Friday, April 30, 1999

culture class: how america's youth defines luxury

By Shailaja Neelakantan
(This article appeared in Brandweek in April 1999).

Looking beyond the status of a luxury brand, those who've arrived in this age of acquisition find value in quality, style and exclusivity.

"In 1998, for the first time I spent more on art than on living expenses," said a 37-year-old highly successful hedge fund founder, who made his first art purchase only early last year. Changing luxury spending patterns like this aren't unusual among today's new affluent shoppers who didn't inherit their wealth and didn't necessarily grow up privileged. Many have made their money in technology, through entrepreneurship or because of sheer talent in the sports and entertainment fields. And while this new crowd is probably spending more, it is taking the conspicuous out of consumption--showing less, with more style.

Clearly, it isn't just brand names that attract this new crop of affluent people. Michael Calman, senior vice president of marketing at Bergdorf Goodman, refers to as a psychographic rather than a demographic. "This group's notion of status is being ahead of the curve, the first in knowing, seeing, experiencing and then acquiring a particular piece of merchandise," Calman said. These, he believes, are qualities that make them successful even in their professional lives. They are opinion leaders and innovators, thinking outside the box.

Bergdorf sells what it calls "advanced" designers. These include exclusive, small designers, such as Voyage of London or Kiton from Naples, that probably make just a dozen or so pieces of merchandise a year and can be found only at Bergdorf. "That sort of thing appeals to this psychographic's sensibilities because they want to stand out, but not necessarily by being flashy," Calman said.
"Understated consumerism is rampant," said Allyson Mitchell, vice president at advertising and PR firm Harrison & Shriftman.

The Wall Street and celebrity component of the new wealthy also like to dress understated but sharp. "In the past there were just a few like Hermes, Tiffany or Bergdorf. Now you buy expensive clothes and jewelry in many more places like Barneys," said David Wolfe of the research firm Doneger Group. Thanks to the ballooning stock market, skyrocketing salaries and multimillion-dollar recording and sporting contracts, disposable income has increased. So luxury brands have been forced to redefine themselves and reach out to a class that doesn't necessarily head straight for the Brooks Brothers or the Ralph Lauren name. "The luxury market is becoming much less traditional and more fashion and trend driven," Wolfe adds.

Brioni cashmere suits for $4,000 and up have never been this popular. At Neiman Marcus, furs upwards of $50,000 are not exactly languishing. And Manolo Blahnik shoes are a staple in this set's closets.

This new class has also splintered the luxury market, creating a family of niche markets with more opportunity for the newer players in luxury. "Their indulgences tend to be in cars, boats, music equipment et cetera, all of which are getting pretty hot," said Cynthia Cohen, president of Strategic Marketshare, a strategy consulting firm for retailers.

Bergdorf's Calman mentions that watches as a category have exploded. A particular European watchmaker that made only a handful of watches in the six-figure price range was being supplied exclusively in the United States by Bergdorf. The watches were purchased quickly, by three or four people from the investment banking community. In fact, there are probably just one or two people in New York who own this watch. "That you can wear a really conservative suit and wear that amazing watch or carry that beautiful briefcase is of value to this new set of affluents," Calman said.

"Watches are huge," said David Watkins, founder of four-year-old Icon Life Marketing, which offers full-service marketing to various brands that seek to reach the upscale urban market. "Cartier, Rolex, obscure little expensive brands. Even jewelry. Stuff that looks understated, but everyone in the crowd who buys these things regularly can tell how upscale they are. I know a Fendi pocketbook when I see one. I know a pair of fierce shoes just looking from afar."
Icon Life's clients include firms like La Face records, Bad Boy records, Def Jam and individuals that include rap star Puff Daddy and Mike Tyson. Watkins, just 31 himself, said he started this company because he sensed there was this entire young, affluent African American demographic that traditional ad agencies didn't cater to.

At Maxfield in Los Angeles, the younger celebrity set that didn't grow up wealthy gravitates toward the progressive and unexpected merchandise. "Overall, this group likes special products with an edge," said Kay Furukawa, a buyer at Maxfield.

Calman said it isn't unusual for some of these consumers to be informed as soon as a particular piece of merchandise arrives. Sometimes the potential buyers are notified as soon as the merchandise is shipped. "We have trunk shows with major designers," said Calman. "Sometimes customers have descriptions of what will be in these shows, prior to the show, and will have ordered thousands of dollars' worth of stuff sight unseen or just having looked at a fax reproduction."
So, this new generation of wealthy consumer spends a lot and they want to be the first to own something, but they also desire quality.

At FAQ Schwarz, a popular item last season was a wooden rocking horse, made by the English manufacturer Stevenson Brothers. Carved out of a single piece of mahogany, this heirloom quality "toy," which costs as much as $5,400, was hot with young, affluent parents. Hand-detailed Steiff mohair teddy bears were also popular items. A life-size Steiff teddy bear could cost more than $1,000. "The young, high-income customer is looking for quality items that would become family heirlooms," said Bill Miller, executive vice president of marketing at FAO Schwarz. "In contrast with the flashiness of the eighties, these consumers are buying longer-lasting, toned-down items."

It isn't as if these newbies grew up learning about Stevenson Brothers' rocking horses. "We are a generation of television kids that are severely affected by media," said Watkins. "I grew up in East Orange, New Jersey, lower middle class, but by the time I went to college, I knew about all the luxury stuff that was hot. When you're media reliant like people of this generation, you know these things."

There is also a symbiotic learning process going on between purveyors of luxury brands and the new consumer who wants to know what makes that Brioni suit or that cashmere scarf so special. "You can tell from the number of questions they ask," said Joan Kaner, senior vice president and fashion director at Neiman Marcus, "that they want to know what the latest trends are and also why something costs $5,000."

On the flip side, brands are reaching out in more educational ways as well. Brioni, for instance, has opened more in-store shops to reach out to this segment. "We are also now advertising in magazines like Cigar Aficionado rather than the menswear books we used to advertise in," aid Marci Sutin Levin, director of marketing for Brioni USA. "And we've made the leap to the Internet because we believe the young, affluent professional would be surfing the Web in his or her spare time. Education is central for the young consumer who couldn't differentiate offhand between designers. This group isn't price-resistant, but wants to know what it gets for the price."

At Alfred Dunhill, the young affluents come for cigars, but then they realize that Dunhill sells leather goods, fragrances, writing instruments and watches. "They always end up buying other stuff they didn't know we carried," said Charlotte Dyslin, Dunhill's sales and marketing vice president.

Education also makes for marketing. Many giants in the fashion sector are realizing there's a fairly huge and growing market comprising the new rich, and that it takes marketing communication to put the gloss on their wear versus others'. "The last bastions of good taste like the Brooks Brothers and Burberrys of the world are moving fast to catch up," said Wolfe of The Doneger Group. "I mean, what other reason [besides branding spin] is there that a Prada nylon bag is seen as a luxury?"

These brands are also getting involved in celebrity placement. Cross-marketing is getting very big indeed, according to agency Harrison & Shriftman, which represents several luxury fashion brands. "Motorola wants to advertise its high-end cell phones in publications like Harper's and Elle," said Allyson Mitchell, H&S's vice president. "And Mercedes became the sponsor of Betsey Johnson during a fashion week."

The brands also realize that this new and growing clientele is pressed for time. Time is the greatest luxury. What else explains that Gulfstream has about a year's backlog for its Gulfstream V jets. These jets, along with Bombardier Global Express, are popular private purchases. Tiger Woods has a time-share in a Gulfstream.

What else do these young millionaires like? The boating and equestrian industries, especially in the Seattle area, are doing well, thanks to them. The young ones need their toys. The wait for an expensive boat could be a year because of the backlog, said Jim Heebert, founder of Heebert Research. Moorage rates have gone up about 20% in the past year. The cost for stabling horses is also up.

Another area that is doing big business there is custom remodeling of houses in a real estate market that's gone through the roof. Eric Whiting at West Bellevue-based remodeling firm Overbrook Construction, Inc., says his clients are known to unflinchingly approve bathroom fixtures that could cost $3,000 each, even for a single faucet. The big thing in remodeling, Whitling said, is home entertainment, lots of expensive appliances, satellite and cable. "Built-in sound systems, speakers and high-tech security are the big ones," he said.

The Microsoft effect has brought the discretionary dollars into the market. "Most times its hard to tell how successful they are 'cause they're in shorts and thong sandals," said Joseph Brazen of the boutique real estate company Brazen Group in Bellevue, Wash. "And suddenly they say they'll do all cash deals. Phew."

The art market has been another one to benefit, especially from the young guns on Wall Street. Sales have doubled in many galleries. "While in the late 1980s people bought art for what it might be worth at some point," said Deepak Talwar, a dealer in contemporary Indian art, "many of the the new affluent customers buy pieces because they like them. It's not the most expensive thing that they necessarily gravitate toward."

The money is there, however. Talwar adds that last year he had many people who came in and made deposits on paintings in anticipation of the bonuses they would get in January. Needless to say, come January, the customers made good on these deposits. "What was amazing was their utter confidence that they would be able to buy in January, because they would put down these deposits way in advance," said Talwar.

Meanwhile, at another level this psychographic is much smarter about money. "They view themselves as businesspersons," said Cohen of Strategic Marketshare. "Sports legends used to end up broke because they delegated their financial work to others. The new crowd gets the best quality of advisers for investment strategy."

Amid all this money talk, though, this psychograpic group's even more involved with giving and not-for-profit associations. "It's so much part of the culture now" said Cohen. "Warren Buffet, back in the day, was never scrutinized for his charitable work. But Bill Gates is."