Frank's Bank

I talked with Frank today. Frank is a 66 year-old businessman who recently started a new bank. 

 

In the throes of the recession, Frank’s bank is thriving, his happiness is high, and his health is better than ever. But his perspective has changed. No longer cares to fly to Europe every year for the food and culture, or to Los Angeles every quarter for the shopping.

 

Frank attributes this shifting perspective to his age. Luxury in the past for him was in the form of an Alfa Romeo, mink coats, and yearly trips to southern France.

 

“The recession has made me focus on how finite life is. Luxury means caring what the day is like. The striving part is less important.”

 

He spends but he spends differently: less. He spends but he spends more thoughtfully: on time. For Frank, it has become more important not just having time, but to make sure he spends his time meaningfully. More time with his grandchildren, more time at his vacation home in Florida, time on his rose garden, longer runs, time focusing on continuing a thriving business. Time in Europe is replaced by one “mind-blowing” experience in Africa.

 

“You can’t compare a luxury item to a luxury experience. I stay at high quality hotels because I don’t want to waste my time. It’s not a statement to anyone but myself.”

 

IMPLICATION: Whether it’s a function of age or a function of the cultural moment, luxury today is measured by experiences and products that enable us to get more out of our time. There's an opportunity for brands to empower people to maximize their experiences, particularly at a local level.

Financial Crisis

No names, no photos. This was Mr K’s sole condition to grant me this exclusive interview. He is not willing to take any chances. He can’t afford to, not after an incident where his S500 got jacked during which the carjackers panicked and fired a shot, merely inches away from putting a bullet into his brain.

When most people say/think financial crisis, all that comes to mind is the negativity, one which we all fear.

Afterall, the definition of crisis =
1) a time of extreme trouble or danger
2) an emotional stressful event or traumatic change in a person's life
3) an unstable condition, involving an impending abrupt or decisive change

Based upon our fears, we start to behave differently eg spending less, save more, becoming more stressed out, worrying etc...

But Mr K gave me a whole new perspective, where he thinks differently and reacts in a more positive manner. How?

Instead of defining the word crisis in English, he uses a Chinese interpretation instead which brings us to the word 'Ngai Kei' 危机. 'Ngai Kei' is actually a combination of two words where 'Ngai'危 means danger, and 'Kei' 机 means opportunity.

Therefore to him, Crisis = "Without the danger, there cannot arise the opportunity".

Instead of worrying about how his net value is dropping today, he is already looking beyond the horizon, planning on how to capitalize the most out of this recession. Afterall, recession is merely a part of a cyclic process in the business world.

Xploring in Paris

Luxury Brands – Much more valuable than I ever imagined.


Going to Paris to Xplore high net worth individuals – what can possibly be more glam?

The dizzying fusion of city lights, diamond jewelry and Champagne flutes with sparkling Dom Perignon… it's easy to be dazzled  (not to mention the 32 degree sunshine).

Our first tour of the luxury boutiques of Rue Royal and Place Vandome proved to me what I already knew: that the world is full of things I'll never be able to afford in my lifetime.

Christian Dior cellphone – $5,000
Cartier wristwatch – $4,100
Gucci coat – $3,400

I couldn’t help wondering, is it all about the price? Is the high price the only factor behind the purchase? Has the price tag itself become the brand?

Things started to look completely different after I left the shops and the salespeople, and went to meet the people buying these goods, or as we call them our 'target audience' - the truly affluent.

I quickly realized that for wealthy consumers, the price is not an issue. When you have enough money to buy any product or service you want, the thrill from buying something expensive, per se, ceases to exist.

The real need of the affluent is to acquire those things that money can't buy. A magical thrill, even if it lasts for only a moment...

As obvious as it may sound, expensive products are simply means to a higher, emotional benefit. The question is, what kind of an experience are we talking about? We figured pretty quickly that it's not about the joy of spending large amounts of money in an unrestrained matter. Vulgar displays of newfound wealth, dripping in upmarket bling, represent the corrupt side of wealth in the eyes of the old money. It's not their thing at all…

So what are the things that make our high net worth individuals tick?

They are very naïve, innocent, pure, basic thrills – experiences that recall memories of genuine romance, family moments or even revealing childhood moments – that have nothing at all to do with money.

It became very clear to me that the true value underlying those brands is much dearer than any price tag I've come across.

Amit Koren
S&S Israel

All Gilt, No Guilt

House in the Hamptons? Of course. Amex Black? Naturally. Yacht parties in South Beach? A weekly occurrence. For most of us, the only way we can get access to this level of luxury is through 3°+ of separation connections - which is the only way I was able to meet Tameka and Nick.

Despite the downturn in the economy, Tameka is investing her own money into a startup cosmetics company. Her husband flips hot Miami properties. Her kids enjoy the spoils. While speaking on the phone with her, she received a picture message on her iPhone. A friend spotted the cutest little $1,000 jumper by Rosa Chá. Based soley on the photo, Tameka casually mentioned to "pick me one up too." Apparently, this is mere pocket change to Tameka, which leaves this humble-spending blogger wondering, "Is there a $1,000 value menu out there somewhere for these people?"

Tameka and her husband boating in South Beach.
Tameka and friends enjoying a "little weekend retreat" at Sanctuary Spa in Phoenix.
In New York, Nick owns several restaurants on Long Island. He gets his model looks from his Greek ancestry, but his body from his personal trainer whom he pays to see six times a week. While walking with him into his Upper West Side high-rise apartment, Nick asked if we could stop by the front desk to check his mail. Nick is immediately handed several boxes of daily shopping spree. He has a near unquenchable thirst for fashion. And in order to keep up with the trends, he scans a luxury designer website, Gilt, every evening and one-click buys a few items. The concierge didn't even bat an eye at all the packages. I, on the other hand, clicked my tongue knowing all I would have to look forward to from my tiny metal mailslot were MasterCard credit bills and Ikea circulars.

Nick on a recent month-long trip to Greece and posing off his expensive physique.
Gilt: All in a Day's Mail
Though the recession has not yet truly made a dent in either Tameka or Nick's lives, their expression of luxury is no simple case of conspicuous consumption. They've both built up their own empires to enjoy the money for their own sake. They feel they've earned the lifestyles they now have and are determined to live their personal lives outside of the economic downturn as much as they can. In fact, they admit they may even be slightly overcompensating with the stubborn sensibility that,"no economy is going to tell me what I can and can't have." For them, luxury should be guilt-free.

Opportunity: Acknowledge their "I've earned it" attitude and tap into their "no matter what" take on luxury.

Does Luxury Have a Future?

What has made luxury a luxury will always remain true. There are elements of luxury that are foundational and have endured over time. But because we do not live in a static world, people have changed and the context for luxury has shifted. As a result, luxury expressions and manifestations will change over time. Once defined by social significance (owning a lot of expensive things), luxury has evolved to be about personal importance (creating unparalleled experiences for oneself).

My first conversation was with an expert in the field of luxury who spends a great deal of time researching what the future of luxury looks like and will mean to affluent consumers. She was quoted in a recent article by saying, "luxury is as much about people looking for ways to define themselves as it is about exclusivity."

In our conversation, she talked about how modern notions of luxury embody ‘tools that allow for personal transformation, that add originality and a new dimension to oneself.’ In other words, luxury today is less about being an owner of expensive things, and more about looking for ways to express oneself as complex and original human beings.

Luxury consumers still want to consume; they’re just looking for ways to justify it. In turn, she infers that luxury is nuanced and multi-dimensional. Some of the new dimensions could include:

Ethical: Luxury is less about expensive and inaccessible materials/craftsmen. It’s more about just methods of production, fairly sourced materials, and having an interesting and transparent back-story.

            Altruistic: Luxury experiences or products that give back.

Productivity: Luxury with an element of utility that allows one to maximize their time and experiences.

Luxury has endured because it never loses sight of its foundation. But if luxury brands continue to act the same in a changed world among a changed consumer, they risk becoming irrelevant. 

Hamburger Hill

Palos Verdes, California. Population: Approx. 42,000. Median household income: $95,000. It's zip code, 90274, was US' 47th most expensive zip code in 2007 according to Forbes.com. To Lesley Tanchum, this was the perfect place to set up her art gallery/shop that sold/consulted/framed art affluent consumers that appreciated the value of art.

Much to her surprise, it was everything but. "The mindset of these people was far from what I expected." She described the residents of Palos Verdes to be 'avid negotiatiors' and 'conservative' with their spending, always looking for a bargain. Customers that come into her store wanting a piece of art to be framed often try and haggle the price down to a number that they can find at a mass market shop, saying things like, "wow, $100 to frame this? I was looking online and saw that you could frame this for $20 less than this amount." The irony is astonishing to her, as she quoted that it was "funny seeing how people would drive up to the store in their Ferrari's yet come in and ask to pay the lowest price for a frame."

And if anything, the recession has only made this worse. Lesley's sales are down nearly 50-80%. Residents of PV are spending less money on art. And if they are, they come to the store saying, "my husband will kill me if I spend this money..." or something of the like.

Above All Else. Image.

13H30 is 14H00 on Billy’s R68 000 birthday present watch bought for him by his boss. For a PA, he is late for our meeting! He also thought it a good idea to get a little high-fashion shopping done, whilst we chatted. Billy’s profile reads: PA to the CEO of ACG International, a global network that works with the rich and fabulous”.

Through an associate, we met Billy at a millionaire’s party that he organized a while  ago in the luxurious and decadent suburb of Houghton, Johannesburg. He has agreed to squeeze  us into his busy schedule  as a favour to a friend of a friend (only the rich!).  Billy is really living it up at 28, working for a Luxury Lifestyle Private Aviation company that hosts some of the world’s most notorious dignitaries. He has met Mandela, Jacob Zuma, Richard Brandson, Oprah, Patrice and some royal families.

Billy knows a lot about the rich and fabulous. He told us that the richest of the rich still love flashing their wealth, they still love showing off their possessions, and, with his portfolio of  South African clientele, those in the money game were still spending their money even in the recession.

“People are still buying diamonds, hosting parties and investing in art, I tell you. A significant amount of individuals are still buying luxurious goods because now more than ever they believe that the purchase of luxury goods is a significant investment.”

These individuals want to look good and even though they may be a little knocked by the crisis, they are still taking risks to maintain their image.

In the August issue of DRUM we read about the ZULU princess wedding worth millions. With her father earning more than 10 million a month in state compensation, the little princess royalty went all out for her wedding, inviting the who’s who of the entertainment industry, royalty clans, and media. As if that was not enough her gown alone was said to be estimated at R120 000, imagine how much more all her other wedding costs were.

The rich are spending. All in the name of image. Tumisho Masha recently threw his 34^th birthday party, and gave his guests gifts. Playing the image game, rather than the saving game in this “economic crisis”. Perhaps losing their image costs for more than losing their money.

But, if you want to play, you must also pay. One local rich celebrity is paying immensely is Khanyisile Mbau, ex-wife to business mogul Mandla Mthembu. At 23, the flamboyant madam has fallen from grace because she and her husband have burnt through most of their millions all whilst thinking “this recession thing” is not really that real.

In the South African’s richville, we guess even though the world is in recession, having money comes with huge burdens because image becomes an integral part of the game. And most of these people have to forget the immediate problem of the recession and try to please their peers and society so that they do not look like they are struggling. In the worst case scenario of Khanyi, how do they recover their money together with their image?

Money is an  emotional game that leaves those who fail to play effectively, feeling unworthy and gloomy once they lose most of it.

So the rich will keep spending unwillingly because they want to seem as though they can maintain their lifestyle. The recession has really knocked more than their balance sheets, it is playing havoc with their image.

Opportunity: Help Them Maintain Their Image / Live Out Loud  

- Adene

Smart Thinking

“It was obviously made by, you know, a gay, because its just beautifully made with attention to detail. Even the buttons are covered!”

Wendy is telling the story of how she just found the cutest little jacket for her dog, Onion, at the Charity Shop, after she’d taken him to the parlor for a “little pedi”.

Wendy is proud of her savvy. She can skillfully combine 

luxuries with unashamed visits to the local charity store, which she also sees as supporting a good cause, while saving money.

 

“Your generation doesn’t know how to find a deal. We never pay more than R30 for a bottle of wine. Although of course we buy a few cases at a time… you know…”

Wendy and her friends aren’t negatively affected by the recession. In fact, they have been able to take advantage of the current state of affairs by investing in cheap shares, taking advantage of holiday deals overseas and by ‘switching’ holiday homes with Europeans.

“The recession has done wonders for my business. I own four Montessori schools and because a lot of woman are going back to work we have had a 30% 

increase in enrollment this year.”

 

“We have had some wonderful opportunities by switching our barge in France with Europeans who have houses all over the world. We had a lovely skiing holiday in Austria, we stayed in a country manor in England and we had a holiday by the sea in Australia. All without paying for accommodation.”

 

Whilst Mike is less flashy than Wendy and her friends, he too, 

has seen the recession as a positive. A way to filter out the bad, and make way for the new. In fact, Mike refers to the recession, as “nothing more than the common cold”. His life as he knows it, has not stopped. He is not hospitalized or re-evaluating his will. He has by no means been reckless enough to have the “cold” morph into something like “pneumonia”.

 

And, he and his management team seem to have benefited from the recession.

 

“Having recently completed a management buy-out, the recession helped us filter out any unnecessary spending. The limping-antelope-divisions were sacrificed so that the stronger herd could remain. Our timing was perfect. We knew high-risk before we were really tested by it. We’ve been cost-cutting cautious, which made us welcome the recession. We were ready to take it on.”

 

This market knows that success does not come easily – “you have to be proactive and work hard”, says Tony, the CEO of an IT company and self-made billionaire, “the world is not there to pay me any favors, and the recession can try to steal my worth, I will just have to work harder to outsmart it”.

 

Unlike the BEE market in South Africa, they don’t believe in quick fixes and pots of gold at the end of the rainbow. They are realists. Their ethos is rooted in their experiences of having lived through the likes of petrol rations, water restrictions as well as interest rates of 20%. They are the children of the parents who lived through the Great Depression. They know they have to be smart.  Perhaps it’s about rewarding their “deal-finding” abilities with certain luxuries that they may find guilty purchasing otherwise? Perhaps, this is the generation that grew up, where reward was given for hard work, not easy gaps and quick fixes.

Opportunity: Give Them Deals That Make Sense. Not Too-Good-To-Be-Trues.

- Adene

2010 - The Hope of South Africa

Patrice Motsepe, one of South Africa’s first black people to be listed on the Forbes International top rich people in the world has recently bought Sundown’s Soccer Club. Sitting at number 500 on the Forbes list, this is a milestone for most South Africans. It gives hope to those who seek affirmation for their hard work.One could argue this is a strategy to get back into the game, and a quick fix solution to the millions he has lost as a result of the recession. Patrice is not the only one invested in the African Game. 

Government has employed many other small companies to build stadiums and transport tourists.This is all good and well for many who have not known what it means to be part of a huge economical project. Individuals whose companies have been registered as builders and organizers are earning more than R100 000 into their personal pocket now - this quickly classifies most of them as high-income earners, with most believing, and acting, as the rich do.

“While this seems all good and well in practise, it is a ticking bomb” says Palesa Ncube, Economist for Standard Bank. “The thing is right now, these 'rich' people are earning far more than they are accustomed to. They believe that the money they are making with their contracts will secure them in the future, which is not necessarily true.  They have pushed up their income brackets far too quickly, which will soon end after 2010. Outspending on luxury items, without thinking about the future.”

In a recent radio show on South Africa’s leading radio broadcaster SA FM, Tim Modise spoke about 2010 and all the things planned. He spoke about how life changing it was for most people to move up from middle-income earners to high-income earners in such a short space all because of 2010.

In most South African minds, 2010 is the light at the end of the tunnel. With FIFA’s support, the estimated turnover expected into the country for the event would be  between 40 000 to 500 000 people. This number is set to boost the economy significantly as well as highlight South Africa to the rest of the world.

With this said, we started asking South Africans about their thoughts after 2010, and it seems as though no one has an answer, or rather no one has planned beyond that.

Merchais runs a refurbishment company that is largely contracted to the Government for the 2010 stadiums project. Since 2007 he has been making an estimated 2, 3 million worth of business yearly.

 “It hit me the other day that I should stop spending my money supporting this lifestyle I have created for myself since this contract. The recession is real, because I don’t know if I will ever make as much money as I have made from this one contract after 2010. Business is almost finished and we now have to fight for new contracts after 2010”

This is a hard truth in Merchias and so many newly found wealth individuals. So whilst many are weathering the recession by capitalizing on 2010, the question we need to ask: Are they ready for what lies beyond the game?

Opportunity: Help Them See Past 2010.

- Adene

What Recession?

Recession! What recession? This is the kind of response you might get from South Africa’s BEE individuals (Black Economic Empowerment). They are the newly found rich segment in South Africa. They are the ones who found the golden pot at the end of the rainbow after 1994 once the democratic government came into power. They are South Africa’s “black diamonds”.

And they are spending. The latest findings of the UCT Unilever Report shows that, despite the recession, this markets’ spending power has grown by 39%, from R150 billion in 2007, to R250 billion to date.

Solly is just such a guy. He is rich. He is sleek. He’s an eternal optimist. And he knows what it means to fight for what you want. So what we might call a recession, he calls a “social struggle”. An opportunity to roll with the punches and come out stronger as a result. “I grew up in the struggle, I laugh in the face of what you call a crisis”

We met him at the Radisson restaurant situated in one of South Africa’s most prestigious hotels in Sandton City. He arrived, dressed in a black shirt and sleek designer black jacket, jeans and very shiny shoes. Waving keys to a  R2,4 million Bentley, he quickly tells us that this is his new investment.  He is thinking of buying this “baby” to add on to his other high profile portfolio of cars parked in his garage. “I am an optimist,” he tells us “I believe that the recession is a state of mind” he says with a look of determination on his face.

Solly is not the only rich guy who shares the same sentiments about the recession. 

Bonnke, a self-made

 man, struggled through life to become the man he is today. A man who knows what it means to grow up in a “recession / struggle” all his life says “this is just another opportunity for me.”

The same is true for other high-flying BEE people.

In an email we got from Thami, a Senior Sales Trader for an international company, he writes about his friend who recently went on holiday in Greece. In the long conversation emails we had, he sarcastically writes in huge bold letters:

They are happily going about their holidays, buying new cars and expensive furniture for their houses because they feel that if it is not directly affecting them, they should keep spending.

“Buying a couch worth R120 000 is easy for these people” says a sales executive at one of the most prestigious and high-flying furniture stores in Johannesburg. With commission of at least R50 000 a month, it means Sipho has to sell furniture worth just over a million a month to make this income and Sipho tell us, doing this, is quite easy.

“The months have been good thus far. In a month I know I can make that much because these people are buying. They do not mind spending that much money, even in the recession.”

The truth is that these BEE guys are still living quite comfortably and spending quite freely. Perhaps they feel they deserve it. Perhaps they made smart decisions. Perhaps the recession really is small when compared to a life filled with struggle.

One thing is for sure, they are tenacious and one can only be humbled by such resilience.

Opportunity: Recognize Them For Their Tenacious Spirit. 

- Adene

From the Top: South Africa

As the world watches, banks and companies listed on the stock exchange spiral out of control, but South Africans are still shopping comfortably, throwing parties and even finding new opportunities that seem contradictory to recessionary behavior.

For us, it was interesting to see what the big players in the market were doing with their money. It took patience, trust and perseverance to get most people to talk about their cash to us – real and imagined, the losses and the gains.

We really had to immerse ourselves in their world. Hang out in the places they hang out. Lunch with the PA’s that run their world. Drink tea with the mothers that shaped their world. Listen to the economists and investors that predict their world. The husbands and the wives that are their world.

We wanted to find out what their stories were in the face of the economic chaos. How were they maintaining their image, their lifestyle and most importantly, still playing the money game in a world that was “Down the Tubes” as the above article in The Times of May ’09 suggests?

- Adene

"No Sleepless Nights" for Mr. Richad

Richad is an über wealthy Expat living in Dubai. His and his family’s wealth go back 4 generations from the time his grandfather set up their trading business in the East. He has chosen to live in Dubai after living in England with his family for 20 years or so for various reasons: “Dubai is a safe, clean and centrally located city. It’s easy to travel from Dubai to Europe and the east where the core of my business lies. More importantly, Dubai has a really good quality of life – you can easily get anything you want – a great big house and staff to work there too.” He also mentions that it’s closer to his native Bombay where his mother lives at the moment, so he can pop in and out when need be.

Unlike many others who have lost a lot of money in the recession, Richad’s business has thrived. He says he is one of the very few lucky ones that have on the contrary made money as a result of the recession. “Our core trading business at the moment is in asphalt. A key raw material for infrastructure, the latter which is a key industry most governments around the world have shifted their focus to, away from real estate. So we have made more money than we probably did before the recession. We also have not speculated in the real estate market and hence we have not lost money.”He did say though that he has bought property (home and offices) to use and although they have depreciated slightly, he is not bothered and is sleeping well at night.

Unlike many, he believes in the calculated risks and in being content with everything. That’s always been his philosophy in life and business – it’s gotten him and his family this far with 4th generation wealth. So it must work for them. “The key is not to be consumed by greed. That in my opinion is what has fuelled the recession and the failure of many. I may have lost on the price of the property, but that’s okay. I have to accept it and hope tomorrow would be better. I have not borrowed money on this property, so if I win a little less than expected … it’s still a win. And in life you win some, you lose some.”

There is an aura of confidence, calm and ease in his voice as he opens up to me; because at the core of it all, he’s made it. He truly believes that money doesn’t grow on trees. So although he and his family (wife and two adult boys) are privileged and lucky, he knows that this has come after working very hard for over 30 years in preserving and growing what wealth his father had passed on. He feels that he does not have to prove himself to anyone and consequently does not have to flash to demand the respect of his peers or others. “There is a big difference between commanding respect and demanding it. And I truly believe that the latter is driven by a need for people to show the whole world that they have made it.”

He did not have to take a step back from his lavish lifestyle at all. He feels that as a person, he is still living well and travelling well – always first class – always exclusive holiday destinations, the best clothes and the best homes. He is by nature a more conservative and cautious man, and he believes that with age comes the wisdom of spending lavishly because you deserve it rather than splurging for the sake of it. He has always been a moderate man except when it comes to his shoes! He has a shoe fetish and owns over 300 pairs of very expensive shoes. He buys them because he loves them not to flash or tell people ‘look at me’.


He feels he deserved them with his hard earned money so there is no feeling of guilt associated with the purchase at all. He loves that his Berlutis are unique “…each piece is hand stained, so it’s like buying art - no two pieces will ever look the same…” This feeling of exclusivity is what he is after. “Not everyone knows or can recognize a Berlutis, only those who know.”


He drives a Bentley and has a BMW X5 parked in the driveway for his wife, but still goes to work in his 5 year old Lexus RX 350 because again, it’s not about the flash. He does what makes him comfortable.

With a base in Dubai, a home in Bombay and London, he spends his year moving with the weather, 3 months in each location and finally holidaying with his closest of friends in Gstaad and Geneva.




His dream is for his two boys to have the platform base for them to continue to excel and build their wealth for the next 4 generations. He soon hopes to work a little less and invest time in his passion: playing golf all around the world with his wife and friends by his side. “In the end, I really believe my wealth lies in the people around me – family and friends.”


Classic wealth will always exist, recession or not. Those are the true representations of the luxury industry. This industry, in the incredible boom around the world, became like all other industries, commercial and available to all. With easy credit the mass had access to luxury. And based on speculation we have heard this year, the world will never pick up like it did pre-this recession. People will not have those massive big bonuses and make tons and tons of money like they used to.

The Truth: Classic Luxury will always prevail. It’s those few, ‘in the know’, that will always seek uniqueness. One they genuinely believe they so deserve!!

Challenge: Bring back the exclusivity of luxury brands to those privileged few.