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.

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. 

Denny's!

Hallie and her husband have built great success as owners of many designer clothing brands and manufacturing operations. They have a huge home in the hills above LA that they recently renovated top-to-bottom, and four luxury cars in the garage. When they built this house, they imagined it as the perfect place to retire and indulge in their passions for travel and collecting fine vintage wine.

But the recession has hit them hard. Since American consumers stopped spending on designer clothing, Hallie’s livelihood has virtually disappeared. Her husband had to shutter multiple clothing lines, and has begun manufacturing goods for mass retailers instead of his high-end designs in order to keep the business afloat.

Not only has this been a dramatic financial change for Hallie and her family, but it’s fundamentally changed the way she sees her spending. “When we were younger, and when we were doing well, we just didn’t pay attention to how we spent money. We weren’t reckless or irresponsible, we just didn’t pay attention. I think we assumed we could do that forever”

Since she’s watched her retirement savings disappear just a few years before her husband was planning to retire, Hallie has dramatically changed her lifestyle. She’s cancelled her family’s annual Christmas celebrations abroad and has stopped shopping for anything that isn’t a necessity. In fact, when I spoke with her, she had just returned from brunch with her husband at Denny’s. “Before all this, I never would have gone into Denny’s in a million years! It would have seemed totally ridiculous. But you know what? This morning I got to go out with my husband for fifteen dollars! We had a brunch date and did the crossword puzzle. It shocks me that I had a nice time, but I did.”

Consumers have shown a serious ability to adapt in this recession, and luxury consumers are no different. Now is the time to shock them… or help them shock themselves.

General-ese

A common observation we had while xploring luxury and the world of high net worth, was the propensity for individuals to speak in generalities about the types of luxuries they spend their money on. It seemed as if they would shy away from throwing out a brand name in order to not appear to be gloating. When asked what kinds of brands they were loyal to or what brand their handbag was, the answer was always a “you know…” or “well anything that’s nice” kind of answer. On a few occasions, they almost seemed defensive and used quality as a justification of their purchases, “well what matters to me is the quality.”

Is admitting to the fact that your handbag is from Louis Vuitton or your watch is from Cartier uncouth? Could it be that these individuals don’t want to be perceived as people that just spend their money on designer labels? It seems they are willing to open up broadly about the ‘types’ of things they spend their money on i.e. clothes, travel, cars, charities. Speaking in terms of generalities is the modest approach to “name-dropping.”

Insight: Framing purchases in terms of ‘top-quality’ & ‘best experiences’ vs. the price tag or the name is the proper way to gloat.

A Penny Earned is a Penny Well Spent

Putting Work Into the Harvest Buys the Right to Reap Its Benefits

Merriam-Webster states the definition of 'luxury'" as "something adding to pleasure or comfort but not absolutely necessary." Well, according to some of America's wealthy, it seems that "luxury" is actually a necessity, a necessity which lies in the importance of self-expression.

We spotted a group of three 40-something year olds dressed in crisp dress shirts and Prada shoes. These guys obviously understood style as they sat sipping $16 cocktails in a snazzy Beverly Hills hotel bar talking about all the cool things they have done/seen/bought since the last time they met. It's a typical scene with these three as they often enjoy socializing, fine-dining with friends, and traveling the world.

Jim, who is a lawyer at a big law firm in Houston, believed that living this kind of lifestyle was by no means a source for guilt as he viewed his money as hard-earned and well-deserved. He has recently bought a new house and has since been renovating. He joked by saying that he saw the "Cash for Clunkers" program as the "Cash for Bling" program. The timing of his new luxury car happened to coincide with the program shedding light on the vast differences between those who need government assistance to buy a new car Corolla vs. a new Mercedes Benz.

John, who is a photographer, shares the same sentiment and spends his money on travel and the latest technology and gear for work. He appreciates the success he has gained over the years and justifies his purchases as helping him garner even more success/$$ to enjoy the things he'd like to enjoy.



Humor is a Luxury Not Everyone Can Afford

When asked how the recession has affected them personally, they admitted to the fact that it didn't have much of a profound effect on them. They even had a slightly humorous outlook on the situation as they joked that their idea of '"scaling down" meant ordering the prix-fixe meal at Flemings (a prime steakhouse and wine bar in Houston where a prix-fixe meal costs about $40 a person.) Those with money can afford to make light of a grave situation, as seen with these guys. Yet, one thing is for sure, their appreciation for their friends and where they're at in their lives has definitely grown and for that they are grateful.

Mr. Webster's definition of luxury should have a disclaimer that reads "*luxury & necessity are relative terms." Luxury, whether expressed through the food one eats, the drinks one drinks or the clothes one wears, is an expression of hard work and success. The value comes from the freedom to enjoy the things they want to enjoy.

Truth: Access to luxury is something that is earned.

Opportunity: Position luxury products as means of self-expression and as a symbol of success & hard work.

For The Person Who Has Everything

A night at chef Thomas Keller’s fabled Per Se restaurant in New York City is every foodie’s dream. With expertly executed food that looks more like a magic show than a meal, this is an expensive experience that attracts powerful and famous clientele.

So it was the ideal setting for last week’s American Express event with select Centurion card holders. The American Express Centurion card, also known as the Black Card, began as an urban legend; rumor had it that there was a secret American Express, the Black Card, that was only for elite members of society and that had no spending limit. Years later, American Express capitalized on the cache and created Centurion-- the invitation-only card with concierge services and elite benefits available to no other Amex cardholders.

The Per Se restaurant event (which cost over $1000 a ticket) began with a cooking lesson from Thomas Keller himself, followed by cocktails, hors d’oeuvres, and an elaborate 7-course meal. Only Centurion members had access to this one-time-only event, which took over the restaurant’s entire dining room.

Over half the cardholders at Per Se flew in for the Per Se dinner. Two of the women are event regulars. They met each other at a Centurion event years ago in Aspen and have been attending events together for years since, despite living in different cities.

But Lisa, who coordinates these elite-access events, says attendance has been down in the recession. “People are doing less these days… even these people,” she said. “Or they’re buying $1000 event tickets instead of $2000.”

Yet despite the economy, Centurion members are still paying to attend these events. Lisa credits the exclusivity of the program. “Centurion offers our members something anyone just can’t buy. We offer them access. We get them box seats at the US Open. We get them prime seats at New York fashion week and introduce them to the designers. You can’t pick that up on a shopping spree or order it on the Internet.”

Amex understands that true luxury lives in exclusive access and priceless experiences.

Opportunity: Give luxury consumers more than product features—earn them access.

Thick Fashion Magazines Are So Last Year

September fashion magazines, traditionally the biggest issues of the year, are looking rather skinny this year. About a third skinnier, actually.

Ad pages in Vogue tumbled 36%, to 429. That’s a far cry from 2007, when Vogue issued its record-setting September issue with 727 ad pages--- and weighing in at 4 pounds, nine ounces.

As they spend less on magazines, fashion companies are gingerly testing a range of lower-cost, often more measurable outlets such as Twitter, YouTube, DailyCandy.com, Style.com and more.

Louis Vuitton North America more than doubled its digital ad spending in 2008. Diane Von Furstenberg boosted its web spending from nothing to $43,000 last year. It doesn’t amount to much yet, but it represents one of the few slices of the industry’s marketing budget that are expanding.

Some brands are entering into the social media space as well. Chanel posted a short film to YouTube, starring French actress Audrey Tautou, and promoted the video with search ads and other ads on the site. Other fashion brands are attracting flocks on Twitter, such as Louis Vuitton, which has more than 26,000 followers.

Aiding this move into the digital world is the increasing quality of online experiences. For advertisers concerned primarily with luxury, style and perfection, the aesthetics of the web are finally getting to a place they’re interested in being.

Just as consumers are reevaluating their luxury purchases these days, luxury brands are reevaluating how they spend their own money.

Challenge: Harness the power of the digital space-- not only for financial appeal, but also to bring the luxury world to life

Source: “Thick Fashion Magazines Are So Last Year.” Wall Street Journal. 8/17/09
http://online.wsj.com/article/SB125046605103135399.html

Passion and Purpose

Dean is Managing Director at a major global bank and a father of two. He refers the recession as a ‘dislocation’ because “things didn’t just recede, they came apart.” Dean is interested in the new popularity of middle-men or mediators in the banking process. His bank is doing a lot of this work – mediating large transactions for a ‘small’ fee.

“The arrogance has been stripped out… people are making an effort to do things right... by the book. And also, more importantly, people don’t want to be blamed if things go belly up. They’re allergic to negative press.”

But he wonders if this will last. “I hope it will, but I think that when people forget this pain the arrogance will slowly come back.”

Like many people in similar positions*, Dean is reconsidering what’s important to him. He believes he’s more honest with himself, but admits that this could be a function of his life stage.

“I’m not a big football fan, but I used to make the effort to stay informed so that I could be a part of those conversations (with other senior executives in finance.) Now I realize it’s not worth it. If you’re not passionate about something it soon becomes very obvious.”

Dean’s true passion is music. He’s in the middle of an Opera phase – he’s been listening to Opera almost exclusively for 3 months. “I’ve been wondering if it has something to do with all this (the financial crisis). I feel a total connection to it.”

“I’ve even been speaking to people about God and the afterlife… almost as a social experiment. I think people are searching for a god. Or for a purpose.” Dean sure doesn’t seem like a religious guy, but he is curious and thoughtful and obviously seeking more from life than another step up the ladder.

*An except from a recent article by Manhattan socialite Tatiana Boncompagni titled “The Party’s Over for the Hedge Fund Wives” describes a new candour amongst super affluent consumer;

'Many even seem relieved to finally be able to drop the bombast and get real… seated next to me was a hedge fund manager who, mid-way through his filet mignon, revealed that he was going through a mid life crisis. “I look back on the last five years and think ‘yes I’ve made good money but what do I have to show for it?”

Truth: Beneath the drive for wealth and success lies a very human need to for meaning and purpose. 

Challenge: Ignite their passions. Go beyond their surface desire for status and achievement.

A Luxury Truth - A Recent Article by Kevin Roberts

This global recession is a moment of truth. Industries once thought bullet proof have been shot to pieces, and some companies have been caught living a bold face lie. Warren Buffet says: "It's only when the tide goes out that you learn who's been swimming naked." A true story; there are plenty of cases of indecent exposure.

Nouriel Roubini, the economist who predicted the recession, says even if we do everything right, things will only get worse. OK, but I prefer my eggs sunny side up. The way to flip them is to start with the answer and work back. The answer, if you want to understand or shift behavior, lies in understanding not what people are doing in these tougher times, but how they are feeling.

I'm a passionate lover of Italy and its luxury fashion houses, so consider what's happening at the top end of town.

Luxury brands are hurting. The spending behaviors of luxury consumers are distinctive, but arctic winds still penetrate the insulation in those fur-lined jackets. As recession deepens, even wallets made by Berluti open less often. There are less luxury consumers with money to spend and they are spending more cautiously.

In the US, luxury hotel bookings are down 24% and sales for luxury auto brands are down to 1996 levels. This is a widespread problem.

Top end to low end, there is a new sensitivity to price, and yet I don't see price as decisive. Every income bracket knows that price and value are not the same thing. Price is what companies put on the tag; value is what consumers feel they get out of the experience, and, people from all walks of life are seizing control of that feeling.

Consumer sentiment is shifting. People are evaluating their habits and familiar ways of choosing and using. They want to experiment with fresh ideas and opportunities as they redefine what value can mean. And they can juggle stuff, indulgence and health; novelty and familiarity; time and money; shopping more and spending less.

And of course we're more connected than ever before. The search for value is no longer about private discipline. It's gone social and viral.

The affluent are a part of all this. A Ferrari driver feels admiration or admonishment as much as a skateboarder. No wonder some luxury customers reportedly have been asking cashiers at pricey boutiques to put their purchases in "plain bags."

How do you build a luxury house in this environment? Reducing prices is not recommended. For one thing, it awakens the commodification monster. For another, the very wealthy may be buying less, but they aren't reducing their standard of living. In a recent survey of the superrich, 82% said they would make fewer purchases, yet 72% said they'd make "more upscale" purchases.

You'll find the answer lies deep in the value equation, in shifting from price to priceless. In logic-laden times, true luxury customers will always pay for what is rare and special. Value is in a purchase that feels personal, unique or original, or gives access to knowledge or wisdom. It's there in a purchase with immediate impact, a "wow". And in purchases that respect or give back time, and have utility.

As recession deepens, value becomes about something more. More than a product, more than a service, more even than a brand. It's something not just irreplaceable, but irresistible. We call it a Lovemark, a brand with loyalty beyond reason. These are the brands where you say: "I'll make sacrifices before I give this up."

The shift in luxury will be from value to meaningful value, where brands make an increased effort to connect with consumers around shared interests. By responding to what people value most in these times with what brands can uniquely or best deliver, you attract. This way, luxury shoppers ask for branded not plain paper bags.

It's about balancing high status with a definite value proposition, about responding to needs and wants. It's about a long term relationship, not a one night stand. I think the next luxury stars will frame indulgence with universal values like experience and wisdom.

And it's about ideas, generated through new and surprising insights to make the connection. True luxury brands gain share through recessions because they innovate. Flexjet reframed its private jets from a luxury item for rich people to a valuable business tool.

In a downturn Apple doesn't purge staff or stop innovating. Instead Apple invests heavily in R&D, because their premium is creativity.

In December 2008 Apple had their first decline ever in year over year sales of computers. But in the third quarter of 08, Apple's sales were up 6%, cracking the 10 billion mark for the first time.

Apple stores haven taken in $4000 of revenue per square foot of retail space. That compares with around $700 at Saks Fifth Avenue. But what Apple delivers to consumers in the store is value at every point, whether shoppers buy or not. This is in Apple people interacting with you - behind the Genius Bar and on the floor. Information, stimulation and entertainment - irresistible!

Lovemarks open a priceless and shared space, and each time you enter, it's more luxurious than the last. I'm with Robert Polet, Chairman of Gucci Group. "You cannot put a price on a dream."

Past, Present and Future

I spent the morning with Jody and Peter at their home in Westchester, CT. These two have an eye for originality and style, their home is filled with amazing art works they've collected over their lifetime, and their cupboards are filled to the brim with vintage Hermes, Chanel and Gucci. Every piece has a story and a history. You won't find 'throw away fashion' in this house. 

"If I'm going to buy, I want something that is excellent quality, I want craftsmanship. Why waste money on crappy stuff?"

This attitude goes beyond the wardrobe and into the kitchen. It even applies to ice cream "Haagen Dazs has the best vanilla, it's the true test of a good ice cream if they do vanilla well. There's no bells and whistles to hide behind."

Their home is laid back - filled with a constant stream of family, friends and dogs - yet you get the feeling that everything in it has been thoughtfully selected and has a special value.

"When I buy for the kids I like to think that they might keep those pieces for a long time.... they might pick up that scarf twenty years from now and remember when I gave it to them. "

Truth: Craftsmanship, quality and originality are sometimes forgotten in today's fast changing, tech loving world. We've been living in a 'throw away' culture, but times are changing again. People are seeking those things that have a past and a future, those things that have the quality to endure.

Opportunity: Craft a future from the past.