Part 2: What Is Luxury? Understanding Quality

Defining luxury through price, the six key points of quality, and the shopping experience.

Material Values in Luxury

So, if the industry defines luxury partially through Material Values (price & quality), what does that mean?

As we all know, the fact that something has a high price does not indicate that it has a high level of quality, and vice versa. However, a premium can be tacked onto the price of a product or service for a customer experience that is considered above and beyond, whether that experience is through customer service, or through being introduced into an admired community or tribe. After all, luxury is an indicator of status. Therefore, unlike most mass-market goods, the price for luxury goods and services is not based on tangible values alone.

Quality

Quality is subjective, depending on who you ask.

For example, for someone with little knowledge about luxury watches, their perception of quality will be based on the brands they know, as opposed to the perception of a connoisseur (or especially an artisan) who will understand quality from the details of craftsmanship. Ask me about the performance details of a car, and you will receive a meek "beats me" shrug. Now, ask me about shoes, and we're in business! I KNOW shoes: materials, heel dimensions, construction practices, secrets of comfort, stitching, design and brands. But I digress…

There are many dimensions of quality, and any given product may have points that conflict in degrees of excellence. Here are a few to consider:

• Organoleptic Qualities (feel, smell, taste)
• Performance
• Resistance & Longevity
• Visual Qualities
• Quality of Manufacturing & Finish

How might these points of quality conflict? There are many examples, and I'm sure we all have our stories.

For example, resistance and longevity might conflict with feel, because tougher materials are often rougher to the touch.

Hermes scarves have great visual and organoleptic qualities, but the quality of the finish and the resistance and longevity are questionable. Each scarf is beautifully printed with many incredible colors, but the dyes are not fixed. Unless you want your Hermes scarf to turn into a blotchy mess, you absolutely cannot get it wet. That means you can forget about wearing it on that fabulous yachting tour, much less on a day with a chance of rain.

A haute couture Chanel wedding gown will have tiny inconsistencies in the stitch, simply because the fabrics are too fine to be manipulated by a sewing machine and must be constructed by hand. One person might look at this as a mark of the artistry, while another person will prefer the "perfect" finishing of a mass-produced gown, together with fabrics that are not so fragile.

Verifying Quality through Experience

In non-luxury industries, it is often easy to challenge product quality. However, even in within the industry, it is not enough to prove one's product legitimacy in terms of quality. Quality should be made an experience that one feels, first through the product and then through the product's environment, and the consumer's experience of both.

Pantofola d'Oro began making made-to-measure athletic shoes in 1886. The quality of their shoes has remained so high that many athletes continued to wear them, even after they are contracted to represent other brands. To avoid giving up the quality footwear, they commonly apply the sponsoring brand logo (Adidas, Puma, etc) over their d'Oro shoes. However, d'Oro is not a luxury brand. The shopping experience is poor.

A brand can sell a high-quality product, but in order to move into the luxury industry, they must verify the quality on an experiential level. This begins with the shopping experience.

The Shopping Experience

Think of a couple of luxury shopping experiences, off the top of your head. For me, the first one that comes to mind is the Prada Flagship in NYC, designed by Rem Koolhaas. I went there as a teenager when they first opened, long before I even considered moving to Milan. Although I was barely a college student at the time and unable to make a purchase, the service staff was attentive and the store design blew my mind. That's the kind of experience that sticks with a consumer, converting the experience into potential long-term sales and loyalty when they grow into the target market of the brand.

Another luxury shopping experience I had the pleasure to encounter was in the Pierre Hermé cake shop in St Germain area of Paris. It is designed like a jewelry store, with the cakes laid out in splendor. Actually, it's not just the store design that is modeled after the luxury jewelry sector; it's also the marketing... and the pricing for custom desserts. Want to know why "French Women Don't Get Fat"? It's because the sweets are too gorgeous to eat.

This is the legendary type of shopping experience that people make a special trip for, tell stories about, and share with their loved ones, even if it's just for a macaroon!

How to Convey Luxury in the Shopping Experience

Most of the following points seem like no-brainers after you read them, but we can all think of a bunch of examples for each point where the ball has been dropped, and luxury brand value negatively impacted.Here they are:

• Urban & Cultural Areas: Luxury flagships are located in First-Tier Cities (Paris, Milan, New York, London, Tokyo, etc). These world capitols provide a wealthy base customer within the local population, but more importantly, they offer a huge number of tourists. This was especially important when you had to travel to obtain national luxury items (Want couture? Go to France. Want Chianti? Go to Italy.). However, today it is important to house a brand flagship in these capitols in order to provide a sense of the spirit of the brand, whether it is a piece of the American, French, or Italian lifestyle the brand represents. Furthermore, these cities offer a sense of refined culture through history, events (opera, theatre, special conferences) and exhibitions (cultural, professional), and the brands benefit through association.
• Co-Presence: Who is the place shared with? You'll notice that luxury stores rarely stand alone. If not sharing a roof or directly adjoining one another, luxury stores are at least on the same street or within the same district. Think about Worth Avenue in Palm Beach, Rodeo Drive in Beverley Hills, 5th Avenue in New York, or Montenapoleone here in Milan. Even as the humblest immigrant communities or the richest McMansion neighborhoods, luxury powerhouses gain strength through community and mutual association. Just like buying a flat overlooking Central Park in the Upper East Side is a statement, opening a store on any of these streets tells the world, "I have arrived. I belong with thesepeople/brands." Many established brands have a presence in multiple districts to target a variety of consumer markets. Consider the Louis Vuitton stores in Paris:
  • Champs Elysee: the largest store, full of tourists
  • Montaigne: smaller, more chic
  • Saint Germain: smallest, highest sense of luxury, quite local and exclusive
  • Store architecture & scenography: Although the recent trend for Starchitects to create branded temples is a testament to this point, store architecture goes beyond the fame of the designer and touches on points of the interior. Note that luxury stores do not display every item in inventory. Racks are not crowded  with various sizes. You'll find very few sizes on display because the staff is there to assist you. The luxury customer should not dig through piles of garments to find an item. Further, the store architecture should represent the brand, especially in emerging markets where new consumers are just beginning to speedily acquire a brand education. What are the core symbols of the brand? Who is the target customer? You should be able to identify that from the store. (Ralph Lauren is the champion of branded store design, by the way.)
  • Store entrance & accessibility: Did you ever notice how heavy the doors to most luxury stores are? These are not your typical motion-sensor sliding doors. Rather, these doors make you slow down before entering. Often a meaty man or two is flanking the door to assist/intimidate you. Yeah, that's right, I said "intimidate." Why? It's the bouncer-affect. Are you on the list? The theory is that if they can scare you off, you probably don't belong there. Plus, the last thing a shoplifter of premium merchandise wants to see is a prize fighter guarding the door. This also has to do with co-presence, but not the co-presence of other brands like we went over above. Rather, this point attempts to ensure that the co-presence of the patrons meets a certain standard. However, it's hard to spot some luxury consumers or future luxury consumers, and so the probability of offending someone is high and the repercussions can be disastrous for a luxury brand. Obviously it's best to be discrete in this form of psychological filtration.
  • Welcoming Service: In addition to the bouncer-types at the door, a luxury shopping experience should provide friendly service that extends above and beyond the call of duty. This is unfortunately where most luxury stores fall short, and we've all heard stories of or actually had rude, snobby or lazy sales assistants, which drive away sales and tarnish the brand image. The fact of the matter is that it is at times difficult to find sales staff that represent the brand values with class, intelligence and politeness. However, I believe this is due less to a lack of available people and due more to a problem of luxury brands not fully understanding and conveying their core values to employees, and lacking quality customer service training programs. This is perhaps the single greatest weakness of luxury brands (and you could relate it to their lagging online presence, because that translates to customer service as well), and yet it seems to be quite low on the priority list of many brands. Curious... they could learn a lot from Zappos!

Other sectors can also achieve a sense of luxury for mass-market goods by applying the above principles. We have seen this increasingly in the last ten years, as luxury companies target downward into the mass market, and commodity companies target upwards into the luxury market.

For example, Sephora applies all points of the luxury shopping experience to its stores, but it is a democratic store lacking exclusivity which carries some luxury brands in the product mix (even if it is owned by luxury powerhouse LVMH). The Sephora stores are centrally located in world capitols and cultural centers, often surrounded by luxury brand retailers; they have a grand entrance that is discretely guarded, and the staff is friendly and helpful without being pushy.

Furthermore, the displays are clean and organized like a luxurious market, and the branded interior design is based on the awe-inspiring cathedral (the Duomo) in Siena, Italy. While most customers will not recognize the trademark black and white horizontal stripes of the store as being related to the Duomo, the effect is quite nice in providing a sense of Renaissance splendor, don't you think?

So, if Sephora offers all of this, aren't they a luxury retailer? Not quite. While you can find products from Chanel, Dior, Frederick Fekkai (I love), Sephora still offers mass market goods that you could find in your local pharmacy, making the experience inclusive of the mass market.

Premium Price + Quality Products + Grand Shopping Experience = Luxury Brand? ...Not Yet

We're not there yet. In order to achieve true luxury status, immaterial values of brand identity and group-status, as well as exclusivity must be proven. More on that in the next segment of this series...

Return to "Luxury"

Luxury business leaders wise up and show signs of abandoning their mass-market strategies for a return to exclusivity and craft.

*Thumbnail credit, Tom Palumbo

Throughout the past few years, many luxury companies have followed the model of growth that includes frantic brand-buying sprees and diversification into complementary categories such as interior design and technology.

Based on the conversation among industry leaders that just closed in Monte Carlo at the Financial Times’ Business of Luxury Summit, that very trend is what will be avoided in the future, as luxury companies seek to preserve an image of quality in the eye of the consumer.

The Honeymoon is Over

During the boom years, many luxury companies ventured into secondary product and service endeavors spanning the range from cell phones to hotels, under the strategic principles that 1) these outshoots serve to further their brand image, 2) their reputation of quality could transcend from the product category they had built a name upon, and 3) that "everyone else was doing it" - they didn't want to be left out of the game.

Pushing the Brand Image

The idea that these complementary product categories could further the brand image began from the right perspective. After all, what better way to promote a fashion label's home collection than to furnish an entire hotel under the brand name? When coupled with the managerial expertise of EMAAR Hotels & Resorts, the Armani brand has done just that. However, the brand image of Armani was established in sartorial minimalism and modernity, and while that can be reflected in some ways through the environmental design of a hotel, to convey the brand experience through hospitality is another matter. With tourism lagging in the economic crisis, it is doubtful that Mr. Armani wants the concept of minimalism conveyed through empty hotels.

The real problem emerges when the brand image is exposed to elements outside of the company's core capabilities. Just as in licensing out fashion products for manufacture or sales to external parties, final control over the product and customer experience is lost. This poses a significant risk.

Transcending Quality

While the concept of co-branding is a nice way to give more consumers access to a brand they love, the benefits are often shortsighted. While the Total-Look trend died in developed markets in the 80s, co-branding projects served as a way to reignite the flame. Fashion companies went beyond the traditional accessories categories typically reserved for leather goods (shoes, bags, belts, etc) and began to venture into tech projects. Although this allowed several die-hard brand enthusiasts to more adequately encompass their life in a brand of choice, it also allowed some brand outsiders to have a "piece of the brand image" without the purchase of more traditional items.

I have several points on this: for the fashion-cell phone explosion, brands from Prada to Dolce & Gabbana and Armani have played the game, coupling brand imaging in aesthetics with the technological capabilities of LG, Motorola or Samsung, respectively. However, the development process for the Prada cell phone was tedious and expansive, and Prada had to sacrifice some brand imaging points while LG had to sacrifice some cutting-edge technologies to bring the project to fruition. An equal compromise in aesthetic and technological appeal serves neither the fashion brand nor the technology company. The expertise of neither brand could be fully conveyed in the project, driving the perception of quality down. This is what happens when you venture too far from your core capabilities, without enough understanding of the new category.

On the other hand, Hermes worked on a limited-edition co-branding project with Bugatti to create the Bugatti Veyron Fbg par Hermes. While Bugatti pumped this high-performance dream car full of the best automotive technology on offer, Hermes stuck to their core capabilities in leather goods and sartorial excellence to outfit the vehicle in the finest interior upholstery and complementary accessories. The resulting product is a $1.5 million car that definitely will not be driven by every brand enthusiast, but it certainly represented the best of both brands! Furthermore, the project achieved greater market exposure for Hermes and Bugatti through a lot of positive press coverage in both the luxury, fashion, automotive and leisure categories.

Playing the Game

For years, the idea that luxury was an easy business to make money from prevailed. Companies entered the sector and shortened product cycles, product categories offered, store locations, and so on in an effort to milk the market for all it was worth. According to Bernard Arnault, “Some investors pushed by the frenzy of doing something were going to invest in almost everything. As luxury was perceived as an industry where you can make money easily, they were pushed to buy brands without knowing how to make them work.”

As consumers were hungry for "more, more, more," the luxury companies were all too happy to provide it, with little consideration for consequences beyond the immediate bottom line. Referring back to brand diversification, CEO and founder of Tod's Spa Diego Della Valle noted, “Several times I had to fight for our vision against external pressures, which were demanding we did perfumes, or mobile phones. My answer was that it wasn’t our competency. If I want a mobile phone, I want to buy it from Nokia.”

With market pressures mounting, brands began to churn out an ever-increasing supply of product collections. The highest brands of luxury in fashion found themselves competing on the same playing field of "fast-fashion" powerhouses such as H&M and Zara. You might be thinking, "How did this NOT seem like a problem?!" However, as long as the money was rolling in, shareholders were happy and companies felt little incentive to buck the trend in strategy.

The problem really emerged when the frantic consumer spending cycles ground to a halt after years of proliferation, luxury labels slashed their prices, and core customers were left wondering what they were paying for in the first place.

Saving the Marriage

Just like any relationship on the rocks, luxury companies and their customers have to go back to their core values to re-build the bond that has been broken by years of inconsistency.

At the end of the day, a luxury company should represent solid quality and categorical leadership. The key words here are quality and leadership. When luxury brands diverge from their core capabilities where they exhibit the highest level of expertise, it is a letdown to all brand loyalists. When they chase the market instead of leading it, they let the brand down.

Many of the CEOs speaking at the Financial Times’ Business of Luxury Summit confirmed this attitude, including Berndt Hauptkorn, CEO if the privately held group Labelux. “During this period of growth, there were concepts that were superficial, that didn’t deliver in terms of product quality,” Hauptkorn said, arguing these brands won’t survive the economic downturn unscathed. “There will be a shakeout because there was overcapacity in the market. It will be a market with stronger brands and with a clearer message.”

Preserving Quality

The industry has begun to realize that once the economy recovers, customers will place a particular emphasis on values like quality and craftsmanship, but also exclusivity, as well as commitment to social and environmental responsibility. Companies that have remained true to their capabilities and core message throughout the boom years have seen less damage and a faster rebound than others in the recession.

In an effort to protect the intrinsic value of luxury brands, companies and production regions are going back to their most valued resources in production to strengthen intrinsic values in quality. According to Imran Amed, editor of Luxury Society, "In the end, it is the enduring quality and craftsmanship that count the most because this goes right to the heart of the way luxury products are conceived and created. Combined with great design, service and innovation, craftsmanship is what enables us to deliver lasting products that resonate with a new consumer mindset fixated on value."

While most luxury brands have cut back on retail space, collection sizes, and various departmental employees, for the luxury-savvy brands a focus remains on preserving the original craft of the brand. This includes the protection of craftsmen and artisans that produce their high-quality products, in addition to sustainable practices both environmental and strategic.

Having been through several recessions since he began creating the world's largest luxury group in 1985, Arnault stated that his key to success includes a solid long-term outlook: a generational business concept, not a 3-5 year plan. This allows a company to move forward with the big picture, and reduces the impulse to act on short-term trends in the market. “It is a natural tendency of companies during a crisis such as the one we are in to cut costs, drop prices, and stop expanding, because it has the most immediate impact on numbers,” he says. “But what we have learned in the many crises we have been through is that this is a mistake, especially when it comes to luxury."

Mr. Arnault also believes the government investment, reactive companies and a refusal to change course in spite of the current market crisis will help companies and production regions to preserve their capabilities. However, while some long-term-minded companies such as Chanel, Bulgari and Hermès have taken affirmative steps to preserve the dwindling numbers of craftsmen that produce their goods, other companies have stood by while production has been outsourced to unskilled worker regions abroad in the effort to feed the speeding consumer cycles of the boom years. While this labor pool of skilled workers is all but lost in the UK, there are efforts to retain and nurture growth there as well as in France and Italy.

Follow the Leader

In addition to increasing fashion cycles to pander to the whims of a fast-fashion-oriented market, luxury companies have been tailoring their products and marketing campaigns to lure existing customers.

The very history of luxury illustrates the point that luxury brands and designers provide items for the customer, which are so exciting the customer hadn't even thought of them. This is what originally made customers line up at the doors of the original artisans and designers- to see something new.

The recent years of endless market research, managerial consensus and client-centric focus on demand has diluted the interesting aspects of luxury. According to Jean-Noel Kapferer and Vincent Bastien, authors of Luxury Strategy – Break the Rules of Marketing to Build Luxury Brands,  "Luxury brands today are the trailblazers of tomorrow’s taste. Once a consumer segment is identified it is too late to exploit it. ...There is no surprise in existing demand. This is why all classic luxury... was created through emotional intuition."

They go on to say, "As a cultural creator, luxury brands should set their own high standards. Listening to the consumer is the best route to a lack of differentiation, and failure to inspire the dream – the two levers of desire that are the only paths out of the recession in the luxury world."

While that does not mean companies should ignore the customer altogether (of course not), it does basically state the obvious that luxury players must be leaders in quality and innovation at all times, without submitting to frivolous market demands that might inflate the bottom line temporarily, but in the long run will break the bank and eventually the brand.

However, it should also go without saying that in order to be a leader, luxury brands must appeal to new consumers in Gen X & Y as Baby Boomers retire. In order to do that, they must earn their trust through demonstrated quality, sustainability and a legitimate brand story.  And where will the new market hear that story? Online.

More Info

Financial Times' Business of Luxury Report 2009

http://www.ft.com/reports/business-luxury-2009

Luxury Society Issue 5: Return to the Craft

http://beta.luxurysociety.com/articles/a-return-to-craft

Luxury Execs Emphasize Exclusivity and New Focus

Luxury Execs Emphasize Exclusivity and New Focus - WWD.com

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Driade and the Death of Italian Craftsmanship

Just before Design Week and Salone del Mobile kicked off here in Milan, we had the chance to meet Elisa Astori, the Managing Director of Driade.  Driade began in the late 60's by producing finished pieces of furniture, and now designs and produces furniture, kitchens, objects and complements for total living systems.  With 45 internal designers, and frequent external collaborations, Driade's focus is on exploring aesthetics to provide an ecclectic living experience. Design collaborations first began in Japan in 1989, as the company began to search for creativity, design critiques, cultural personalities, and so on with the intention of bringing emotion to clients through their environment, and to anticipate and precede trends.  The Japanese contact was made by chance through a need to resolve highly technical production issues.  Next retail partnerships were formed for distribution, and then the Japanese architect Toyo Ito was introduced to the company designers.  Through this collaboration, Ito embarked on a new scale of design, and Driade's new design aesthetic evolved.  The strong Japanese aesthetic within Driade set the rythm for ecclectic and multicultural design inspiration, and the company next collaborated with designers from China, using traditional materials in new ways.  This year, the company began it's collaboration work with designers from India.

Distribution currently exists in 84 countries predominantly in Europe.  The company is pushing for new growth in emerging countries, especially through these strategic design collaborations.  By always working between high design and industrialized materials (such as plastic), the company balances a high-low dimension, and introduces many smaller household elements handcrafted around the world in various native materials as complementors.

The company is interior design-based, with experts in many materials, thus taking the company from a product-focused strategy to a total corporate identity.  The business model is therefore design-based, with production outsourced to various specialized manufacturers, and the majority of resources and attention centered on the design process and results.  The outsourced manufacturers are now increasingly located in Eastern Europe or the Far East, and as the design teams are increasingly international, what is left of the "Made in Italy" business model is the design culture of the brand and the company.

According to Astori, the world is rapidly changing, and there is no emerging generation of Italian craftsmen, as many young Italians are encouraged to pursue a professional degree and often wish to leave the country upon graduation.  Driade's current prototypist is now 70 years old, and while several students have taken a very short internship with him from design school, there is no apprentice program in place, no placement system, and apparently no interested applicants (if there were interested applicants, they would have a hard time making their interest known, however).  Therefore, there is no one to invest in for local training in the traditional craft of Italian furniture production, and if Driade were to depend on the craftsmen of Italy for design and production it would be bankrupt in 5 years when the craftsmen stop producing.