By Angela Johnson
CNN Money
June 10, 2013

By Shan Li
Los Angeles Times
June 10, 2013

Wealthy shoppers will refrain from scooping up expensive handbags, shoes and other discretionary items even as the economy recovers and the stock market soars, a study found.

In the second half of 2013, the rich will rein in their spending on material things and seek out experiences that may garner more satisfaction, according to a Luxury Institute survey.

“People are less interested in watches and more interested in building lasting memories,” said Milton Pedraza, chief executive of the Luxury Institute. “Even among the wealthiest customers, luxury goods and services are considered less important in today’s economy.”

Click the link to read the entire article which includes several quotes from Milton Pedraza, CEO of Luxury Institute:
http://www.latimes.com/business/money/la-fi-mo-wealthy-spending-20130610,0,5516627.story

Discounts get affluent mobile shoppers to buy

eMarketer
June 10, 2013

The wealthy consumer is highly likely to own a smartphone or tablet, and the devices are becoming critical shopping tools for these high-income individuals. In April 2013, the Luxury Institute surveyed US internet users ages 21 and older with gross incomes above $150,000 and found that more than eight in 10 owned a smartphone, while 56% reported owning a tablet. These penetration rates are well above those for the overall US population on smartphones or tablets.

As affluent consumers become increasingly comfortable with their smart mobile devices, they are turning to them throughout the purchase process. The Luxury Institute found that the most common smartphone mcommerce activity was looking up store information. After this came product research and comparison shopping.

On tablets, consumers were most likely to look up product images and read user reviews and recommendations. This points to the increasing importance for luxury retailers to make sure they have an attractive, interactive tablet showcase for their products, as tablets serve as “lean-back” devices, which consumers often use to get to know potential purchases.

When it came to making actual purchases, the store still won out as the most common place to make a purchase among affluent consumers, cited by 78% of respondents. Purchasing via the desktop web was right behind, however, cited by 77%. Women were 6 percentage points more likely than men to make a purchase through this means, while men showed a greater proclivity to buy on mobile.

Mobile websites on tablets were the place where the greatest percentage of shoppers made mobile purchases, at one out of five affluent consumers. Another 11% used a tablet app to make a purchase. Fourteen percent of affluent consumers used the mobile web on a nontablet device to buy and 12% used a mobile app.

And even if affluent shoppers have plenty of cash at their disposal, that doesn’t mean a deal won’t help them convert. On tablets, special deals or price discounts were the No. 1 reason respondents would purchase via these devices, with 43% indicating that would sway them. On smartphones, special deals tied with ease of use, at 45%, as top reasons to complete a purchase on the device.

http://www.emarketer.com/Article/Affluent-Shoppers-Make-Mobile-Essential-Stop-Purchase-Funnel/1009954

A new survey predicts that high-end jewelry “may be under some pressure” for the rest of 2013, with 25 percent of affluent consumers saying they plan to spend less on that category.

By Rob Bates
JCK Magazine
June 2013 Issue

The survey by the New York City-based Luxury Institute polled consumers with a net worth of at least $5 million and minimum annual household income of $200,000.

The survey also found that spending on handbags was projected to fall, with ultra-wealthy respondents preferring to spend on travel, dining, and wine.

“They are definitely going to the ‘experential’ categories,” Luxury Institute president Milton Pedraza tells JCK. “Travel is healthy, technology is healthy.”

Pedraza believes the “economy is not as healthy as people think.”

“Even though real estate is robust and the stock market is robust, there is a lot of uncertainty out there,” he says. “There is some pent-up demand, but also a lot of caution.”

http://www.jckonline.com/2013/06/06/wealthy-will-spend-less-on-jewelry-rest-year-survey-finds

(NEW YORK) June 4, 2013 – For its 2013 State Of The Luxury Industry report, the Luxury Institute surveyed pentamillionaire consumers with net worth of at least $5 million and minimum annual household income of $200,000 to learn about current preferences and future spending on luxury goods and services for the remainder of 2013. Respondents also shared evaluations of the overall luxury market.

One-third of pentamillionaires plan to step up spending on leisure travel in the second half of 2013, making hotels, airlines and cruise operators big beneficiaries of additional spending by America’s wealthiest shoppers. Restaurants are poised for a pick-up, too, with 20% of ultra-wealthy consumers planning to spend “more” or “much more” on dining out in the final six months of the year, and 19% also pouring more dollars into wine.

Additional categories seeing significant upcoming spending interest are health & fitness (17%) and vacation real estate (17%).

Rebounding home values and the surging stock market are not spreading cheer or riches universally. More than 80% of pentamillionaires say luxury goods are less important in the current economic environment. Jewelry sales especially may be under some pressure, with 25% of the ultra-wealthy saying they will spend less or much less through the remainder of 2013. Handbags are the focus of planned spending cutbacks by 20% of those surveyed.

“Even among the wealthiest consumers, luxury goods and services are considered less important in today’s economy,” says Luxury Institute CEO Milton Pedraza. “Luxury brands can capture these increasingly discerning ultra-wealthy consumers by providing unrivaled quality, craftsmanship and service.”

About Luxury Institute (www.LuxuryInstitute.com)
The Luxury Institute is the objective and independent global voice of the high net-worth consumer. The Institute conducts extensive and actionable research with wealthy consumers about their behaviors and attitudes on customer experience best practices. In addition, we work closely with top-tier luxury brands to successfully transform their organizational cultures into more profitable customer-centric enterprises. Our Luxury CRM Culture consulting process leverages our fact-based research and enables luxury brands to dramatically Outbehave as well as Outperform their competition. The Luxury Institute also operates LuxuryBoard.com, a membership-based online research portal, and the Luxury CRM Association, a membership organization dedicated to building customer-centric luxury enterprises.

By Abha Bhattarai
Washington Post
June 2, 2013

Fourteen years after Spanx was founded, company executives began scouting locations for their first-ever retail store.

The answer, they say, came quickly: Tysons Corner Center in McLean.

“We needed somewhere where we could reach mothers, daughters and grandmothers all in one place,” Spanx founder Sara Blakely said at the time of the store’s opening, late last year. “The [Tysons] area already had a strong customer base online. It was a very good location for our first store.”

It was the same model Apple had followed more than a decade earlier, when it picked the mall as the site of its inaugural retail store. In the years since, Tysons Corner Center and its upscale sibling, Tysons Galleria, have become coveted launch pads for big-name brands entering the Washington market.

Click the link to read the entire article which includes several quotes from Milton Pedraza, CEO of Luxury Institute: http://www.washingtonpost.com/business/capitalbusiness/can-the-tysons-malls-stay-on-top/2013/05/31/f47ea49a-c7c9-11e2-8da7-d274bc611a47_story_1.html

By Astrid Wendlandt & Phil Wahba
Reuters
May 24, 2013

Most men might balk at spending $600 on a pair of Dior sneakers but for U.S. shoppers like Ephraim, an upbeat 30-year-old, such indulgences are becoming increasingly commonplace.

Ephraim is the kind of man who gives luxury goods makers high hopes that the U.S. market can fuel future growth, as China runs out of steam and demand in Europe sags.

“There is a cultural shift,” Ephraim says while browsing at Saks Inc’s New York City flagship. “Men are becoming more fashion forward.” The growing appeal of luxury goods to men and increased confidence among affluent spenders as the U.S. economy and asset prices recover have boosted sales and encouraged luxury brands to step up their investments in the United States.

Click the link to read the entire article which includes a quote from Milton Pedraza, CEO of Luxury Institute: http://www.reuters.com/article/2013/05/24/us-luxury-us-insight-idUSBRE94N0IY20130524

By Daniel Abril
Dallas Business Journal
May 24, 2013

A Saks Fifth Avenue, Neiman Marcus merger could create new opportunities for both brands to save money and expand their footprints, a retail expert industry expert said.

News broke this week that private equity firm KKR could be considering purchasing and merging New York-based Saks and Dallas-based Neiman Marcus.

Milton Pedraza, CEO of New York-based Luxury Institute, thinks that the chances the two retailers will merge is 50/50. But if they did, he said, the two would open the doors in the luxury retail world.

“The savings from being together would create more buying power, whether it’s for marketing or products,” he said. “It gives them opportunity to be more profitable and innovative.”

Pedraza said the savings that would come from combined back office operations and online efforts could create more resources to do what both companies need to survive in the current market: Improve customers’ shopping experiences.

“They don’t deliver a compelling person-to-person in-store experience,” he said. “They’re transactional, not focused on relationships.”

He also said a merged company could fill a gap in the international luxury market.

“There is no international brand that has mutibrands under one roof … that really delivers a fantastic experience,” he said. “I think Saks or Neiman could fill that void.”

But if the two were bought and merged, its owners would need to keep the two brand identities intact, Pedraza said. This could manifest itself in the two brands buying different products from the same designer and also offering their own unique selections.

A merge would make the two retailers a unique luxury brand in a market that is thriving, according to Pedraza. But a move like that wouldn’t happen overnight.

“A lot of pieces have to come together to build that puzzle,” he said, adding that management would have to spend time developing a sound business model. “There is a business case to be made … but it might be really unique opportunity.”

http://www.bizjournals.com/dallas/blog/2013/05/retail-expert-neiman-saks-could.html

By Erin Shea
Luxury Daily
May 17, 2013

Richemont is attributing its full-year sales increase to demand in China and Asia-Pacific, contributions from currencies and exchange rates and the broad growth from its brands across all regions.

Luxury conglomerate Richemont reported a 14 percent increase in annual sales to approximately $13 billion in 2012, compared to last year’s sales of $11.4 billion.

Richemont also reported that its profits for the year are up 30 percent to $2.6 billion from $2 billion in the previous year, much of which can be attributed to the sales in Asia-Pacific. The conglomerate released its results May 16 for the fiscal year that ended March 31.

“The Chinese and the Asians have a very healthy appetite for jewelry,” said Milton Pedraza, CEO of The Luxury Institute, New York.

“I think that ready-to-wear products may be oversaturated [in Asia], and handbags may be oversaturated, so watches and jewelry tend to be valuable,” he said.

“There are some companies in luxury that continue to grow, despite the global economy.”

Mr. Pedraza is not affiliated with Richemont, but agreed to comment as an industry expert.

Richemont, which was not able to comment directly, owns a number of luxury brands including Vacheron Constantin, Jaeger-LeCoultre, Baume & Mercier, A. Lange & Söhne, Cartier, IWC, Piaget, Alfred Dunhill, Van Cleef & Arpels, Montblanc, Chloé and Roger Dubuis.

Asian expansion
Richemont attributes its sales results to an increased demand in China and Asia-Pacific, contributions from currencies and exchange rates and the broad growth from its brands across all regions.

The company said that it works on a long-term basis of benefiting from the prestige and heritage of its brands, which will continue in the future.

However in the short-term, Richemont said that economic troubles may impact consumer confidence in some markets. Overall, the conglomerate is cautiously optimistic about the future.

During this past fiscal year, Richemont reported that Asia-Pacific accounted for the majority of its sales, with 41 percent of the group’s total sales coming from that area. Hong Kong and mainland China are its two largest markets.

Europe, including the Middle East and Africa, was responsible for 36 percent of Richemont’s overall sales.The conglomerate says this area’s growth was a result of demands from tourists.The Americas region had a third consecutive year of double-digit growth. This year, it accounted for 15 percent of group sales.Compared to other regions, Asia-Pacific is the area that is leading Richemont’s growth.

“Asia-Pacific is still a vibrant part of the world and there are some companies that are doing well there,” Mr. Pedraza said.

“Some brands are doing a fantastic job in that area,” he said. “Richemont is doing a fantastic job.”

Retail v. wholesale
Another aspect responsible for Richemont’s growth is its individual brands’ focus on retail over wholesale.

Cartier boutique

For the Asia Pacific and Europe, Richemont reports that its brand’s own boutiques had the highest growth rates.

In Asia, the brand boutiques had higher sales growth than the company’s wholesale partners. This is in part due to the expansion of the boutiques in the region.

“Richemont has set out over the last few years to try to keep its own distribution,” Mr. Pedraza said.

“Retail is outselling wholesale, which can help a company grow faster,” he said. “You can have faster growth when you are de-emphasizing wholesale and emphasizing retail.

“Most luxury brands want to control their own distribution. Watch brands tend to be more retail-oriented.”

http://www.luxurydaily.com/richemont-sales-up-14pc-in-2012/

By Cotten Timberlake
Bloomberg
May 15, 2013

Jennifer Prentice, a medical-equipment saleswoman in Minneapolis, once had no qualms about dropping $600 or more for Gucci purses. Now she spends $300 for Coach Inc. bags and is filling in her Burberry wardrobe with pieces from j.-crew.

“The things we went through over the last couple of years definitely have an impact on what I am doing,” Prentice, 45, said in an interview. “I tend to be less frivolous now.”

While good times keep rolling for the super-wealthy, many Americans at the bottom end of the privileged group with incomes of $250,000 or more are thinking twice. These “two-percenters,” unnerved by the most recent recession, are trading down to less-expensive offerings from Coach Inc. and Ralph Lauren Corp. (RL) rather than pricier goods from Prada SpA (1913) and Giorgio Armani SpA. Even with the stock and real estate markets rebounding, they’re not draining their wealth again, and the shift may prove challenging for the highest-priced brands that can no longer lean on credit card-fueled aspirational customers.

“The rich have lost their exuberance,” said Pam Danziger, president of Unity Marketing, a luxury research firm. “They do not feel as wealthy. They increasingly feel that their wealth is threatened, real or not.”

An increasing share of America’s “ultra-affluent” consumers view themselves as middle-class and are spending like “Henrys,” which stands for High Earner Not Rich Yet, Danziger said. People in the latter category earn $100,000 to $249,999 a year, putting them in the top 20 percent by income, Danziger said.

Spending Falls

Ultra-affluents’ spending on personal and household luxuries as well as experiences such as travel but excluding autos, fell 19 percent last year to $96,568, the lowest in five years, Unity Marketing says. Spending on personal luxuries slid 26 percent, the biggest drop of any of the categories, to $32,283. The ultra-affluents’ spending peaked at $167,919 in 2010, driven by pent-up demand after the recession. Henrys’ spending retreated 8 percent to $34,958 last year.

Luxury spending in the Americas grew 5 percent on a constant-currency basis in 2012, slower than the 13 percent gain the previous year, Bain & Co. estimates. The Americas accounted for 31 percent of the 212 billion-euro ($274 billion) market, the consulting firm says.

Apparel and accessories brands on the way down with affluent consumers include Prada, Armani, PPR (PP) SA’s Gucci, Dolce & Gabbana Srl, Hermes International (RMS) SCA and Gianni Versace SpA, Danziger said.

Names on the way up are Coach, Ralph Lauren, Michael Kors Holdings (KORS) Ltd., Gap Inc.’s Banana Republic, J. Crew Group Inc. and Urban Outfitters Inc. (URBN)’s Anthropologie, she said.

The turning tide is discernible in companies’ recent sales.

Slowing Growth

Gucci-owner PPR’s comparable luxury sales growth slowed to 8 percent in North America in the first quarter from 20 percent a year earlier. LVMH Moet Hennessy Louis Vuitton SA (MC)’s growth excluding acquisitions and foreign-currency fluctuations shrank to 7 percent in the U.S. excluding Hawaii in the first quarter from 16 percent a year earlier. In contrast, Michael Kors in its most recent quarter posted a 41 percent comparable-store sales increase in North America, faster than the 38 percent gain a year earlier.

“The premium brands have really upped their game, competing more fiercely with the luxury brands,” said Danziger, whose consulting firm is based in Stevens, Pennsylvania.

Michael Kors shares jumped 20 percent this year through yesterday and Coach advanced 6.5 percent. LVMH dropped 2.2 percent. PPR is up 23 percent, benefiting from divestitures of non-luxury retail units. Kors rose 1.4 percent to $62.18 at 9:35 a.m. in New York while Coach climbed 0.5 percent to $59.40. LVMH added 0.3 percent to 136.20 euros and PPR slid 1.9 percent to 170.10 euros in Paris.

Strategic Buying

Affluent shoppers are being strategic, buying a few particular items from the luxury brands that give them the most pleasure and making trade-offs on the rest, Danziger said.

While mixing high- and low-priced fashions has been a trend for years, “it’s even more pronounced now,” said Milton Pedraza, chief executive officer of the Luxury Institute, a research firm in New York. Consumers are buying “high-quality yet low-cost products” so they can “splurge on the superb luxury product.

‘‘They are discerning to a fault these days,’’ he said.

Among these consumers is Jose Bandujo, the owner of an eponymous New York advertising agency, who estimates his spending on personal luxuries has declined as much as 20 percent because he’s investing in a home renovation.

‘‘I have to have a practical need,’’ said Bandujo, 49. ‘‘There are things still in my closet with labels that I never wore, and I find that appalling now.’’

Real Estate

The rich are channeling some of the money they’re saving into homes amid the perceived recovery of the housing markets, said Hana Ben-Shabat, a New York-based partner in the retail practice of the A.T. Kearney Inc. consulting firm.

‘‘Many affluent people are converting their money into real estate and things that have long-term investment returns and are spending less on having the latest Hermes handbag,’’ she said. ‘‘When they do have to buy a handbag, they go buy Coach.’’

She has one caveat: A small cadre of ultra high-net worth individuals, with $5 million and more in net assets, is insulated and not cutting back, she said.

Luxury consumers are shopping more for durability and quality rather than just the name on the label, said Jerome Jacques, a Malibu, California-based handbag designer.

‘‘A lot of people are tired of the vanity,’’ Jacques said. ‘‘They don’t want something that is bling-bling and gaudy. They want something really well-made, that doesn’t shine, and that has value.”

Functional Classics

Before the recession, Jacques produced seasonal collections of 20 designs that he distributed wholesale to now heavily saturated retailers like Macy’s Inc. (M)’s Bloomingdale’s. These days, he’s engineering a perpetual collection of 10 classic and functional bags under a new line called “Article Indefini” that he wants to sell directly to consumers. A luxury handbag should cost $400 to $800, he said. A $7,000 Hermes bag is “ridiculous,” he said.

Lori Hirsch, an attorney from Basking Ridge, New Jersey, in her 40s, said she is among consumers buying fewer goods — in her case one or two outfits a season versus five or six before the recession — partly by stretching out her purchases.

“The economy is not as bounced-back as people make it out to be,” Hirsch said. “I continue to make purchases on an as-needed basis without being extravagant.”

http://www.bloomberg.com/news/2013-05-15/u-s-2-percenters-trade-down-with-post-recession-angst.html