Monte Carlo, Monaco

MONTE CARLO, Monaco — The global luxury industry has descended on the luxurious and beautiful principality of Monaco to discuss the future of luxury at the Financial Times Business of Luxury Summit at a time when there seem to be far more questions than answers. I am delighted to be representing Luxury Society, which is an official media partner of the conference.

To start off the conference, we heard from Bernard Arnault, Chairman and Chief Executive of LVMH, who sounded an optimistic tone, but acknowledged that the luxury industry will never be the same as it has been in recent boom times. He also touched on the crucial importance of the internet, sustainable development and selective distribution (i.e. the ongoing battle with the EU over distribution of luxury goods online) in the coming years. You can get a taste of Mr. Arnault’s speech from this video on the FT site and this article by the FT’s Vanessa Friedman.

Yesterday, with some encouragement from other participants, we set up a hashtag for our BoF Twitter reporting. For more reporting from the conference and to join the ongoing dialogue going on in the stunning Salle des Etoiles at Le Sporting Monte Carlo, check out the Twitter hashtag, #montecarlux, where you can also find tweets on the Summit from fellow conference attendees Alexandra Wilkis Wilson of Gilt Groupe, James Gardner of CreateThe Group, Oliver Walsh of Wednesday,  and Susan Tabak of Chic in Paris, amongst others.

Finally, please be sure to check out our latest contribution to the Financial Times which was published in today’s Business of Luxury supplement, discussing the Power of Pricing for luxury brands in today’s environment of wild currency fluctuations.

LONDON, United Kingdom – By now, it is well known that Japan, Western Europe and North America are already well into recessionary mode, but emerging markets have not been spared either. In India, so the wisdom goes, people spend for occasions but during this year’s Diwali Festival, usually brisk sales of diamonds have stalled, as consumers tighten their belts. In China, at a major luxury goods fair in Shanghai, accessibly-priced merchandise moved, but the most pricey items sat on the shelf.

Perhaps more than ever before, luxury businesses need to seize new business opportunities in emerging markets, but the market context there is changing so fast, it is hard to keep up with it all.

James Ogilvy has convened a great set of speakers to provide their perspectives on the opportunities presented by emerging markets against the backdrop of global economic doom and gloom at the annual Luxury Briefing Conference. Sheikh Majed al-Sabah of Villa Moda, Chris Colfer of Dunhill, and Tyler Brule of Monocle are amongst the experts scheduled to speak.

I am honoured to have the opportunity to present my own points of view on “What work’s where?”, focusing on case studies from in India and China.

For tickets to the annual Luxury Briefing Conference, contact Luxury Briefing. For a complete agenda and further information, please click here.

Nokia 7900 Crystal Prism Phone

LONDON, United Kingdom – Something is in the air. Earlier this week, we received a mysterious package in the post from Nokia. Inside, we found a 7900 Crystal Prism phone, complete with a Sapphire crystal and engraved design by French graphic designer Frederique Daubal, who has previously collaborated with Paul Smith and Colette, the iconic Paris fashion concept boutique.

Not only this, the fashion and technology blogosphere has been abuzz about Tag Heuer’s branded mobile phone, priced to compete with the Vertu phones, at 3900 euros (or about $6000). Previously, other fashion brands including Prada, Armani, and Levis have launched mobile phones with much hype and fanfare.

To top it all off, I was recently invited to give a Keynote Speech at the ArcChart Handset Fashion and Style Congress in London later this month on, what else, The Business of Fashion.

So, is all this fashion phone buzz just PR hype, or is it something that fashion brands and mobile phone players should be seriously thinking about?

The proof is in the pudding. In the last year, we have seen Apple, arguably the most powerful consumer brand of the day, create a virtual frenzy around the world with its launch of its iPhone, much to the delight of Apple enthusiasts who have bought into the streamlined design, aesthetic simplicity, and street cred of the Apple brand. So, who’s to say fashion brands can’t seize this new fashion moment as well?

When purchasing decisions about a product move from being a largely functional decision to one that is more emotional, at least in part, then design, branding and aesthetic can play a role — and that’s where fashion comes in.

For years now, people have been personalising their generic phones with screensavers, ringtones and decorations, to make the phones their own. As ArcChart says in its in-depth report on fashion phones, Fashion and Style in the Mobile Handset Industry, the mobile phone is now

the most ubiquitous item of personal consumer electronics worldwide. This has made it an obvious tableau for the expression of an individual’s fashion tastes and style…it travels every with its owner and is visible to others.

The opportunity here seems real. What remains to be seen is which models for entering this market end up working the best. Prada and Armani have chosen to go the licensing route, working with external design and technology partners to bring their phones to market at more affordable prices. But this means that their phones  risk feeling like the brand has just been stamped on the phone, with little effort to focus on design with the same degree of precision that Miuccia Prada and Giorgio Armani have when they are designing clothes. In fact, don’t these two phones kind of look the same?

On the other hand, a more bespoke proprietary model like Tag Heuer’s could be appealing in order to build a more defensible and differentiated position in the market. However, this will require sourcing the technology and expertise from somewhere and at sky-high prices, technophiles will be even more likely to judge the phone on its technical merit, as well as its aesthetic, as Tag Heuer has been learning.

One thing is for sure…this is only the beginning of the fashion phone. We’ll be back with a report from the conference later this month.

Just digest these figures for a moment:

• Coach’s online business now has revenues of over $100m per year — the same as what Gucci’s new flagship on 5th Avenue is expected to sell.  Neiman Marcus has broken the $500m in sales barrier online.
• In the last year alone, wealthy consumers’ use of social networks such as Facebook and MySpace has rocketed from 27% to 60%, a growth rate of more than 120%.
• And, people are snapping up uber-luxe products online — DeBeers regularly sells single diamonds worth more than $25,000 on its ecommerce site and 20ltd.com has sold items worth twice this much.

These were amongst the most interesting tidbits revealed at this week’s Luxury Interactive conference held in London. The eCommerce opportunity has now become abundantly clear. Some quick math would suggest eCommerce is a very profitable channel indeed, especially when compared to a flagship store. The rent alone on the Gucci flagship in New York is estimated to be $23m, when an Internet retail site can still charge a full retail price, but with much lower fixed costs to cover. (However, returns and discounts are higher in the Internet channel.)

As for Web 2.0, finally, we’re beginning to see a shift from a discussion of "if" luxury brands can seize real opportunities for relationship building with their best customers on the Internet, to an exchange on "how" this can be done. Arguably, a brand’s Internet site is now the most important contact point for customers — especially for the customers of the future. One step brands may now take is to set up their own online communities, as we wrote about in a Financial Times article in February.

In the spirit of moving this dialogue along, we caught up with Milton Pedraza, CEO of The Luxury Institute, to better understand the "how" implications of the Luxury Institute’s latest report, "The Wealthy and Web 2.0," which was unveiled at the conference.

BoF: What do you think accounts for the sharp rise in social networking amongst the wealthy set, and how does this impact the landscape for interacting with luxury consumers on the Internet?

MP: The wealthy are highly educated, well-read, tech-savvy and mobile. Most run their own businesses and are self-made, so they have always networked offline and now are doing so, easily, and naturally, online. If they have kids and teens, they have become aware of how efficient and effective online social networking can be, even for frivolous purposes, and want to apply its power to their own social and business objectives. The landscape has changed in that there are significant numbers of wealthy consumers in key social networks now. Indications are that new boutique social networks will begin to be created too. Marketers need to be careful, though, as to how they advertise to, and approach wealthy consumers within social networks. It will mostly be permission-based, and it better be relevant.

BoF:  Will social networking amongst wealthy consumers continue to grow at this fast pace?

MP: It may not reach 100%, but online social networking as a tool will become a staple of wealthy consumers, especially as they begin to trust social networks  (they will demand control and get it, or exit), and as functionality becomes simpler and easier. This will accelerate the spawning of many specialized communities, some public, some gated, some both, where true affinity conversations can take place. The levels of participation should rival cell phone and pc/internet use. It will become second nature online, because it is second nature offline, and social networks are merely conduits, albeit powerful ones.

BoF: What do you think are the prospects for the mega networks (Myspace, LinkedIn, Facebook) versus specialist niche networks (like aSmallworld)?

MP: The mega networks will most-likely experience a great deal of sub-segmentation within their boundaries, as well as maintain the large public conversations. Members will choose where to participate at different times for different needs. And members will find ways to include and exclude other members, and topics, and social networks will oblige. Just like in any other business category, social network brands will have to decide with great clarity what they stand for, whom they serve, for what purposes, etc…It will be a déjà vu of what luxury brands are going through in terms of defining if they are unique and exclusive or mass brands. The middle ground is a commodity and irrelevant in social networks. Relevancy will be everything in social networks, and it is based on who is a member, and how much relevancy they create in the conversations. Some people will be willing to pay for advertising-free and truly vetted, highly relevant social networks.

Finally, I think the ultimate niche network is a brand’s own community of clients and prospects. This will become common practice in the coming years. Brands will have special networks for all kinds of constituencies.

BoF: Walk us through how, in an ideal world, a luxury brand can take advantage of the rise in social networking amongst the affluent?

MP: We believe that online social networks are based on the same exact success elements of any offline social network. Relevancy, trust and friendly social protocol are key. The amplification effect is dramatic, and the connections are now boundary-less, but same the human principles apply. The simplest thing brands can do is to communicate via advertising on social networks, but consequences for being overly intrusive, dishonest, offensive, unfriendly, or irrelevant apply as much as in any other medium. Brands can create pages or profiles and make it enticing (promos and contests) for consumers to opt in, but once they are in it better be worthwhile. Recommendations from peers, or highly trusted, unbiased experts, are most effective, but if brands try to “manipulate” the conversation with “buzz-marketing” within communities, the result may be lack of trust, even if a product or service is worthwhile. We believe that luxury brands that are trustworthy experts and deliver consistently superior quality, are truly unique and exclusive, are used by people whom others admire and respect, and make clients feel special throughout the entire brand experience will not have to pay to generate online “buzz”. Their customers will do it for them for free. The difference is that within online social networks of peers, the voices will be dramatically amplified much more rapidly across boundaries globally. So, our advice to a brand is: deliver great products and great service to customers, and the social networking engine buzz will take care of itself. Fail to deliver, and that will also take care of itself.

Here again, the best way for any brand to leverage social networking is to create its own communities of constituents, internal, and external. There too, brands will only participate in, and not control the conversation.  However, talk is cheap anyway. Brands do, however, control their behaviors in terms of offers, quality, service, policies, social responsibility, etc…So, if you are a great luxury provider, everyone will now know due to social network effects and your own online communities. Feedback will be quick and have no lack of clarity. There will be mistakes, controversy, remorse, forgiveness, and redemption, just as in the offline world. It will be a challenging adjustment, and some brands will not survive the transition. But most luxury brands will adapt and be better for it.

BoF: Finally, what surprised you most about the findings from this year’s survey?

MP: I am always amazed at what a difference a year makes when we deal with the online world; which means we are starting to look for leading edge changes and trends now.

The World Luxury Congress, an annual gathering of luxury and fashion executives from around the world, was held in London earlier this week and I was able to attend due to a kind invitation from Milton Pedraza, CEO of The Luxury Institute, who moderated a panel I participated in earlier this year. A formidable roster of speakers and panelists implored participants to take heed of three themes that came up time and time again during the conference: the need engage with customers as human beings, the lightening speed of luxury development in emerging markets, and the missed opportunity for luxury on Internet.

The conference had its ups and downs, but one of my personal highlights was the inspiring presentation given by Guy Salter, Deputy Chairman of the Walpole Group. He kicked-off the 2-day conference with an insightful look into the future of the luxury goods industry as we approach 2008. He, in particular, highlighted the industry’s failure to grasp the potential of the Internet, both as a tool to grow the top-line, but also to engage with customers in a conversation.

Guy then passed the Internet baton to Dee Salomon of Condenet, who ably demonstrated how Web 2.0 technologies can provide a conduit for that conversation to happen. This took on even more importance when Dee opened the participants’ eyes to a whole new world of powerful influencers on the Web, such as The Sartorialist. Your best customer, she said, might not be the one who buys the most, but rather the one who is the most influential. I guess this also means that your worst customer could also be the same person, depending on what they think of your brand. (Have a look at this article from the Wall Street Journal on the rise of influencer marketing at Nike — and you’ll know exactly how powerful these influencers can be.)

Later, Radha Chadha, a leading expert on the Asian luxury customer, wowed participants with a rapid-fire summary of her fascinating book, The Cult of the Luxury Brand. As she deftly switched from China to India to Japan, we learned about the differing motivations, desires and social psychologies of Asian consumers who already account for more than 50% of the world’s luxury market.

For example, did you know that at posh Indian weddings, one of the key drivers of luxury spending in India, it is de rigueur to use Louis Vuitton trunks to carry the bride’s trousseau? Or, that a large part of China’s luxury business relies on the gifts that International businessmen provide to their local Chinese mistresses?

The London Bureau Chief of China’s Phoenix Television, Celia Li, explained that reaching Chinese customers may be all the harder. Due to government restrictions, luxury advertising is not permitted on the television network.

This explains the extravagant runway show held by Fendi, part of LVMH, over the weekend at the Great Wall of China. While LVMH has been basking in the stellar results it posted for the third quarter of 2007, the company clearly has its eyes on the ball as the pole of luxury consumerism continues to shift Eastwards. According to Ms. Chadha, by 2014, China will be the world’s largest luxury goods market, outpacing Japan and the USA , who are number one and two today.

Cathy Horyn recently asserted that that London’s fashion renaissance might be linked to the fact that the city is awash with cash. From Russian oligarchs to Arab princes to Indian billionaires, it’s true that that London has become a playground for the world’s rich and famous. Perhaps this is also why there are no less than three luxury conferences taking place in London over the next few months, each with some focus on the opportunity that web 2.0 technologies presents for the industry.

Next week, The Walpole Group hosts Tech Luxe: Web 2.0 and Beyond, a half day seminar to help companies learn how they can "reharness the creative power of technology." Speakers will include Nick Robertson of the innovative online fashion retailer asos.com.

Then, in later in October, the World Luxury Congress will hold its annual 3 day extravaganza in London, covering a full gamut of topics from expanding into emerging markets, investing in luxury, and the requisite session on exploiting online technology for luxury brands. It looks like it’s going to be a knockout event, with a nice balance of speakers from the creative and business sides of the luxury industry. Indian designer Manish Arora, Carol Brodie of the Robb Report, and Nadja Swarovski are all scheduled to speak, following the keynote from David Tang of Shanghai Tang.

Finally, in November, the team behind Luxury Briefing will host Web 2.0 – Are you on Board?, also in London. Another steller group of speakers, including real online innovators like Natalie Massenet of Net a Porter, Tyler Brule of Monocle, and Jason Campbell of JC Report will all be sharing their experiences.

The Business of Fashion will be on the scene, scoping out the conferences for the most interesting insights. Stay tuned.

About a month ago, I attended the Harvard Business School’s annual Retail and Luxury Goods Conference in Boston. It was an interesting day of speeches and panel discussions, bringing together industry veterans and experts from leading luxury goods and retail companies including Neiman Marcus, Loro Piana, and Holt Renfrew. You can read more about the conference in this news article from HBS’s Harbus Newspaper.

I was honoured to speak on a panel with a diverse group of talented people from across the world of Luxury Goods, including the American designer Peter Som, Olivier Cardon, President of Roche Bobois North America, and Roberto Vedovotto, Chairman of Lehman Brothers Global Luxury Goods practice. I thoroughly enjoyed the back and forth with my fellow panelists. We touched on many topics, but the one that seemed to provoke the most debate was regarding the role that the Internet and so-called “Web 2.0″ technologies can play in the branding, marketing and commercial strategies of luxury and fashion companies.

I have to say, it felt like being in a time warp. There was a notion that luxury “customers aren’t on the Internet” and that the Internet “is too risky” for luxury brands. All of a sudden, I knew what it must have been like to be Natalie Massenet (of Net-a-Porter) or Ernst Malmsten (of boo.com) back in 1999, making a case for the potential of Luxury and the Internet, to people who were very risk-averse, conservative and stuck in old mindsets; people who couldn’t see the potential for what the Internet could do for their brands and businesses.

Of course boo.com and Net-a-Porter have followed two very different stories. (One, which ended abruptly, was discussed in this post.) Massenet, however, has shown (with her company that is now turning over a reported $80m and growing at 100% per year), that as with all businesses, harnessing the power of the Internet for Luxury comes down to basic business acumen, strong marketing skills, and knowing how to properly manage and grow a start-up, while also understanding technological issues such as the adoption curve and limitations of sophisticated technologies.

As for Luxury customers not being on the Internet, this appears to be an assumption made in the absence of basic facts or data. One need only look at a recent article from the Financial Times to see really how many luxury customers are online:

“A survey of  500 of America’s richest families published in 2005 by researchers Doug Harrison and Jim   Taylor found that the respondents spent on average 13.7 hours a week online. The Luxury Institute, in a  survey of 1,000 wealthy consumers published in March, found that 98 per cent used the internet for     shopping, and that 88 per cent read product research and review sites.”

Clearly, these are not just young bucks trying to pick each other up on Myspace or Facebook, but also high net worth communities like asmallworld and focused fashion communities like Iqons.com. Big brands and collections are being discussed passionately on all of these highly-trafficked sites, but also on blogs (purseblog.com, whowhatweardaily) and virtual communities (secondlife.com). The amount of content is mindboggling.

Obviously not all of it is good content. But, my basic point is that since conversations about Gucci, Prada and Burberry are going on, Gucci, Prada and Burberry might as well figure out a way to be part of those discussions, where it makes sense. The fact of the matter is that the conversations will continue, whether they are involved or not. Of course, not all of those places would make sense for every brand all the time, but to disregard the importance of the Internet outright seems shortsighted.

When it comes to the riskiness of luxury brands on the internet, I can certainly appreciate this point. Big players have the most at stake, given the energy and money that have been invested in their brands, sometimes over hundreds of years. But that said, where there is risk, there is also opportunity. Thankfully, some big brands have recognised this and started to experiment with some of these new communication channels. Armani and Karl Lagerfeld have brought their fashion show videos to the Internet, iPods and mobile phones, showing that being a pioneer has nothing to do with age, it has to do with attitude. Dior has also experimented with the launch of a jewelry collection on secondlife.com.

That said, some of the most exciting ways to really experience what online luxury might feel like in the future is by visiting the amazing virtual worlds created by emerging designers, who are able take more risks and experiment. Boudicca’s site at platform13.com is like walking right into the fantastical (sometimes incomprehensible) world of the designers, Zoe and Brian, who share all aspects of themselves and their passions. They have also uploaded all of their fashion shows to YouTube. Other fashion designers are also providing a peek into their everyday lives by keeping regularly updated blogs. New York-based Brit Sue Stemp and dynamic British-Japanese duo Eley Kishimoto are amongst those using blogs to create a space to communicate with their customers.

What the future holds for luxury eCommerce in particular is very exciting indeed, because much of the basic foundation has been laid. Competition is just beginning to heat up.  Since pioneers like Massenet successfully brought luxury online, all of the big retail and luxury players have jumped in. You could say, they have been fashionably late. Neiman Marcus’ direct business (which includes the nm.com, bergdorfgoodman.com and the catalogue business) now generates $700m in revenue. Revenue growth rates for the online boutiques of Coach and Gucci are massive, somewhere in the 60%+ range. Interestingly, partially because of the rush to capture online real estate and market share quickly, almost every online luxury site feels the same. Not much time has really been spent in creating a truly unique destination. Just check out  brittique.com, matchesfashion.com, brownsfashion.com,neimanmarcus.com, eLuxury.com , and bluefly.com and you will see what I mean. For the most part, each site is a one-way interaction with the consumer. They also tend to be organized in the same way, with similar aesthetics using similar fonts and layout. Only Net-a-porter has successfully integrated compelling content into their site (with its magazine) and just Yoox has a truly different look and feel.

So now, as with any other business where the product/service starts to become commoditised, the key players will have to take it to the next level and differentiate themselves to keep up with the rapid pace of what’s going on. It’s not a zero sum game yet because the industry’s growth is so high, but with so many players in the game, its bound to be more competitive. This is where Web 2.0 can play a role. Luxury ecommerce sites which differentiate themselves through unique product assortments, clever editorial and content, and interactive community development, will be the ones that succeed. On the other hand, with retail it always comes down to number of visits and average purchase size, so its also important that the interactivity and community don’t detract from the primary objective at hand, which is to drive sales.

Courtney and Alison used the online social networking site asmallworld to build the initial membership base and have now expanded it to anyone involved in the fashion industry. They have really taken this club to the next level with interesting speakers and even a bi-monthly newsletter.

The next meeting is on Thursday 25 January at 43 South Molton St, London W1.

You can check out the club’s website here for more info.