stay focused (price-wise) on posters in good condition that truly fill a gap, then the goals I’ve set for the collection will never be reached.

Indeed, as people have more sources of information and more choices, value becomes something that both the not-so-rich and the ultra-rich consider when choosing which objects to appreciate. One can look to the Helium Report to observe this. The Helium Report is a luxury portal that allows users to comment on and compare resorts, private jets, exotic cars and other topics a wealthy connoisseur might be interested in. Throughout the site, the prices of such luxury (and how to calculate a figure when it isn’t immediately apparent) are readily listed.

Thinking beyond monetary value for a moment, the real value a luxury good provides for the purchaser/connoisseur is how it makes him or her feel, whether the object is intended to become a gift or part of a collection. Some might find paying a million dollars for a piece of jewelry a bit extravagant, but if it provides the buyer with exactly what he or she wants, then it’s a good value. In fact Tiffany *is* offering a million dollar piece of jewelry, and that includes the experience that goes along with it. From an article in the Atlanta Journal-Constitution last December:

“A Victoria Secret bra covered in diamonds is a beautiful piece of lingerie. But, a true connoisseur wants to go to the mines, choose the diamonds, then design the item,” said Carol Brodie, chief luxury officer of Robb Report magazine. “It’s creating your own personal preference.”

High-end jewelry retailer Tiffany & Co. offers just such an opportunity. For a cool $1 million, shoppers can select their own 24.3-carat rough diamond from an undisclosed mine and then travel via private jet to the company’s diamond-cutting facility in Antwerp, Belgium. The experience ends in New York, where chief gemologist Melvyn Kirtley will help create the perfect setting and mounting for the bauble.
“A stone of this size can produce as many as three stones,” said Kirtley. (Consider it a three-for-one deal.) And, as if there were any question, first-class accommodations are included throughout the trip.

This type of experience certainly provides value for the connoisseur who wants something extraordinarily unique and customized.

Our next post on connoisseurship will expand on this customization idea, discussing several ways that connoisseurs use their accumulated knowledge to customize and specialize objects.

As we’ve mentioned before on Janus Thinking, Tiffany is a company that seems to be doing it right. There’s a fine line between courting young consumers with lower prices (to make buying Tiffany a lifelong habit) and devaluing the brand (putting off older customers or making younger customers think Tiffany is something they grow out of), but Tiffany has thus far been able to toe the line successfully. We mentioned Tiffany’s marketing strategy of raising prices to reduce demand earlier this month; last week the New York Times ran a story about Tiffany with a similar theme:

I credit the store for its gentle displays here: the most inexpensive rings — prices start at $1,090 for a ring with a round .18 carat diamond — seem to be presented in the clearest, brightest lights. This is not intended to make these rings seem bigger; rather, it makes them appear to be just as important as the icebergs down the counter — say, the round 10.5 carat diamond ring that sells for $1.12 million.

Indeed, the Tiffany ethos of making customers feel special is part of the reason why people think so highly of Tiffany and the blue box. That “fuzzy feeling” people get when they buy Tiffany is extraordinarily valuable:

While Tiffany has sold millions of diamond engagement rings, many of its customers would pay a surcharge for the blue box because it represents trust and quality. What most people want when they celebrate their marriage is the manufacture of perfect memories, and for them the blue box is as essential a part of the wedding tradition as a white veil. In the marriages I’ve observed that began with a blue box, there is a kind of assurance that buying your ring at Tiffany inures you from bad marital juju, as if the union were protected by the Good Housekeeping seal of approval.

This type of emotional connection certainly gives Tiffany a leg up against the competition.

This Valentine’s Day, did you think ‘Tiffany’ for your special someone?

The diamond industry is in love with Tiffany.

Witness this analysis from Diamonds.net of the way that Tiffany avoided ‘doing a Burberry’.

In 2002, with $120 silver bracelets rushing off the shelves, Tiffany’s CEO Kowalski raised the prices on all of its most accessible collections, including ‘Return to Tiffany.’ The increase was not a response to rising costs or a desire for higher margins. It was a marketing decision intended purely to reduce sales.

This sounds like madness if you are a salesperson, but if you understand brand, and the difference between marketing and sales, it makes perfect strategic sense.

Problematically, the price rises had no discernible impact on sales. So in 2003 and again in 2004, Tiffany drove prices even higher. Finally, with prices up by more than 30 percent, Kowalski achieved his goal: Sales of jewellery under $500 finally began to decline.

Kowalski had saved his brand, increased his margins and build a sustainable platform the future.

Back in 2001, De Beers’ Nicky Oppenheimer said:

“I don’t want diamonds to be discounted. I abhor it. What is tantalizing is that at the luxury end–the famous blue box of Tiffany’s–there are brands getting the margins and markups enjoyed in the luxury goods business as a whole. We want to see stores pushing the preciousness of diamonds rather than treating them as a commodity you can discount.”

The lesson for De Beers here is that people buy luxury brands, not commodities. They buy Tiffany and its simple, natural design ethos… not diamonds.

They buy the dreams of living like Audrey Hepburn, a purchase experience of classless quality, and an entree into a ‘club’ of fellow sophisticates, not jewellery…